122 foreign corporations investing in Vietnam have to pay Global minimum tax

VCN – On November 29, the National Assembly approved a Resolution on the application of additional corporate income tax under regulations on global anti-tax base erosion. About 122 foreign businesses in Vietnam will be affected by the Qualified Domestic Minimum Top-up Tax (QDMTT) and will have to pay the additional tax, worth an estimated VND14,600 billion.
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122 foreign corporations investing in Vietnam have to pay Global minimum tax
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Apply Global minimum tax to protect legal rights and interests

In June 2013, the Organisation for Economic Cooperation and Development (OECD) initiated Base Erosion and Profit Shifting (BEPS), which was approved by the leaders of 20 leading developed and emerging economies (G20).

On July 9, 2021, Finance Ministers and Central Bank Governors of G20 countries agreed on the Two-Pillar Solution to address the tax challenges arising from the Digitalisation of the economy.

On October 8, 2021, the OECD issued the Two-Pillar Solution to address the tax challenges arising from the Digitalisation of the economy. Currently, the Two-Pillar Solution have been agreed by 142/142 member countries of the BEPS Global Cooperation Forum.

Countries investing abroad will apply the Global minimum tax from 2024, including including countries with large investments in Vietnam such as South Korea, Japan, Hong Kong, Singapore....

Countries receiving foreign investment capital as Vietnam research to provide policies to respond to the Global minimum tax, including the application of QDMTT regulations to avoid paying additional taxes on income of member companies with effective tax rates lower than the minimum rate in the countries where the parent company is headquartered, and also seek financial support solutions to retain FDI enterprises in subject of Global minimum tax and attract new investors.

The Global minimum tax is not an international treaty, not an international commitment, and is not mandatory for countries to apply. However, if Vietnam does not impose taxes, it means giving up the right to define tax and businesses will pay additional taxes to their home country - where their holding companies’ headquarters is located.

In the above context, to ensure its legitimate rights and interests, Vietnam needs to affirm the application of global minimum tax. According to OECD guidance on regulations on global anti-tax base erosion, the Global minimum tax is an additional corporate income tax and countries need to regulate it in the legal systems.

On November 29, 2023, the National Assembly passed a Resolution on the application of additional corporate income tax under regulations on global anti-tax base erosion. This Resolution takes effect from January 1, 2024.

Notable contents of Global minimum tax regulations in Vietnam

The Resolution on applying additional corporate income tax under regulations on global anti-tax base erosion (including 8 Articles and 1 Appendix) provides notable provisions.

Accordingly, the Resolution says that the taxpayer is the unit of the multinational corporation with total consolidated revenue from 750 million Euro within 2 among 4 consecutive years.

The Resolution stipulates two contents on the application of additional corporate income tax, including: Additional regulations on QDMTT applicable to constituent units or constituent units of the multinational corporation investing in Vietnam in the fiscal year.

The Income Inclusion Rule (IRR) apply to ultimate parent companies, partially owned parent companies, and intermediate parent companies in Vietnam that are constituent units of multinational corporations and hold directly or indirectly ownership of a low-tax constituent unit in the foreign country under global minimum tax regulations at any time during the financial year.

The Resolution regulates the minimum tax rate specified of 15%.

The provisions of the Resolution stipulate that the taxpayer must declare declaration under regulations on Global minimum tax; make additional corporate income tax declaration attached with the report on the differences between financial accounting standards.

The deadline for submitting declarations and paying taxes, for regulations on QDMTT, is 12 months after the end of the fiscal year.

For regulations on IIR, it is 18 months after the end of the fiscal year for the first year the corporation is subject to application; and 15 months after the end of the fiscal year for the following years.

The Ministry of Finance preliminarily calculates that about 122 foreign corporations investing in Vietnam will be governed by the QDMTT and will have to pay the additional tax, worth an estimated VND14,600 billion.

According to preliminary calculations based on 2022 corporate income tax finalization data, if Vietnam applies IIR, there will be 6 Vietnamese corporations subject to application, and the country will collect estimated additional corporate income tax of about VND73 billion (in case the investing countries do not apply QDMTT).

Currently, the Ministry of Finance (General Department of Taxation) urgently develops Decree detailing the assigned contents in the Resolution to ensure legal framework and consistency with the provisions in the Resolution.

By Hoai Anh/Ngoc Loan

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