On November 29, the National Assembly of Vietnam endorsed a resolution to implement additional corporate income tax measures in accordance with the Global Anti-Base Erosion Rules, potentially impacting foreign direct investment (FDI) inflows.
The global minimum tax (GMT) agreement, established by the G7 countries in June 2021 to address profit shifting by multinational corporations to countries with lower tax rates, is set to be enforced starting January 1, 2024, with participation from 141 countries. According to the resolution, multinationals with total consolidated revenues of €750 million (approximately $800 million) or more over two of four consecutive years will be subjected to a minimum tax rate of 15 percent.
KB Securities Vietnam (KBSV) expresses concerns about the potential reduction in Vietnam’s attractiveness to foreign investment, as tax exemptions or reductions are pivotal factors in attracting FDI. While acknowledging the necessity of applying GMT in the current context, KBSV suggests that Vietnam should consider implementing additional supportive policies alongside improvements in the business environment, such as labor conditions, infrastructure, administrative procedures, and more.
The National Assembly is actively discussing appropriate policies, and it is anticipated that these measures will be introduced in the near future. Looking ahead, Vietnam is expected to remain an appealing destination for FDI due to factors like low-cost labor, advantageous geographical location, free trade agreements, and a stable political system. Consequently, FDI inflows into Vietnam are projected to contribute to economic growth in the coming years, acting as a growth driver for industrial park developers, according to KBSV.
A report by Maybank Vietnam suggests that foreign investments may experience a cooling effect next year, with a 15 percent effective corporate tax rate imposed from January 1 as part of the GMT reform. About 122 foreign companies may face a substantial increase in their tax bills, with Samsung expected to bear a significant portion of this burden. The estimated additional annual revenue of VND14.6 trillion ($601 million) could potentially be utilized to enhance other investment incentives, although concerns persist regarding potential violations of global rules and legal complications for non-qualifying companies.
In August, a draft plan by the Ministry of Investment proposed that only high-tech companies with a minimum investment of VND12 trillion ($495 million) should be eligible for cash subsidies covering various costs, including training, research, and infrastructure. The finalization of these measures is expected in the coming year.
Despite uncertainties, FDI continues to show positive momentum, standing out as a bright spot amid global declines in investment and trade. Realized FDI from January to November saw a 2.9 percent increase from the previous year, reaching $20.3 billion, marking a five-year high. FDI registrations recorded a significant 14.8 percent year-on-year increase over the first 11 months, with a remarkable 40 percent surge in the manufacturing sector.