Quick answer: For foreign workers in Vietnam there are two entirely different withholding mechanisms that must not be confused. The 10% mechanism: applies to resident individuals without a labor contract or with a contract under 3 months — the payer withholds 10% when each payment is VND 5 million or more (Clause 2, Article 50 of Decree 253/2026/ND-CP; the threshold is newly raised from 2 million to 5 million). The 20% mechanism: applies to non-resident individuals — a flat 20% on total salary from work performed in Vietnam, regardless of where it is paid (Article 21 of the Law on Personal Income Tax 109/2025/QH15). Confusing 10% with 20% is the most common withholding error at FDI companies using short-term foreign labor.
Applicable legal bases
The framework below is in force as of 20 October 2026 and directly governs this article:
- Law on Personal Income Tax 109/2025/QH15 (effective 01/07/2026; provisions on employment income of resident individuals apply from tax year 2026; replaces Law 04/2007/QH12) — Article 21 (non-residents: total salary from work performed in Vietnam multiplied by the 20% rate, regardless of where the income is paid).
- Decree 253/2026/ND-CP (effective 01/07/2026) — Clause 2, Article 50: organizations or individuals paying salary, wages or remuneration to resident individuals without labor contracts or with contracts under 3 months (including payments to employees whose contracts have terminated) at VND 5 million or more per payment must withhold 10% before payment; below VND 5 million per payment, withholding only at the individual’s request.
- Law on Tax Administration 108/2025/QH15 (effective 01/07/2026, replacing Law 38/2019/QH14) — withholding, filing and payment obligations of payers.
In-depth analysis
The starting point of every computation is the foreign worker’s tax residency status — not nationality, not visa type, not contract duration. Resident individuals (present in Vietnam for 183 days or more in a calendar year, or having a regular residence) with labor contracts of 3 months or more: withholding under the 5-bracket progressive schedule like Vietnamese nationals. Resident individuals without contracts or with contracts under 3 months (experts on short training trips, project consultants, probationers): 10% withholding on gross income before payment when each payment is VND 5 million or more. Non-resident individuals (under 183 days, no regular residence): a flat 20% with no deductions and no progressive schedule — withheld right at payment.
The most notable change in Decree 253/2026 is the VND 5 million-per-payment threshold, raised from the old VND 2 million. In practice this eases compliance: small one-off payments below 5 million (a one-time translation fee, travel reimbursements for itinerant experts) are no longer subject to mandatory withholding — unless the individual requests withholding for finalization convenience. But the threshold counts per payment, not per year: splitting a VND 12 million payment into three VND 4 million tranches to “dodge” the threshold is evasion — the authority aggregates them on audit and penalizes.
Quick reference for accounting teams
Case 1 — Resident expert, contract of 3 months or more: monthly withholding under the 5-bracket progressive schedule, with family deductions. The most “normal” case.
Case 2 — Resident individual, no contract or contract under 3 months: 10% withholding on gross income for payments of VND 5 million or more per payment. Below 5 million: only withhold at the individual’s request. May sign a commitment for temporary non-withholding if this is the only income source and estimated annual taxable income after deductions is below the taxable threshold.
Case 3 — Non-resident individual: 20% withholding on total salary from work performed in Vietnam, regardless of where paid, no deductions. No commitment mechanism like Case 2.
Case 4 — Terminated employees still receiving income (back pay, deferred bonuses): Clause 2, Article 50 of Decree 253/2026 expressly covers this — 10% withholding applies from VND 5 million per payment. Many companies miss it, thinking “ex-employee means no more obligations.”
The non-withholding commitment — valid only if used correctly
The commitment mechanism is available only for Case 2 (resident individuals without contracts or with contracts under 3 months). Cumulative conditions: this is the individual’s only income subject to the 10% withholding; estimated annual taxable income after lawful deductions is below the taxable threshold; the individual has a tax code and tax registration at the time of signing; and the individual is liable for the commitment’s contents (false statements are penalized). The payer may rely on the commitment to pause withholding but must still compile the list and incomes for the tax authority at year-end. Note: the commitment is unavailable to non-residents — for them, the immediate 20% withholding is mandatory.
Common risks and how to prevent them
- Applying 10% to non-residents: withholds only half the required tax (20% is correct) — determine residency status before any computation.
- Using the old VND 2 million threshold: since 01/07/2026 the threshold is VND 5 million per payment under Decree 253/2026 — update accounting procedures.
- Splitting payments to dodge the threshold: the authority aggregates same-nature payments on audit — do not do it.
- Forgetting to withhold on payments to ex-employees: deferred bonuses and back pay from VND 5 million per payment remain subject to 10% withholding.
Frequently asked questions
1. A foreign expert works 2 months and receives VND 30 million — how much is withheld?
Determine residency first: under 183 days in the year with no regular residence in Vietnam means non-resident — withhold 20% = VND 6 million. If a resident individual (e.g., present in Vietnam the whole prior year) — withhold 10% = VND 3 million, since the payment exceeds 5 million and the contract is under 3 months.
2. How is the VND 5 million-per-payment threshold counted?
Per actual payment. At VND 5 million or more per payment: mandatory 10% withholding (for resident individuals without contracts or with contracts under 3 months). Below 5 million: only withhold at the individual’s request.
3. Can non-residents sign a commitment for temporary non-withholding?
No. The commitment is only for resident individuals under the 10% withholding. For non-residents, the immediate 20% withholding at payment is mandatory.
4. Must we withhold on a bonus paid to an expert who left 6 months ago?
Yes. Clause 2, Article 50 of Decree 253/2026 covers payments to employees whose labor contracts have terminated — from VND 5 million per payment, withhold 10% (resident) or 20% (non-resident).
Key takeaway for investors
10% versus 20% is not a choice — it is a consequence of residency status. The correct procedure for every payment to a foreign worker: determine residency first, then select the mechanism (progressive / 10% / 20%), and check the new VND 5 million-per-payment threshold under Decree 253/2026. Reversing this order is the certain recipe for every withholding error.
This article has been quality-reviewed by the FLAW AI Legal Council This content is legal reference only and does not replace counsel for a specific case.
