Global minimum tax: An opportunity for Vietnam to reform its investment environment

	Vietnam should prepare for global minimum tax
	Global minimum tax and proactive steps

Mr. Nguyen Van Toan, Vice Chairman of Association of Foreign Investment Enterprises (VAFIE).

In your opinion, how will the application of the global minimum tax rate in many countries from 2024 affect FDI flows into Vietnam?

The global minimum tax (TTTC) is a “hot” issue of Vietnam as well as of many countries around the world. This tax is part of the action program to combat base erosion and profit shifting (BEPS) initiated by the Organization for Economic Cooperation and Development (OECD), which has now been agreed upon by 143 countries. Vietnam joined in April 2022 and is the 99th country to join this agreement.

With this tax, enterprises with a turnover of 750 million euros (equivalent to US$ 800 million) or more, in the 2 years of the last 4 consecutive years, must pay a tax rate of 15%. When enterprises invest in foreign countries and pay income tax in the country of investment below 15%, they will have to pay the difference in the country where they are headquartered.

Accordingly, enterprises must declare international investment activities, if the tax rate applied in the countries where they invest is lower than 15%, they shall pay the missing tax amount to the investment country where the head office is located. Thus, the benefits they were entitled to as the preferential part will no longer exist or be significantly reduced. Investment incentive policies will be reduced in effect in many cases.

It is expected that the rules for the global minimum tax will begin to be enforced at the beginning of 2024. Up to now, many countries have prepared to apply the global minimum tax, of which, many countries are making big investments in Vietnam.

Thus, the flow of foreign investment capital into countries will certainly be affected and Vietnam is no exception to this rule. The strongest impact of the global minimum tax is that enterprises will consider investing in Vietnam.

What should Vietnam do to limit the negative impacts of the global minimum tax on attracting FDI, Sir?

I think that this is a challenge but also a huge opportunity for Vietnam because one of our weaknesses is that we have not been able to handle the problem of tax evasion, fake loss and real profit. If there is a global minimum tax mechanism, it will be difficult for FDI enterprises that have reported losses to find a “tax haven” for transfer pricing, forcing FDI enterprises to be more transparent. Overcoming the paradox that FDI enterprises have just expanded their business investment but still reported losses.

Besides, Vietnam still has many advantages, which have been highly appreciated by FDI enterprises for a long time, which are political stability, macroeconomic stability, good inflation control, the market of 100 million people, 15 signed free trade agreements and agreements being negotiated and signed. Thus, if there is a good global minimum tax mechanism on the basis of learning from other countries, and the Vietnamese current advantages, it will create great opportunities for Vietnam in attracting FDI.

Do you have any recommendations on solutions to improve the investment environment and attract foreign investors to Vietnam?

With the difficulties that Vietnam's investment environment is facing, especially the tax reduction tool is strongly affected by the application of the global minimum tax, there is no other way, Vietnam must improve and raise the level of other tax factors in the investment environment such as labour capacity, administrative procedures, technical infrastructure, social infrastructure, and ancillary businesses.

The highest improvement is to meet high-tech projects. To meet this demand, it is necessary to have human resources, to develop supporting industries and to have transparent and synchronous policies with those of developed countries.

Specifically, we must have a series of quality supporting enterprises to be able to participate in the production stages of foreign investors and compensate for the shortage of components. Focusing on developing supporting industries to attract and retain FDI inflows is a successful lesson for countries in the region, typically Thailand. Without practical, strong and timely policies to promote the development of supporting industries, Vietnam will also be in danger of missing out on large investment flows in the shifting trend of the global value chain. as well as innovating the industrial development model.

Regarding labour, Vietnam must raise labour productivity and labour skills. Compared to the region and the world, we are still low average. We must have a long-term plan, not just change the mindset of training workers.

It is necessary to change the mindset of vocational training in the direction that society needs, not just what we have. We have to segment the labour market. High-tech foreign investors need a proportion of engineers, a proportion of mid-level senior technical staff, and a proportion of skilled workers. The direction of human resource training must pay attention to this issue.

Universities and vocational training schools should pay attention when training human resources, not using cheap labour to attract foreign investment. Striving to eliminate cheap labour to raise the level of human development in Vietnam.

Thank Sir!