Analysts: Vietnam needs to prepare for global minimum corporate tax
Global minimum corporate tax expected to take effect from next January.
Vietnam needs to take measures to respond to the negative impact of the global minimum corporate tax in order to retain foreign-invested enterprises (FIEs) and must issue policies for the harmonization of benefits to all sides, according to analysts.
The global minimum tax rate is a key element of a program to combat tax base erosion and profit shifting, initiated by the Organization for Economic Cooperation and Development (OECD) and now embraced by more than 140 countries and territories.
Under the mechanism, multinational corporations with revenue of €750 million ($870 million) or more will be subject to a minimum tax rate of 15 per cent. Thus, when a company invests in a foreign country but pays corporate income tax of less than 15 per cent in that country, it will have to pay the difference in the country where it is headquartered.
The minimum is scheduled to take effect from January 1, 2024.
Many analysts have said that the tax will cause concern about a strategic disturbance in investment locations, the way multinational companies operate, and FDI attraction strategies, and need a rapid response.
Considered a “magnet” in attracting FDI, Vietnam lured nearly $30 billion worth in 2021 despite Covid-19.
FDI capital flows keep increasing in the country thanks to its preferential tax policies, including corporate income tax exemptions and reductions and other incentives, as well as a stable economic and political situation and a huge workforce.
Figures from the General Department of Taxation show that there are around 335 FDI projects in Vietnam that have investment of over $100 million each. They operate primarily in the field of manufacturing and processing at economic zones and industrial parks and enjoy a preferential corporate income tax rate of less than 15 per cent. These include giant high-tech corporations such as Samsung, Intel, LG, Bosch, Sharp, Panasonic, and Foxconn.
These projects could be subject to the global minimum tax. If these groups adjust their investment policies, it will affect thousands of satellite and auxiliary enterprises.
The Tax Department also reported that around 1,017 FIEs in Vietnam have parent companies that will be subject to the global minimum tax.
Leaders at some FIEs in Vietnam said that with the global minimum tax being applied, tax exemptions and reductions in Vietnam will prove ineffective. This is because enterprises that enjoy the country’s investment attraction policies must pay additional sums where the parent company is located.
As preferential tax policies will have no effect, this will pose challenges for Vietnam’s investment environment and its efforts to attract new investment.
Deputy Director of the General Department of Taxation Dang Ngoc Minh said that if Vietnam does not adopt a timely response, benefits from corporate income tax incentives for foreign projects in the country will be useless. This will affect the appeal and competitive advantage Vietnam holds in attracting foreign investment as well as the expansion plans of existing projects.
If Vietnam does not collect additional corporate income taxes, the entire amount of preferential treatment for existing businesses will be collected by developed countries that have enterprises investing in Vietnam, he said.
