Global minimum tax impact on FDI companies
Global minimum tax rates are seen as a “revolution” in corporate tax policy, impacting not only multinational corporations but also posing a major challenge for countries that rely on tax incentives to attract investment. So what exactly are global minimum tax rates, and what challenges and opportunities will Vietnam face in this new global tax landscape?
1. What is the Global Minimum Tax Rate?
The global minimum tax vietnam implementation (abbreviated as Global Minimum Tax) is one of the two main pillars of the Base Erosion and Profit Shifting (BEPS) Action Programme, initiated by the Organization for Economic Cooperation and Development (OECD) in June 2013.
The Global Minimum Tax Rate is set at 15%, applicable to multinational companies with consolidated global revenue of €750 million (US$800 million) in at least two of the four most recent consecutive years.
Several Southeast Asian countries such as Malaysia, Indonesia, and Thailand are also taking steps to change their tax policies to continue retaining foreign investors if the new mechanism officially comes into effect.
Global minimum tax impact on FDI companies
2. Will Vietnam’s official implementation of the Global Minimum Tax in 2024 affect workers?
On September 28th, at the 26th session of the National Assembly Standing Committee, during the discussion of the draft Resolution of the National Assembly on the application of supplementary corporate income tax under the global anti-base erosion regulation, both the submitting agency and the reviewing agency emphasized the necessity of issuing the Resolution to ensure the legitimate rights and interests of Vietnam and to reassure foreign investors about the legal environment in Vietnam.
Authorized by the Government, the Minister of Finance presented the Government’s submission outlining the necessity of issuing the draft Resolution of the National Assembly on the application of supplementary corporate income tax under the global anti-base erosion regulation.
3. The pillar two compliance requirements vietnam
Accordingly, on July 9, 2021, the Ministers of Finance and Central Bank Governors of the Group of Twenty (G20) leading developed and emerging economies agreed on the Two-Pillar Solution principle to address tax challenges arising from the digitalization of the economy, including:
- The first pillar, allocating taxes to digitally-based business activities.
- The second pillar, establishing a global minimum corporate tax rate of 15% for multinational companies.
On December 16, 2022, the Global Forum on BEPS announced that 138 countries had agreed on the content of the aforementioned pillar two compliance requirements vietnam Framework.
Vietnam, as the 100th member of BEPS, had no reservations on this content and was therefore one of the agreeing countries.
The Minister of Finance affirmed that the effective tax rate calculation vietnam GMT is not an international treaty, not an international commitment, and does not obligate countries to apply it.
However, if Vietnam does not apply pillar two reporting obligations vietnam, it must still accept that other countries apply the global minimum tax rate and have the right to collect additional taxes from businesses in Vietnam (if applicable) that benefit from an effective tax rate in Vietnam lower than the global minimum rate of 15%, especially foreign-invested enterprises.
To ensure its legitimate rights and interests, Vietnam needs to affirm its application of the global minimum tax impact on FDI companies.
Global minimum tax advisory vietnam
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4. Opportunities of global minimum tax regulations
The global minimum tax presents both opportunities and challenges for Vietnam.
The main negative impact is the risk of reduced competitiveness in attracting foreign direct investment (FDI). Currently, Vietnam applies many attractive tax incentives, resulting in effective taxes for some FDI enterprises ranging from only 2.75% to 12.3%. When a minimum tax rate of 15% is applied, large multinational corporations will have to pay the difference in tax to the country where their headquarters are located, rendering the tax incentives in Vietnam ineffective and thus impacting investment decisions.
In addition, approximately 120 multinational corporations and more than 1,000 related businesses in Vietnam will be directly or indirectly affected by this policy.
However, this policy also brings positive aspects, such as:
Preventing transfer pricing and tax evasion by FDI enterprises.
Limiting the tax reduction race among countries contributes to creating a fairer competitive environment.
Increasing budget revenue through uniform tax rates provides Vietnam with more resources to support businesses in other ways such as infrastructure development and human resource training.
Global minimum tax advisory vietnam are an inevitable trend, and Vietnam needs to adapt soon to maintain its attractiveness to investment and stabilize its business environment.
Global minimum tax rates are not simply a tax policy, but a signal that the era of “tax incentives to attract investment at all costs” is gradually coming to an end. For Vietnam, this is an opportunity to reposition its FDI attraction strategy, shifting from competition based on taxes to competition based on infrastructure quality, human resources, and a transparent and sustainable business environment. Proactive adaptation will not only help Vietnam maintain its attractiveness to investment but also create a more solid financial foundation for long-term development in a volatile global context.
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