Vietnam Global Minimum Tax

In the rapidly evolving landscape of global taxation, Vietnam has emerged as a key player with the introduction of its Global Minimum Tax (GMT) in 2024. For multinationals navigating these changes, understanding and strategizing around this new tax regime is crucial. In this article, we unveil the strategies that will empower multinationals to not only comply with the Vietnam Global Minimum Tax but also thrive in the dynamic international business environment.

A deeper look into the Vietnam Global Minimum Tax

The Ministry of Finance is currently formulating a draft resolution on the Vietnam Global Minimum Tax policy for submission to the Vietnamese National Assembly. Set against the backdrop of fostering an environment to attract investment, the draft, released for public comments on July 25, aligns with the BEPS Pillar 2 model set forth by the OECD. This model mandates that each qualifying multinational enterprise must adhere to a minimum effective tax rate of 15% on profits across all jurisdictions of operation.

Notably, the draft resolution not only sheds light on the implementation of the Vietnam Global Minimum Tax policy but also emphasizes the commitment to maintaining a competitive edge to attract foreign investors. It introduces a legal framework that ensures tax incentives for multinational enterprises, aimed at fostering an investor-friendly atmosphere. If approved, the proposed policy is slated to come into effect on January 1, 2024, marking a significant step toward creating a conducive environment for foreign investment in Vietnam.

When does the Vietnam Global Minimum Tax take effect?

The Resolution concerning the OECD’s Pillar Two Model Rules was approved by the National Assembly of Vietnam on November 29, 2023. The effective date of the Vietnam Global Minimum Tax is set for January 1, 2024.

2 Pillars of GMT under the OECD’s Pillar Two Model Rules

The GMT project comprises 2 key pillars:

Pillar 1

Highly profitable corporations, specifically those with annual sales exceeding EUR 20 billion and a profit margin surpassing 10%, will now be subject to higher taxation in the market states. This shift is a response to the evolving digital landscape, moving away from the traditional taxation approach that relied on a physical presence in a given location. Implementation of Pillar 1 will be achieved through a multilateral treaty under international law, referred to as the “Multilateral Instrument 2.0.”

Pillar 2

Corporations with an annual turnover of at least 750 million Euros will be obligated to pay a Global Minimum Tax (GMT) of at least 15%. This mechanism compels countries that do not adhere to the agreement to raise their tax rates. In the context of Vietnam, a country with generally lower tax rates, the perspective is distinct.

While the number of such large investors constitutes a small proportion of FDI enterprises in Vietnam, their influence extends beyond contributing to the state budget. Their investments shape the supply chain and the involvement of domestic enterprises in the global supply and value chains.

A crucial consideration arises regarding the common practice of tax avoidance by corporations through subsidiaries in tax havens. These subsidiaries often charge high license fees for intellectual property, such as logos and domains. If a company is solely based in a tax haven and channels its profits there, the traditional taxation rules would not apply to other countries.

Consequently, deductions for royalty payments to companies based in tax havens may no longer be fully permissible as operating expenses in the home country, especially for countries not party to the agreement. Additionally, the use of segmentation is advocated to prevent circumvention of these new rules.

Tax Filing Obligations under the Vietnam Global Minimum Tax

Taxpayers within the defined scope are required to furnish GloBE (Global Anti-Base Erosion) information returns, supplemental corporate income tax returns, and elucidations on variations stemming from the reconciliation of diverse accounting standards. This explanation encompasses the interpretation of substantial competitive distortions, as outlined in the OECD guidance.

The specified deadlines for submissions are as follows:

  • QDMTT (Qualified Derivative Money Market Transaction): Within 12 months following the fiscal year-end.
  • IIR ( Income Inclusion Rule): Within 18 months after the fiscal year-end for the initial fiscal year falling within the scope, and subsequently, within 15 months for successive fiscal years within the scope.

It is noteworthy that the tax payment deadline aligns with the filing deadline.

Extension of the VAT Tax Reduction

Originally set at 10%, the Vietnamese Value Added Tax (VAT) experienced a reduction to 8% starting on July 1, 2023, for the latter half of the year. This reduction, initially intended to be temporary, has now been extended until June 2024.

The revised VAT rate of 8% will be applicable across most sectors, with notable exceptions including telecommunications, information technology, finance, banking, securities, insurance, real estate, metals and metal products, mining, and items subject to excise tax.

A similar policy was implemented in February 2022, where the Vietnamese government temporarily reduced the VAT from 10 to 8% to stimulate the local economy impacted by the pandemic. This reduction remained in effect until the conclusion of December 2022, incurring an estimated cost of VND 49.4 trillion (US$2.2 billion) to Vietnam’s state budget.

The current extension of the VAT reduction is anticipated to adhere to the same fundamental principles that guided previous reductions.

How Can We Help- Taxation Service 

Premia TNC specializes in comprehensive taxation services for businesses in Vietnam, offering one-stop solutions for corporate Income Tax, Personal Income Tax, and Value Added Tax (VAT). With an experienced team, we facilitate a seamless process, ensuring compliance with Vietnam’s well-structured taxation system.

Why us:

  • Cost-efficiency: Avoid the high costs and risks associated with hiring and developing an in-house team, especially for businesses setting up operations abroad.
  • Regulatory compliance: Stay consistently updated on evolving Vietnamese tax laws and regulations. Premia TNC’s specialists ensure adherence, preventing potential fees and penalties.
  • On-demand expertise: Access a dedicated team of experts at your disposal, providing accurate and timely tax advice. This becomes crucial as your business engages in large-scale transactions.
  • Focused resource allocation: By outsourcing to Premia TNC, businesses can allocate time and financial resources effectively, freeing up energy to concentrate on core business operations and growth.

As Vietnam emerges as a prime business hub, Premia TNC stands ready to assist entrepreneurs and investors in navigating the country’s economic landscape.

1. What is Vietnam Global Minimum Tax, and how does it impact Vietnam?

The global minimum tax establishes a baseline rate for multinational corporations, preventing tax avoidance. Vietnam's impact depends on its participation in international agreements and tax policies.

2. How does the Vietnam Global Minimum Tax affect businesses?

Vietnam may participate, influencing taxation policies for multinational corporations operating there and aligning with international standards.