GLOBAL MINIMUN TAX IN VIETNAM

GLOBAL MINIMUN TAX IN VIETNAM

In the current situation, internal transactions of multinational enterprises (MNE) account for a significant proportion. Through internal transactions, enterprises transfer profits to countries and territories with lower than or zero tax rates, which is understood as tax evasion and tax avoidance, causing loss of revenue for the state budget.

Global minimum tax was introduced in this context, the Government has issued Resolution 107/2023 on the regulations for global minimum tax in Vietnam. This Resolution applies from January 1, 2024, for the fiscal year 2024 onwards.

1. Subject of application

Any constituent entity of a multinational enterprise Group that generates a revenue of at least 750 million euros (EUR) for at least 02 years out of 04 years preceding the fiscal year according to the consolidated financial statement of its ultimate parent entity.

Except for the following cases: governmental entities; international organizations; non-profit organizations; pension funds; investment funds.

2. Qualified domestic minimum Top-up tax (QDMTT)

Qualified domestic minimum Top-up tax (QDMTT) = (Top-up tax percentage x Excess profit) + Additional current Top-up tax (if any)

In there:

- Top-up tax percentage = Minimum rate (15%) - Effective tax rate

The effective tax rate in Vietnam shall be calculated every fiscal year in accordance with the following formula:

- Excess profit = Net GloBE income  - 10% * salary expenses - 8% * Tangible asset

Note: Applicable to multinational enterprise with only 1 constituent entity in Vietnam. In case there is more than 1 constituent entity, it is necessary to summarize the relevant data of the constituent entities and then calculate according to the above formula.

In which: Net GloBE income = GloBE income of all constituent entities - GloBE loss all constituent entities

3. Income Inclusion Rule (IIR)

In particular, the Income Inclusion Rule (IIR) is a top-down taxation rule, which allows the country where the ultimate parent entity is headquartered to impose a top-up tax on the ultimate parent entity for the income of its subsidiaries in countries where the effective tax rate is lower than the minimum rate of 15%.

In case, the ultimate parent entity is located in a country that has not yet applied the IIR, the next intermediate holding company in the ownership chain of the group will declare and pay the top-up tax in the country where the intermediate company is base for the subsidiaries benefiting from an effective tax rate lower than the minimum.

Jurisdictional Top-up Tax = (Top-up Tax Percentage x Excess Profit) + Additional Current Top-up Tax (if any) – Qualified Domestic Minimum Top-up Tax (if any).

4. Deadline for filing returns and paying taxes

- For Qualified domestic minimum Top-up tax (QDMTT): Enterprises must submit declarations and pay taxes no later than 12 months from the end of the fiscal year.

- For Income Inclusion Rule (IIR): The deadline for filing declarations and paying taxes is no later than 18 months for the first year and no later than 15 months after the end of  succeeding fiscal years.

Identify responsible constituent entity

In case a multinational enterprises group has more than 1 constituent entity in Vietnam, the group shall issue a document designating one of these constituent entity to declare and pay Top-up tax under the GloBE rules within 30 days from the end of the fiscal year. If the notification is not made, the tax authority will select a constituent entity in Vietnam to declare and pay tax.

5. Transitional relief for obligations for fiscal years 

The regulation provides liability relief for enterprises during the transition period of 3 years, starting from January 1, 2024, on the condition that during the transition period, the top-up tax under the QDMTT and IIR in a country for the fiscal year will be considered as zero if one of the following criteria is met:

- The MNE group has  a qualified country-by-country report in which the aggregate revenue is less than 10 million EURO and pre-tax profit is less than 01 million EURO or loss in such country.

- the MNE Group has an Effective Tax Rate in such country of at least 15% for 2023 and 2024; 16% in 2025 and 17% for 2026.

- The pre-tax profit (or loss) of the MNE Group in such country is equal to or less than the substance-based income exclusion (sum of the tangible asset carve-out and payroll carve-out) calculated under the GloBE rules.

At the same time, administrative penalties shall not be imposed for violations against regulations on preparation and submission of information declarations under the GloBE rules and declarations of Top-up Tax enclosed with written explanation for differences between financial accounting standards.