Experts scrutinise global minimum tax implementation in Vietnam

Vietnam needs to fully and comprehensively assess the impacts of the global minimum tax on the country, said Minister of Finance Ho Duc Phoc on April 18.

Speaking at a conference “Global minimum tax: International experiences, potential effects and implications for Vietnam” held in Hanoi, Phoc said that as many of 1,015 foreign-invested enterprises in Vietnam whose parent companies are subject to the global minimum tax and more than 70 businesses are likely to be affected by the global minimum tax when it is applied from next year.

If the countries home to the parent companies enforce the global minimum tax, they will collect additionally about over 12 trillion VND (510.5 million USD) in tax in 2024.

Imposing global minimum tax means that Vietnam’s tax incentives will not have much effect in attracting foreign investors, which can pose a significant challenge to maintaining the competitiveness of Vietnam’s investment environment, the minister said.

To date, most EU countries, Switzerland, the UK, the Republic of Korea (RoK), Japan, Singapore, Indonesia, Hong Kong (China), and Australia have confirmed that they will apply the minimum tax rate of 15% from 2024.

Of them, the RoK, Singapore, and Japan have large investments in Vietnam and many businesses that are subject to the global minimum tax.

Dang Ngoc Minh, Deputy Director of the General Department of Taxation, said that in Vietnam, about 335 projects with registered investment capital of over 100 million USD in manufacturing and processing industries are enjoying corporate income tax incentives with rates of lower than 15%, particularly those in the hi-tech sector such as Samsung, Intel, LG, Bosch, Sharp, Panasonic, Foxconn, and Pegatron.

The total registered investment capital of those projects accounts for nearly 30% of the total FDI in Vietnam, about 131.3 billion USD.

Therefore, when Vietnam applies this tax without timely responses, Vietnam can lose its competitive advantages in foreign investment attraction, while foreign investors’ investment expansion plans will be affected too.

Minh said that if Vietnam does not apply the global minimum tax, the state budget revenue from corporate income tax will not be affected.

However, if Vietnam applies the standard domestic minimum tax, Vietnam will have the right to levy additional taxes on FDI enterprises that are enjoying lower tax rates in Vietnam, thereby having state budget revenue increased.

In case Vietnam does not collect additional corporate income tax, the entire amount of tax incentives for existing businesses will be collected by the countries which are home to the parent companies.

Robert King, Deputy General Director of Ernst & Young Vietnam, recommended that the policy problem for Vietnam at this time is to achieve two important goals - proactively gaining the right to tax and continuing to create favourable investment environment.

He suggested that Vietnam apply a standard domestic minimum tax. In addition, the Government should have policies to support investors to increase competitiveness of not only those affected by the implementation of the global minimum tax rate but others.