Vietnam has taken a significant step in aligning with global tax standards by implementing the global minimum tax, as outlined in the OECD’s Pillar Two Model Rules. The National Assembly of Vietnam passed resolution No. 107/2023/QH15 on November 29, 2023, with an overwhelming majority, paving the way for the new tax regulations to take effect from January 1, 2024.
In this article, we will provide you with a simplified overview of:
- Key Provisions of the Global Minimum Tax
- Implications for Vietnamese Businesses
- Impact on Foreign Investments
- Government Measures and Future Plans
- Anticipating Challenges
- Conclusion
Key Provisions of the Global Minimum Tax
The resolution introduces the Income Inclusion Rule (IIR) and Qualified Domestic Minimum Top-up Tax (QDMTT) in Vietnam, mirroring the Global Anti-Base Erosion (GloBE) Model Rules of the OECD. The primary provisions include:
Minimum 15% Tax for Large MNEs:
- Multinational enterprises (MNEs) with annual consolidated revenues exceeding EUR 750 million in at least two of the last four fiscal years are mandated to pay a minimum 15% corporation tax on profits in each jurisdiction they operate.
In-scope Enterprises and Top-up Tax:
- Constituent entities within MNE Groups meeting the revenue threshold are subject to the global minimum tax.
- If a jurisdiction’s Effective Tax Rate (ETR) falls below the 15% minimum, a top-up tax will be imposed in Vietnam.
Filing and Payment Deadlines:
- QDMTT and IIR payments are due within 12 and 15 months of the fiscal year-end, respectively, with an extension to 18 months for the first year.
Implications for Vietnamese Businesses
The implementation of QDMTT and IIR in Vietnam is crucial and in line with GloBE Model Rules. In-scope businesses, especially those benefiting from corporate income tax incentives, will experience significant impacts on cash taxes. Compliance challenges and administrative requirements, including annual ETR and top-up tax calculations, are expected.
Impact on Foreign Investments
The global minimum tax application may affect foreign investment enterprises that traditionally enjoy tax exemptions and reduction periods below 15%. This raises concerns about Vietnam’s attractiveness as an investment destination. To address this, the government is urged to devise appropriate investment incentive solutions.
Government Measures and Future Plans
The National Assembly has tasked the Government with developing a draft Decree in 2024 to manage an investment support fund generated by the global minimum tax. The objective is to create a stable investment environment, attract strategic investors, and provide support to domestic businesses. The government is also urged to conduct a comprehensive evaluation of existing tax incentive policies, including timely amendments to the Corporate Income Tax Law.
Anticipating Challenges
In anticipation of potential legal challenges and disputes, the National Assembly emphasizes the need for proactive solutions to redirect tax payments and ensure the stability of the investment environment. Payments subject to taxation below the prescribed minimum level will be incorporated into the amended Corporate Income Tax Law effective January 1, 2025.
Conclusion
The move by Vietnam aligns with global trends, as the UK, Japan, Korea, and the EU are also expected to implement similar tax measures in 2024.
Vietnam’s adoption of the global minimum tax signifies a commitment to international tax standards. While it introduces challenges for businesses, the government’s proactive measures aim to create a conducive investment environment and safeguard the country’s right to tax payments in accordance with global regulations. Businesses, especially those within the scope of the new rules, are advised to stay ahead and plan accordingly for compliance with the evolving tax landscape. For additional support regarding the alterations and strategies to navigate the evolving realm of international taxation, do not hesitate to contact us.
