Global Minimum Tax: Impact and response plan of Vietnam
Vietnam’s National Assembly on November 29 passed a resolution on the application of additional corporate income tax according to regulations to prevent base erosion (global minimum tax). Accordingly, the global minimum tax policy of 15% will take effect from January 1, 2024.
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| The global minimum tax will take effect from January 1, 2024 - Photo for illustration. (Source: vneconomy.vn) |
The global minimum tax issue is receiving a lot of attention from both the foreign investors’ community and the countries receiving investment. As a destination of many foreign investment flows, Vietnam is identified to be significantly impacted by the application of global minimum tax, especially in promotion, incentives and foreign investment support. With the application of global minimum tax, Vietnam's policy of attracting investment thanks to corporate income tax incentives and other incentives such as import tax exemption, land use and land lease tax exemption will no longer be attractive, so Vietnam needs to quickly deploy actions to respond and minimize adverse impacts from this new mechanism.
The global minimum tax rule is initiated by the Organization for Economic Cooperation and Development (OECD). Accordingly, multinational companies with revenue of 750 million EUR or more will be subject to a minimum tax rate of 15%.
The global minimum tax rule is within the framework of the Action Program on Tax Base Erosion and Profit Shifting (BEPS) with 142 members. Vietnam has participated in and is the 100th member of the BEPS Forum since 2017. Vietnam’s early participation in BEPS means that it is ready for new circumstances and new conditions in FDI attraction.
So far, most countries in the European Union, the United Kingdom, Switzerland, Republic of Korea, Japan, Singapore, Indonesia and Australia have confirmed that they will apply the 15% minimum tax rate rule, starting from 2024.
When the global minimum tax rule takes effect, it will bring both positive and negative impacts to the Vietnamese economy. The biggest adverse impact is that Vietnam's competitiveness in FDI attraction may be reduced due to changes in tax policy.
Currently, under the direction of the National Assembly and the Government, ministries and sectors are implementing solutions, building and issuing detailed guidance documents and supporting solutions to implement global minimum tax for Vietnam. At the same time, Vietnam also offers other forms of incentives such as infrastructure, human resources and market access, to attract more foreign investment.
According to statistics, there are currently about 335 projects with registered investment capital of over 100 million USD operating in the field of processing and manufacturing industries in economic zones and industrial parks; At the same time, they are enjoying corporate income tax incentives of lower than 15%; among them, many are businesses running in high-tech field such as Samsung, Intel, LG, Bosch, Sharp, Panasonic, Foxconn and Pegatron.
Accordingly, the total registered investment capital of these projects accounts for nearly 30% of total FDI capital in Vietnam, reaching about 131.3 billion USD. These projects will likely be affected by the global minimum tax.
According to economic experts, tax incentives are always one of the important tools to attract investors to Vietnam.
Therefore, when the global minimum tax is applied and Vietnam doesn’t have timely response solutions, the benefits from preferential corporate income tax policies that projects enjoy in Vietnam will no longer exist. From there, the Vietnamese market affects the attractiveness and loss of competitive advantage of foreign investment attraction.
Ms. Le Thi Thuy Van, Deputy Director of the Institute of Financial Strategy and Policy, said that Vietnam has the advantage of low preferential tax rates, for example, previously, the corporate income tax rate was 32% but it has gradually decreased to 28-25% and is currently 20%. However, for foreign investment projects, this incentive is larger, such as tax incentives of 5%, 10% for up to 15 years; and tax exemption and reduction for a limited period of time.
Therefore, Ms. Le Thi Thuy Van said that applying the minimum tax rate of 15% will certainly have an impact in attracting foreign investment capital in Vietnam, especially large businesses enjoying incentives.
Economic expert Dr. Nguyen Bich Lam, former Director General of the General Statistics Office, said that if Vietnam doesn’t apply the global minimum tax, then FDI businesses in Vietnam won’t benefit because this difference will also be collected for their budgets by the Government of countries that own FDI enterprises in Vietnam.
Expert Lam said that FDI enterprises will not care whether the Vietnamese Government applies the global minimum tax or not, they are willing to pay corporate income tax at a rate of 15% but they will request the Government of Vietnam to have preferential policies to encourage investment, production and business.
Therefore, the current problem is that by participating in the implementation of the global minimum tax, Vietnam needs to have policies and solutions to respond promptly to continue to be a bright spot in attracting FDI capital.
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According to many experts, Vietnam needs to promptly review and appropriately adjust relevant laws (especially the Corporate Income Tax Law, Investment Law, and Enterprise Law). More importantly, with the global minimum tax, tax incentives will no longer be an advantage to attract foreign investors to Vietnam in the coming time. Vietnam therefore needs to find other tools that are attractive enough to draw foreign investors.
Many suggest that Vietnam can attract foreign investment by maintaining a favorable, stable and safe business environment; reduce the burden of administrative procedure costs; enhance transparency and so on. Thus, Vietnam will have to immediately begin reviewing and adjusting FDI attraction policies in the direction of promoting improvement of the business investment environment, infrastructure development, and support to establish a system of satellite and supporting businesses, instead of just focusing on tax incentives as before.
Although applying the global minimum tax rule is a challenge, it is important to create opportunities and push Vietnam to reform and perfect the legal framework of the tax system according to international practices and standards; innovate policies on foreign investment in general, create trust, strengthen integration and enhance Vietnam's economic position in the international arena, so that Vietnam can truly be a sustainable and attractive destination, bringing long-term benefits to both investors and the economy.
(Source: dangconsan.vn)
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