Vietnam approves global minimum tax, gov’t to build supporting policy

The National Assembly (NA), Vietnam’s highest legislative body, passed a resolution on global minimum tax (GMT) on Wednesday with a 93.52% endorsement.

The resolution will become effective on January 1, 2024, however, tax payments per the scheme will be applied from fiscal year 2025.

The government has been tasked with drafting amendments to the Law on Corporate Income Tax (CIT), in order to add to the National Assembly’s lawmaking plan for 2024 to prepare for the move.

In order to fulfill Vietnam’s commitment with the Organization for Economic Cooperation and Development (OECD), the architect of the GMT, the resolution stipulates that in case of differences between the GMT resolution and other laws/resolutions, the GMT resolution will prevail.

As the resolution does not feature details related to tax declaration, payment location, and solutions for non-compliance, the government has been asked to draft a decree on the GMT's implementation.

As the GMT is set to negate some of Vietnam’s preferential policies for foreign investors, the government has been requested to draft a decree next year on establishing a fund of GMT revenues and using that fund and other resources to build support for investors, especially in prioritized sectors.

The GMT, agreed to by G7 countries in June 2021 as a measure to prevent tax avoidance by multinational corporations, will become effective on January 1, 2024 in many OECD countries. The GMT under OECD Pillar Two is a once-in-a-lifetime global tax reform that will apply to multinational companies with revenues of EUR750 million ($800 million) or more. Such companies will be subject to a minimum global tax rate of 15%.

Vietnam’s current general CIT is 20%, basically higher than the GMT and fulfilling the initiative, said Luu Duc Huy, head of the General Department of Taxation’s policy department. However, some foreign-invested enterprises are subject to tax exemptions and low tax rate policies, hence their practical rates are lower than 15%.

Once the GMT resolution is in place, Vietnam could collect VND14.6 trillion ($600 million) of tax differences between the country’s current tax scheme and the GMT in the first year of enforcement, according to a government report.