TIGHTENING TAX & SOCIAL INSURANCE AUDITS IN 2026: 4 LEGAL BLIND SPOTS IN LABOR CONTRACTS LEADING TO BILLIONS IN BACK-TAXES FOR ENTERPRISES

Tax and Social Insurance authorities are strengthening inter-agency data-sharing mechanisms, applying risk-based management, and conducting online inspections on digital data. However, many enterprises maintain outdated practices in drafting Labor Contracts (LCs) and accounting for payroll expenses. This lack of legal compliance updates creates severe exposure to back-tax collection, compulsory social insurance arrears, Corporate Income Tax (CIT) and Personal Income Tax (PIT) reassessments, alongside late-payment interest and administrative penalties amounting to billions of VND. Below is a detailed analysis of the 4 most common legal blind spots that businesses must review immediately.

1. Blind Spot 1: Evading Social Insurance Contributions via Service Contracts, Collaboration Contracts, or “Voluntary Opt-Out” Agreements

• Current Practice: To optimize labor costs, many businesses sign Service Contracts, Consulting Contracts, or Collaboration Contracts with actual staff, or insert clauses into agreements stating that “employees voluntarily opt out of social insurance.”

• Legal Risks: Under the Law on Social Insurance 2024, compulsory social insurance coverage applies to employees working under indefinite-term labor contracts or definite-term labor contracts of at least 01 month, including cases where both parties agree on a different job title/contract name, but the content reflects paid work, remuneration, and management, direction, or supervision by one party.

• Consequences: Intentionally misclassifying contract types to evade social insurance registration is categorized as evasion of social insurance contributions. Enterprises are not only forced to pay all evaded contributions in full but must also pay late-payment/evasion interest at 0.03% per day calculated on the overdue amount and number of days, face administrative fines under Decree 283/2026/ND-CP, and potentially face criminal liability.

2. Blind Spot 2: Splitting Salaries into “Artificial” Allowances to Reduce the Social Insurance Contribution Base

• Current Practice: Enterprises set a very low base salary (matching only the minimum wage) and allocate the majority of income into various allowances or support payments to minimize social insurance contributions.

• Legal Risks: According to Article 31 of the Law on Social Insurance 2024, the monthly salary serving as the basis for compulsory social insurance contributions determined by the employer includes: job/position salary rate, salary allowances, and other supplementary payments agreed upon to be paid regularly and stably in each pay period.

• Inter-Agency Audit Mechanism: The Law on Social Insurance 2024 stipulates that Tax authorities shall provide Social Insurance agencies with payroll data used for tax deduction purposes. Through cross-agency data verification, if fixed and regularly paid monthly allowances/supports are found to have been excluded from the social insurance base, the enterprise will be charged with under-reporting social insurance wages and subject to full arrears plus a late-payment interest rate of 0.03% per day.

3. Blind Spot 3: Unpaid or Unsupported Payroll Expenses Disallowed from Deductible Expenses for CIT Purposes

• Current Practice: Labor contracts or salary regulations record certain salary, bonus, or allowance expenses, but lack proof of actual disbursement, employee acknowledgment signatures, or valid non-cash payment vouchers as required by law.

• Legal Risks: Under the Corporate Income Tax Law 2025, salary, wage, and other recorded expenses payable to employees that are not actually disbursed or lack valid invoices and supporting documentation as prescribed by law shall not be included in deductible expenses when determining taxable corporate income. Furthermore, expenses lacking non-cash payment vouchers (where mandatory) will also be disallowed.

• Consequences: Disallowing payroll expenses increases taxable income, triggering CIT back-taxes, administrative fines ranging from 10% to 20% of the under-reported tax amount, plus late-payment interest. Notably, the statute of limitations for back-tax assessment and recovery can extend up to 10 years retroactively from the date of violation discovery.

4. Blind Spot 4: Incorrect PIT Withholding on Short-Term/Seasonal Labor and Substandard Tax Withholding Receipts

• Current Practice: Paying income to seasonal workers, probationers, or individuals without formal labor contracts without withholding 10% Personal Income Tax (PIT) at source, or failing to issue electronic PIT withholding receipts in compliance with regulations.

• Legal Risks: Income-paying organizations and individuals are obligated to withhold tax at source, issue electronic PIT withholding receipts (using digital signatures) upon request, and bear responsibility for annual PIT finalization under authorization or full reporting.

• Consequences: During tax audits, failure to withhold and remit PIT on behalf of seasonal/short-term workers will result in PIT back-assessments against the enterprise, administrative penalties for false tax declarations leading to underpayment (10% – 20%), and late-payment interest accrued on the back-tax amount.

RECOMMENDATIONS FOR ENTERPRISE INTERNAL LEGAL AUDITS

1. Standardize Labor Contracts: Review all service and consulting contracts signed with individuals. If elements of regular work, payment, and managerial control exist, reclassify them into formal LCs immediately to comply with the Law on Social Insurance 2024.

2. Audit Salary Scales and Allowance Structures: Clearly distinguish between regular/fixed allowances (subject to social insurance) and non-fixed allowances according to regulations.

3. Complete Payroll Documentation: Ensure all salary and bonus expenses are stipulated in LCs or Financial/Payroll Regulations, backed by actual payment receipts and valid non-cash transaction records.

4. Update Electronic PIT Withholding Receipt System: Comply with regulations on issuing and managing electronic PIT withholding receipts under Decree 254/2026/ND-CP and Circular 89/2026/TT-BTC to guarantee the validity of tax finalization files.