Getting Social Insurance Right for Foreign Executives: A Closer Look at Who Is Actually Covered
Vietnam’s compulsory social insurance regime has applied to foreign nationals working under labour contracts in Vietnam since 2022, when the mandatory coverage was extended to foreign employees. This change created significant compliance activity across the FDI community — companies that had not previously enrolled foreign employees in the social insurance system had to assess coverage, calculate contributions, and align with the new obligation. It also created confusion about which foreign executives are covered and which are not.
One of the most consistently misapplied aspects of the social insurance framework is the question of the foreign legal representative or director who does not draw a salary from the Vietnam entity. ECOVIS Vietnam Law is advising on cases where companies have either incorrectly enrolled non-salaried directors in the social insurance system — creating an unnecessary cost and compliance overhead — or have failed to maintain the documentation that properly records the non-salary arrangement and the basis for the exemption. Both errors create regulatory exposure, albeit of different types.
The Social Insurance Obligation: What Triggers It
Vietnam’s social insurance obligation for a foreign national is triggered by the existence of a labour contract (hợp đồng lao động) or a similar employment arrangement under Vietnamese law. The key element is the contractual employment relationship — specifically, an agreement under which the individual receives wages (tiền lương) from the Vietnam entity in exchange for performing work.
A foreign national serving as a legal representative (người đại diện theo pháp luật) or director (giám đốc / tổng giám đốc) of a Vietnam company under a management mandate or appointment resolution — without a separate labour contract, and without receiving a salary or wages from the Vietnam entity — is not in an employment relationship for social insurance purposes. The appointment is a corporate law arrangement, not a labour law arrangement. There is no underlying labour contract with a salary clause. Therefore, there is no social insurance obligation on the part of the Vietnam entity in relation to that individual’s role.
The practical implication: if a foreign parent company appoints one of its own executives as the legal representative of a Vietnam subsidiary, and that executive continues to be employed and salaried by the foreign parent (with no separate salary payment from the Vietnam entity), the Vietnam company does not have a social insurance obligation in respect of that appointment. The executive’s relationship with the Vietnam entity is as a corporate officer, not as an employee.
Work Permit and Work Permit Exemption: A Separate Obligation That Remains
The social insurance exemption for non-salaried directors does not mean the company has no labour law compliance obligation at all. Foreign nationals performing the role of legal representative or director in Vietnam are still required to have either a valid work permit (giấy phép lao động) or a formal work permit exemption confirmation (xác nhận không thuộc diện cấp giấy phép lao động) issued by the provincial labour authority.
The work permit exemption exists for certain categories of foreign nationals, including: foreign individuals who are the owner or a capital-contributing member of a limited liability company; foreign individuals who are a shareholder or member of the board of directors of a joint-stock company; and certain other categories where the individual’s role is characterised as corporate management rather than technical or skilled employment. Foreign nationals whose role falls within one of these exemption categories can apply to the provincial Department of Home Affairs (which has assumed the labour management functions of the former DOLISA) for a formal confirmation that they are not required to hold a work permit.
This confirmation must be obtained before the individual begins performing their role in Vietnam — not retrospectively. Companies that have foreign legal representatives who have been operating without either a work permit or a work permit exemption confirmation are in violation of the labour law, regardless of the social insurance position. The penalty for non-compliance includes administrative fines and, in some cases, restrictions on the company’s ability to hire foreign nationals in the future.
For foreign nationals who are married to Vietnamese citizens, the work permit exemption is available on this basis as well — but the confirmation must still be formally applied for and obtained from the provincial Department of Home Affairs (formerly DOLISA). Being married to a Vietnamese citizen does not automatically confer the exemption; it is a qualifying basis for the exemption that must be actively confirmed through the administrative process.
Medical Check Costs: Deductible Only With the Right Documentation
Foreign nationals who apply for a work permit or work permit exemption confirmation in Vietnam are required to submit a health certificate issued by a qualified medical facility in Vietnam. The cost of the health check is a real cost borne by the company in connection with the legal representative’s compliance obligations.
For Corporate Income Tax purposes, the deductibility of the health check cost depends on whether it is properly documented as a business expense. The relevant criteria are: the expense must have a proper invoice (hoá đơn) from the medical facility; the payment must be recorded in the company’s accounting system; and the connection between the expense and the business purpose (the work permit or exemption application) must be documentable from the supporting records. Health check costs that are paid in cash, paid by the individual and reimbursed informally, or recorded in the accounts without the original invoice, do not satisfy these conditions and are not deductible.
Companies that routinely manage work permit and exemption processes for multiple foreign executives should have a standard internal process for capturing and recording the health check invoice as a properly documented, deductible business expense.
Frequently Asked Questions
What is the social insurance contribution rate for foreign employees who are covered?
Foreign employees in Vietnam who are subject to compulsory social insurance are enrolled in the retirement, disability, and death benefit scheme (a combined 23.5% contribution on the monthly salary, with 17.5% from the employer and 6% from the employee) and in the health insurance scheme (4.5% total, with 3% from the employer and 1.5% from the employee). They are generally not enrolled in the unemployment insurance scheme, which is limited to Vietnamese citizens. These rates apply on the contractual salary up to the maximum contribution ceiling (currently 20 times the base salary).
Can a foreign legal representative draw a salary from the Vietnam entity without triggering a full employment relationship?
A management allowance (thù lao quản lý) paid to a legal representative under the company’s charter and a director’s appointment resolution is treated differently from a labour contract salary under Vietnamese law — and its social insurance treatment follows different rules. However, in practice the boundary between a management allowance and a salary for social insurance purposes is frequently disputed in tax inspections. If a foreign legal representative receives regular cash payments from the Vietnam entity that function economically as a salary — even if they are labelled as a management allowance — the company bears the risk that the social insurance authority reclassifies those payments as a taxable salary base. Companies paying management allowances to foreign legal representatives should document clearly the board resolution basis, the governance structure, and the absence of a labour contract.
Does the non-salaried director still need PIT registration in Vietnam?
A foreign national who performs a legal representative role in Vietnam and receives no income from a Vietnamese source is not subject to Vietnam PIT on that basis. However, if that individual is physically present in Vietnam for more than 183 days in any 12-month period, they may become a Vietnam tax resident, in which case their global income — including salary paid by the foreign parent company — is subject to Vietnam PIT. The social insurance exemption and the work permit exemption do not affect the PIT analysis, which is determined by tax residency and source of income independently of the corporate law role.
How long does the work permit exemption confirmation process take?
The work permit exemption application to DOLISA typically takes five to ten business days once the complete application package is submitted, including the health certificate, the board resolution confirming the appointment, a copy of the ERC showing the individual’s corporate role, and the passport and relevant visa documentation. Processing times vary by province. The exemption confirmation is issued for the duration of the appointment, up to a maximum of two years, and must be renewed if the appointment is extended beyond the original term.
Unsure whether your foreign directors are correctly classified for social insurance, work permit, or PIT purposes? Contact Attorney Vu Manh Quynh at ECOVIS Vietnam Law for a foreign executive compliance review. Email: [email protected] | Website: www.ecovislaw.vn
This material is for general informational purposes only and does not constitute legal, tax or professional advice. Investors should seek specific advice based on their business sector, ownership structure and investment location in Vietnam.
Attorney Vu Manh Quynh is the Managing Partner of ECOVIS Vietnam Law, advising international investors on Foreign Direct Investment (FDI), corporate governance, and regulatory compliance in Vietnam. Email: [email protected] | Website: www.ecovislaw.vn