On 20 November 2014, Vietnam’s National Assembly had passed Law No. 58/2014/QH13 which specifies that from January 01, 2018, foreign workers working in Vietnam who have work permits or practicing certificates or practicing licenses issued by competent authorities shall be entitled to participate in compulsory social insurance. However, due to lack of specific guidance, the contribution to compulsory social insurance of foreign workers had not been implemented until the recent issuance of Decree No. 143/2018/ND-CP of the Government dated October 15, 2018 detailing the Law on Social insurance and Law on Occupational safety and hygiene regarding compulsory social insurance for employees who are foreigners working in Vietnam (“Decree 143”).
Scope of application and contribution rates
Under Decree 143, a foreign worker shall be subject to compulsory social insurance if he/she satisfies all of the following conditions: (i) having work permit or practicing certificate or practicing license issued by competent authorities; (ii) having indefinite-term labor agreement or definite-term labor agreement with a term of one year or more with an employer in Vietnam; (iii) less than 60 years of age in case of male employees and less than 55 years of age in case of female employees; and (iv) not being employees who are managers, CEOs, experts or technicians employed by a foreign enterprise for at least 12 months prior to an internal transfer to work in a commercial presence of such foreign enterprise in Vietnam.
By this Decree 143, from December 01, 2018, an employer must make monthly contributions to the social insurance funds calculated on employees’ monthly payroll at the following rates: 3% for the sickness, maternity and paternity insurance fund; 0.5% for the occupational accident – occupational disease insurance fund; and, from 1 January 2022, 14% for the retirement and death fund. The employee will make a monthly contribution accounting for 8% of his/her monthly salary into the retirement and death fund as from 1 January 2022.
Six months from the issuance of Decree 143, there has been no comprehensive guidance yet for its implementation, from scope of application to procedure to claim for benefits by foreign workers. The enterprises, in practice, have faced unsolved concerns, such as:
(a) An expatriate who is seconded from a group company to work in its subsidiary in Vietnam, from strict reading of Decree 143, is not eligible to be exempted from compulsory participation in the social insurance because he/she is not considered as being internally transferred under the current regulation, which is the transfer from a parent company directly holding equity in its subsidiary in Vietnam under Decree 11/2016/ND-CP. This issue has been raised on the understanding that such intra-group transfer should be included in the internal transfer under current regulations and foreign workers under such category should be exempted from the participation to the compulsory social insurance. The Government has yet to confirm the applicability of Decree 143 to this group of foreign workers.
(b) The purpose of contribution into compulsory insurance is to provide benefits to foreign workers and ensure fairness between foreign and Vietnamese workers pursuant to the policy makers; however, it seems practically difficult for foreign workers who pay to the insurance funds to claim for benefits because the current system and facilities have not been made ready to deal with workers from different countries using different languages who may also find it cumbersome to understand and then make a claim for social benefit from the system.
(c) Another critical point is the double payment of insurances. Similar to the double taxation issue, foreign workers have to pay insurance in both their home countries and Vietnam. This doubles the payment on the same income, and therefore, international bilateral or multilateral agreements between the parties are necessary to reduce the burden on the foreign workers. While neighboring countries, such as South Korea, the Philippines and Japan have signed agreements on avoidance of double insurance payment with other countries, Vietnam has not yet signed any. This means that until the social insurance agreements between Vietnam and foreign countries are in place, to some extent, the benefits of foreign workers are not comprehensively guaranteed.
Being aware of the above concerns, several official letters guiding the specific implementation of Decree 143 have been issued by the Ministry of Labor, Invalids and Social Affairs (“MOLISA”), but not all concerns have been addressed. In addition, MOLISA also, together with Vietnam Social Security, upon instruction from the Government, has completed negotiations with Germany and South Korea on agreements to avoid double social insurance payment and is promoting information exchange and implementing negotiation with Japan. Although the implementation of these future international agreements presents another challenge to Vietnamese authorities, the current action is an initial step to resolve the issues discussed above.
Preparation by enterprises
The new policy will make the enterprises become more cautious in using foreign workers, especially those with sensitive labor cost budget. Therefore employment structure needs to be re-considered. Besides, the commonly intra-group transfer needs to be switched into intra-corporate transfer to reduce number of foreign employees subject to compulsory insurance payment