In order to apply the global minimum tax, countries need to apply appropriate regulations into the legal system. (Photo: Vietnam+) Hanoi (VNA) - Luu Duc Huy, Director of the Tax Policy Department under the General Department of Taxation, has shared with the press about what Vietnam should prepare in response to the global minimum tax.
Significant impact on competitiveness
- What could be the potential impacts of the global minimum tax on Vietnam's competitiveness in investment attraction?
Luu Duc Huy: The application of the global minimum tax could have various effects on Vietnam's competitiveness in attracting investment.
Firstly, it may make Vietnam's current tax incentives less attractive to multinational corporations, which play a significant role in the country’s economic development.
On the other hand, the global minimum tax also has a significant impact on the satellite businesses of multinational corporations. Attention should be paid to the possibility of investment shifting from Vietnam to another country with more attractive preferential policies and a more favorable business investment environment.
Moreover, the absence of large multinational corporations as well as satellite businesses will greatly affect the investment climate and competitive position of Vietnam in the globe.
Secondly, the shift of investment from large-scale businesses will negatively affect Vietnam’s national industrial development goals.
FDI enterprises not only make significant contributions to investment capital and employment creation, but also have a crucial role to play in technology transfer, domestic human resources training, and ecosystem building.
Particularly, in the field of supporting industries, FDI firms play a bridging role to enable domestic businesses to engage in the global value chains.
Thirdly, multinational firms like the Republic of Korea’s Samsung, have significantly contributed to Vietnam’s export growth and foreign exchange reserves in recent years. Therefore, the global minimum tax will also have an impact on Vietnam in this realm.
The shift of investment from large-scale foreign businesses is likely to exert negative impact on Vietnam's national industrial development goals. (Photo: Vietnam+) Last but not least, the change in corporate income tax incentives due to the impact of the global minimum tax will partly affect the country’s credit rating indicators, as well as factors relating to the improvement of the investment climate.
More than 1,000 FDI enterprises affected
- What impacts will the application of the global minimum tax make on FDI enterprises and Vietnamese businesses abroad?
Luu Duc Huy: The general corporate income tax rate in Vietnam is currently set at 20%, which aligns with the global minimum tax regulations. However, for FDI enterprises, the current preferential corporate income tax policy may not be as advantageous as it seems. Typically, if the project operates for 50 years, the payment rate is 15%, which is the global minimum tax rate. However, if the project is granted an extension of the incentive period, the corporate income tax rate may be reduced to 10% for up to 30 years, and the project may also qualify for additional preferential treatment under Decision No. 29/2021/QD-TTg.
According to the General Department of Taxation, there are approximately 120 foreign corporations with around 1,000 enterprises investing in Vietnam, and they will be affected by the global minimum tax if it is imposed from 2024.
Assuming that other countries implement the global minimum tax from 2024 onwards, countries with parent companies in Vietnam could potentially receive an additional tax difference of over 14 trillion VND (over 590 million USD) in 2024.
The General Department of Taxation has conducted a preliminary assessment of the impact of the global minimum tax on Vietnamese corporations investing overseas, specifically focusing on two groups: the military-owned telecom company Viettel and the Vietnam Oil and Gas Group (PVN).
In the case of Viettel, the corporate income tax rate in East Timor is currently set at 10%. However, if Vietnam implements the global minimum tax while East Timor does not apply the Qualified Domestic Minimum Top-Up Tax, Viettel may have to pay more corporate income tax, which would be the difference between the global minimum tax and the actual tax rate in East Timor.
For PVN, the corporate income tax rates in other countries are generally high, ranging from 30% to 60%. Therefore, the current application of the global minimum tax does not significantly impact the group’s offshore investment activities.
How to respond?
- Could you please share information on the tax policy proposals that the General Department of Taxation has suggested to adapt to the global minimum tax?
Luu Duc Huy: As per the Constitution, it is the responsibility of the National Assembly to stipulate, amend or abolish taxes. However, the General Department of Taxation has been assigned by the Ministry of Finance to conduct research and issue appropriate regulations within the legal framework.
Recently, the department has recommended that the Ministry of Finance collaborate with other ministries, relevant departments, and the finance-budget committee of the National Assembly to organise national and international conferences and seminars to study the solutions and develop implementation plans to be presented to the Ministry of Finance, the Government, and the National Assembly.
Samsung Electronics Vietnam (SEV) factory in Bac Ninh. (Photo: Vietnam+) The General Department of Taxation aims to enhance its advisory role to the Ministry of Finance in developing a National Assembly and Government document system that aligns with the guidelines of the Organisation for Economic Co-operation and Development (OECD) on the application of the global minimum tax. This includes providing recommendations on various regulatory documents, such as sample regulations, explanatory documents, administrative guidelines, guidelines for exemption and reduction of fines, and other detailed regulatory documents prepared by the OECD/G20 Joint Cooperation Forum to combat tax base erosion and profit shifting.
The department will focus on proposing the implementation of the Qualifying Domestic Minimum Top-Up Tax and the income inclusion rule (IIR).
- Thank you very much!
