In October 2023, the Government will submit the application of the Global Minimum Tax to the National Assembly for consideration and approval. The leader of the General Department of Taxation has stated that this measure will be effective starting next year.
In brief
As a result of reviewing the corporate income tax finalization data in 2022, the General Department of Taxation said that there are about 120 FDI foreign corporations investing in Vietnam (with more than 1,000 enterprises) affected by the GIT, if applicable from 2024, after excluding cases where the global minimum tax is not applicable.
Accordingly, if other countries all apply the global minimum tax starting from 2024, countries with parent companies will receive an additional tax difference in 2024 estimated at over VND 14,000 billion, equivalent to money, causing Vietnam’s budget to lose revenue if it is slow to respond. The General Department of Taxation expects that Vietnam’s National Assembly will issue a legal document on the global minimum tax. Anticipations suggest that this document will include regulations regarding the summation of Income Inclusion Tax (IIR) and Qualified Domestic Minimum Top-up Tax (QDMTT). These regulations have been codified by Vietnam to ensure compliance with model regulations and guidelines under the Global Tax Base Erosion and Profit Transfer program.
In more detail
The authorities will add proposed legislation on Pillar Two to the 2023 legislation program of the National Assembly, according to the Government’s Resolution No. 122/NQ-CP. The Draft Resolution proposes that Vietnam will implement both IIR and QDMTT from 1 January 2024.
The consensus-based two-pillar solution has an important role in ensuring fairness and equality in the tax system and strengthening the international tax framework in the face of new and changing business models.
Pillar 1:
The General Department of Taxation expects that the 15th Conference of the IF forum will approve the two-pillar results statement. The highlights of the conference include the draft multilateral agreement. The draft multilateral agreement covers Paragraph A of Pillar 1, which pertains to the portion of income derived from e-commerce businesses and digital economic services by multinational enterprises with a turnover of over US$20 billion and a profit-to-revenue ratio exceeding 10%. Additionally, it addresses Paragraph B of Pillar 1, which concerns marketing income and distribution.
The General Department of Taxation has reported that the IF forum is currently in the process of finalizing the work under Pillar 1, as well as the Rule on Taxing Rights of Source Countries (STTR) and its implementation framework. In particular, Paragraph A of Pillar 1 aims to establish the right of market countries to tax a specific portion of the excess profits earned by the largest and most profitable multinational companies operating in foreign markets. This measure aims to prevent the fragmentation of taxes on digital services and similar measures, avoid double taxation, reduce compliance burden, and ultimately enhance stability and certainty within the international tax system.
Pillar 2:
In addition, the conference is also expected to approve the declaration of the Taxing Rights of Source Countries (STTR) in Pillar 2 and the implementation support program.
The consensus-based two-pillar solution plays a crucial role in ensuring fairness and equality in the tax system, while simultaneously strengthening the international tax framework in response to new and evolving business models. By providing a collaborative approach, this solution aims to address the challenges posed by global economic changes and technological advancements. Furthermore, it emphasizes the importance of adapting the tax system to effectively capture the value created by multinational enterprises and promote a level playing field for all taxpayers. The Global Minimum Tax under Pillar 2 establishes a globally equitable corporate tax investment environment, ensuring that multinational businesses (MNEs) are taxable in each country at real minimum tax rates 15% regardless of where the business operates.
Advice for foreign investors when willing to invest into Vietnam
If you are a foreign investor concerned about the Vietnam Government’s proposal to implement the GIT, here are a few pieces of advice to consider:
1. Understand the implications
Investors should allocate sufficient time to thoroughly comprehend the proposed Global Income Tax (GIT) and its potential impact on their investments in Vietnam. Through closely examining the provisions of the GIT and its potential effects on their businesses, investors can gain a comprehensive understanding and make informed decisions. As a result it will allow them to develop appropriate strategies to navigate the changing tax landscape.
2. Seek professional advice:
Consult with local tax professionals, legal experts, financial advisors who can provide insights into the proposed GIT and how it may affect your investment in Vietnam.
3. Assess the potential impact on profitability:
By assessing how the implementation of Global Income Tax (GIT) could affect your profitability in Vietnam, you can take into account various factors such as changes in tax liabilities and the potential for double taxation. Consequently, you can determine the resulting impact on your bottom line and make more informed investment decisions.
4. Review existing tax structures:
To optimize tax efficiency and ensure compliance with changing tax regulations, it is advisable to revisit your current tax planning and structures in light of the proposed GIT. Assess if any adjustments required and determine whether your tax efficiency can enhance. Additionally, consider whether your current structures align with the changing tax regulations.
5. Consider long-term investment strategies:
Assess the long-term prospects of your investments in Vietnam. Determine whether the proposed GIT is likely to have a lasting impact on your business operations or if it may undergo modifications over time. Evaluate whether the potential benefits and opportunities in Vietnam outweigh the potential tax disadvantages.
Conclusion
As a result of reviewing the corporate income tax finalization data in 2022, the General Department of Taxation said that there are about 120 FDI foreign corporations investing in Vietnam (with more than 1,000 enterprises) affected by the the global minimum tax, if applicable from 2024, after excluding cases where the global minimum tax is not applicable. Accordingly, if other countries all apply the global minimum tax starting from 2024, countries with parent companies will receive an additional tax difference in 2024 estimated at over VND 14,000 billion, equivalent to money, causing Vietnam’s budget to lose revenue if it is slow to respond.
HMLF is always available to offer assistance in understanding the procedures with authorities.
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.
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Website: hmlf.vn Email: miller@hmlf.vn
