Adapting to the global minimum tax rate

Vietnam needs to proactively recognize opportunities and challenges to have appropriate responses to take advantage of opportunities to retain taxing rights, increase budget revenue, and at the same time ensure the policy of attracting "eagles" to nest and invest.

Execution time approaching

The global minimum tax rate rule is a key content of the Base Erosion and Profit Shifting Program (BEPS) initiated by the Organization for Economic Cooperation and Development (OECD), which has been agreed upon by more than 140 countries, including Vietnam. According to this rule, multinational enterprises with global consolidated revenue of 750 million euros (equivalent to 870 million USD) for at least two years in the four-year period immediately preceding the time of tax obligation implementation will be subject to a minimum tax rate of 15% on profits. This means that when these companies invest abroad and pay income tax in the investing country below 15%, they will have to pay the difference in the country where they are headquartered.

As a country receiving large investments, the global minimum tax policy will certainly have many impacts on investment activities in our country. Currently, Vietnam is attracting and encouraging businesses to invest in Vietnam through preferential measures and investment support, in which corporate income tax incentives are the most important measure. When the global minimum tax rate is applied, most of the currently applied corporate income tax incentives (tax exemption, preferential tax rates under 15%) will no longer be valid for businesses subject to the global minimum tax rate. This leads to Vietnam's investment attraction policy being less attractive to large corporations and businesses.

Citing South Korea, Mr. Hong Sun, Chairman of the Korean Chamber of Commerce in Vietnam (KoCham), said that the Korean government plans to officially apply the global minimum tax rate rule from January 2024. Based on recent changes in regulations by the Korean government as well as preferential corporate tax policies currently applied by the Vietnamese government, from 2024, large Korean enterprises investing in Vietnam will have to pay the reduced tax in Vietnam to South Korea due to the regulations on global minimum tax rates. If so, the tax incentive efforts that the Vietnamese government is implementing to attract foreign investment will be nullified.

Analyzing further the impact of this tax policy on Vietnam, Deputy Minister of Planning and Investment Nguyen Thi Bich Ngoc said that the global minimum tax rate policy will be applied by the European Union, the United Kingdom, South Korea, Japan, Malaysia... from 2024. The impact of this tax policy on Vietnam is urgent, reflected in two aspects: Ensuring tax rights in Vietnam and competitiveness in attracting foreign investment. “The problem is that if Vietnam does not collect additional taxes, businesses subject to the global minimum tax rate will still have to pay additional taxes in other countries. Therefore, Vietnam needs to adjust its incentive and investment attraction policies to be compatible with the global minimum tax rate and have the least impact on businesses that have invested in Vietnam, ensuring consistency in its investment attraction and guarantee policies for investors that have, are, and will invest in Vietnam. At the same time, if Vietnam does not take immediate action or is slow in implementing the global minimum tax rate, Vietnam will miss the opportunity to gain tax rights,” said Deputy Minister Nguyen Thi Bich Ngoc.

New forms of incentives and investment support will soon be available.

Concerned about the impact of the global minimum tax policy, many experts as well as foreign enterprises in Vietnam emphasize the view that the global minimum tax must be defined as a global game. Vietnam needs to promptly and effectively respond and issue new forms of incentives and investment support. Looking at Singapore, this country is expected to implement additional domestic taxes to adjust the corporate tax regime to meet the global minimum tax rate, expected to apply from January 1, 2025. Or Thailand is expected to build a series of new policies to implement the global minimum tax rate, including policies on domestic tax incentives, domestic minimum tax rates and investment support regulations such as support for infrastructure development costs and electricity subsidies in 2023.

Suggesting solutions to adapt to this new tax policy, Mr. Kim Jin Seong, Deputy General Director in charge of finance of Samsung Group in Vietnam, proposed that Vietnam apply an additional domestic minimum tax to retain the right to tax multinational corporations in Vietnam. "Based on this tax, build a new investment attraction mechanism," Mr. Kim Jin Seong recommended. Ms. Dao Thi Thu Huyen, Deputy General Director of Canon Vietnam, suggested that the Vietnamese Government should maintain current investment incentives, but need to add more cost support for businesses affected by the global minimum tax so that businesses can maintain their competitiveness.

Notably, Mr. Nguyen Hai Minh, Vice President of the European Chamber of Commerce in Vietnam (EuroCham), emphasized that European businesses are not too concerned about the global minimum tax rate, but more than 50% of businesses suggested that Vietnam simplify administrative procedures. At the same time, if the Vietnamese Government supports, it should invest in infrastructure and green energy. This will be a competitive advantage. Agreeing with this view, many experts also said that Vietnam needs to change its investment attraction policy towards focusing on improving competitiveness from factors such as: Business environment, labor resources, infrastructure... which are basic factors when making business investment decisions instead of focusing on tax incentives. At the same time, there should be a plan to communicate these policies; train officials and businesses to grasp and properly implement adjustments in legal regulations. “The global minimum tax rate will create new pressure and new requirements for strong reforms of the investment and business environment. Therefore, Vietnam needs to increase investment attraction with a favorable business environment; reduce the burden of administrative procedure costs and comply with the law to create an attractive investment and business environment,” Mr. Phan Duc Hieu, Standing Member of the National Assembly's Economic Committee, proposed.

Vietnam's consistent policy over the past 35 years of opening up and attracting foreign investment has been to create an open and favorable investment and business environment. Deputy Minister Nguyen Thi Bich Ngoc said that FDI enterprises invest and contribute to economic development in Vietnam and Vietnam is responsible for creating an effective investment environment. Currently, relevant ministries and branches are urgently researching and reporting to the Prime Minister to propose Vietnam's solutions to harmonize the interests between the State and investors; encourage investors to maintain and expand investment activities in Vietnam; continue to attract key investment projects in line with the country's socio-economic development strategy in the new period.

Sharing some specific solutions, Mr. Dang Ngoc Minh, Deputy General Director of the General Department of Taxation, informed that in the short term, the tax authority plans to impose a minimum corporate income tax rate of 15% for enterprises and corporations affected by the global minimum tax rate. Next, it is necessary to issue regulations and rules on tax deduction at source in Vietnam. In the medium term, it is recommended to amend tax incentives to protect domestic revenue sources, issue tax incentives in the direction of supporting investment costs, labor training; support for green growth and environmental protection...

VU DUNG

Source