Big foreign groups await GMT direction

An investment support fund is slated to support the business community, Photo: Le Toan

Many foreign investors, including members of the European Chamber of Commerce in Vietnam (EuroCham), are encouraging the government to accelerate the application of the 15 per cent global minimum tax (GMT) rate, which is considered an opportunity for Vietnam to consider tax reform.

“The application should be carried out as soon as possible so as not to lose either tax revenues or foreign investment, as other countries will impose top-up taxes from 2024 and are also considering revising their tax incentive regimes in response,” said Gabor Fluit, chairman of EuroCham, at the Vietnam Business Forum last week.

At present, the Vietnamese government is taking the opportunity presented by the tax to undertake a comprehensive review of tax incentives currently in place. This includes studying the impacts of the GMT on current and future investors and considering effective solutions so that the tax adoption does not create a negative impact on the investment environment.

Government reviews show that if expenditure-based incentives were to be introduced instead of income-based ones, such as tax holidays, there would be less impact of the adoption on foreign investment with under the GMT. Accordingly, foreign investment could increase in targeted sectors and locations and the commitments.

The expenditure-based incentives that could be considered include accelerated depreciation for machinery and equipment in projects and double tax deduction of labour cost or research and development costs for encouraged initiatives.

In addition, the government’s review showed that expenditure-based incentives may increase the likelihood of generating additional investment as they directly target investment expenses.

Last December, the National Assembly (NA) proposed that the government draft a decree on the establishment, management, and use of the Investment Support Fund, using revenue from the GMT and other legal sources to build a stable business environment, encourage and draw in strategic investors and multinational companies, and support domestic businesses.

The Ministry of Planning and Investment has been actively developing a draft decree and is consulting opinions to complete it. At the end of 2023, the NA adopted a resolution on the imposition of top-up corporate income tax (CIT) of 15 per cent under the Global Anti-Base Erosion model rules, which took effect in January.

Under the resolution’s Article 2, the taxpayers in Vietnam include subsidiaries of multinational corporations with a turnover equivalent to €750 million ($821.62 million) or more in the consolidated financial statements of the ultimate parent company for at least two of the four years immediately preceding the fiscal year.

For Vietnam, the imposition of the GMT will help ensure the country’s right to levy the tax in line with the international practices currently deployed by many nations.

According to a government report on assessing the impact of the resolution, based on 2022 CIT data analysis, about 122 foreign-invested enterprises will be subject to the resolution, with a total amount of top-up CIT of about $616 million.

Vietnam’s current general CIT rate is 20 per cent, which is higher than the GMT rate. However, this rate is just of nominal value because all major foreign-invested projects in Vietnam have been currently enjoying special incentives policies covering various investment fields, locations, and more.

Thus, many multinationals are entitled to a four-year tax exemption and a 50 per cent tax reduction for nine years, or a two-year tax exemption and 50 per cent tax decrease for four years, so the total amount of their paid tax is less than 15 per cent.

“If Vietnam does not collect GMT from these enterprises, this tax value difference will fall into the hands of countries where the parent companies are based,” said the General Department of Taxation’s deputy general director Dang Ngoc Minh.

New fund a solution to GMT concerns The Ministry of Planning and Investment has created a draft decree for a brand new investment support fund, but the scale of the projects and investors under the draft’s purview is the subject of intense debate and discussion.

Preferential support on cards for GMT alignment Green production and business, a favourable digital environment, high-quality human resources, and a suitable living environment are necessary factors for Vietnam in implementing the global minimum tax.