News Jan 04 24

Will the New Global Minimum Tax a Threat to Vietnam's Economic Growth?

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Dive into the complex world of international finance as we unravel the implications of the Global Minimum Tax Vietnam in this insightful blog. This groundbreaking taxation concept aims to create a level playing field, ensuring multinational corporations contribute their fair share.

As we navigate through this intricate web of fiscal changes, we’ll also touch upon the dynamic relationship between taxation and economic growth. Scroll down to read more.

What is Global Minimum Tax?

The global minimum corporate tax rate, often referred to as GMCT or GMCTR, represents an internationally agreed-upon minimum tax on corporate income, universally accepted by individual jurisdictions. Under this framework, each country becomes entitled to a portion of the revenue generated by this tax.

The primary objective is to mitigate tax competition among nations and dissuade multinational corporations (MNCs) from engaging in profit-shifting practices to evade taxes. This collaborative approach seeks to foster a more equitable global tax environment, discouraging the exploitation of regulatory disparities for financial gain.

Global Minimum Tax Policies in Vietnam

With an overwhelming mandate of over 93% in favor, the National Assembly (NA) decisively endorsed a resolution on November 28, 2023, concerning the imposition of additional corporate income tax aligned with the Global Anti-Base Erosion Rules, also known as the global minimum tax Vietnam.

Global Minimum Tax Policies in Vietnam
Chairman of the NA’s Finance – Budget Committee Lê Quang Mạnh presented a resolution on applying additional corporate income tax in line with the Global Anti-Base Erosion Rules (global minimum tax) at the National Assembly session on Wednesday. — VNA/VNS Photo Doãn Tần. Source: Vietnamnews

This landmark resolution, set to be enforced on January 1, 2024, establishes a global minimum tax rate of 15% applicable to multinational enterprises (MNEs) boasting revenues surpassing 750 million euros (equivalent to approximately US$800 million) in at least two of the four consecutive years. Investors falling within this taxable bracket will be obliged to fulfill their global minimum tax obligations within the Vietnamese jurisdiction.

Preliminary estimates suggest that around 113 multinational enterprises operating in Vietnam will be directly impacted by the implementation of the global minimum tax. This progressive move aligns the nation with international efforts to combat base erosion, foster fiscal fairness, and ensure that sizable global enterprises contribute their equitable share to the Vietnamese economy.

Will Global Minimum Tax be a Challenge for Vietnam?

The recent push for a global minimum tax policy aims to establish a baseline corporate tax rate across nations, preventing companies from exploiting tax havens to minimize their tax liabilities. While this initiative is designed to create a level playing field in the international business landscape, it raises concerns for countries heavily reliant on foreign investment, such as Vietnam.

Impact on Vietnam’s Attractiveness for Foreign Investors

Vietnam has been a hotspot for foreign direct investment (FDI), with its growing economy and favorable business environment. However, the global minimum tax policy could alter this landscape. Foreign investors, particularly those seeking a competitive tax advantage, might reassess their strategies. The uncertainty surrounding how this tax will be implemented globally adds an additional layer of concern for businesses looking to establish a presence in Vietnam.

Challenges for Factories for Lease in Vietnam

Vietnam’s allure as a destination for cheap factories for lease may face challenges as the global minimum tax Vietnam takes effect. Companies considering establishing or expanding their operations in Vietnam may need to reevaluate the financial implications of the new tax framework.

Will Global Minimum Tax be a Challenge for Vietnam?
Source: Flickr

While the global minimum tax policy is designed to promote fairness, its implications for Vietnam’s role as a preferred destination for foreign investment, particularly in the context of cheap factory for lease scenarios, remain to be seen. The country will need to strategically navigate these changes to ensure continued economic growth and attractiveness to investors.

What Could Vietnam Do to Get Ready for the Global Minimum Tax Policy?

1. Enhance Financial Systems Transparency

To adapt to the impending global minimum tax policy, Vietnam must take strategic measures to ensure its economic resilience. Firstly, the government should focus on enhancing transparency in financial systems. This includes streamlining tax regulations and encouraging businesses to comply with international standards. By doing so, Vietnam can build a reputation as a reliable and transparent investment destination.

2. Minimize the Economic Dependency on Specific Industries

The country should diversify its economy to reduce dependence on specific industries. As the global minimum tax policy aims to address profit shifting and base erosion, having a well-rounded economy will make Vietnam less susceptible to fluctuations in any single sector. This diversification can involve promoting sectors like technology, renewable energy, semiconductor manufacturing, and services.

>>> Learn more about the semiconductor manufacturing industry – a newly rising field in Vietnam:

3. Upskill the Workforce

What Could Vietnam Do to Get Ready for the Global Minimum Tax Policy?
Source: Hinrich Foundation

Vietnam should invest in upskilling its workforce. A highly skilled workforce is essential for attracting businesses that value innovation and expertise. The government could collaborate with private enterprises to establish training programs tailored to the needs of emerging industries.

What Could Vietnam Do to Get Ready for the Global Minimum Tax Policy?
Source: Helsinkitimes

In short, the global minimum tax Vietnam represents a crucial step towards fostering international tax fairness and preventing tax evasion by multinational corporations. By establishing a baseline tax rate, nations aim to create a level playing field, ensuring that profits are appropriately taxed regardless of where economic activities occur.

This initiative not only promotes fiscal equity but also encourages responsible corporate citizenship. As countries collaborate to implement these measures, it becomes clear that a unified approach is essential to addressing global economic challenges.

In this era of interconnected economies, a harmonized global minimum tax policy acts as a cornerstone, preventing the exploitation of tax havens.

Keep in touch with us at CORE5 Vietnam to stay updated with the latest news and insights on the industrial real estate market.

Data (dates, tax, law) retrieved from: Vietnamnews

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