1. Introduction

1.1. Purpose and Scope of the Legal Analysis

Managing the termination of a foreign employee in Vietnam requires enterprises to comply with multiple statutory obligations. Unlike domestic personnel, the employment of foreign nationals is tied directly to their immigration status and governmental work authorization. A lawful termination process must precisely address labor rights, compulsory social insurance mandates, tax finalization, and the immediate revocation of immigration documents. This essay provides a comprehensive legal analysis of the statutory rights granted to foreign employees upon termination, offering enterprises clear guidance to execute offboarding procedures accurately and avoid administrative sanctions.

1.2. The Intersection of Labor and Immigration Obligations

The foundational principle governing the termination of expatriate workers is the inseparable link between their labor rights and their immigration status. When an enterprise signs a labor contract with a foreign national, it simultaneously assumes the role of an immigration sponsor. Therefore, the termination of the employment contract is not merely the severance of a labor relationship under the Labor Code 2019; it acts as a legal trigger that automatically invalidates the foreign employee’s right to reside and work in Vietnam under current immigration and foreign labor regulations. Enterprises must process financial settlements concurrently with the administrative revocation of state-issued permits to ensure absolute compliance.

2. Lawful Grounds for Contract Termination

The exact financial entitlements and procedural rights of a foreign employee depend entirely on the legal basis for the termination. The labor regulations establish specific scenarios under which an employment contract may legally end.

2.1. Expiration of the Work Permit

Foreign nationals are strictly permitted to work under fixed-term labor contracts. The duration of this contract must correspond precisely to the validity period of their state-issued Work Permit, which has a statutory maximum term of two years. According to current labor regulations, the expiration of the Work Permit automatically constitutes a lawful ground for the termination of the employment relationship. In this scenario, the enterprise is not required to justify the termination based on performance metrics, as the expiration of the governmental authorization dictates the end of the contract.

2.2. Mutual Agreement Between Parties

The enterprise and the foreign employee have the right to terminate the employment contract at any point prior to its expiration through mutual consent. For compliance purposes, enterprises must document this agreement in writing. A formal separation agreement must explicitly state the agreed-upon termination date, detail the exact financial settlement encompassing basic salary and untaken leave, and outline the timeline for the revocation of the Work Permit and Temporary Residence Card (TRC).

2.3. Unilateral Termination by the Employer

An enterprise retains the right to unilaterally terminate a foreign employee’s contract under specific statutory conditions. These conditions include the employee’s continuous failure to perform contractual duties, prolonged illness requiring extended treatment, or force majeure events that compel the enterprise to reduce its workforce. To lawfully terminate an employee for failure to perform duties, the enterprise must have previously established quantifiable performance evaluation criteria registered in the internal company regulations. Terminating an employee for poor performance without documented evidence aligned with these registered rules is legally classified as an unlawful dismissal.

2.4. Unilateral Termination by the Foreign Employee

Foreign employees possess the right to unilaterally terminate their fixed-term employment contract without stating a specific reason. Their primary legal obligation is to adhere to the statutory advance notice period. For foreign workers on standard fixed-term contracts, the required notice period is a minimum of 30 days. The law waives this notice requirement entirely if the employee is subject to maltreatment, workplace sexual harassment, or delayed salary payments.

3. Procedural Obligations and Notice Rights

3.1. Advance Notice Requirements

When an enterprise exercises its right to unilaterally terminate the contract, the foreign employee is legally entitled to receive advance written notice. For fixed-term contracts, the enterprise must issue the termination notice at least 30 days prior to the final working date. The law provides exemptions to this notice period only in cases of severe disciplinary dismissal or if the employee has an unexcused absence for five consecutive working days.

3.2. Legal Consequences of Procedural Non-Compliance

If the enterprise fails to observe the required notice period, it commits a procedural violation. The foreign employee is legally entitled to financial compensation equivalent to their standard contractual salary for the number of unnotified days.

4. Financial Entitlements and Mandatory Settlements

Enterprises are legally mandated to settle all financial obligations owed to the foreign employee within 14 working days from the official termination date. In cases involving corporate restructuring or enterprise dissolution, this deadline may be extended, but it cannot exceed 30 days.

4.1. Settlement of Final Salary and Unused Annual Leave

The foreign employee has an absolute right to receive all unpaid basic salaries, prorated bonuses as defined by internal policies, and any unpaid allowances calculated up to their final working day. Additionally, if the employee resigns or is terminated before utilizing their statutory annual leave, the enterprise must pay the employee for those unused days in cash, calculated based on the employee’s daily salary at the time of termination.

4.2. Severance Allowance Rights and Calculation Protocols

 A foreign employee who has worked continuously for the enterprise for 12 full months or more is entitled to a Severance Allowance upon termination, provided the termination falls under standard grounds such as contract expiration or mutual agreement. The statutory calculation for this allowance is one-half of a month’s salary for each year of eligible service.

Vietnamese labor law defines eligible service time as the total time worked minus the time the employee participated in Unemployment Insurance (UI). Crucially, under the Law on Employment 2025, foreign workers remain strictly exempt from the compulsory UI system. Because their UI contribution time is zero, enterprises must calculate and pay the Severance Allowance based on the entire duration of the foreign employee’s service. The salary basis for this calculation is the average monthly salary specified in the labor contract over the six consecutive months immediately preceding the termination.

4.3. Job-Loss Allowance in Corporate Restructuring

 If the foreign employee is terminated due to structural changes, technological shifts, economic reasons, or corporate mergers, they are entitled to a Job-Loss Allowance instead of a standard Severance Allowance. The calculation for this allowance requires one month’s salary for each year of service, with a mandatory minimum payout of two months’ salary.

5. Social Insurance and Health Insurance Rights

With the enforcement of the Law on Social Insurance 2024 (effective July 2025), the regulatory framework governing the social security of foreign workers ensures stricter compliance and clearer withdrawal protocols.

5.1. Eligibility for the One-Time Social Insurance Withdrawa

l Upon the termination of the employment contract and the subsequent expiration of the Work Permit, a foreign employee who intends to leave Vietnam possesses the statutory right to claim a lump-sum withdrawal of their accumulated Social Insurance contributions. The enterprise must finalize the social insurance data and return the physical or electronic records to the employee. The employee must then submit the withdrawal application directly to the local social insurance agency before departing the country.

5.2. Health Insurance Proration

The enterprise must promptly report the termination to the relevant state authority to cease Health Insurance contributions. The foreign employee retains the right to utilize their state-issued Health Insurance card until the last day of the month in which the termination is reported and the final premium is paid.

6. Immigration Status and Work Permit Revocation Procedures

The employment of a foreign national establishes a direct legal sponsorship link between the enterprise and the employee’s immigration status. Terminating the contract mandates immediate administrative action from the employer under current foreign labor decrees (including Decree 219/2025/ND-CP).

6.1. The Work Permit Revocation Process

The invalidation of the labor contract directly invalidates the associated Work Permit. The foreign employee is required to surrender the original Work Permit to the enterprise. The enterprise is legally obligated to submit a formal revocation dossier to the Provincial People’s Committee (or its delegated specialized agency) within 15 days from the termination date. The employee has the right to request a certified copy of the revocation confirmation to secure future employment in Vietnam.

6.2. Temporary Residence Card and Visa Cancellation

 The enterprise acts as the legal sponsor for the foreign employee’s TRC or working visa. When employment ceases, the legal basis for this sponsorship is voided. The enterprise must formally notify the Vietnam Immigration Department of the termination to cancel the residence documents. Upon cancellation, the Immigration Department issues a temporary exit visa, allowing the foreign employee sufficient time to organize their departure or finalize a transfer to a new sponsoring enterprise.

7. Personal Income Tax Finalization

7.1. Tax Obligations Prior to Departure

If the termination results in the foreign employee permanently ending their residence in Vietnam, the law mandates that they finalize their Personal Income Tax (PIT) obligations prior to departure. If the foreign employee generated income solely from the terminating enterprise during the calendar year, they may authorize the enterprise to finalize the tax on their behalf. If they possessed multiple income sources, direct filing with the tax authority is required. The enterprise must issue a Withholding Tax Certificate to the employee, serving as legal proof of taxes paid.

7.2. Tax Exemptions on Severance Payments

 Statutory Severance Allowances and Job-Loss Allowances paid strictly within the limits defined by labor regulations are entirely exempt from PIT. However, any ex-gratia payments, customized severance packages exceeding the statutory formula, or specific relocation allowances paid upon termination are classified as taxable income and must be subject to standard tax withholding by the enterprise.

8. Legal Protections Against Unlawful Termination

If an enterprise fails to adhere to the statutory termination grounds or the required procedural notice periods, the termination is classified as unlawful. In such instances, the foreign employee is granted strict remedial rights.

8.1. Mandatory Reinstatement and Backpay

The primary legal remedy for unlawful termination is mandatory reinstatement. The enterprise is required to accept the employee back into their previous position. Furthermore, the enterprise must pay the employee’s full salary, alongside social and health insurance premiums, for the entire duration they were unlawfully prohibited from working.

8.2. Statutory Compensation and Settlement Negotiation

 In addition to backpay, the enterprise must pay a mandatory penalty compensation equivalent to at least two months of the employee’s salary. In scenarios involving foreign workers, the Work Permit often expires during the course of a labor dispute, rendering physical reinstatement legally impossible. Under these circumstances, the enterprise and the employee must negotiate a comprehensive financial settlement incorporating the backpay for unworked days, the two-month penalty compensation, and the standard statutory Severance Allowance.

9. Conclusion

The termination of a foreign employee in Vietnam demands precise execution of statutory obligations across labor, social insurance, immigration, and tax sectors. Foreign employees possess clear rights regarding notice periods, specific severance calculations based on unemployment insurance exemptions, social insurance withdrawals, and strict protections against unlawful dismissal. For enterprises, rigorous compliance with the Labor Code, the Law on Employment, the Law on Social Insurance, and current decrees on foreign labor management is non-negotiable. Proper documentation and adherence to statutory timelines for document revocation are essential to ensure a lawful offboarding process and to protect the business from administrative sanctions.

HARLEY MILLER LAW FIRM

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