The Ministry of Finance has just submitted a document to the Ministry of Justice for appraisal of the draft Resolution of the National Assembly on the application of additional corporate income tax (CIT) according to regulations against global tax base erosion.
Accordingly, the draft Resolution aims to develop a Global Minimum Tax policy to be applied from 2024, including provisions on the synthesis of minimum taxable income (IR) and qualified domestic additional minimum tax (QDMTT).
Along with that are appropriate support solutions to retain existing investors, attract new investors, ensure equality between domestic and foreign investors, direct and indirect investors.
Currently, there are about 335 projects enjoying corporate income tax incentives lower than 15%.
According to statistics from the Ministry of Finance, there are currently about 335 projects with registered investment capital of over 100 million USD operating in the processing and manufacturing industry in economic zones and industrial parks.
These projects are enjoying a corporate income tax incentive of less than 15%, often in the high-tech sector of enterprises such as Samsung, Intel, LG, Bosch, Sharp, Panasonic, Foxconn, Pegatron...
Although accounting for only about 1% of the total number of projects, the total registered investment capital of these types of projects accounts for nearly 30% of the total FDI capital in Vietnam, reaching about 131.3 billion USD.
According to the General Department of Taxation's preliminary calculation of corporate income tax settlement data in 2022, there are about 122 foreign corporations investing in Vietnam that will be affected by the Global Minimum Tax if applied from 2024. If other countries also apply the Global Minimum Tax from 2024, countries with parent companies will collect an additional tax difference in 2024 estimated at over VND 14,600 billion.
If Vietnam applies the global minimum tax, it will increase State budget revenue from this additional tax collection.
Are big companies in Vietnam investing abroad affected?
In Vietnam, there are two Vietnamese corporations with large investments abroad: the Military Industry and Telecommunications Group (Viettel) and the Vietnam Oil and Gas Group (PVN). The General Department of Taxation has reviewed and made a preliminary assessment of the impact of the Global Minimum Tax on these two corporations.
As of December 31, 2022, Viettel invested in 10 countries with a total investment capital of VND 7,464 billion, the group directly invested in Peru with a capital of USD 100.5 million.
The corporate income tax rate in countries where Viettel directly or indirectly invests is above 15%. In particular, in Viettel East Timor, the tax rate is 10% due to tax exemption in each region. The average actual tax rate is from 5 - 7%.
According to the Ministry of Finance, if Vietnam applies the Global Minimum Tax (IIR regulation) but East Timor does not apply (QDMTT regulation), there is a possibility of collecting additional corporate income tax on the difference between the global minimum tax and the actual tax that Viettel must pay in East Timor.
The application of Global Minimum Tax does not affect PVN's overseas investment activities.
As for PVN, as of December 31, 2021, the group and 8 member units registered 33 investment projects abroad in 14 countries and territories. Of which, 30 projects were in the oil and gas sector; 3 projects were in mineral exploitation.
According to PVN, most of the operating overseas investment projects are concentrated in Russia, Malaysia, Singapore, and Laos, mainly in the oil and gas sector, subject to high corporate income tax rates or taxes similar to corporate income tax in other countries, from 30% to 60%.
Therefore, the application of Global Minimum Tax does not affect PVN's overseas investment activities. The Group does not have to pay additional CIT in the investing countries if the countries apply the QDMTT or in Vietnam if Vietnam applies the IIR Regulation.
For other corporations with ultimate parent companies in Vietnam that are subject to global minimum tax, the General Department of Taxation is continuing to review and assess the impact on these corporations, including the impact of the provisions on the aggregation of minimum taxable income under the IIR regulations and the impact of the QDMTT regulations.
At the Government's special meeting on law-making in July 2023 held on June 27, Prime Minister Pham Minh Chinh requested the Ministry of Finance to report and propose the application of global minimum tax and the Ministry of Planning and Investment to report and propose mechanisms and policies to support investors outside of tax.
According to the Prime Minister, the application of global minimum tax is expected to have a profound impact on the competitiveness of our country's investment and business environment, and timely appropriate solutions are needed.
“The early application of the global minimum tax in Vietnam is necessary to ensure Vietnam’s legitimate rights and interests. At the same time, it is necessary to study and supplement new forms of incentives and investment support in the context of implementing the global minimum tax to ensure the competitiveness and attractiveness of the investment environment in Vietnam in the coming period,” the Prime Minister emphasized .
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