Vietnam seeks response to corporate tax overhaul

Finding solution to effectively adapt to Pillar Two while attracting investment is currently a difficult problem not only for Vietnam but also for many countries around the world

GMT application

The so-called Pillar Two mechanism is a revolutionary tax system designed to ensure that multinational enterprises pay a minimum tax of 15 percent on local income arising in each jurisdiction where they operate. According to Phan Duc Hieu from the National Assembly’s Economic Committee, 141 countries including Vietnam have signed on to the program formulated by the Organization for Economic Cooperation and Development (OECD), which introduces domestic rules for minimum taxation of large multinational enterprises (MNEs) with annual revenues of EUR750 million.

Dr. Nguyen Anh Tuan, Editor-in-Chief of The Investor, said that on December 15, 2022, the EU reached a unanimous agreement to implement this global minimum tax starting from 2024. On 31 December 2022, the Republic of Korea (RoK) enacted new global minimum tax rules to align with the OECD’s Pillar Two solution after it was approved by the RoK's National Assembly. The Japanese government has also announced its Draft Tax Reform, moving towards the GMT application from 2024, which will be submitted to the National Assembly for approval.

These countries are sources of major foreign investment in Vietnam and the new taxation will affect foreign-invested enterprises as soon as next year, according to Tuan. Singapore, Malaysia and Hong Kong (China) are heading towards the official application of GMT as well.

In the event that Vietnam does not take immediate action or delays implementing the tax, it may miss the opportunity to levy the tax.

Most FDI enterprises want the new tax rule to apply simultaneously in their country and Vietnam

Limiting impact on Vietnam

Given the short timeline before the new rules go into force, experts are urging Vietnam to come up with appropriate tax policies in order to remain an attractive destination for foreign direct investment (FDI).

Economist Dr. Can Van Luc said the Ministry of Finance and the Prime Ministerial Working Group need to quickly research and assess the full impact of the GMT application in order to propose solutions to the National Assembly, which can then promulgate and adjust tax and accounting policies in line with international standards by early 2024. The Ministry of Finance needs to assess the impact of Pillar Two, while Vietnam needs to review and change its FDI attraction policies by improving its business environment, labor force skills, infrastructure, and satellite and support industry enterprises, he added.