Retaining “eagles” amid global minimum tax rollout

Once countries apply the global minimum tax rate, Vietnam’s previous tax incentives will not have much effect in attracting foreign investors. (Photo: VietnamPlus)

Hanoi (VNA) – Once countries apply the global minimum tax rate, Vietnam’s previous tax incentives will not have much effect in attracting foreign investors. Therefore, maintaining competitiveness in the domestic investment environment will face remarkable challenges.

Speaking at the conference “Global minimum tax: International experiences, potential effects and implications for Vietnam” in Hanoi on April 17, Minister of Finance Ho Duc Phoc said Vietnam needs to fully and comprehensively assess the impacts of the global minimum tax on the country.

As many as 1,015 foreign-invested enterprises in Vietnam whose parent companies are subject to the global minimum tax and more than 70 businesses are likely to be affected by the global minimum tax when it is applied from next year, he said.

At the conference “Global minimum tax: International experiences, potential effects and implications for Vietnam” in Hanoi on April 17. (Photo: VietnamPlus)

If the countries home to the parent companies enforce the global minimum tax, they will collect additionally about over 12 trillion VND (510.5 million USD) in tax in 2024.

To date, most EU countries, Switzerland, the UK, the Republic of Korea (RoK), Japan, Singapore, Indonesia, Hong Kong (China), and Australia have confirmed that they will apply the minimum tax rate of 15% from 2024.

Of them, the RoK, Singapore, and Japan have large investments in Vietnam and many businesses that are subject to the global minimum tax.

The minister noted that the Prime Minister has set up a special team led by Deputy PM Le Minh Khai to study and propose measures related to the global minimum tax. The Finance Ministry also established a working group to assist the PM’s special team.

At the conference “Global minimum tax: International experiences, potential effects and implications for Vietnam” in Hanoi on April 17. (Photo: VietnamPlus)

Dang Ngoc Minh, Deputy Director of the General Department of Taxation, said that in Vietnam, about 335 projects with registered investment capital of over 100 million USD in manufacturing and processing industries are enjoying corporate income tax incentives with rates lower than 15%, particularly those in the hi-tech sector such as Samsung, Intel, LG, Bosch, Sharp, Panasonic, Foxconn, and Pegatron.

The total registered investment capital of those projects accounts for nearly 30% of the total FDI in Vietnam, about 131.3 billion USD.

Therefore, when Vietnam applies this tax without timely measures, the country can lose its competitive advantages in foreign investment attraction, while foreign investors' investment expansion plans will be affected too.

Minh said that if Vietnam does not apply the global minimum tax, the state budget revenue from corporate income tax will not be affected.

However, if Vietnam applies the standard domestic minimum tax, Vietnam will have the right to levy additional taxes on FDI enterprises that are enjoying lower tax rates in Vietnam, thereby having state budget revenue increased.

In case Vietnam does not collect additional corporate income tax, the entire amount of tax incentives for existing businesses will be collected by the countries which are home to the parent companies.

Robert King, Deputy General Director of Ernst & Young Vietnam, recommended that the policy problem for Vietnam at this time is to achieve two important goals - proactively gaining the right to tax and continuing to create favourable investment environment.

He suggested that Vietnam apply a standard domestic minimum tax. In addition, the Government should have policies to support investors to increase competitiveness of not only those affected by the implementation of the global minimum tax rate but also other firms./.