Vietnam parliament approves new minimum tax for multinationals
[HO CHI MINH CITY] Vietnam has approved a new global minimum tax for multinationals, which means these larger companies will be subject to a 15 per cent effective minimum tax rate from January 2024.
According to the General Department of Taxation, while Vietnam’s standard corporate income tax is higher at 20 per cent, the country gives an average rate of 12.3 per cent to foreign-invested firms during the incentive period. Some larger players have even enjoyed an effective tax rate of as low as 2.75 per cent due to lengthy tax exemption and tax reduction periods.
On Wednesday (Nov 29), 94 per cent of lawmakers in Vietnam’s National Assembly voted to approve the new minimum tax rate, which the government estimates will bring in an extra 14.6 trillion dong (S$801.6 million) in revenue.
More than 122 foreign companies, including South Korea’s Samsung and Apple supplier Foxconn, are set to see a sharp increase in their tax costs as a result of the new resolution.
Those who are currently paying less than 15 per cent in a low-tax jurisdiction will have to bear an additional levy, either in that specific jurisdiction or in their home country. The new rules apply to companies with annual revenues of at least 750 million euros (S$1.1 billion).
The approved resolution puts Vietnam in line with a global agreement by 138 countries and jurisdictions in 2021 to introduce a global minimum tax rate of 15 per cent.
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Parliament also requested the government to come up with a plan to establish a new investment fund using the money from the global minimum tax revenue and other sources. This would help companies as part of the attempt “to stabilise the investment environment and to attract strategic investors, multinational corporations and support domestic businesses”, the legislature said on its website after the vote.
During a debate in parliament on Wednesday, there were some concerns that Vietnam might face legal action if multinationals deem the new taxation to violate their existing investment commitments.
Le Quang Manh, head of the finance and budget committee, said Vietnam will need to introduce new incentives to remain an attractive destination for foreign companies.
“It is necessary to have new investment support policies... so that companies can feel safe about the investment environment in the country,” he said, according to the national assembly’s official website.
The Organisation for Economic Cooperation and Development has reportedly warned that it will disqualify the domestic top-up tax if the Vietnamese government offers any handouts to offset the higher levies for multinationals. The home country of such enterprises would then be able to collect these additional taxes.
Nguyen Minh Duc, an expert from the Legal Department of the Vietnam Chamber of Commerce and Industry, wrote in a commentary that the cross-border tax rules have diminished the effectiveness of Vietnam’s conventional tax incentives. As such, he feels Vietnam must explore alternative measures to retain its foreign direct investment (FDI) inflows.
“Formulating a new investment support policy is challenging and requires coordination from multiple parties and better state management capabilities,” he said.
“But in return, it allows for an emphasis on some important targets and critical bottlenecks. This is an opportunity for (Vietnam) to attract better, more selective and more impactful investment.”
In the last few years, many global companies have increasingly looked to Vietnam as an investment destination due to the country’s strategic geopolitical position, low-cost workforce, improved infrastructure, and growing free trade access.
According to latest statistics from the World Bank, Vietnam jumped to 28th (from 123rd) in the global foreign investment attraction ranking during the period from 1989 to 2022.
A report by the Ministry of Planning and Investment showed that the disbursed volume of FDI last year hit a record high of US$22.4 billion, up 13.5 per cent from a year ago.
“Tax incentives are important but I think Vietnam can still attract investors by improving its overall infrastructure and ecosystem for the business environment,” said Yee Chung Seck, a partner at Baker McKenzie Vietnam.
He suggested some areas for improvement, including boosting the capacity to upskill workers, having more reliable sources of energy, and better infrastructure and logistics to handle larger investments.
“Vietnam does have to compete with other countries as an investment destination. It needs to treat (other support measures) seriously enough, to give attention to studying them, to make decisions and to roll these things out,” he said.
Exports up Separately, it was announced on Wednesday that Vietnam’s exports in November rose 6.7 per cent year on year (yoy), the third straight month of expansion.
For the year to date, exports are down 5.9 per cent from the year-ago period, at US$322.5 billion, according to estimates released by the General Statistics Office (GSO).
Industrial production “maintained its positive trend” in November, said the GSO, with growth rising to 5.8 per cent yoy. This is due to manufacturers striving to find new orders to fulfil their full-year production plans as well as preparing more goods for an expected heavier demand as the year-end approaches.
In November, the consumer price index rose 3.45 per cent yoy, down from the previous month’s 3.59 per cent rise.
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