Expatriate Employment: Key Legal Considerations and Dispute Issues

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EXPATRIATE EMPLOYMENT: KEY LEGAL CONSIDERATIONS
AND DISPUTE ISSUES
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AGENDA
• LEGAL FRAMEWORK
• PROCEDURES OF EXPATRIATES’ EMPLOYMENT
• TERMINATION OF LABOUR CONTRACTS WITH EXPATS
• TAXATION ISSUES OF REMUNERATION OF EXPATS
• RECOMMENDATIONS
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Legal Framework: Key Instruments
• Labor Code dated 23 June 1994, and amended in 2002, 2006 and 2007
• Decree 34/2008/ND-CP dated 25 March 2008 on recruitment and management of
foreigners working in Vietnam dated 25 March 2008 [“Decree 34”]
• Decree 113/2004/ND-CP dated 16 April 2004 guiding administrative sanctions for
violations of the labor law
• Circular 08/2008/TT-BLDTBXH dated 10 June 2008 guiding the implementation of a
number of provisions of Decree 34
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Legal Framework: Notable changes
 SIGNIFICANT CHANGES made under Decree 34 which replaced Decree
105/2003/ND-CP dated 17 September 2003 and Decree 93/2005/ND-CP dated 13 July
2005 (“Old Regulations”):
– REMOVAL of 3% limitation:
 Old regulations:
 Foreign employees ratio must be less than 3% of the total workforce
 More than 3%: Approval of the Chairman of the provincial People’s Committee
– NO work permit exemption for foreign Chief Representatives, Heads of Branch in Vietnam.
However, the draft new Decree amending Decree 34 provides work permit exemption for Chief
Representative!
– REMOVAL of work permit exemption for foreigners coming to Vietnam to carry out contracts
signed between a foreign company and a Vietnamese party
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Legal Framework: Upcoming Decree
• Draft of a new Decree amending Decree 34 is expected to be adopted and
come into effect on 1 August 2010 providing:
– After 6 months from the effective date of this Decree [1 August 2010], all
employees working in Vietnam without carrying out application for
work permit shall be expelled from Vietnam.
– Foreigners working in Vietnam for more than 03 months without work
permit or renewal of work permit’s term shall not be granted visa,
extended residence term and shall be expelled from Vietnam
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Legal Framework: Upcoming Decree
(cont.)
• Work permit exemption is extended to:
– Chief of Representative Office, Chief of Project Operation Office
or a foreigner representing an NGO in Vietnam
– Intra-corporate transferees in 11 service sectors under
Vietnam’s WTO Commitment Schedule in Services: business –
communication – construction – distribution – education –
environment – finance – health – entertainment – recreation –
transportation
– Technical experts of ODA-funded projects
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Direct Employment Procedures of Expats
• Recruitment Procedure
• Work Permit
• Labour Contract
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Recruitment Procedure
• 30 days prior to recruitment date: employer to notify via mass media
• Work permit application: prior to execution of labor contract
• A copy of the signed labor contract must be sent to provincial DOLISA 05 days
after issuance of the work permit
• Annual report on employment of foreign employees to DOLISA
• Foreign employees work at a different province or city for ≥ 10 days: written
notification must be sent to provincial DOLISA
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Work Permit
• WHY IS A WORK PERMIT NEEDED?
• WHO ARE EXEMPT FROM WORK PERMIT REQUIREMENT?
• CONDITIONS FOR BEING GRANTED WITH A WORK PERMIT ?
• WHEN AND WHO TO APPLY FOR A WORK PERMIT
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Why is a work permit needed?
• ALL Foreigners working in Vietnam must have a work permit
• Without work permit:
• Employer:
 administrative sanction [VND5,000,000 – VND 10,000,000]
 Serious violation: withdrawal of incorporation certificate
• Employee:
 more than 3 months without a work permit: expelled from Vietnam
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Who are exempt from work permit requirement?
• Foreigner working in Vietnam ≤ 03 months
• Members of a multi-member LLC
• Owner of a single-member LLC
• Member of the Management Board of a JSC
• Foreigner coming to Vietnam to offer services:
– A 7-day in advance notice must be submitted to the provincial DOLISA prior to working in
Vietnam
• Foreigners coming to Vietnam to settle emergency circumstances lasting less than 3 months
• Foreign lawyers being granted with a practicing certificate in Vietnam by the Ministry of Justice
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Conditions for being granted with a work permit
• ≥18 years
• Physically fit for the work requirement
• Manager, CEO or expert:
– Practicing in health-care and medical sector, education and vocational training: meet conditions
provided by Vietnamese law
– Degrees, certificates (normally university degree or higher) evidencing high technical and
professional level must be presented.
– Experts without such degrees or certificates (e.g., craftsman) must have confirmation of at least
05 working years
– NO work permits for non-expert employees
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Conditions for being granted with a work permit
(cont.)
• NOT having a criminal record for a national security offence , criminal
prosecution or any criminal sentence under Vietnamese or foreign law
– Legal record issued by the authorized body of the residing country
prior to coming to Vietnam.
– Foreigner reside in Vietnam ≥ 6 months: a legal record issued by
the provincial Department of Justice where the foreigner is
residing.
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When and who to apply for a work permit?
• WHEN ?
– 20 days prior to the expected first working date
– Labor contract signed after issuance of work permit
• WHO TO BEAR ADMINISTRATIVE BURDEN?
– Employer and Vietnamese party responsible [issuance, renewal application]
 Application process depends on the employer/Vietnamese party but employee suffers
from the employer/Vietnamese party’s delay or failure to apply for work permit (e.g.-
expulsion) !!!
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Labour Contract
• Must be in accordance with Vietnamese laws
 Standard form provided by MOLISA
 Termination of labor contract is extremely difficult
 Disputes will be settled under employee-friendly Vietnamese court process.
• Do not want to sign labor contracts ?
 Intra-corporate transfer
 Contractual service supplier
 Individual contractor
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Intra-corporate transfer
• Who are intra-corporate transfer employees?
– Manager, CEO or expert of a foreign enterprise having an established
commercial presence entity in Vietnam
– Temporarily transfer internally to the commercial entity in Vietnam
– Having worked for the foreign enterprise for at least 12 months prior to
working in Vietnam
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Intra-corporate transfer (cont.)
• Commercial presence entity in Vietnam must have:
 20% management personnel, CEO, experts being Vietnamese though it is
entitled to have at least 03 foreign management officials, CEO and experts
• Letter of Appointment of parent company is required:
 LOA should determine the salary for work carried out in Vietnam for PIT
purpose
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Contractual service supplier and individual
contractor
• Who are contractual service suppliers?
– Employees of a foreign company without commercial presence in Vietnam
– Recruited by foreign company for at least 02 years
– Working in Vietnam to implement a contract between the employer and a
Vietnamese company
• Who are individual contractors?
– Implement economic, commercial, financial, banking, insurance, technical,
scientific and technical, cultural, sports, education, health contract in Vietnam
[between a foreign company or the contractor with any Vietnamese party]
– Different from contractual service supplier/intra-corporate transferee: no
employment relationship
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Pros and cons of not signing a labor contract
• PROS:
– No employment relationship
– Easy termination
– Dispute settlement is more favorable to the enterprise
• CONS:
– More tax liabilities: FCT applicable to contract signed with foreign party
or individual contractor
– More administrative burden on the Vietnamese party’s side, e.g., tax
withholding application, paperwork for work permit application
– May be deemed as employment relationship though it is not a common
practice of Vietnamese courts
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Labour contract termination with expats
• AS DIFFICULT AS termination of labour contract with Vietnamese
employees
• Employer only allowed to unilaterally terminate labour contract
under some limited circumstances, e.g. where an employee (i)
regularly fails to fulfill his duties (three times within a month) (ii)
subject to dismissal under Article 85 of the Labour Code or (iii)
absent from work due to illness or injury, etc.
• Unilateral termination without reason is not permitted.
• Any contractual agreement on termination different from the law
may be null and void.
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Labour contract termination with expats
• Helpful tips:
– Definite term labour contract first; indefinite-term labour contract
later
– Probationary period (not in excess of 2 months) should be
provided under the labour contract: employer are free to
unilaterally terminate labour contract at any time within this
probationary period
– Mutual termination agreement can sometimes be the best
solution
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Tax issues related to remuneration
• Non-residents: only taxed on their Vietnam-sourced income BUT Residents:
PIT on their worldwide income
• Relief from double taxation: can be obtained in theory but the process is
cumbersome and time consuming in practice
• Insurances (other than compulsory insurances under Vietnamese laws) or
pension payment in a foreign country may NOT be considered reasonable
expenses for taxation purpose
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Tax issues related to remuneration (cont.)
• Helpful tips:
 Employees’ obligation to declare and pay PIT in accordance
with the laws should be provided under the labour contract
 Provide professional assistance to employees
 Non-resident intra-corporate transferee: incomes received from
works carried out in Vietnam should be provided clearly under the
letter of appointment
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Recommendations
• Thorough understanding of labor laws as well as their
amendments
• Application of the right contract at right time
• Be aware of different practice of different DOLISA and
labor authorities
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DUANE MORRIS VIETNAM LLC
Thank you!
Duane Morris Vietnam LLC Duane Morris Vietnam LLC
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Tel.: +84 4 946 1310-14 Ho Chi Minh City, Vietnam
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Fax: +84 8 827 9470
Contact email: omassmann@duanemorris.com
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