Vietnam recently implemented the Global Minimum Tax (GMT) with a 15% tax rate for multinational enterprises earning over 750 million euros annually.
Concerns have arisen about its impact on Foreign Direct Investment (FDI) as it restricts Vietnam’s ability to offer tax incentives to attract investors. However, experts argue that tax incentives are not the primary motivation for multinational companies investing in developing countries like Vietnam.
Mr. Michael Kokalari, Director of Macroeconomic Analysis and Market Research Department at VinaCapital, dismisses concerns, asserting that tax incentives are not the decisive factor for multinational companies when investing in developing nations. Research by the World Bank suggests that factors such as cost, labor quality, infrastructure, and the business environment’s openness play more significant roles in investment decisions.
Vietnam, cognizant of potential impacts, is exploring alternatives to mitigate the effects of the GMT. The Ministry of Planning and Investment is proposing the “Investment Support Fund” (ISF) to refund taxes through measures like supporting employee training, research and development (R&D) costs, and interest expenses. This initiative aims to offset the tax burden imposed by the GMT on multinational companies.
VinaCapital estimates that over 100 multinational companies in Vietnam will be affected by the GMT, generating an additional 600 million USD in taxes, equivalent to 4% of FDI company profits. Notably, some entities like Samsung, currently paying around 5% tax on revenue in Vietnam, may experience a significant tax increase due to the 15% minimum tax rate.
The ISF, though recently announced, lacks detailed information. Industry experts anticipate that other countries competing for FDI in the region will likely implement similar measures to maintain a competitive tax environment.
Mr. Hoang Thuy Duong, Deputy General Director of KPMG Vietnam, emphasizes the importance of government support for various sectors, particularly high-tech, electric vehicles, and green energy. He suggests redirecting support from income-based tax incentives to cover costs such as investment, labor, land, and research and development. This shift aligns with the evolving trend in developed countries, moving away from income-based tax incentives to focus on expense-related support.
The global minimum tax is not an obligatory international treaty, but rather a trend that countries, including Vietnam, are adopting. Failure to comply may result in relinquishing tax collection rights to the parent country of the investing company. Vietnam’s adherence to the GMT is seen as a means to boost budget revenue, prevent profit transfer pricing, and maintain control over tax collection rights.
Statistics from the General Department of Taxation reveal that around 120 businesses with revenues exceeding 750 million USD operating in Vietnam could be affected by the GMT. As the country navigates these changes, it must balance attracting new investors and supporting existing ones, especially those aligned with its long-term development goals.
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Source: Vietnam Insider