Experts say tax incentives are not the main motivation for multinational companies to decide to invest, and Vietnam can come up with solutions to compensate.
Since the beginning of this year, Vietnam has applied a global minimum tax (GMT). The applicable tax rate is 15%, for multinational enterprises with a total consolidated revenue of 750 million euros (about 800 million USD) or more in two of the four most consecutive years. Taxable investors will be required to pay the global minimum tax in Vietnam.
Some investors have been concerned that the application of this tax regime could affect FDI flows, as this limits Vietnam's ability to offer tax incentives to attract investors.
"However, we are not concerned about this issue," said Michael Kokalari, Director of Macroeconomic Analysis and Market Research at VinaCapital.
According to this expert, tax incentives are not the main motivation for multinational companies to decide to invest in a developing country. Research by the World Bank and other organizations shows that multinational companies consider many factors such as costs, labor quality, infrastructure quality, and openness of the business environment when deciding to invest. In developed countries, these factors are almost the same, so taxes become a more important factor, different from when they consider investing in developing countries.
In addition, Vietnam can come up with other solutions to partially or fully support the tax that multinational companies have to pay when the global minimum tax is applied.
The Ministry of Planning and Investment is studying the proposal of an "Investment Support Fund" (ISF) to refund taxes to some companies, through supporting employee training costs, research and development (R&D) costs, or loan interest costs.
VinaCapital estimates that the global minimum tax will impact more than 100 multinational companies operating in Vietnam and could bring in an additional $600 million in tax revenue, equivalent to 4% of FDI companies’ profits in Vietnam. Some, such as Samsung, paid about 5% tax on their revenue in Vietnam before the mandatory 15% minimum tax.
Information about the ISF was just announced in the past few days. "We expect more details to be shared. Countries competing to attract FDI in the region will certainly have similar measures, making the tax level similar to before the global minimum tax was applied," said VinaCapital's Chief Economist.
Samsung's R&D center in Hanoi was inaugurated at the end of 2022. Photo: Luu Quy
Mr. Hoang Thuy Duong, Deputy General Director of KPMG Vietnam, added that many business groups, especially those in the high-tech, electric vehicle, and green energy sectors, are very interested in other government support to encourage investment. Even businesses that are planning to expand their investment are also looking forward to new incentive policies.
"When tax incentives based on income may no longer be valid, Vietnam should switch to supporting costs, such as investment costs, labor costs, land or research and development costs," commented the Deputy General Director of KPMG Vietnam. For new projects, Vietnam can support costs related to fixed asset investment. For businesses operating in Vietnam, support for labor costs and research and development costs will be more useful.
According to the leader of KPMG Vietnam, the development of policies must also consider encouraging both new and existing investors. At the same time, according to him, it is also necessary to select subjects in the long-term development strategy such as high technology, electric vehicles... "This policy is an 'important vote' for the FDI eagle group to evaluate the investment environment in Vietnam", said Mr. Duong.
Mr. Luu Duc Huy, Director of Tax Policy Department (General Department of Taxation) in a workshop last year cited a business survey showing that only 28% of businesses were interested in tax incentives.
"Tax incentives in many developed countries are considered outdated. The current trend is to shift incentives from income to expenses," said Mr. Huy.
The global minimum tax is not an international treaty that countries must apply. However, according to the Director of the Tax Policy Department, if Vietnam does not apply it, it will still have to accept the tax collection rights of the parent country of the company investing in Vietnam. Therefore, Vietnam cannot stay out of this trend. Collecting the global minimum tax helps Vietnam increase budget revenue, avoid transfer pricing and profit transfer, and avoid losing tax collection rights to other countries.
According to statistics from the General Department of Taxation, about 120 enterprises with revenue of over 750 million USD operating in Vietnam are expected to be affected if the global minimum tax is applied.
Minh Son - Quynh Trang
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