In the evolving landscape of global taxation, the implementation of the Organization for Economic Cooperation and Development's (OECD) global minimum tax (GMT) initiative has been a subject of considerable discussion among Southeast Asian economies. Unlike its regional counterparts Singapore and Thailand, which have postponed the adoption of the GMT until 2025, Vietnam stands out for its proactive stance. The Vietnamese National Assembly, demonstrating a strong consensus, approved the introduction of the GMT with an overwhelming 93% of votes in favor on November 29.

The GMT initiative, part of the OECD's two-pillar solution to address tax challenges arising from the digitalization and globalization of the economy, mandates an effective corporate tax rate of 15% on multinational enterprises (MNEs) with revenues exceeding 750 million euros in two of the past four years. This global agreement, reached in October 2021, aims to curb profit shifting and ensure fair taxation across borders.

The implementation of the GMT in Vietnam from 2024 brings mixed outcomes for businesses. It marks a move towards a standardized global tax framework, aiming to prevent profit shifting and reduce tax haven use, potentially equalizing the international playing field. However, it challenges MNEs in Vietnam, particularly with the country's history of using tax incentives to attract investment. With Vietnam's corporate tax rate at 20%, its incentives have often reduced effective rates below 15%. The GMT's introduction will force a reevaluation of these incentives, as MNEs may need to increase their tax payments in their home countries, potentially reducing Vietnam's attractiveness as an investment hub.

The impact of the GMT extends beyond tax policy to affect the broader strategic considerations of MNEs. Vietnam's economy, which depends significantly on foreign direct investment (FDI) — with such investments contributing to more than 70% of the country's export revenue — may encounter challenges. The introduction of the GMT could discourage investment, potentially affecting Vietnam's goal to become an alternative global manufacturing hub. Estimates suggest that around 112 MNEs, including heavyweights like Samsung Electronics Co., Intel Corp., and LG Corp., will face new financial pressures, potentially diminishing Vietnam's competitiveness on the world stage. 

In light of the challenges posed by the GMT, businesses in Vietnam need to take proactive steps to navigate this new tax landscape. This involves examining measures other countries have adopted, such as Thailand's cash grants for eligible investors, and collaborating closely with the Vietnamese government to create and apply strategies that soften the GMT's negative impacts without compromising the country's investment appeal.

As we navigate the evolving landscape of global taxation, it's crucial for businesses, especially small to medium enterprises (SMEs), to strategize effectively. This new era presents unique opportunities for SMEs to thrive, particularly as increased taxation on MNEs may level the playing field. Reduced competition from larger entities could open market spaces previously dominated by MNEs, offering SMEs a chance to expand their presence. However, to capitalize on these opportunities, SMEs should consider engaging with consulting firms specialized in tax and regulations. These firms can provide indispensable advice on navigating the complexities of the GMT and other regulatory challenges, thereby enhancing SMEs' ability to seize market opportunities and gain competitive advantage. 

For MNEs in Vietnam facing the potential for higher tax obligations under the GMT, it becomes essential to explore all avenues for minimizing tax liabilities. This includes taking advantage of new tax credits, cash grants, and reassessing investment strategies to maintain growth and market competitiveness. Specialized advisory firms play a pivotal role in this context, offering expertise in tax law and the specific nuances of Pillar Two. Advisors serve as crucial links between the business community and government, offering strategies that align corporate objectives with regulatory mandates. Their guidance helps businesses navigate the GMT's intricacies and assists the government in crafting policies that balance revenue generation with maintaining an attractive investment climate. 

This cooperative approach between businesses, advisory firms, and the government is vital for developing a tax environment conducive to resilience and growth amid global tax reforms. For SMEs, this means not only finding new avenues for expansion but also ensuring they have the expert advice necessary to navigate these changes effectively.

Vietnam's proactive adoption of the OECD's Global Minimum Tax marks a significant shift in global taxation, presenting both opportunities and challenges. While it aims to level the playing field by curbing profit shifting, it also requires MNEs and SMEs in Vietnam to reassess their strategies amidst increased tax liabilities. This move could potentially diminish Vietnam's appeal as a low-tax investment destination but also opens doors for SMEs to thrive in a more equitable market environment. Collaboration between businesses, advisory firms, and the government is essential to navigate these changes and sustain Vietnam's competitive edge on the global stage.

At PHC Advisory, we can offer you full support on matters regarding doing business in Asia, or any other issues your business may face. If you would like to know more about policies relevant to your business in Asia, please contact us at info@phcadvisory.com. 

PHC Advisory is a company of DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance.

The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not legally bind PHC Advisory with the reader in any way.

If you want to know more about Global Minimum Tax and Vietnam Taxes, please have a look at our previous articles: 

• A Comparison of the Global Minimum Tax in Different Countries

• Vietnam Continued VAT Reduction to Support Recovery in 2024