Vietnam to internalize global minimum tax rules for implementation in 2024

10:08 PM @ Thursday - 28 September, 2023

Vietnam will internalize additional tax and incentive policies to support the enforcement of the global minimum tax in early 2024, in order to prevent tax evasion and encourage foreign businesses to operate in the long term in the country, said Finance Minister Ho Duc Phoc.

Global minimum tax a must

“Vietnam will lose a large amount of tax revenue unless the global minimum tax is imposed on foreign businesses in Vietnam,” Phoc said while presenting a draft resolution regarding additional corporate income taxes in line with the Global Anti-Base Erosion Rules (GloBE), at the ongoing session of the National Assembly Standing Committee in Hanoi on September 28.

He was afraid that large foreign businesses will find it difficult to stay and invest in Vietnam if the global minimum tax is not enforced, explaining that the tax agencies of the businesses’ parent companies in their host countries will have to claim back taxes.

“The global minimum tax is not an international treaty, not an international commitment, and not mandatory for countries to tax. However, if Vietnam does not impose, it still has to accept that other countries apply the global minimum tax and have the right to collect additional taxes on businesses operating in Vietnam,” pointed out the minister.

He therefore affirmed that the implementation of the global minimum tax policy gives Vietnam the opportunity to increase budget revenue from additional taxes, and reduce tax evasion and profit shifting.

Who are tax payers?

The global minimum corporate tax, or the global minimum tax, is a minimum rate of tax on corporate income internationally agreed upon and accepted by individual jurisdictions. It is one of the two pillars of the Domestic Tax Base Erosion and Profit Shifting (BEPS) programme that was initiated by the Organization for Economic Cooperation and Development (OECD) and agreed upon by more than 140 countries and territories.

The tax, which was approved by the group of seven industrialised economies (G7) in 2021, aims to reduce tax competition between countries and discourage multinational corporations (MNC) from profit shifting as a means of achieving tax avoidance. The tax rate of 15% will apply to MNCs with revenue exceeding EUR750 million, equivalent to approximately US$800 million, or more in two years of four consecutive years.

Foreign-invested enterprises in Vietnam which have currently enjoyed the corporate tax rate below 15% will have to pay additional taxes to meet the 15% rate. Statistics show that about 122 foreign businesses operating in Vietnam will have to pay additional taxes. The two taxes they will have to pay additionally are income inclusion rule (IIR) and qualified domestic minimum top-up tax (QDMTT).

However, these additional corporate income taxes are yet to be regulated in the Vietnam Income Tax Law that need to be submitted to the National Assembly for approval.

Tax payers in Vietnam

According to experts, the global minimum tax rate of 15% will raise great concerns regarding investment and operation strategies of MNCs, as well as the FDI attraction strategy, if response measures are not adopted quickly.

Minister Phoc said Vietnam, besides internalizing IIR and QDMTT rules, should also examine a number of financial support solutions to retain foreign businesses subject to the global minimum tax and attract new investors. The move will help ensure the legal rights and interests of Vietnam, and at the same time increase trust between businesses and the Government, encouraging businesses to expand investment in the country.

Arguing over the implementation of the new tax policy, Vu Hong Thanh, chairman of the National Assembly’s Economic Committee, agreed that given the current context Vietnam has no choice but to play by the rules. He reminded that the tax calculation formula should be clear and easy to implement, and the new tax policy should ensure the stability of the business and investment environment in the country.

The General Department of Taxation reported that there are about 335 projects nationwide with a registered investment capital of over US$100 million each, operating in the fields of processing and manufacturing in economic zones and industrial parks.

These businesses, including Samsung, Intel, LG, Bosch, Sharp, Panasonic, and Foxconn. are enjoying corporate income tax rates of less than 15%. These firms are likely to be subject to the global minimum tax, along with thousands of satellite and ancillary enterprises that will be affected if these businesses adjust their investment strategies.

The new tax policy will be submitted to the National Assembly at its year-end session due to begin in late October.  – VOV –