New tax gives Vietnam incentive to adjust

At the Vietnam Business Forum (VBF) at both technical and high-level sessions held over a week ago in Hanoi, a consistent message was urged about ensuring the harmonisation of state and business interests, as well as protection of investor confidence.

The previous month, the Organisation for Economic Co-operation and Development unveiled technical guidance for its far-reaching reform of the global tax system, in which multinational companies would be subject to a global minimum tax (GMT) of 15 per cent on their profits. Multinationals involved would have to generate at least €750 million ($807.7 million) in consolidated revenue – and some of them are major investors in Vietnam.

A representative of the European Chamber of Commerce in Vietnam at the VBF said, “The Vietnamese government should study what impact the GMT would have on investors and the business environment, and provide practical, effective, and timely solutions to compensate enterprises whose corporate income tax (CIT) incentives are less favourable or become ineffective due to the adoption of the GMT.”

Speaking for the American equivalent (AmCham), chairman Greg Testerman said that multinationals operating in Vietnam, as well as Vietnamese corporations with overseas investments, are concerned about the impacts of the GMT.

“Specifically, they are worried whether the introduction of the GMT would result in any reduction or loss of tax incentives that these enterprises have been enjoying under the prevailing regulations. They also wonder if the Vietnamese government will provide compensation if the CIT incentives are less favourable as a consequence of adopting the GMT,” Testerman said.

New tax gives Vietnam incentive to adjust, illustration photo/ Source: Le Toan

Last week, the Ministry of Planning and Investment (MPI) held a conference on the impact assessment of the GMT on investment attraction in Vietnam, and listened to numerous concerns. Dao Thi Thu Huyen, deputy director general of Canon Vietnam, said that the company would be subject to the GMT, while one of the reasons that Canon invests in Vietnam is tax incentives.

“If Vietnam has not proposed any policies coping with the GMT, the corporation may consider relocating manufacturing lines to other countries that have more advantages and incentives,” said Huyen.

Offering an example, Thailand is proposing to support electricity costs for overseas investors if the GMT is applied. “If moving manufacturing to other countries, it will not only scale down Canon Vietnam, but also affect 130 vendors and suppliers of Canon,” added Huyen.

Kim Jin Seong, deputy general director of Samsung Vietnam, said that if the GMT comes into effect, the competitiveness and attractiveness of Vietnam may decline.

“If investment incentives are disabled while other countries are ready to offer additional incentives, for example in cash, Vietnam could lose out in attracting new investment but also expansion plans of corporations,” Seong said.

Talking with the MPI, Taninaka Yasushisa of the Japan Chamber of Commerce and Industry proposed easing progressive personal income tax (PIT).

“When a business invests in Vietnam, they will not only consider the CIT but also look at the total tax costs to be paid during the business process. The PIT in Vietnam is currently quite high compared to other countries” said Yasushisa.

He urged the Ministry of Finance (MoF) to consider reducing the tax burden for businesses when the application of the GMT is very close, extend the CIT incentive period up to 20 years, build additional support to attract investment, and simplify admin procedures to save on cost and time.

At last week’s forum, AmCham said that the current CIT incentive policy applies almost exclusively to a company’s profits, while other direct incentive types such as for company expenses are all but absent from the tax law.

“We recommend that the Vietnamese government integrate more cost-based incentives to encourage new projects in selective sectors, like support on expenses for renewable energy, employee benefits, infrastructure, research and development, and technology transfer,” said Greg Testerman from AmCham.

Over the past 35 years, Vietnam has been using tax incentives as an important lever to lure investment. Currently, although the country’s general CIT rate is 20 per cent, many foreign investors are enjoying incentives with 10-15 per cent rates depending on the field, industry, size, and location.

Even when a special investment incentive policy was issued in 2021, the preferential tax rate was only 5-9 per cent. In addition, enterprises are also entitled to other tax exemptions and reductions for certain periods.

“When the GMT is applied, all these incentives of Vietnam are no longer effective, which significantly affects Vietnam’s policies and means of attracting foreign investment,” said MPI Deputy Minister Nguyen Thi Bich Ngoc.

Recognising the concerns of the business community, Prime Minister Pham Minh Chinh said that the government is following up on the reality and experiences of other countries to ensure an appropriate policy on the GMT, issuing it this year and creating opportunities for foreign businesses to operate smoothly.

The MPI and the MoF have been assigned by the government to urgently complete a study and complete reports on the GMT. Previously, in August, the prime minister established a special working group on formulating policies related to the new tax.

Hong Sun - Chairman, Korea Chamber of Business in Vietnam

At the end of last year, South Korea issued a law amendment relating to international taxation, including regulations on the GMT, intending to officially apply from 2024. At that time, large South Korean enterprises investing in Vietnam will have to pay the reduced tax in Vietnam to South Korea due to GMT regulations. We propose that the Vietnamese government needs to change the current CIT incentive regime in order to maintain its attractiveness of overseas funding inflows. It should consider fresh incentives like cash grants and refundable amounts that can meet qualifying deductions of the government, based on the expense of the business’ qualifying investment. The government can pay investment subsidies in instalments instead of paying businesses one time. Foreign-invested enterprises will generate profits and pay taxes, contributing to reducing the financial burden of the government compared to tax reduction or exemption. Cash grants and refundable amounts that can meet qualifying deductions will increase the actual investment of businesses by encouraging companies to invest more in the areas that the government expects.

Nakajima Takeo - Chief representative, Japan External Trade Organization Hanoi

CIT is one of the factors that foreign-invested enterprises consider when deciding to invest. The average tax rate in ASEAN countries is around 20 per cent currently, so Vietnam’s CIT incentives are now an important factor to lure investors, including Japanese ones. The upcoming application of the GMT is something that we all must follow, directly affecting the business activities of various enterprises. However, high or low tax rates are not the only factors that completely influence decision-making. According to our survey, in addition to tax rates, there are many other aspects to be considered, such as the attractiveness of Vietnam’s investment environment with high GDP growth, followed by the size of the Vietnamese market. Only one-quarter of total responses say that the attractiveness of Vietnam comes from tax incentives. However, Japanese enterprises are struggling with many shortcomings in tax procedures in all ASEAN countries, while tax policies have not been effective. Therefore, while issuing preferential policies is good, it is also necessary to speed up and improve convenience in the implementation and working process.

Nguyen Hai Minh - Vice chairman, European Chamber of Commerce in Vietnam

The attractiveness of Vietnam comes from various factors and advantages like geographic location, role in global supply chains, market size, and potential. In our survey on investment policy satisfaction in Vietnam, most of the respondents felt satisfied at this time. However, in order to improve the business and investment environment, 70 per cent of total responses said to improve administrative procedures, infrastructure development, immigration procedures, visa policies for foreigners, human resources, green growth policies, and tax incentives. In addition to tax incentives, foreign enterprises have to pay plenty of other costs that cannot be refunded, which they wish to cut down as much as possible to offset the upcoming increase in the CIT. When applying the GMT, it is not a problem for multinationals to increase tax payments in Vietnam or in their parent countries because the total expenditure of enterprises does not change. However, other policies are also needed to increase investment attraction, such as financial support in areas that are being encouraged and prioritised, such as infrastructure development and using clean energy – because, for smaller businesses, tax incentives are still a factor for investment consideration.

Vietnam must revisit policies to develop implementation of global minimum tax Countries that have outbound and inbound investment activities have been making drastic moves in considering policies related to the global minimum tax (GMT). If Vietnam does not take immediate action or delays implementing it, it may miss the opportunity to have the right to tax and may be left behind in attracting foreign investment.

Vietnam adjusting policies to adapt to global minimum corporate income tax: Official Vietnam is studying and adjusting its investment policies to adapt to the global minimum corporate income tax which is scheduled to be applied from 2024, said Deputy Minister of Planning and Investment Nguyen Thi Bich Ngoc.