Vietnam to enforce global minimum tax in early 2024

The Vietnamese government will in October submit a proposal to enforce the global minimum tax (GMT) to the National Assembly for approval, according to the General Department of Taxation.

At the 15th meeting of the Inclusive Framework on the Base Erosion and Profit Shifting (BEPS) organized by the Organization for Economic Cooperation and Development (OECD) in Paris on Tuesday, the General Department of Taxation's (GDT) deputy general director Dang Ngoc Minh said that the GMT is expected to be applied in Vietnam in early 2024.

This tax, agreed by the G7 countries in June 2021 to prevent multinational corporations from tax avoidance, will become effective from 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 revenue of €750 million ($800 million) or more. Such companies will be subject to a minimum global tax rate of 15%.

Minh said that the legislature will issue policies on the GMT, including the Income Inclusion Rule (IIR) and the Qualified Domestic Minimum Top-Up Tax (QDMTT), he added.

The QDMTT is a minimum tax that is incorporated into the domestic law of a jurisdiction. It must compute profits and calculate any top-up tax due in the same way as the Pillar Two rules themselves. This mechanism is to prevent FDI enterprises from paying an additional tax in other countries where their parent companies are headquartered. It is a measure that economies such as Hong Kong, Singapore, and Malaysia are considering and likely to apply.

According to the GDT representative, these regulations will be internalized in Vietnam to ensure compliance with the model's rules and guidance under the BEPS. The draft regulations will be sent to the business community, ministries and agencies for feedback before submitting to the National Assembly.

The Ministry of Finance reported there are 1,015 FDI enterprises in Vietnam with parent companies subject to the GMT. Of which, over 70 businesses are likely to be affected by this tax when it is applied in 2024. If all the countries where their parent companies are headquartered enforce the tax, they are projected to collect tax differences worth VND12 trillion ($506.9 million) in 2024.

According to the GDT, 335 direct investment projects worth over $100 million each in Vietnam, mostly in the manufacturing and processing sector, currently pay corporate income tax (CIT) below 15%, equivalent to the GMT rate. The common CIT rate in Vietnam is 20%.

Enterprises such as Samsung, Intel, LG, Bosch, Sharp, Panasonic, Foxconn, Pegatron, whose registered investment capital accounts for nearly 30% of total FDI in Vietnam (about $131.3 billion), are likely to be affected by the GMT.