EuroCham voices concern over new social insurance rule

Foreign nationals working in Vietnam will be subject to a new statutory social insurance regulation early next year, something which has sparked concern among European enterprises in the country.

eurocham voices concern over new social insurance rule hinh 0

European firms said this rule may lead to the double taxation of social insurance for non-Vietnamese employees.

In accordance with the Law on Social Insurance, which went into force early last year but will not cover foreign nationals working in Vietnam until early 2018, foreign workers in Vietnam with a work permit, or a practice certificate or license will have to contribute social insurance.

But there are no specific guidelines for none-Vietnamese employees such as those signing a labor contract with a legal entity in Vietnam or being assigned to work in Vietnam on an assignment as well as for benefit entitlement for cases where foreign nationals terminate their assignment and go back to their home countries.

“More comprehensive regulation would be recommended,” the European Chamber of Commerce in Vietnam (EuroCham) said.

In practice, a certain number of foreign nationals who come to Vietnam for an assignment still maintain social security in their home countries or enter a voluntary healthcare program. For such cases, statutory social and health insurance will result in additional costs for employees and their employers.

The enforcement of health insurance and social insurance for foreign nationals without signing Totalization agreements with any countries would lead to double taxation of income with respect to social security taxes, according to EuroCham. 

Totalization agreements are meant to protect the benefit rights of those working between two or more countries, and do away with situations where workers pay social security taxes to two countries on the same income.

EuroCham said the Government of Vietnam should consider signing Totalization agreements with other countries for the purpose of avoiding double taxation of income with respect to social security taxes.

The Government, on the other hand, should build an accountable legal framework and a transparent policy on the entitlement to social insurance benefits when those assignees go back to their home countries after the completion of a Vietnam assignment.

The regulation has faced strong rejections from entities hiring non-Vietnamese employees. However, representatives from the Ministry of Labor, Invalids and Social Affairs said the movement of labor among countries has become popular. Vietnamese employees working abroad as well as foreign workers in Vietnam are subject to compulsory social insurance and benefit from it.

The ministry is proceeding with the signing of mutual treaties on social insurance with other nations. For instance, Vietnam is negotiating with Germany and South Korea over Totalization agreements.

The Law on Social Insurance, which the National Assembly passed on November 20, 2014, broadens the definition of the salary used as the basis for social insurance contribution. Many member enterprises of EuroCham have expressed concerns about changes in legislation.

Wages and allowances are used as the basis for social insurance in the period from January 1, 2016 to December 31, 2017. However, from early next year onwards, the basis for social insurance contribution will be broadened to include salaries, allowances and other supplementary amounts, making the burden of labor cost heavier.

The broadening of the definition of salary will lead social insurance premiums to surge, which will in turn cause labor costs to shoot up. According to EuroCham, reasonable labor costs can help companies stay competitive.
Compared to other ASEAN countries, Vietnam has the highest social insurance contribution rate, 32.5%.

Meanwhile, the rate in Malaysia is 13%, 10% in the Philippines, 5% in Indonesia and 8% in Thailand. Therefore, EuroCham has proposed amending the regulation.

But the Ministry of Labor, Invalids and Social Affairs argued that the basis required for compulsory social insurance contribution is far lower than other countries, so the absolute number is not high.

Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry, said enterprises’ competitiveness would be eroded, so the law should be revised with respect to social insurance.

Saigon Times

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