Global minimum tax may impact Vietnam's competitive edge

Mr. Luu Duc Huy, Director of Policy Department, the General Department of Taxation

What is the application of the global minimum tax in countries that mainly invest abroad and in countries that receive investment from abroad?

Countries with foreign investment will apply the global minimum tax from 2024 to collect the difference between the actual tax rate and the global tax rate (15%), in which foreign investors in Vietnam include South Korea, Japan, Hong Kong, and Singapore.

The countries of the European Union, non-EU countries such as Switzerland, the UK, and Norway and Asian countries such as Korea, Japan, and Australia will apply the Global minimum tax from 2024.

The US alone has increased the current minimum tax rate from 10.5% to 21% and revised the relevant rules to meet regulations on the global minimum tax.

Recipients of foreign investment, such as Vietnam, are studying to build policies to respond to the Global minimum tax, including applying regulation on Qualified Domestic Minimum Top-up Tax not to pay additional tax on the member company with actual tax rate lower than the minimum rate to the countries where the parent company is headquartered.

These countries also study financial support solutions to retain FDI enterprises subject to the Global minimum tax and attract new investors. Specifically, Indonesia will apply rules on IIR from 2024 and UTPR from 2025. Malaysia will apply a Global minimum tax from 2024. Thailand will apply the tax from 2025.

Thailand proposes to collect the Qualified Domestic Minimum Top-up Tax and allocate 50%-70% of this additional revenue to the Key Industry Support Fund under the Competition Enhancement Act. This fund will partly support businesses affected by the upward revision of the global minimum tax.

China has not yet determined the time for applying the global minimum tax. African countries also want to issue regulations on Qualified Domestic Minimum Top-up Tax. Therefore, the African Tax Administration Forum has developed a proposed approach to draft the Law on Domestic Minimum Tax.

Tax and fee incentives are key tools to attract investors to Vietnam. Will the application of the Global minimum tax affect Vietnam's competitive edge and investment attraction?

During the research process, the General Department of Taxation has made an assessment that the global minimum tax may affect Vietnam's competitive edge in many aspects.

First, the application of a global minimum tax will make Vietnam's current tax incentives less attractive to investors such as multinational corporations and companies (MNEs). This can affect the attraction and expansion of high-quality investment from MNEs that play an important role in Vietnam's economic development.

The global minimum tax has a significant impact on satellite businesses of MNEs as well as may lead to the shift of investment from Vietnam to other countries with attractive preferential policies and more favorable business and investment environments.

The less investment from MNEs as well as satellite enterprises will greatly affect the investment environment and Vietnam’s competitive edge in the world.

Second, in addition to investment as well as creating jobs for workers, FDI enterprises also play an important role in technology transfer, domestic human resource training, and building industry eco-systems, especially in the supporting industry, connecting Vietnamese enterprises to participate in the global value chain to develop Vietnam's industry.

Accordingly, the shift of investment of large FDI enterprises will negatively affect Vietnam's national industrial development goals.

Third, MNEs (eg Samsung - Korea) have invested and contributed to Vietnam's export growth and foreign exchange reserves, so the global minimum tax will also have an impact on this aspect.

Fourth, the survey shows that unclear policies and regulations, cumbersome administrative procedures and visa procedures are major barriers for foreign enterprises to invest in Vietnam. In particular, the difficulty of administrative procedures is the biggest factor (accounting for 70%) that Vietnam needs to improve to attract foreign investment.

The revision of visa procedures and allowance for foreign experts to work in Vietnam is also increasingly important, accounting for 47% of the factors to attract foreign investment. Besides, there are factors of infrastructure development (accounting for 53%), development and training of human resources (accounting for 35%), and development of green growth (accounting for 29%).

The corporate income tax incentives only account for 28% of factors attracting foreign investment. Thus, the change in corporate income tax incentives due to the impact of the global minimum tax is only a part of the country's credit rating indicators, other factors related to the improvement of investment and business environment should be given more attention.

What specific proposals has the General Department of Taxation made on tax policy to adapt to the application of the Global minimum tax from January 1, 2024, sir?

According to the OECD guidelines, in order to apply a global minimum tax, countries need to regulate this tax in the legal system. The Global minimum tax provides provisions on the Corporate income tax.

According to the provisions of Clause 4, Article 70 of the Constitution of the Socialist Republic of Vietnam, the National Assembly "stipulates, amends or abolishes taxes". Therefore, the application of the Global minimum tax needs to be submitted to the National Assembly for consideration and regulation.

Currently, the General Department of Taxation is assigned by the Ministry of Finance to study this issue. Accordingly, the General Department of Taxation has advised the Ministry of Finance to work with the ministries, sectors and the National Assembly Finance-Budget Committee to hold domestic and international conferences and seminars and coordinate with units of the Ministry to promote research on solutions to report to the Ministry of Finance, the Government and the National Assembly on implementation plans.

In the near future, the General Department of Taxation will continue to propose the Ministry of Finance to build a legal document system of the National Assembly and the Government to regulate the application of the Global minimum tax in line with OECD guidelines, including proposing the application of regulations on supplementing Qualified Domestic Minimum Top-up Tax and regulations on Income Inclusion Rule (IIR).

Thank Sir!