Lease Contract and Housing Allowance

When relocating expatriates to Vietnam, housing leases and allowances are essential aspects to consider. Here are some key points to note:

Lease Contract:

Should a deposit be paid? How many months of the rent should the deposit be?

It's common for lessors in Vietnam to require a security deposit when entering into a lease agreement. Depending on the property type and market conditions, the deposit amount typically ranges from one to two months' rent. Additionally, some lessors may request advance payment of rent for a certain period, such as quarterly or biannually.

Should the lease contract be written?

According to Article 163 of the Law on Housing 2023, all lease agreements for residential properties must be executed in writing. This requirement ensures that both parties have a clear understanding of their rights and obligations. The lease contract should include the essential details of the parties, the property, including its location, size, and condition, rental amount and payment terms, lease term, rights and obligations of both the lessor and lessee, including maintenance responsibilities, termination provisions, and dispute resolution mechanisms; and other relevant terms agreed upon by the parties, such as security deposits, utilities, and subletting restrictions.

Will the lease contract need to be notarized?

While not mandatory, notarizing the lease contract can provide additional legal protection and may be beneficial in certain situations. If both parties agree, they may execute to have the contract notarized. The cost of notarization should be discussed and agreed upon by the lessor and lessee.

How long should the lease term be?

The lease term depends on the preferences of both the lessor and lessee. It's common to have lease terms ranging from one to three years, but longer terms are also possible if both parties agree.

Temporary residence registration

Expatriates in Vietnam are required to obtain a temporary residence registration. This process typically involves providing documents such as a passport, work permit, and proof of accommodation. It's essential to check with the lessor at the beginning of the lease to understand their requirements and support in obtaining the temporary residence registration.

Taxation of the lessor: If the lessor is an enterprise, the tax implications for the lease are relatively straightforward. However, if the lessor is an individual, there may be additional considerations. It's common for individual lessors to prefer receiving net payments and leaving the tax handling to the lessee. In such cases, the lease contract should clearly outline the tax responsibilities of both parties.

Housing allowance

Housing allowances are commonly offered and included in expatriate employment packages. The specific amount and terms of the allowance depend on the company's policies and mutual agreement between the parties. Currently, there are no specific regulations governing the range of housing allowances in Vietnam. The amount will be determined through negotiations between the employer and the expatriate.

A common question regarding this housing allowance is whether it should be paid in cash along with monthly salary and other remunerations to the expatriate or whether the employer should contract with and pay the lessor directly and assign the expatriate to the lease. Both options are viable, with their own advantages and disadvantages. If the expatriate receives a cash housing allowance, they shall have the flexibility to choose their preferred apartment or house. However, they will need to manage the lease agreement and interact directly with the lessor. If the company leases the property, it will handle these matters as a contractual party.

Understanding the tax implications of this allowance is also crucial to have an appropriate answer to this question.

Tax Implications

For the company: The housing allowance expense may be deductible for Corporate Income Tax. Proper documentation is essential to support this deduction.

According to Circular 96/2015/TT-BTC and Circular 78/2014/TT-BTC, the required documentation includes:

  • An employment agreement with a housing allowance clause.

  • A lease contract, valid value-added tax (VAT) invoices, or equivalent documentation.

  • If applicable, internal financial rules or collective labor agreements related to housing allowances for employees at that level.

For expatriates: Housing allowance is taxable under the Personal Income Tax (PIT) law. However, there's a tax benefit if the employer directly pays the rent, electricity, water, and accompanying services charges to the lessor. In this case, the PIT-taxable amount of the housing allowance is capped at 15% of the total taxable income (excluding the rent, electricity, water, and other accompanying services charges (if any)), as per Clause 2, Article 11 of Circular 92/2015/TT-BTC and Point dd, Clause 2, Article 2 of Circular 111/2013/TT-BTC.

Properly managing the lease agreement can help expatriates minimize their taxable income from housing allowances.

Disclaimer

This Newsletter contains only brief notes and includes legislation in force as of October 2024. The information herein is general and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one is entitled to rely on this information, and no one should act on such information without appropriate professional advice obtained after a thorough examination of the particular situation.