Vietnam is emerging as one of Southeast Asia’s hottest startup ecosystems. Foreign investment, government support, startup activities, and startup-related TV shows have been increasing recently, turning the country into a vibrant startup landscape. Vietnam does prove its potential by having many emerging startup unicorns: VNG Corporation, and promising startups such as Ami, Jio Health, Hiip, Luxstay. According to Eddie Thai, general partner at 500 Startups Vietnam, Vietnam could be top 3 in the world in the number of engineers in five years. In addition, the government invests in Saigon Silicon Valley that is expected to attract US$1.5 billion by 2020.
Companies planning to expand overseas often face many obstacles such as understanding business landscape of an entirely new market, tax and local policies, cultural differences, language barriers, and the battles to retain talent. In this article, we will go through some of the most asked questions and obstacles that companies face when venturing overseas.
Hiring The Right People
Hiring the right people and retain top performers are the most important factor in growing your business. Although Vietnam is home to a large pool of tech talent, Vietnamese engineers have little exposure to big tech companies such as Google, Facebook, Microsoft; and thus, lack the professional & international experience. One of our recommendations for clients is to hire a very strong Vietnamese technical lead to handle Vietnamese tech team. A local person will break cultural barriers, and guide teams on the right directions.
Headhunting companies usually have a wide range of network and a large pool of talent that are ready for your projects. They also have processes to source, do background checks, and interview that ensure you have the right candidates. This can save companies time & effort in finding tech talents. Some of the popular headhunting companies in Vietnam include: Harvey Nash, Navigos Search, Hr2B, First Alliances, NIC, Asahi Tec VN, Iconic, etc. Headhunting companies often charge 18-22% annual gross salary or 2 months of gross salary including 13th month salary and bonuses. Some Japanese headhunters such as NIC, Asahi Tec, Iconic, Kosaido charge 2 months of gross salary or a minimum of 30.000.000 VND.
Tech JDI, however, follows a different business model. They are a Venture Support Services company helping start-ups and corporates to venture into new markets. They help with market access, human resource administration and operations, and fundraising advisory service. They offer headhunting as part of their services with a recruitment fee of 1.5 month gross salary.
Gross Salary VS. Net Salary
In Vietnam, employees often prefer to talk in NET term, and employers prefer to talk in GROSS term. But what is the difference between GROSS SALARY and NET SALARY?
NET SALARY is the take-home pay after all deductions including PIT (Personal Income Tax) and SIHIUI (Social Insurance, Health Insurance, Unemployment Insurance)
GROSS SALARY is the amount paid by employers to employees, before any deduction. Besides the GROSS SALARY, employers have to pay an extra of 23.5% employer SIHIUI to government.
If April works at Tech JDI with a GROSS SALARY of $1000. His salary breakdown is as follows:
SIHIUI on employee’s side
= Social Insurance (8%) + Health Insurance (1.5%) + Unemployment Insurance (1%)
= $80 + $15 + $10
Employer deducts $105 from April’s GROSS SALARY to pay for SIHIUI each month.
SIHIUI on employer’s side
= Social Insurance (17.5%) + Health Insurance (3%) + Unemployment Insurance (1%)
= $175 + $30 + $10
Employer pays an additional amount of $215 to SIHIUI funds each month.
April’s NET SALARY = $1000 – $105 = $895
April’s GROSS SALARY = $1000
Total amount paid by Tech JDI when hiring April = $1000 + $215 = $1215
Finance, Payroll, and Reports
Vietnam has a complex web of tax and local laws. Companies are required to do monthly, quarterly, and yearly reports. Some monthly/quarterly reports include: Value Added Tax (VAT) declaration, Personal Income Tax (PIT) declaration, invoice reports, etc. Yearly reports are: financial statements, Corporate Income Tax (CIT) declaration, audit reports, etc.
We recommend to have competitive accounting staff to avoid unnecessary fine. You can hire your own accountants, or outsource this operation to other third party companies. Some companies providing accounting services are: TMF Group, Cekindo, Mazars Vietnam, Domicile, ANT, Tech JDI.
Trade union is established to protect employee rights, benefits and ensure that employers follow labor laws. It’s not required by law to establish a trade union, but it’s required that companies contribute to trade union fund every month. That amount is often 2% of total gross salary of all employees. Trade union fund is used for birthday gifts, sick pay, maternity gifts or to celebrate popular festivals in Vietnam. Companies are required to report the use of trade union funds to Vietnam General Confederation of Labour.
If employees feel that they are treated unfairly (being fired without reason or mutual agreement, reduce salary), employees can submit complaints to Vietnam General Confederation of Labour. The General Confederation of Labour will arrange a thorough inspection of the company. During the inspection, if it’s discovered that company fails to ensure labor laws, a fine and warning will incur.
The maximum working hours per week are 8 hours per day, and 6 days per week. It’s required by law that employees get one full day off per week which is usually Sunday. However, many international and big companies practise the same working hours as American companies, which are 8 hours per day, and 5 days per week.
It’s also required by law that employees must get at least 12 days of annual leave per year in addition to public holidays. Some companies even have up to 20 days of annual leave per year.
Vietnam has very strict labor law, and strongly protect laborers. Violation can result in huge fines and legal consequences. Employers can add additional internal policies in labor contracts as long as these internal rules don’t violate the laws. Employers have to submit these extra policies to labor department for approval. Examples of additional terms in labor contracts are: dress code, working hours, company property protection, overtime pay, etc.
In Vietnam, wrongful dismissal can result in more expenses (compensation for employees) and legal consequences. Employers can unilaterally terminate employment contract in case of accident (employees are unable to continue to work), natural calamity (employers need to scale down), or when employees continuously fail their duties stated in labor contract.
When employees show continuously low performance, bad attitudes, and don’t finish work; employers have to carry out processes of personal talks and warnings. Sit down and have talks with employees about their performance & failed expectations. Find out if they have personal problems that you can help or tolerate. Make sure to let them know that their performances are unacceptable. If low performance and bad attitudes continue, you will have to issue a series of verbal and paper warnings, before legally firing the employees. A notice period of 30-45 days is required by law.
If no concrete proof or no notice (30-45 days) are provided, employers may have to reinstall the employees, and pay a compensation of at least two months’ salary. Also, if employees submit a complaint, an inspection from Vietnam General Confederation of Labour will likely occur.
We recommend foreign companies to have a thorough understanding of the complex landscape of Vietnam tax and labor laws; thus, building internal policies that fit their international culture, work styles, and business requirements.
What else to know on your overseas venture? Wait to see PART 2!!! Or subscribe to our website www.techjdi.com to read similar posts.