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Hanoi set to implement global tax structures

Tan KW
Publish date: Thu, 23 Mar 2023, 08:18 AM
Tan KW
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HANOI: Vietnam will adjust its investment policies to adapt to the global minimum tax rate and remain an attractive destination for investment.

This news comes amid concerns about the competitive advantage developing countries have in attracting foreign investment through tax incentives.

The global minimum tax was Pillar Two of the Organisation for Economic Co-operation and Development’s (OECD) base erosion and profit-shifting framework.

To date, it has drawn the participation of over 140 countries and jurisdictions, including Vietnam.

It aims to reform international tax rules and ensure that multinational enterprises pay a fair share of tax wherever they operate through the establishment of a global minimum effective corporate tax rate of 15% for those with annual revenue of €750mil , starting in 2024.

Do Van Su, deputy director of the Foreign Investment Agency in the Planning and Investment Ministry, said: “The global situation is changing rapidly with unpredictable and complicated developments, negatively affecting the economic prospects and budget revenues of many countries.”

In addition, the rapid development of information and technology and the emergence of new economic models allowed multinational companies to take advantage of policy loopholes to avoid tax obligations.

This was being done by transferring profits from countries with a high tax rate to counties with lower tax rates, or transfer pricing, he said.

The competition for attracting investment among capital-importing countries was in a race to the bottom, he said.

In Vietnam, tax incentives were being used as a financial leverage tool to influence investment trends.

Vietnam’s corporate income tax incentives are considered attractive compared to other countries in the region.

Specifically, the common corporate income tax is 20%, higher than the global minimum tax rate. The preferential rates of 10%, 15% and 17% were applied depending on the industries, sizes and locations of the investment. Notably, some investors were given special rates of just 5%, 7% and 9%. Other incentives included tax exemption and a 50% reduction.

When the global minimum tax comes into force, tax incentives will no longer give Vietnam a competitive advantage in attracting investment, Su said. This rule, moreover, affected the management of existing foreign-invested enterprises.

This fact required Vietnam to find solutions to adapt to the global minimum tax and develop new investment promotion policies.

According to Takeo Nakajima, chief representative of the Japan External Trade Organisation (Jetro) in Hanoi, when investing in a country, an investor considers a number of factors, especially tax incentives.

The implementation of the global minimum tax rate would have a direct impact on the business operation, thus, it was important for Vietnam to raise policies early to maintain its attractiveness and adapt to the global minimum tax.

Besides this, the investment environment and market growth potential were other factors taken into consideration.

He cited a survey by Jetro that found that 24% of participant enterprises found Vietnam’s investment environment attractive in terms of tax, but around 60% said that, like some countries in Asean, the implementation of tax policies in Vietnam was not really effective.

Predicting that the capital flow from small and medium-sized enterprises would increase, he said Vietnam should maintain the tax incentives for those who were not subject to the global minimum tax.

While corporate income tax incentives were no longer an advantage, Vietnam could not delay the formulation of other policies to attract foreign investment.

Yasuhisa Taninaka, from the Japanese Chamber of Commerce and Industry in Vietnam, said that enterprises would see the total cost when investing in Vietnam, not only corporate income tax.

He proposed that reductions in personal income tax rates would be put into consideration as the rates remained high in Vietnam.

 - ANN

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