The UK was one of the earliest jurisdictions to issue draft legislation for application of the tax. In fact, a draft bill was issued by the British government in March, almost mirroring the OECD’s global anti-base erosion regulations, including rules on multinational and domestic top-up tax.
|Hoang Phan - Member, British Chamber of Commerce Vietnam |
Upon GMT legislation in the UK, overseas subsidiaries of UK-head quartered multinational corporations will be subject to top-up tax in the UK if their blended effective tax rate in any operating country is below the minimum rate of 15 per cent. That would mean those investors who are enjoying tax incentives in Vietnam, and an effective tax rate in the country lower than 15 per cent will have to pay the top-up tax in the UK.
If Vietnam also applies the GMT via a regime of qualified domestic minimum top-up tax (QDMTT), it will be collected in Vietnam and directly offset with top-up tax in the company’s home country.
In Vietnam, even though the number is just a few because not all investors fall within the revenue threshold, it is expected that some UK subsidiaries of multinationals, which are currently enjoying corporate income tax (CIT) incentives in Vietnam, will be impacted by the GMT.
The top-up tax collection as well as the adoption of new tax rules will definitely impact the business not just in matters of cash flow, but also concerning additional costs, capabilities and resources for reporting compliance, investment planning, restructuring plans, incentive strategies, and application.
Moreover, if Vietnam applies a domestic top-up tax regime, the policy effectiveness of tax holidays and incentives may be eroded, and there might result in certain impacts, at least in the short-term, on foreign investment considerations.
Given the current situation that the GMT will be certainly implemented in the UK from 2024, it is highly recommended for the UK-based multinationals to consider carrying out some preliminary impact assessment of the GMT, including a review of investment status in Vietnam, and calculating the estimated top-up tax if GMT is applied (either in Vietnam or the UK).
Based on the result of impact assessment, it is more visible and practical for multinationals to design the appropriate solutions to minimise the negative impact, by considering a range of necessary actions, such as global/local restructuring, incentive seizing, and advocating for better policy incentives.
CIT incentive policies such as tax exemption and reduction will no longer be of benefit in the context of the GMT’s introduction. If these policies continue to be applied, the advantage of attractive tax costs for Vietnam to retain and draw in the investors who are enjoying tax incentives, including those from the UK, will no longer exist.
Therefore, it is necessary to reform the incentive system in a way that copes with international practice and suitable for the business post-GMT application.
An OECD report recommends cost-based incentives such as cash grants or qualified refundable tax credits. These incentives, as granted based on enterprise expenditures, such as fixed asset costs, production costs, research and development costs, will bring real benefit to enterprise as well as encourage them to carry out long-term and substantive investment.
In our observation of other markets around the Asia-Pacific region where British corporations also have investments, such as Singapore, Malaysia, Thailand, and Hong Kong, several had some initial movements on the application of the GMT, particularly QDMTT, through budget announcements or government agency statements.
For example, Singapore, Malaysia, and Hong Kong have all announced that they will apply the GMT from 2024-2025 in the first budget plan of the year. Thailand also confirmed the application of the minimum tax from 2025.
Moreover, some of these countries have also confirmed that they will have new preferential and supportive policies to continue to maintain and increase foreign investment attraction. For example, Thailand announced that it will allocate 50-70 per cent of the additional tax revenue from the QDMTT to a fund to support businesses for investment.
We believe that although these countries have not yet issued specific policies, the early announcement will help investors better understand the intention of the receiving country, as well as secure them the opportunity for impact assessment and the appropriate investment plan.
The Vietnamese government has a strong commitment to driving economic growth, with foreign investors being important contributors. Accordingly, mechanisms, including incentive policies, to build a fair and attractive playground for foreign investors will play a key role.
Vietnam had a good base for creating strong post-GMT costs-based incentives, such as a recently issued circular on amended tax treatments regarding research and development expenses.
We have a strong expectation, hope, and confidence that Vietnam will respond quickly to the GMT, perhaps with a new QDMTT as well as new and appropriate incentive policies, that can both minimise the negative impact of the new tax, while continuing to maintain a fair and competitive investment environment.
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