Human Resource Challenges for MNCs: Insights from experts

As foreign direct investment (FDI) in Vietnam continues to grow, foreign workers, particularly highly skilled professionals, are playing an increasingly vital role in the market. Alongside the Vietnamese workforce, the contributions of foreign labor have helped to address the demand for specialized-skills workforce, enhancing productivity and operational efficiency, especially for multinational companies (MNCs) which have set up operations in Vietnam.

According to statistics provided by the Ministry of Labor, Invalids, and Social Affairs, by the end of 2023, the total number of foreign workers in Vietnam was approximately 136,800. Of these, over 10,000 were exempt from needing work permits, while nearly 126,000 required them, including 18,761 in Ho Chi Minh City and 12,730 in Hanoi.

Despite their significant contributions, foreign workers continue to face challenges when entering the labor market in Vietnam, particularly regarding policy mechanisms and administrative procedures. To explore these issues further, we spoke with Ms. Vu Thu Ha, Tax Partner at Deloitte Vietnam, and Ms. Sabrina Sia, Tax Partner, Southeast Asia and Singapore GES Leader, Deloitte Singapore.

One of the primary challenges for businesses, particularly MNCs, is the administrative procedures related to foreign labor. Could you highlight some of the key difficulties businesses are currently encountering?

In the context of globalization and international mobility, the Vietnamese government has introduced new regulations governing the recruitment and management of foreign workers. These regulations are having a significant impact on businesses, especially MNCs. Two major issues that have drawn attention are the requirement to advertise and test the domestic labor market before seeking approval to hire foreign workers, as well as the regulations in place to obtain work permits (“WP”) for foreigners on short-term business trips.

Regarding the requirement to advertise and test the domestic labor market before seeking for approval to hire foreign workers:
As of January 1, 2024, Vietnam mandates that businesses must first advertise job positions to Vietnamese candidates before seeking approval and applying for work permits to hire foreign workers. This regulation is aimed at creating job opportunities for domestic workers and is similar to requirements in other Asia-Pacific countries such as Singapore, Malaysia, and Australia.

The process in Vietnam requires businesses to provide detailed job titles and descriptions, ensuring that they are aligned with the company’s sector, the proposed work location, and the foreign worker’s experience. In addition, businesses must maintain consistency in the content from job advertisements, approval applications, and work permits.

This job title requirement presents challenges for MNCs, as their global systems often use standardized job titles across different markets. However, Vietnam's regulations demand greater specificity and alignment with the relevant experience and job field. This can create difficulties for companies when applying for work permits, especially since job titles used to demonstrate experience abroad may not fully match the job requirements in Vietnam. Meanwhile, in countries like Singapore, job titles are not as tightly regulated, posing fewer challenges for businesses.

The work permit regulations for foreigners working under short-term business trips:
Assigning foreign employees to Vietnam for short-term business trips and facilitating their movement between multiple provinces is a critical need for many MNCs. However, under Decree No. 152/2020/ND-CP issued by the government, the work permit exemption applies only to foreigners working in Vietnam for less than 30 days per trip and no more than three trips per year (the "30/3 limit"). The term "working" in this regulation is not clearly defined, making it difficult for businesses to determine which activities qualify as work and whether these business trips are subject to work permit requirements.

In addition, the 30/3 limit lacks flexibility and may not meet the essential needs of businesses. The process of obtaining a work permit often takes a long time, which can be impractical for foreigners seeking to work in Vietnam for only a few days or those with urgent schedules. In comparison, there appears to be greater flexibility of visa requirements in countries for example like Singapore where certain short-term work activities in Singapore can be undertaken for up to 90 days without obtaining a work pass (for e.g., attending meetings with clients, participating in seminars and conferences, etc.).

Furthermore, Decree No. 70/2023/ND-CP issued by the Government (“Decree 70”) requires individuals working in multiple provinces to obtain the approval from the Ministry of Labor, Invalids, and Social Affairs. However, there is no specific guidance for short-term trips to multiple locations. This creates confusion for both businesses and regulatory bodies in determining who requires a work permit and which authority is responsible for proving the approval.

In terms of tax procedures, what are the challenges that the businesses are facing in relations to the personal income tax (PIT) declarations and payments for foreign workers?

In addition to reforms in tax administrative procedures, in recent years, Vietnam's tax authorities have strongly implemented information technology solutions to simplify processes, reduce time, and make tax registration, submission, and payment more convenient. This includes an online system called “thuedientu”, where individuals can perform the tax registration and tax submission, and undertake tax payment. In addition, taxpayers can track their PIT filings history and other general information via the eTax Mobile app. However, businesses still face several challenges during the process of declaring and paying PIT for foreign employees, specifically:

Applying double taxation agreements (“DTA”): Although Vietnam has signed the double taxation agreements with over 80 countries and territories, the process of applying for PIT exemptions and refunds still requires the complex administrative procedures. In addition, Vietnam enforces taxation from the very first day of an individual's presence, without any de minimis threshold. Coupled with the complexities of obtaining tax treaty relief, this poses significant challenges for individuals and companies, particularly when MNCs send many short-term business travelers to Vietnam. In some cases, individuals have waited 2–3 years to receive their PIT refunds.

What solutions or strategies have the authorities provided to help businesses overcome these challenges?

Regarding work permits, while Decree No. 70 has introduced some positive changes, the government should continue to review and clarify job title regulations and provide more specific guidance for foreigners on short-term business trips. A more flexible approach, in line with international best practices, would better accommodate the global labor market and reduce obstacles for MNCs operating in Vietnam.
In terms of tax procedures, on January 29, 2024, the General Department of Taxation issued Decision No. 101/QD-TCT, outlining the 2024 administrative reform plan aimed at building an e-Government system in the tax sector. One of the goals is to continue improving the PIT filing and tax payment process, which should help ease the burden on businesses and individuals. In addition, the Ministry of Finance is reviewing the PIT Law with potential amendments expected in 2026, providing an opportunity to address issues with current regulations more appropriately.

Aside from navigating limitation of regulations, what can businesses do to optimize their processes and better manage foreign labor?

To ensure the smooth and effective work permit application process, businesses should proactively assess job titles and candidates' experience at the recruitment stage. This ensures consistency and compliance with the work permit requirements, increasing the likelihood of approval and maintaining full legal compliance. In addition, regularly evaluating the nature of short-term assignments will help businesses remain flexible and complete the work permit process on time, avoiding unexpected risks.

For tax compliance, most MNCs in Vietnam are already adhering to the PIT regulations. However, with the increasing application of technology, businesses should consider investing in automated systems to manage the tax declarations for foreign workers. This not only reduces the workload for management but also ensures accuracy and transparency, especially for foreign employees with complex income packages.

For the matter of DTA application as mentioned above, to effectively manage DTA relief for short-term business travelers in Vietnam, along with foreign tax credits for tax residents, MNCs are advised to implement a comprehensive tracking system to monitor employees' stays and their tax filing status in multiple jurisdictions. Pre-arrival tax planning, including a thorough review of relevant DTA provisions, plays a crucial role in preventing unnecessary tax liabilities. Streamlining administrative tasks, such as securing tax residency certificates and proactively submitting DTA relief applications, can minimize delays. Additionally, training the HR and tax teams on the DTA process ensures a clear understanding of the necessary steps for securing tax relief. Regular engagement with Vietnamese tax authorities is equally important, as it helps expedite claims and ultimately enhances compliance and operational efficiency.

Can you share some notable practices in talent attraction strategies being adopted by countries and businesses in the region?

Countries in Southeast Asia are introducing various policies to attract talent, particularly in immigration, with especial focus on the technology industries and sectors. For example, Singapore employs a comprehensive and multi-faceted approach to attract top global talent. On top of the business-friendly environment with low corporate and individual tax rates, competitive government support as well as robust infrastructure which makes Singapore an attractive business hub, the Government has also introduced various tailored visa schemes to attract top-tier talent, especially in its priority/high growth sectors such as technology and finance. Below are some of the key programs:
ONE Pass: targeting high-caliber global talent with longer validity, stability and greater flexibility and mobility;
Tech Pass: aimed at top-tier tech professionals;
EntrePass: Designed to attract foreign entrepreneurs who wish to start innovative businesses in Singapore, particularly in high-tech or research-intensive industries.
Global Investor Programme: a structured pathway for high-net-worth individuals to obtain permanent residence in Singapore

Similarly, Malaysia has launched the Malaysia Tech Entrepreneur Programme (MTEP) to attract tech talent and offers tax incentives to foreign professionals in the high-tech and semiconductor industries. Thailand has also introduced a Smart Visa program to attract skilled personnel in future technologies.

All these, coupled with personal income tax incentives which some of the countries may have put in place to attract talent, serve to create an attractive environment for talented professionals to work and live in our region.