Vietnam implements world's lowest tax rate

Vietnam is considering following the lead of major investors like Singapore, Japan and South Korea in adopting the Global Minimum Corporate Income Tax (GMCT) from next year.

Dang Ngoc Minh, deputy director of Vietnam's General Department of Taxation, said the GMCT is not mandatory but will have a significant impact on foreign investment recipients like Vietnam, which offers tax incentives to large multinational companies. A tool to attract foreign investment.

The OECD's global anti-base erosion rule applies a minimum effective tax level of 15 percent to multinationals that reach a threshold of 750 million euros.

Minh said the application of the global minimum tax rate is crucial for Vietnam to gain the right to impose the surtax against the backdrop of the global tax policy adopted by major FDI countries such as Singapore, Japan and South Korea from next year, which allows these countries to impose a surtax on multinationals investing in specific jurisdictions with a tax rate of less than 15 percent.

Although Vietnam's standard corporate income tax rate of 20 percent is higher than the level of the global minimum tax rate, the country offers tax exemptions, reductions and other incentives for foreign investors to keep the effective tax rate for multinationals below 15 percent, Minh said.

The Ministry of Finance has drafted a resolution on adjusting the global minimum tax, paving the way for Vietnam to adopt the global minimum tax from next year.

To remain attractive to foreign investment, Vietnam will improve the legal framework to create a favorable investment environment for multinational enterprises, including the non-tariff zone mechanism, preferential land policies, infrastructure in industrial zones and export processing zones, and exemptions from indirect taxes.

Foreign-invested enterprises mainly invest in industrial parks, economic zones and export processing zones. According to statistics, there are 407 industrial parks in the country, attracting 11,200 foreign-invested projects with a total registered capital of $231 billion.

Vietnam implements world's lowest tax rate

Therefore, there is a need to develop policies to support enterprises in industrial and economic parks, especially with regard to land-use fees.

Incentives are given to enterprises in key areas that attract foreign investment (e.g. semiconductors) and those with core technologies. Other support includes building houses and infrastructure systems for workers.

He emphasized that Vietnam must speed up the process of adopting the world's lowest tax rates to remain attractive to foreign capital.

Researchers from the Ministry of Finance said institutional reforms should be the focus of attracting foreign investment in the next phase.

"In the long run," the researchers wrote, "tax policy can only be seen as a component of investment attraction policy, not the most important tool." It is important to come up with synchronized solutions to create an investment-friendly, transparent and stable business environment that ensures equal access to product factors, including capital, labor, raw materials and infrastructure, at reasonable costs."

"Vietnam also needs to build a good tax system that is transparent, fair, effective, in line with international practices and standards, and with low compliance costs for taxpayers."

The Ministry of Finance (MoF) has proposed introducing the Qualified Domestic Minimum Supplementary Tax (QDMTT) and the Income Consolidation Rule (IRR) to accommodate the Global Minimum Tax (GMT) in the draft amendment to the Law on Corporate Income Tax (CIT).

It is estimated that some 113 multinational enterprises in Vietnam will be affected if the global minimum tax is implemented from early next year.

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