Vietnam Encouraged to Enhance Incentives for Foreign Investors Amid Global Minimum Tax Implementation

Starting January 2024, Vietnam will implement the Global Minimum Tax (GMT) of 15%, targeting multinational corporations (MNCs) with revenues exceeding €750 million ($821.6 million).

A month ago, the National Assembly passed a resolution imposing a 15% top-up Corporate Income Tax (CIT) under Global Anti-Base Erosion model rules, effective from January 1 until the release of the country’s new CIT law.

Article 2 of the resolution specifies taxpayers in Vietnam as member companies of MNCs with a turnover of $821.6 million or more in the consolidated financial statements of the ultimate parent company for at least two of the four years immediately preceding the fiscal year.

Vietnam’s adoption of GMT aims to align with international practices, ensuring the country’s right to levy taxes, consistent with the global trend.

Based on a government report analyzing 2022 CIT data, over 120 Foreign Invested Enterprises (FIEs) are projected to be subject to the resolution, with a total top-up CIT amounting to approximately $616 million.

Despite Vietnam’s current general CIT rate being 20%, higher than the GMT rate, major foreign-invested projects in the country enjoy special incentives, resulting in effective tax rates below 15% through exemptions and reductions over specific periods.

Globally, the EU, the UK, and South Korea are set to implement GMT in 2024, aligning with Vietnam’s move. The nation is attracting significant investment from these countries, along with the United States, while regional competitors Malaysia and Thailand plan to adopt GMT in 2024 and 2025.

The International Monetary Fund (IMF) predicts that GMT adoption in 2024 will boost tax revenues but calls for improvements in the investment climate. Vietnam, having historically granted tax incentives to attract Foreign Direct Investment (FDI), may face challenges as these incentives erode due to the GMT implementation.