In the previous article, HMLF analyzed the positive signs of FDI inflows into Vietnam. However, large corporations are currently cautious about continuing to invest in Vietnam due to the impact of the Global Minimum Tax policy.
- Global Minimum Tax Mechanism
In late 2021, the agreement on a Global Minimum Tax (GMT) was approved. Under this agreement, large companies with revenues of 750 million EUR or more will be subject to a minimum global tax rate of 15%. With this mechanism, if an FDI (Foreign Direct Investment) company does not pay the 15% tax rate in the host country, it must pay the difference in the home country. The GMT requires the host country to proactively collect taxes. Therefore, tax incentives to attract FDI will no longer have any effect.
The mechanism of the Global Minimum Tax can be understood as follows:
Suppose a Korean company invests in Vietnam and has a subsidiary in Indonesia. In this case, Vietnam is given priority in the right to collect additional domestic taxes under the GMT (QDMTT). If Vietnam does not apply QDMTT, Korea has the right to collect taxes using the IIR (Income Inclusion Rule) method. If Korea does not apply IIR to collect taxes… Indonesia will have the right to collect those taxes using the UTPR (Under Tax Payment Rule) method.
- Statistics of Vietnamese FDI enterprises subject to GMT.
According to the General Department of Taxation, there are currently 1,015 FDI enterprises in Vietnam with parent companies subject to TTTC tax. Among them, 100 enterprises are likely to be affected, such as:
- Samsung, Intel, LG, Bosch, Sharp, Panasonic, Foxconn, Pegatron, etc.
According to calculations by the Ministry of Finance, Vietnam will be able to collect an additional 12,000 billion VND in domestic taxes by implementing the TTTC tax.
- Policies for Vietnam.
According to the proposal from Ernst & Young Vietnam, as the recipient country of investment, Vietnam should proactively claim the right to tax and create a favorable investment environment to ensure effective competition.
In Samsung’s opinion, Vietnam needs to establish a mechanism for financial support. This support is intended to supplement the reduced incentives for FDI enterprises depending on each type of company.
In addition, Vietnam should apply QDMTT to claim the right to additional taxes in order to obtain financial resources for the aforementioned support.
Specifically, Vietnam should have a support policy for direct investors in:
- Investment costs; R&D costs (research and development);
- Support for the construction costs of environmental protection projects;
- Support for emission reduction activities;…
The member of the Standing Committee of the National Assembly also expressed the view that Vietnam should consider deducting costs to achieve dual objectives. Instead of reducing tax rates, allow companies to deduct more than 100% for:
- Investment costs in R&D activities;
- Labor training, hiring high-quality personnel;…
This policy still creates preferential impact while achieving the goal of improving investment quality.
In addition, support for land, research and development costs, social housing development, housing for workers, etc. should also be encouraged.
(Reference: Investment Magazine’s 35 years of attracting foreign investment)
Harley Miller Law Firm “HMLF”
Head office: 14th floor, HM Town building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.
Phone number: +84 937215585
Website: hmlf.vn Email: miller@hmlf.vn
