The Ministry of Finance (MOF) has sent a statement to the Ministry of Justice about the proposal for a National Assembly resolution on additional corporate income tax in accordance with the Global Anti-Base Erosion Rules (GloBE).
The draft resolution aims to create a global minimum tax policy to be applied from 2024, including regulations on IIR (income inclusion rule) and QDMTT (Qualified Domestic Minimum Top-up Tax) and solutions to retain existing investors and attract new investors, and ensure equality for both domestic and foreign investors, and direct and indirect investors.
According to MOF, there are 335 projects with registered investment capital of over $100 million operating in processing and manufacturing industries in economic zones and industrial zones.
The projects enjoy preferential corporate income tax rates lower than 15 percent, especially hi-tech projects of Samsung, Intel, LG, Bosch, Sharp, Panasonic, Foxconn and Pegatron.
The projects account for one percent of total foreign invested projects in Vietnam, but their total investment capital accounts for 30 percent of registered capital ($131.3 billion).
The General Taxation Department (GDT) estimates that 122 foreign economic groups investing in Vietnam will be affected by the global minimum tax, if the tax is applied from 2024.
If other countries also begin applying the tax from 2024, the countries which have holding companies will be able to collect additional taxes in 2024, estimated at VND14.6 trillion.
Of these, South Korea has 18 MNEs (multinational enterprises) investing in Vietnam which will have to pay additional tax of VND10.7 trillion in South Korea in 2024.
Meanwhile, Japan has 36 MNEs which will have to pay VND250 billion more in 2024.
Other countries and territories that have big investments in Vietnam, including China, the US, Singapore, Taiwan (China), Thailand, Canada, Hong Kong (China), the Netherlands, Malaysia, British Virgin Islands, and the UK, have 50 MNEs and the total tax they will have to pay is VND3.56 trillion.
If Vietnam applies the global minimum tax, revenue to the state budget will increase from the additional tax.
Vietnam’s outward-invested enterprises
Vietnam is also an investor. Its large corporations have made outward investments in many countries and territories. Viettel (technology firm), PetroVietnam (oil and gas), Vingroup (automobile), Vietnam Rubber Group, Petrolimex and commercial banks are the biggest investors. Viettel and PetroVietnam are the best-known.
MOF and GDT have given preliminary assessments about the possible impact of taxation on Viettel and PetroVietnam.
In the case of Viettel, the outward investment is implemented by Viettel International Investment JSC (VTG). In Peru, the investment is made by the holding company.
As of December 31, 2022, Viettel had invested in 10 countries, including VND7.46 trillion in nine countries by VTG and $100.5 million by a Viettel holding company in Peru.
The corporate income tax rates Viettel pays in other countries are higher than 15 percent, except for East Timor (10 percent) (tax exemption is applied depending on the region; the average actual tax rate is 5-7 percent).
If Vietnam applies the global income tax (IIR) and East Timor doesn’t apply (QDMTT), it is highly possible that it will additionally collect the difference between the global income tax and the actual tax Viettel must pay in East Timor.
As for PetroVietnam, by December 31, 2021, the group and eight subsidiaries had registered investment in 33 outward investment in 14 countries and territories, including 30 oil and gas projects and three mining projects.
According to PetroVietnam, most of the projects are in Russia, Malaysia, Singapore and Laos, mostly in the oil and gas sector, which are subject to relatively high tax rates, 30-60 percent.
This means that taxation will in no way affect PetroVietnam’s outward investment. It will not have to pay additional tax in target countries (if they apply QDMTT) or in Vietnam (if Vietnam applies IIR).
Only one project of PetroVietnam, in the Congo, bears corporate income tax of zero percent (it pays a natural resource tax of 15 percent), but the project is under the exploration period and still has not earned revenue.
According to MOF, the global minimum tax will bring new opportunities to Vietnam. It will help increase revenue to the state budget from the additional tax collection, strengthen international cooperation, and minimize tax evasion and transfer pricing.