global minimum tax

From 1.1.2024, Vietnam applied a global minimum tax for green and high-tech investment boost

Vietnam’s adoption of the global minimum tax from 1 January 2024 is vital for upholding taxing rights, fostering trust, promoting investment, and showcasing transparency. Vietnam’s foreign investment strategy for 2021–30 prioritizes global production connectivity, green and high-tech investment, and support industries.

On November 29, the National Assembly approved a Resolution to implement additional corporate income tax aligned with the Global Anti-Base Erosion Rules (global minimum tax), effective from January 1, 2024. Despite receiving a majority vote in favour (93 percent), concerns persist about the feasibility, impact on Vietnam’s competitiveness in attracting foreign direct investment (FDI), and preferential policies for retention of high-tech “eagles”.

Under this resolution, a global minimum tax rate of 15 percent will apply to multinational corporations with revenue exceeding 750 million euros (about US$800 million) in two of the four consecutive years.

The Resolution affects constituent units of multinational corporations and introduces two components: Qualifying Domestic Minimum Top-Up Tax (QDMTT) for units with activities in Vietnam and Minimum Taxable Income (IIR) for parent companies in Vietnam with ownership of low-tax foreign entities.

The Ministry of Finance’s calculations estimate 122 foreign corporations in Vietnam will be affected by QDMTT, with an expected additional tax collection of around VNĐ14.6 trillion ($608.3 million). If IIR is applied to Vietnamese corporations, about six entities may be subject to it, with an estimated additional tax collection of around VNĐ73 billion.

Countries and territories investing abroad, including those with substantial capital in Vietnam (such as South Korea, Japan, Hong Kong, and Singapore), are expected to implement the global minimum tax in 2024. Similarly, countries receiving foreign investment, like the global minimum tax, are exploring policies to address the global minimum tax.

In this context, it is imperative for Vietnam to affirm the adoption of the global minimum tax in accordance with OECD guidelines. This is vital for upholding taxing rights, fostering trust, promoting investment and showcasing transparency.

Concerns arise, however, that the global minimum tax may impact Việt Nam’s competitiveness in attracting investment, potentially diminishing the effectiveness of tax incentives for foreign businesses, especially for strategic investors amid intense competition for foreign investment. The potential shift of investment away from large-scale businesses could hinder national industrial development goals, affecting technology transfer and ecosystem building.

The Ministry of Planning and Investment (MPI) is urged to design additional incentives to support new investment activities and maintain a competitive environment. FDI enterprises recommend Vietnam implement preferential mechanisms and policies, focusing on factors like labour, infrastructure, and administrative procedures.

According to experts, FDI enterprises may be willing to pay a 15 percent corporate income tax rate but request additional preferential policies to encourage investment, production, and business. Looking at it differently, the global minimum tax can be viewed as an opportunity for Vietnam to develop a favorable and competitive investment and business environment.

With the global minimum tax implementation, additional revenue can be allocated to infrastructure development, human resource training, technology investments, and supporting Vietnamese businesses in multinational corporations’ value chains. Inspired by Thailand’s approach, allocating a percentage of the global minimum tax to an investment committee’s competitiveness enhancement fund could be considered by Vietnam for domestic businesses.

Finance Minister Ho Duc Phoc emphasized the purpose and perspective behind the Resolution project, which strives to showcase progress and transparency in the tax management system and the business investment environment, aligning with international standards. Importantly, existing preferential policies for businesses not subject to the global minimum tax will be maintained.

Despite challenges, Vietnam’s appeal for FDI remains strong, driven by advantages like cost-effective human resources, strategic location, free trade agreements, economic growth, and a stable political and legal system.

In 2023, FDI attraction in Vietnam reached about $36.6 billion, a 32% increase from the year 2022, with the implemented capital hitting $23.18 billion, the highest in the period between 2018 and 2023.


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