Global Minimum Corporate Tax's Impact on Tax Incentives in Vietnam

   

The global minimum tax rate is set at 15 percent, which means that affected businesses currently enjoying preferential tax rates in Vietnam may face additional tax liabilities once it is in place.

   

Vietnam has used low tax rates to attract foreign investment over the years, but many companies belonging to large multinational corporations will be affected by Pillar 2 GMT. These companies currently enjoy preferential Corporate Income Tax rates, which can be as low as 5 percent, 7 percent, or 9 percent depending on the investment sector, industry, scale, and location. Additionally, tax exemptions and 50 percent reductions are also available during the exemption period. 

   

However, these incentives will no longer apply once the GMT has been implemented, resulting in additional tax liabilities for affected businesses. This can be particularly challenging for companies that need to invest heavily in infrastructure, human resources, and other resources in the initial stages. 

   

As a result, Vietnam is exploring solutions such as cost-based incentives in the form of cash grants to help partially cover the cost of investment in infrastructure, machinery, and human resources, as well as to support activities such as research and development.

   

In conclusion, the global minimum tax rate is set to have a significant impact on affected businesses in Vietnam and around the world. While it aims to ensure a fair and consistent tax system, it also presents challenges for companies that have relied on preferential tax rates for foreign investment. 

   

As countries explore solutions to mitigate the potential impacts of GMT, it remains to be seen how businesses will adapt to the changing tax landscape in the years to come.