Vietnam aims to implement Global Minimum Tax from 2024

Vietnam plans to enforce the Global Minimum Tax (GMT) from January 1, 2024, the General Department of Taxation (GDT) told a conference on Tuesday.

As many as 100 major foreign-invested companies are subject to the GMT, according to the GDT.

The GMT under OECD Pillar Two is a once-in-a-lifetime global tax reform that will apply to multinational companies with revenue above 750 million euros, and many OECD countries are set to implement it at the beginning of 2024.

The tax authorities added that about 335 direct investment projects worth over $100 million each in Vietnam, mostly in the sector of manufacturing and processing, are enjoying corporate income tax (CIT) below 15%, equivalent to the GMT rate. Notable names are high-tech ones like Samsung, Intel, LG, Bosch, Sharp, Foxconn, among others.

Regarding CIT, foreign-invested enterprises (FIEs) account for 39-41% of CIT revenues in Vietnam, while CIT make up 18-21% of the total state budget collection.

The GDT also highlighted GMT application could lead to more tax revenue for Vietnam by taxing Vietnamese firms with outbound investments, like telecom giant Viettel, private conglomerate Vingroup, state-owned Petrovietnam, and some commercial banks.

Vietnam’s normal CIT is 20%, already beyond the GMT rate of 15%. However, in combination with the country’s preferential policies, the CIT is about 12.3% on average for FIEs, according to the Institute of Policy Administration and Development Strategy.

The institute clarified that preferential tax policies may not result in attracting more foreign direct investment (FDI) in ASEAN nations, but only compensating for weaknesses in administration and even leading to an unfair business environment for small and medium enterprises.

Samsung proposals

Speaking at the event, Samsung Vietnam CEO Choi Joo Ho urged Vietnam to retain its rights to tax by implementing the domestic minimum top-up taxes (QMDTT) mechanism, and introduce policies offsetting the loss of benefits for enterprises impacted by the GMT.

In particular, the executive proposed Vietnam deliver support via cash or qualified refundable tax credit (QRTC) mechanism. He clarified cash support have already been provided in Germany, the U.S., and India for research and development (R&D), machinery, production, export, and others. "As Vietnam has yet to apply such support, the country can learn from other nations toward early implementation."

Choi Joo Ho reiterated that some competitors like Thailand and India have already made moves to offset negative impacts, hence Vietnam should offer suitable support.

For Samsung, the additional tax payment due to the GMT is about $400 million yearly, or about $6.5 billion for the whole period of its projects. Meanwhile, the firm has to invest $200 million in R&D and another $200 million in machines yearly, and Vietnam can provide support for such investments to offset additional taxes, he added.

EY recommendations

As the number of firms impacted by the GMT is low at about 70 in Vietnam, the authorities should negotiate with them to make tailored policies to offset the impacts, EY Vietnam proposed. For example, the support should be related to R&D, environmental protection, benefits for employees, and others, the auditor told the event.

In order to comply with the OECD’s rules, EY Vietnam recommended the support policies should cover more than just firms impacted by the GMT and the support should not be proportional to additional tax payments.

The GMT may lead to additional tax revenues of VND12 trillion ($510.36 million), paid by about 70 giant businesses in Vietnam to their home nations in 2024 if Vietnam does not enforce the tax in the year, Minister of Finance Ho Duc Phoc told the event.

Addressing the event, Nguyen Van Chi, vice head of the National Assembly's Budget and Finance Committee, asked relevant authorities to identify the correct number of firms having to pay more taxes under the GMT scheme and the tax formula itself.