A Global Minimum Tax Framework is being implemented in Vietnam to prevent tax avoidance.

On 29 November 2023, the Vietnamese National Assembly approved resolution No. 107/2023/QH15 to apply the Top-up Tax in accordance with the Global Anti-Base Erosion (GloBE) rules under Pillar 2 of the OECD's Base Erosion and Profit Shifting (BEPS) project. This resolution is intended to align Vietnam’s tax system with international efforts to ensure that Multinational Enterprises (MNEs) pay a minimum level of tax on the income arising from international activities, thereby preventing tax base erosion. Specifically, the top-up tax will be collected by Vietnam through the imposition of Qualified Domestic Minimum Top-up Tax (QDMTT) and Income Inclusion Rule (IIR). The rules will apply from fiscal year 2024 – and therefore for the current year already, with transitional relief in early stages.

Taxpayers:

Constituent entities of MNE Groups with consolidated revenue of at least €750 million for at least two years within the four years preceding the fiscal year. Exclusions apply to entities such as governmental entities, international organizations, non-profits, pension funds, investment funds, and real estate investment vehicles being an ultimate parent entity and entities majority owned by excluded entities.

Minimum Tax Rate:

In accordance with the international consensus, the minimum tax rate has been established at 15%.

QDMTT:

Applies to constituent entities of MNE groups operating in Vietnam to ensure a minimum effective tax rate of 15% on profits in Vietnam. QDMTT is calculated based on top-up rate multiplied with the excess profits of entities after factoring in substance-based carve-outs.

IIR:

Applies to ultimate parent, intermediate parents, and partial parents of MNE groups in Vietnam to ensure Vietnamese parent entities to pay top-up tax on low taxed income of foreign subsidiaries, unless QDMTT has been paid in another jurisdiction.

Tax Filing Obligations and Deadlines:

• The declaration and payment deadline for QDMTT, along with a written explanation of the differences between financial accounting standards, is set at 12 months after the end of the fiscal year.
• For the IIR, declarations and payment of top-up tax also require a written explanation for accounting differences. The initial submission deadline is 18 months after the end of the first fiscal year where the MNE Group falls under the GloBE rules. For subsequent years, the deadline is 15 months post fiscal year-end.

Transitional Relief Measures:

For fiscal years before December 31, 2026 (but not for fiscal years ending after June 30, 2028), the top-up tax will be zero if the MNE Group:

• Reports under €10 million in total revenue and either less than €1 million in pre-tax profit or a fiscal loss.
• Maintains an actual simple tax rate of at least 15% for 2023 and 2024, escalating to 16% in 2025, and 17% for 2026.
• Has pre-tax profit (or loss) equal to or less than the substance-based income exclusion (tangible asset and payroll carve-outs) as per the country-by-country report.
• No administrative penalties will be imposed for violations concerning the preparation and submission of GloBE rule declarations and top-up tax explanations during the transitional period.

Detailed guidance will be provided by the government and tax authorities on compliance requirements. Please reach out if you need assistance understanding how this impacts your business.