Hiring Vietnamese Talent: What Overseas Employers Must Know About Personal Income Tax in Vietnam.

If you’re an overseas company thinking of hiring Vietnamese digital talent — whether remotely or through a local setup — you need to understand how Vietnam Personal Income Tax (PIT) works.

Many international employers assume tax obligations don’t apply if they don’t have an office in Vietnam, but that’s not always true. How you hire and where the work happens can create local tax and compliance responsibilities that affect both you and your Vietnamese employees.

This guide explains Vietnam’s PIT system, what overseas employers must do, and how to stay compliant while keeping your hiring strategy efficient and risk-free.

Who this guide is for:

• International companies with a presence in Vietnam looking to streamline payroll.
• Overseas firms considering hiring their first Vietnamese employee, contractor, or full remote team.

What you will learn:

• How Vietnam’s PIT system works for foreign employers.
• Your core duties as an employer (even without a local office).
• The safest hiring structures: Local Entity, EOR, or Contractor.
• How to avoid major risks like misclassification and Permanent Establishment (PE).
• A step-by-step checklist for legal and safe hiring.

1. Do Overseas Employers Really Need to Worry About Vietnamese PIT?

The short answer is: Yes.

If a Vietnamese person lives and works in Vietnam, their income is subject to Vietnamese tax law. This is true even if their employer is based overseas. Therefore, the location where the work is done is the most important factor.

The two most important tests are:

• Residency: Is the employee physically present in Vietnam long enough to be considered a tax resident?
• Source of Income: Was the work performed while the employee was in Vietnam?

If an employee is a Vietnam tax resident, they are taxed on worldwide income. Meanwhile, non-residents are taxed only on Vietnam-sourced income. Employers can be responsible for withholding these taxes; non-compliance can lead to fines, interest, and back-tax liabilities.

2. Key PIT Definitions You Must Know

Let’s simplify the key terms:

Tax Resident

An individual is typically a tax resident if they spend 183 days or more in Vietnam during a calendar year (or a 12-month period) or have a registered permanent residence in Vietnam. A resident is taxed on their global income.

Non-Resident

Anyone who doesn’t meet the residency criteria. Consequently, they are taxed only on income generated from sources within Vietnam.

Vietnam-Sourced Income

Income derived from work performed in Vietnam—regardless of where salary payments originate. If value creation occurs in Vietnam, the income is Vietnam-sourced.

Tax Withholding

The employer deducts the employee’s estimated PIT from salary each month and remits it to the General Department of Taxation (GDT).

Employer of Record (EOR)

This is a third-party company in Vietnam. It legally employs staff on your behalf and furthermore handles all payroll, PIT withholding, social insurance, and labor contracts.

3. Vietnam PIT Rates: Employment Income

For tax residents Vietnam uses a progressive monthly scale (taxable monthly income = gross salary minus statutory deductions):

In contrast, non-residents typically pay a flat rate of 20% on their Vietnam-sourced income.

4. Two Rules of Vietnam PIT: Residency & Income Source

Rule #1: The Residency Test

The 183-day rule is primary, but residence can also be based on permanent or temporary registration, for examples:

• Example 1: Anna is a Vietnamese citizen. She works remotely for a UK company from Hanoi all year → Therefore, she is a tax resident and is taxed on her worldwide income.
• Example 2: Ben, a foreign expert, works 100 days in Vietnam this year with no registered residence → So, he is a non-resident (taxed on Vietnam-sourced income only).

Rule #2: The Source of Income Test

Income is sourced where the work is physically performed. Paying from an overseas bank account does not change the income’s source—if the work was done in Vietnam, it’s Vietnam-sourced.

5. Your Obligations as a Foreign Employer: A Step-by-Step Breakdown

Withholding PIT: Your #1 Responsibility

You are generally required to calculate, deduct (withhold) PIT from the employee’s salary and remit it to the tax authorities monthly or quarterly. Employers who fail to withhold may be held liable for unpaid taxes plus penalties.

Tax Registration & Tax Codes

Each employee must have a personal tax identification number (TIN). Employers must ensure employees are registered and use the TIN in payroll and filings.

Annual Tax Finalization

Employers often complete final tax reconciliation at year-end to reconcile withheld amounts with actual liability.

The Danger Zone: Misclassifying Employees vs Contractors

Misclassification is common but risky. If a worker’s relationship with you shows employee-like control (hours, equipment, exclusivity), Vietnamese authorities may reclassify them as an employee — exposing you to back-payments and fines.

Permanent Establishment (PE) Risk

A PE can be created if your employee in Vietnam habitually concludes contracts, generates local revenue, or creates a fixed place of business. PE risk can expose your company to corporate tax obligations in Vietnam.

6. Penalties & Enforcement

Vietnam is strengthening cross-border tax enforcement, therefore, key penalties are strict, including:

• Late Payment Interest: daily interest on unpaid taxes.
• Under-declaration Fines: typically around 20% of under-declared tax.
• Tax Evasion Penalties: fines up to 1–3x the evaded tax; criminal charges possible in serious cases.
• Administrative Penalties: fines for late filings or procedural errors.

Ignoring PIT obligations creates significant financial and legal risk.

7. Using Double Taxation Agreements (DTAs) to Your Advantage

Vietnam has DTAs with many countries, each of which can:

• Define which country has the primary right to tax income.
• Provide a tax credit in the employee’s home country for taxes paid in Vietnam.

Practical step: Always check the DTA between your country and Vietnam and collect necessary documentation before claiming relief.

Vietnam’s Double Taxation Avoidance Agreements:

8. Choosing Your Hiring Model: The Strategic Options

There are 4 main options for your company to choose when outsourcing Vietnamese digital talents:

A. Direct Hire via a Vietnamese Local Entity (Subsidiary)

What it is: You set up your own office or subsidiary in Vietnam. Your new entity becomes the legal employer.

• Pros: You get full legal control. This is best for large-scale, long-term plans.
• Cons: It is very slow (2-6 months to set up). The initial cost is high. You need dedicated local HR staff.

Best for: Companies committed to building a large, permanent team.

B. Employer of Record (EOR) / Local Payroll Partner

What it is: You partner with an EOR provider. The EOR legally employs the worker on your behalf. They manage all payroll, PIT, social insurance, and compliance.

• Pros: It is extremely fast (onboarding in days). There is zero setup cost. It guarantees 100% compliance. Your admin work is minimal.
• Cons: The monthly cost per employee is higher than setting up an entity yourself (but cheaper than setting up an entity for a small team).

Best for: Most SMEs, startups, and companies testing the market. This is the safest and fastest option for most foreign companies.

C. Independent Contractor / Freelance Engagement

What it is: You hire the person as a self-employed contractor. They invoice you and handle their own taxes.

• Pros: It offers high flexibility and low admin work for you.
• Cons: The risk of misclassification is high (see Section 5). If they are deemed an employee, you are liable for back taxes and penalties.

Best for: Very short-term projects or non-exclusive, truly independent roles.

D. Direct Remote Hire (No Local Partner)

What it is: You pay the employee directly from your overseas company. You have no local partner.

• Pros: Seems easy and quick to start.
• Cons: This model is not recommended. It carries the highest compliance risk. You expose your company to major PE risk and are unlikely to meet your legal withholding duties.

9. Your Compliance Checklist for Hiring in Vietnam

1. Assess residency: will the worker be in Vietnam >183 days?
2. Classify correctly: employee vs independent contractor — document reasons.
3. Choose structure: EOR, entity, or contractor model based on risk and scale.
4. Check DTA between your home country and Vietnam.
5. Implement withholding mechanism for monthly PIT remittance.
6. Ensure employee has a tax code (TIN).
7. Evaluate PE risk based on employee activities.
8. Budget for social insurance (employer & employee contributions).
9. Maintain records: contracts, payslips, tax receipts, timesheets.

10. A Note on Social Insurance: The Other Major Cost

While this guide focuses on PIT, employer cannot ignore mandatory social insurance (which includes contributions for pension, health, and unemployment). This is a significant cost for employers (around 21.5% of the employee’s base salary, capped) and employees (10.5%).

Social insurance is compulsory for all employees under Vietnamese labor contracts. It’s a complex topic with its own set of rules, which is why we are dedicating a separate, deep-dive article to it. For now, remember this: if you hire an employee, you must budget for social insurance.

11. Your Next Step

Navigating Vietnam’s tax and labor laws can be complex, but it shouldn’t stop you from accessing its incredible talent. The key is to build your hiring strategy on a foundation of compliance from day one.

Trying to manage this from overseas is risky and time-consuming. An Employer of Record (EOR) service is the most efficient and secure way to ensure you are fully compliant with PIT, social insurance, and labor law, without the headache of setting up a local entity.

If you’re an overseas company looking to hire Vietnamese staff, VOS Advisory can help you:

• Eliminate risk: We act as the legal employer, ensuring PIT withholding, social insurance and reporting are handled correctly.
• Move fast: Onboard hires in days, not months.
• Stay focused: We manage local HR so you can manage the employee’s work and grow your business.

Book a free consultation with our Vietnam payroll experts to get a tailored plan and cost estimate for hiring in Vietnam.

12. Appendix: Further Reading

• Authoritative sources and further guidance:
• General Department of Taxation (GDT)
• Vietnam Ministry of Finance (MOF)
• Law on Tax Administration (No. 38/2019/QH14)
• PwC Vietnam – Tax Summary
• Acclime Vietnam – PIT Guide

Note: This guide provides a practical overview but does not replace professional tax or legal advice. For specific cases, consult a Vietnamese tax advisor or legal counsel.