Against the backdrop of major FDI countries such as Singapore, Japan and the Republic of Korea (RoK) starting to adopt global tax policies next year, it is crucial for Vietnam to accelerate the pace of adopting the Global Minimum Corporate Income Tax (GCMT) from the beginning of 2024.

Without adopting the Global Minimum Corporate Income Tax (GCMT), Vietnam will lose the right to impose a supplementary tax on Multinational Enterprises (MNEs) investing in Vietnam with a tax rate of less than 15 percent. This is because these countries are the main sources of FDI in Vietnam, and under the GCMT, they will be able to impose a supplementary tax on MNEs.

Although Vietnam’s standard corporate income tax rate of 20% is higher than the GCMT’s minimum rate of 15%, Vietnam offers tax exemptions, tax reductions and other incentives to foreign investors, effectively reducing the effective tax rate for MNEs to less than 15%.

Vietnam should speed up adoption of world’s lowest tax rate to remain attractive to foreign investment

Vietnam’s Ministry of Finance has drafted a resolution on adjusting the GCMT, paving the way for the adoption of the GCMT in Vietnam next year. However, to remain attractive to foreign capital, Vietnam should also focus on improving the legal framework to create a more favorable investment environment for multinational enterprises. This includes non-tariff zone mechanisms, land incentives, infrastructure in industrial zones and export processing zones, and indirect tax relief.

In addition, Viet Nam should prioritize attracting enterprises that possess core technologies and operate in key areas of foreign investment, such as the semiconductor industry. Incentives for these firms could include building housing and infrastructure systems for workers.

Overall, Vietnam needs to accelerate the process of adopting the GCMT and take other measures to enhance its attractiveness to foreign investment. Institutional reforms, a transparent and stable investment environment, a good tax system and low compliance costs are all key factors to consider.

The Ministry of Finance has proposed the introduction of the Qualified Domestic Minimum Supplementary Tax (QDMTT) and the Income Consolidation Rule (IRR) to accommodate the GCMT, which is expected to affect some 113 multinational enterprises in Vietnam if implemented from early next year.

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