Answer:
1. Monthly salary serving as the basis for paying compulsory SI
The monthly salary serving as the basis for paying SI will include salary rate, salary allowances, and other additional amounts prescribed by the Labour Code[1]. Specifically, the monthly salary for compulsory SI payment includes:
1.1 Salary rate: means the one calculated according to the working time or the title pursuant to the salary scale and payroll elaborated by the Employer in accordance with the Labour Code and as agreed upon by both parties. For the Employee who enjoys salary by reference to products, or completed pieces of work, the salary rate is the one calculated over time determining the product unit price or lump sum salary[2]. The monthly salary for compulsory SI payment will not be lower than the regional minimum salary at the time of payment for the Employee who does the simplest job or title under normal working conditions[3]. For the Employee who does a job that requires vocational training or apprenticeship, the minimum salary must be at least 7% higher than the regional minimum salary at that time[4].
1.2 Salary allowances: the compensation for working conditions, work complexity, living conditions, and level of labour attraction because the agreed salary rate in the LC excludes or have not yet been calculated in connection with title, position allowance; responsibility allowance; heavy, toxic or dangerous work allowances; seniority allowances; labour area allowances; mobility allowances; attraction allowances and other allowances of the same kind[5].
1.3 Other additional amounts: the specific monetary amounts along with the salary rate agreed upon in the LC and paid regularly for each salary period[6].
2. Amounts that are not considered to be monthly salary that are used as a basis for compulsory SI payment.
In addition to the said amounts constituting a salary, the Employee’s income also includes other amounts paid by the Employer, which will neither be considered as salary nor be used as a basis for determining the level of compulsory SI payment. Those amounts include[7]: (i) salary allowances associated with the Employee’s work process and performance results; and (ii) the additional amounts that are not specifically determined along with the agreed salary rate in the LC, paid regularly or irregularly in each salary period associated with the Employee’s work process and performance results. For easy practical application, the law has divided the aforesaid amounts into specific items as follows[8]:
2.1 Bonuses as prescribed in the Labour Code
Pursuant to Article 104 of the Labour Code, bonuses are broadly the monetary amount awarded by the Employer to the Employee based on the annual production and business results and the Employee’ level of work completion.
Thus, it can be seen that the nature of bonuses is an amount conditionally paid by the Employer to the Employee. The reward decisions for the Employee must be based on two factors: (i) annual production and business results; and (ii) the Employee’s level of work completion. Since the nature of the bonuses is a conditional payment, the Employer should define the award eligibility and rate with caution in the award regulations formulated by the Employer and made publicly available in the workplace after consultation with the organisations representing the Employee at the grassroots level[9]. Thus, in order for a payment to be considered a bonus, the payment must meet four factors as follows:
- Being recorded as a separate item in the LC;
- Being included in the bonus regulations promulgated by the Employer;
- The bonus regulations must be adopted the opinions of the organisations representing employees at the grassroots level where the enterprise is located; and
- The bonus regulations must be publicly disclosed by the Employer in the workplace.
Although they are not subject to compulsory SI payment, the bonuses will be calculated as a taxable income under the PIT Law. Cash or non-cash bonuses in any form, including securities bonuses, are considered the income from the Employee’s salary and remuneration that are subject to PIT. Therefore, for these bonuses, the Employer is obliged to retain a part equivalent to the tax obligation to pay on behalf of the Employee.
From the perspective of the Law on CIT, bonuses are considered to be actual expenses associated with the production and business activities of an enterprise. Hence, if they are stipulated in the bonus regulations or the LC, they will be considered deductible expenses when determining income subject to CIT[10]. However, in cases where bonuses are not specified in terms of bonus eligibility and rate in the enterprise’s bonus regulations, CLA or LC, the Employer is not allowed to deduct such expenses when determining income subject to CIT[11].
2.2 Initiative bonuses
It is also a bonus by nature. Initiative bonuses are given in cases where the Employee has the solution to increasing the economic efficiency in favour of the Employer. For the payment of bonuses in general and initiative bonuses in particular for the Employee, the Employer must specify in the bonus regulations on bonus eligibility, rate, and other conditions, if required.
According to the Law on PIT, initiative bonuses are also taxable income except for such initiatives as technical improvements, inventions, or inventions recognised by the competent State bodies (granted the patent for intellectual property, etc.)[12].
In respect of CIT, initiative bonuses are also considered actual expenses associated with the production and business activities of an enterprise and may be deducted when determining the income subject to CIT[13]. However, in cases where the Employer neither have any regulations specifying the payment of improvement and initiative bonuses nor set up any panel for accepting such initiatives, improvements, the payment thereof will not be deducted when determining the income subject to CIT[14].
2.3 Mid-shift meal allowances
Mid-shift meal allowances are another benefit that is not subject to compulsory SI payment in accordance with the laws on insurance. To accurately understand the amount of mid-shift meals required by law, the concept of a work shift should be first clarified.
The Labour Code specifies the Employee’s normal working hours do not exceed 08 hours/day and 48 hours/week[15]. For the concept of a working shift, according to law, the shift work occurs where the Employer assigns at least 02 people or 02 groups of people to take turns to work on the same working position, calculated in 01 day (24 consecutive hours). Article 64 of Decree No. 145/2020/ND-CP of the Government stipulates the break time of the Employee during working hours, the break time at least 30 minutes between working hours is considered as working time applied in 06-consecutive-hour shifts or longer shifts and the transition time between two adjacent working shifts does not exceed 45 minutes.
Therefore, when formulating mid-shift meal allowances as a non-salary benefit, in this case, the Employer should note that such payments can only be made to the Employee who continuously works for 08 working hours at the workshop, plant, factory, etc. They do not apply to the Employee working in the offices, who have taken lunch breaks (or other break time).
In terms of PIT, mid-shift allowances paid by the Employer to the Employee will not be included in the taxable income unless it exceeds the MOLISA’s specified rate[16]. For non-State enterprises and other organisations such as private enterprises, the specific expense levels will be unanimously decided by the unit heads and the organisations representing employees at the grassroots level, but must not exceed the rate applicable to State-owned enterprises[17].
On the other hand, for CIT, the mid-shift allowances stated in the internal regulations of the Employer or the LC will be considered as actual expenses related to the production and business activities of an enterprise, and the Employer is allowed to deduct these amounts when determining income subject to CIT in accordance with the Law on CIT[18]. However, when these payments are accounted into the production and business expenses in the accounting period but they are not paid in reality or there is no source of documents proving these payments, these expenses will not be deducted from the taxable income[19]. The total amount of mid-shift meal allowances and other benefits aforesaid shall not exceed one month’s average salary actually paid in the taxation year[20].
2.4 Fuel, mobile, and travel allowances
Fuel, mobile and travel allowances are Employee’s benefits which are not considered a basis for paying compulsory SI. However, the agreement on these allowances should be considered and paid in an appropriate and compatible way with the market prices. An unreasonable overstatement of the expenses makes it more likely that the Employer will be questioned and required to explain further or be considered for administrative action in case of any labour inspection.
For PIT related to mobile allowances, this flat-rate expense will not be included in Employee’s taxable income if it is applied in line with the level of determining any income subject to CIT under the documents guiding the implementation of the Law on CIT[21]. Regarding the determination of PIT on phone bills, a recent official letter from the General Department of Taxation instructs that if phone expenses paid for individuals are defined in terms of allowance eligibility and rate in one of such documents as LC, CLA, financial regulations of the enterprise as deductible expenses when determining CIT, the mobile expenses are also deducted when determining PIT[22]. Where the Employer pays mobile expenses for the Employee in excess of the prescribed flat amount, the Employee will be imposed PIT on the exceeding portion. As such, for phone expenses, the determination of PIT will depend on the determination of CIT. Specifically, if the expense is deducted when determining CIT, it will be exempted from PIT.
For travel allowances, expenses for transportation of the Employee from his or her residence to the workplace and vice versa will not be included in the Employee’s taxable income in accordance with the Employer’s regulations[23]. As such, the determination of the taxable income for the Employee’s travel allowances will be based on the Employer’s regulations. Where the Employer does not cover specific provisions on these amounts, the Employee will be subject to PIT thereon. In addition, for round trip airfare paid by the Employer on behalf of (or for) the Employee as a foreigner or a Vietnamese Employee working overseas and taking leave once a year, they will be not subject to PIT thereon[24]. In this case, the basis for determining the amount of purchase of airline tickets is the LC and the payments of air tickets from Vietnam to the nationality country of a foreign Employee or the country where his or her family lives and vice versa, the payments of air tickets from the country where the Vietnamese Employee works to and vice versa[25].
From the perspective of CIT, the said expenses will be the amounts the Employer may deduct when determining his or her taxable income if there are invoices and evidencing documents as prescribed. The total amount of allowances for fuel, mobile, travel allowances, and other similar benefits will not exceed one month’s average salary actually paid in the taxation year[26].
2.5 Housing, children kindergarten and rearing support
As a reality in many enterprises, the support of the Employer in terms of the Employee’s housing rent, kindergarten fees, and rearing is no longer a strange thing. The enterprise can support a foreign Employee working in Vietnam with regard to monthly housing rent or give financial assistance for him or her to send his or her children to a kindergarten in Vietnam. Housing rent, children care, and rearing support are additional benefits paid to the Employee, which are not considered the salary serving as a basis for paying compulsory SI. However, the Employer can not include these amounts in the payment section of the LC that the Employer does not actually perform in line with the relevant purpose. In addition, the amounts in support of the Employee’s housing rent, kindergarten, and rearing expenses must not exceed the actual price of these services in the market at the time of payments.
For PIT, the payment for those supports is taxable income[27]. However, the said benefits of housing, electricity, water, and related services (if any) will not be subject to PIT in case of any housing built by the Employer to provide free accommodation to the Employee working in industrial parks; any housings built by the Employer in economic zones, areas with difficult socio-economic conditions, areas with especially difficult socio-economic conditions to provide the Employee free of charge. In cases where individuals live in his or her working offices, the taxable income will be based on housing rent or depreciation expenses, electricity and water costs, and other services calculated in line with the proportion between the used personal area and the headquarter area. The amounts of housing rent, electricity, water, and related services (if any) for the housings paid by the Employer on behalf of the Employee are included in the taxable income according to the actually paid amount but not exceeding 15% of the total taxable income (excluding the rent) at the enterprise regardless of the place of income payment[28].
For CIT, these expenses will be the amounts the Employer may deduct when determining the taxable income if there are invoices and evidencing documents as prescribed by tax law. The total amount of housing rent, kindergarten and rearing support, and similar benefits will not exceed one month’s average salary actually paid in the taxation year[29].
2.6 Support for the Employee in case of his or her death of any beloved one, the marriage of his or her family member, his or her birthday
These are the supportive benefits that mentally compensate for the Employee rather than serve the job or employment. The Employee’s beloved ones are understood as his or her biological parents, adoptive parents, parent-in-law, spouse, biological children, lawful adoptive children[30]. Those who do not fall into the said categories will not be considered Employee’s beloved ones in this case. The Employer may consider giving the Employee financial assistance with respect to the payment of funeral or wedding costs for his or her beloved ones (parent, wife, children, etc.).
Regarding PIT, the support for funeral or wedding costs in favour of the Employee or his or her family as generally regulated by the Employer and in accordance with the level of determining the income subject to CIT under the Law on CIT will not be taxable objects[31]. In addition, the Employer’ financial support for the medical examination and treatment of fatal diseases in favour of the Employee and his or her beloved ones (parent, spouse, children, etc.) are not subject to PIT in this case[32].
In terms of CIT, these expenses will be deducted when determining CIT if there are enough invoices and evidencing documents as prescribed. The total amount of support for the Employee in case of the death of any of his or her family members, the marriage of his or her family members, his or her birthday, and similar benefits must not exceed one month’s average salary actually paid in the taxation year[33].
2.7 Allowances for the Employees who is in dire straits due to labour accidents, occupational diseases
Accidents are considered labour accidents when they occur: (i) at the workplace and during working hours, including when performing essential living needs at the workplace or during working hours; (ii) outside the workplace or beyond working hours when performing any work required by the Employer or the person authorised by the Employer in writing to directly manage labour; and (iii) on the way from the residence to the workplace or vice versa within a reasonable time and through the appropriate itinerary[34]. Meanwhile, occupational diseases are those caused by harmful occupational labour conditions affecting the Employee (according to List of Occupational Diseases issued by the Ministry of Health in collaboration with the MOLISA, Vietnam General Confederation of Labour, the Employer’s representative organisations, relevant social organisations and reviewed, amended and supplemented in accordance with changes in the working environment, equipment, technology)[35]. When the Employee falls into difficult circumstances due to labour accidents or occupational diseases without fault from the Employer, the Employer will provide allowances to the Employee at least 40% of the following levels:[36]
- At least 1.5 months’ salary based on the LC if it is a reduction from 5.0% to 10% in working capacity; then for every 1.0% increment, an additional 0.4 of months’ salary under the LC will be added if the working capacity is reduced by 11% to 80%; and
- At least 30 months’ salary according to the LC in favour of the Employee who has lost 81% or more of his or her working capacity or his or her beloved ones who have died due to labour accidents.
Allowances for the Employee who is in dire straits due to labour accidents, occupational diseases are welfare benefits, which are neither considered the salary serving as a basis for paying compulsory SI, nor deemed as taxable income in accordance with the Law on PIT[37]. In terms of CIT, these expenses will be deducted if the Employer can provide the invoices and documents required to prove his or her payment. The total amount of allowances for the Employee who is in dire straits due to labour accidents, occupational diseases and similar benefits must not exceed one month’s average salary actually paid in the taxation year[38].
2.8 Other support and allowances
Apart from the said support and allowances, the current legislation allows the Employer to give the Employee other support and allowances than the prescribed ones. These allowances and support will not be considered the salary serving as a basis for paying compulsory SI provided that they do not fall into the categories regarded as salary rates, salary allowances and other additions subject to compulsory SI payment.
Please note that the said allowances must be formulated and agreed upon between the parties in the spirit of the law, appropriate and compatible with the Employee’ salary rate as well as the actual value of each allowance on the market.
Furthermore, in order for the said expenses not to be considered the salary serving as a basis for paying compulsory SI, in addition to satisfying the conditions specified in each of the said corresponding allowance amounts, such amounts also will be agreed upon and specified by the parties in the LC[39]. The Employer will have no grounds to remove his or her obligation to pay compulsory SI for such amounts if they are not specified as a separate item in the LC.
[1] Article 89.2 of the Law on SI.
[2] Article 3.5 (a) of Circular 10/2020/TT-BTDTBXH of the MOLISA dated 12/11/2020.
[3] Article 6.2.6 of Decision No. 595/QD-BHXH dated 14/4/2017.
[4] Article 5.1 (b) of Decree No. 90/2019/ND-CP of the Government dated 15/11/2019.
[5] Article 3.5. (b) of Circular No. 10/2020/TT-BLDTBXH of the DOLISA dated 12/11/2020 and Article 6.2.1 of Decision No. 595/QD- BHXH dated 14/4/2017.
[6]Article 3.5 (c) of Circular 10/2020/TT-BLDTBXH of the MOLISA dated 12/11/2020.
[7]Article 30 of Circular No.59/2015/TT-BLDTBXH of the MOLISA dated 29/12/2015.
[8]Article 6.2.3 of Decision No.595/2015/QD-BHXH dated 14/04/2017.
[9]Article 104.2 of the Labour Code.
[10]Article 9.1 (a) of the Law on CIT.
[11]Article 9.2 (m) of Decree No. 218/2013/ND-CP dated 26/12/2013.
[12] Article 3.2 (e) of Decree No. 65/2013/ND-CP of the Government dated 27/06/2013.
[13] Article 9.1 (a) of the Law on CIT.
[14] Article 9.2 (m) of Decree No. 218/2013/ND-CP of the Government dated 26/12/2013 and Article 6.2.8 of Circular No. 78/2014/TT-BTC dated 18/06/2014 (as amended by Circular 96/2015/TT-BTC dated 22/06/2015).
[15] Article 105 of the Labour Code.
[16]Article 3.2 (g) of Decree No. 65/2013/ND-CP of the Government dated 27/06/2013.
[17]Article 2.2 (g.5) of Circular No. 111/2013/TT-BTC of the Ministry of Finance dated 15/8/2013.
[18]Article 9.1(a) of the Law on CIT.
[19]Article 6.2.6 (a) of Circular No. 78/2014/TT-BTC of the Ministry of Finance dated 18/06/2014 (as amended by Circular No. 96/2015/TT-BTC of the Ministry of Finance dated 22/06/2015).
[20]Article 9.1 (a) of Decree No. 218/2013/ND-CP of the Government dated 26/12/2013 and Article 1.4 of Decree 91/2014/ND-CP of the Government dated 01/10/2014.
[21] Article 2.2 (dd.4.2) of Circular No. 111/2013/TT-BTC of the Ministry of Finance dated 15/08/2013.
[22] The Official Letter No. 1166/TCT-TNCN dated 21/03/2016.
[23]Article 2.2 (dd.5) of Circular No. 111/2013/TT-BTC of the Ministry of Finance dated 15/08/2013 and Article 11.4 of Circular No. 92/2015/TT-BTC of the Ministry of Finance dated 15/06/2015.
[24]Article 3.2 (g) of Decree No. 65/2013/ND-CP of the Government dated 27/06/2013.
[25]Article 2.2 (g.6) of Circular No. 111/2013/TT-BTC of the Ministry of Finance dated 15/08/2013.
[26]Article 9.1 (a) of Decree No. 218/2013/ND-CP of the Government dated 26/12/2013 and Article 1.4 of Decree No. 91/2014/ND-CP of the Government dated 01/10/2014.
[27]Article 3.2 (dd) of Decree No. 65/2013/ND-CP of the Government dated 27/06/2013.
[28]Article 2.2 (dd.2) of Circular 111/2013/TT-BTC of the Ministry of Finance dated 15/8/2013 and Article 11.3 of Circular No. 92/2015/TT-BTC of the Ministry of Finance dated 15/06/2015.
[29]Article 9.1 (a) of Decree No. 218/2013/ND-CP of the Government dated 26/12/2013 and Article 1.4 of Decree 91/2014/ND-CP of the Government dated 01/10/2014.
[30]Article 3.6 of the Law on SI.
[31] Article 2.2 (g) of Circular 111/2013/TT-BTC of the Ministry of Finance dated 15/8/2013 and Article 11.5 of Circular No. 92/2015/TT-BTC of the Ministry of Finance dated 15/06/2015.
[32] Article 3.2 (g) of Decree No. 65/2013/ND-CP of the Government dated 27/06/2013.3
[33] Article 9.1 (a) of Decree No. 218/2013/ND-CP of the Government dated 26/12/2013 and Article 1.4 of Decree No. 91/2014/ND-CP of the Government dated 01/10/2014.
[34]Articles 3.8 and 45.1 of the Law on Labour Safety and Hygiene.
[35]Articles 3.9 and 37.1 of the Law on Labour Safety and Hygiene.
[36]Articles 38.4 and 38.5 of the Law on Labour Safety and Hygiene.
[37]Article 3.2 (b) of Decree No. 65/2013/ND-CP of the Government dated 27/06/2013 and Article 2.3 of Decree No. 12/2015/ND-CP of the Government dated 12/02/2015.
[38]Article 9.1 (a) of Decree No. 218/2013/ND-CP of the Government dated 26/12/2013 and Article 1.4 of Decree No. 91/2014/ND-CP of the Government dated 01/10/2014.
[39] Article 6.2.3 of Decision No. 595/QD-BHXH dated 14/4/2017.
