Pursuant to labour law, the salary stated in any LC and the salary paid to Employees will be prescribed in Vietnamese dong, except for cases of paying salaries or salary allowances to non-residents and residents as foreigners in accordance with the law on foreign exchange[1]. In addition, the law on foreign exchange stipulates that residents and non-residents as organisations are eligible to agree and pay salaries, bonuses and allowances under LCs in foreign currency by transfer or cash to non-residents and residents as foreigners working for those organisations[2].
Therefore, Employers have the right to agree on salaries stated in LCs and to pay foreign Employees salaries in foreign currency. However, when conducting PIT deduction, withholding and paying compulsory SI, they should pay attention to the following issues:
1.Deducting PIT:
As prescribed by law, foreign Employees in Vietnam who have taxable income will be subject to PIT[3]. Under the PIT law, when deducting PIT, Employers must[4]: (i) convert to Vietnamese Dong at the actual buying exchange rate of the bank where Employees opens a trading account at the time of generating income; (ii) where a taxpayer does not open a trading account in Vietnam, the foreign currency must be converted into Vietnamese Dong at the buying exchange rate of the Joint Stock Commercial Bank for Foreign Trade of Vietnam at the time of generating income. Foreign individuals who personally carry out the registration, declaration and finalisation of PIT will also comply with this provision.
2. Withholding and paying compulsory SI:
For Employees whose
salaries are stated in LCs in foreign currency, the monthly salary as a basis
for paying SI premiums and being recorded in the SI book will be calculated in
Vietnamese dong on the basis of the salary in foreign currency converted into
Vietnamese dong at the average transaction exchange rate on the inter-bank
foreign currency market announced by the State Bank of Vietnam as of January 2
for the first six months of the year and as of July 1 for the last six months
of the year. In case of being not yet announced due to the said dates falling
on the public holidays not announced by the State Bank of Vietnam, the exchange
rate of the adjoiningly following day as announced by the State Bank of Vietnam
will be applied[5].
[1]Article 21.3 Decree 05/2015/NĐ-CP dated 12/01/2015
[2]Article 4.14 Circular 32/2013/TT-NHNN dated 26/12/2013
[3]Article 1 Circular 111/2013/TT-BTC dated 15/8/2013
[4]Article 13 Circular 92/2015/TT-BTC dated 15/6/2015 amending and supplementing Circular 111/2013/TT-BTC dated 15/08/2013
[5]Article 26 Decree 115/2015/NĐ-CP dated 11/11/2015