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Enterprises will have to pay more to employ foreign employees
For many companies the total labor cost will increase as a result of the new personal income tax (PIT) policy, according to EuroCham.
PIT law may weaken Vietnam’s competitiveness
EuroCham is preparing for the implementation of the new PIT law, which has become valid as of January 1, 2009, and it has found that companies will have to pay higher to recruit foreign employees, despite the tax rate cuts. It is because some preferences given to foreign employees will be removed.
According to EuroCham, there are some different points between Circular No. 81 guiding the implementation of the Ordinance on High Income Taxation and Circular 84 guiding the implementation of PIT Law.
Circular 81 says that the expenses for air tickets, children’s tuition, and relocation are not taxable income, while the expenses on accommodation leasing can enjoy a tax reduction. Meanwhile, Circular 84 said that all four kinds of expenses are all counted as taxable income.
EuroCham has given an example of a foreign laborer who has a salary of $8,000 a month, while the employer provides accommodation ($3,000/month) and tuition ($12,000/month) for one child at an international school. According to Circular 81, the PIT the staff has to pay $4,442/month, while according to Circular 84, he has to pay $5,846.
As such, with the new law, the PIT foreign employees have to pay an increase of 31.6%.
Eurocham has also compared the tax policies of Vietnam to other regional countries. Many countries give tax preferences on the regular benefits that foreign employees receive. The countries also apply much lower tax rates than Vietnam, which has helped ensure labor costs in their countries remain competitive in the region.
Expenses on air tickets, accommodation relocation and health care insurance are all not taxable income in many countries and territories like Singapore, Hong Kong and Malaysia.
The highest tax rates in Singapore, Hong Kong and Malaysia are 20%, 17% and 27%, respectively.
A foreign employee, who has an income of $100,000 per annum, will have to pay $9,000 in tax if he works in Singapore, $3,000 in Hong Kong, and $24,000 in Thailand.
Meanwhile, if he works in Vietnam, he will have to pay $27,000, if referring to the Circular 84.
EuroCham’s members said that they really want to recruit local employees to high posts. However, the current labor market still lacks senior experts and it will still take much time to train Vietnamese laborers. That means that using foreign employees remains a necessity for many companies in the short- and middle-term.
Meanwhile, Vietnam proves to be less competitive with other countries in terms of personal income taxation, which will affect investment decisions, especially in the current period, when businesses are trying to cut down all unnecessary expenses.
A&P expenses need to be recognized
EuroCham has also pointed out that the regulation on setting the ceiling ratio of expenses on advertisement and promotion (A&P) at 15%, effective as of January 1, 2009 (the ratio was 10% previously), is not reasonable
In other ASEAN countries, the A&P expenses are exempted from tax.
In Vietnam, the Corporate Income Tax stipulates that the expenses on these activities must not exceed 10% of businesses’ total expenses.
The limitation was raised from 7% to 10% in 2004, while the Corporate Income Tax effective as of January 1, 2009 has raised the ceiling from 10% to 15%, but this is only applied to companies in their first three years of operation, which still cannot satisfy the expectations of the business community.
TBKTVN
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