Date: 09 December 2021
Writer: Thu Tran
Severance allowance (“SA”) is a benefit for employees when terminating the labor contract. However, expats working in Vietnam are a specific labor subject whom the labor law has different regulations in comparison with local employees. Thus, how will expats receive the amount of SA? Through this article, BLawyers Vietnam will mention 3 matters regarding SA payment to expats working in Vietnam.
1. Which kind of expat can legally receive severance allowance?
By law, SA will be paid to the employee in certain cases of termination of a labor contract. Accordingly, the employer is responsible for paying SA to employees who have worked on a regular basis for a period of at least 12 months except for the following cases:
(i) The employee can receive retirement pension as prescribed; and
(ii) The employee is not present at work without acceptable excuses for at least 5 consecutive working days.
The above provisions are applicable to all employees. Thus, employers must determine specific conditions for expats to consider:
- Which case of termination of a labor contract, the expat shall receive SA?;
- Is the expat entitled to pensions as prescribed?; and
- Has the expat who left their jobs for 5 consecutive working days or more, had an acceptable excuse under the law?
Of note, there are some points of view about the pension entitlement conditions of expats. Because expats are not compulsory to contribute to the death and pension funds of social insurance regime. In some cases, employers and expats still voluntarily contribute to such funds.
2. Is the payment of the equivalent amount of unemployment insurance (“UI”) a ground for deduction of period calculated for SA?
Pursuant to the prevailing law, the amount of SA = 1/2 x salary for calculating SA x working period for calculating SA.
- Salary for calculating SA is the average salary of the 6 consecutive months under the labor contract;
- The working period for calculating SA is the actual working period minus the period that the employee paid UI or the period that the employer paid the equivalent of UI premiums at the same time of salary payment minus the period for which severance allowance or redundancy allowance has been paid by the employer.
In fact, the salary under the labor contract of expat working in Vietnam is a large amount. The reason could be the law only allows entities to recruit professional and technical expats for the number of positions with high requirements. Therefore, the amount of SA paid to expat is not low. On the other hand, we can see the period of UI premium payment substantially affects the amount of SA.
Under Employment Law 2013, expats are not subject to payment of UI premiums. Instead, the employer must pay the equivalent amount of UI premium to expats in addition and at the same time of salary payment. Such payment period shall be deductable from the working period for calculating SA. In fact, the employer has not paid such an equivalent amount at the same time of salary payment but paid once at the termination of the labor contract to “compensate” for the entire working period. Currently, Vietnamese law does not have provisions to recognize or not recognize this “compensation”.
3. Must expats pay personal income tax (“PIT”) on SA?
Pursuant to Circular No. 111/2013/TT-BTC, the SA is not taxable income. Therefore, the expat must not pay PIT when receiving this amount. However, if this allowance exceeds the statutory SA, the expat must pay PIT on that excess.
Is the employer responsible for deducting the PIT amount of expats at which type of applicable tax rates? The application of a 10%-tax rate or progressive taxation of 5% to 35% for deduction depends on the time of payment before or after the termination of the labor contract under the tax department’s guidance.
Currently, the application of legal regulations on the payment of severance allowance to expats is still not clear. To resolve and comply with the law, employers, as well as expats, should thoroughly research before implementing to avoid potential disputes.
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