Global minimum tax set to take effect in Vietnam in 2024

On November 29, the National Assembly ratified a resolution to implement the global minimum tax, with an overwhelming majority of 93.5% of the deputies present supporting it. This decision will take effect on January 1, 2024.

Overview of the session. Photo: quochoi.vn

The G7 nations previously agreed on the global minimum tax in June 2021 to address the practice of multinational corporations shifting profits to low-tax jurisdictions.

Under the resolution approved today, multinational enterprises with consolidated revenues of EUR750 million (US$800 million) or more in two of the previous four years will be subject to a 15% global minimum tax in Vietnam.

According to tax authorities' estimates, this move is expected to increase tax revenue by over VND14.6 trillion ($603.5 million) from 122 foreign multinationals operating in Vietnam.

However, the application of the global minimum tax may affect foreign investment enterprises benefiting from tax exemptions and reduction periods, usually below 15%.

This could potentially affect Vietnam's attractiveness as an investment destination. Some National Assembly deputies have suggested that the government devise appropriate investment incentive solutions to address this concern.

The National Assembly Standing Committee highlights that the government has yet to conduct a comprehensive assessment of the investment incentive system. This includes both corporate income tax incentives and non-tax measures to provide alternatives after the implementation of the global minimum tax.

As of now, the Corporate Income Tax Law remains unchanged, meaning that new investments by multinational corporations in Vietnam will be governed by the existing law and the newly ratified resolution. This implies that new foreign investors entering Vietnam will still benefit from tax reduction incentives initially and will need to repay these incentives, potentially receiving additional non-tax support.

In addition to the resolution on tax imposition, the National Assembly has tasked the Government with developing a draft Decree in 2024, focusing on establishing, managing, and utilizing an investment support fund from the additional revenue generated by the global minimum tax and other legal sources.

The objective is to create a stable investment environment, attract strategic investors and multinational corporations, and provide support to domestic businesses in sectors subject to investment incentives.

In the long run, the Government must conduct a comprehensive evaluation of the existing tax incentive policies. The timely amendment of the Corporate Income Tax Law, accompanied by a strategic plan to adjust both tax rates and the incentive system, is deemed necessary.

Anticipating the scenario wherein businesses subject to the global minimum tax in Vietnam may consider legal action to redirect the tax payment to their home countries, the National Assembly has urged the Government to proactively devise appropriate solutions. It is crucial to address potential disputes and legal challenges to ensure the stability of the investment environment.

In line with the resolution, payments subject to taxation below the prescribed minimum level, effective January 1, 2025, will be incorporated into the amended Corporate Income Tax Law.

The National Assembly has assigned the Government the task of promptly drafting documents for the amended Law on Corporate Income Tax, aiming to facilitate its implementation from the fiscal year 2025 onwards.

This proactive step aims to safeguard Vietnam's right to tax payments falling below the country's minimum tax rate, as stipulated by global minimum tax regulations.

The UK, Japan, Korea, and the EU are also anticipated to implement similar tax measures in 2024.