Detailed Guidance on Global Minimum Tax Under Development
On November 29, 2023, the National Assembly of Vietnam passed Resolution No. 107/2023/QH15, introducing a supplementary corporate income tax (CIT) policy aligned with the global anti-base erosion rules, effective from January 1, 2024 (“Resolution 107”).
To establish a comprehensive legal framework for the collection and payment of supplementary CIT in Vietnam in accordance with Resolution 107, the Government recently released a draft decree detailing the implementation of Resolution 107 (“Draft”).
The Draft primarily focuses on global minimum tax rules, which include two tax principles: the Qualified Domestic Minimum Top-up Tax (“QDMTT”) and the Income Inclusion Rule (“IIR”). Accordingly, the QDMTT applies to foreign multinational groups with member companies in Vietnam, while the IIR applies to Vietnamese investors with investments abroad.
Essentially, the Draft clarifies and specifies issues related to determining taxpayers, principles of application, and methods for calculating the supplementary corporate income tax under the QDMTT and IIR rules, reporting and tax filing procedures, and tax management regulations.
Some notable points in the Draft Decree include:
MNC members must notify the list of constituent entities
According to the Draft, constituent entities of multinational groups subject to Resolution 107 are required to: (i) declare and notify the list of entities subject to Resolution 107 using the prescribed form to the General Department of Taxation (“Tax Authority”) within nine months from the end of the fiscal year; and (ii) update and re-notify the Tax Authority before the deadline for submitting the supplementary corporate income tax return.
The declaration and notification of the aforementioned list of constituent entities can be carried out through direct submission, postal mail, or electronic filing via the Tax Authority’s electronic portal.
Clarifications on exemptions during transitional periods
In addition to clarifying provisions related to QDMTT and IIR, the Draft Decree also supplements and provides more detailed regulations on tax liability exemptions, particularly during transitional periods. These exemptions may include: (i) determining supplementary corporate income tax in a country as 0, and/or (ii) not imposing administrative tax penalties in Vietnam. These exemptions apply in specific cases, as follows:
Multinational Corporations in the Initial Stages of International Operations
In this case, the supplementary corporate income tax (under QDMTT) for multinational corporations in Vietnam is determined as 0.
To qualify as being in the initial stages of international operations, the multinational corporation must meet the following two conditions: has constituent entities in no more than six countries; and the total book value of tangible assets of all constituent entities across all countries (excluding the reference country) does not exceed EUR 50 million.
Exemptions for IIR in Cases Where QDMTT Has Been Implemented
As proposed in the Draft, the supplementary tax payable by a multinational group under the Income Inclusion Rule (IIR) in a jurisdiction applying the QDMTT will be deemed zero for a fiscal year if the group satisfies conditions for liability reduction and has already complied with QDMTT requirements in that jurisdiction.
Exemptions During the Transitional Period
The transitional period is defined as fiscal years commencing on or before December 31, 2026, but not including fiscal years ending after June 30, 2028 (“Transitional Period”). During this Transitional Period, entities subject to tax may have their supplementary tax liability in a jurisdiction reduced to zero for a fiscal year if certain criteria are met.
Additionally, the Draft Decree proposes not imposing administrative tax penalties for violations related to notification, registration, and tax filing procedures during the Transitional Period.
Detailed regulations on tax declaration, payment procedures, and supplementary corporate income tax management
The Draft also supplements detailed provisions on registration procedures, tax declaration, payment requirements, and accompanying declaration forms.
On Tax Registration, Declaration, and Payment
The designated constituent entity of a multinational corporation is responsible for filing tax registration documents within 90 days from the end of the financial reporting year with the tax authority directly managing it. Upon approval, the entity will be issued a 10-digit tax identification number. This tax identification number is used to directly declare and pay the supplementary corporate income tax under the Global Minimum Tax Rules. The tax authority will issue a tax registration certificate to the taxpayer within three working days from the receipt of complete registration documents.
For QDMTT, businesses must declare and pay taxes no later than 12 months after the end of the financial year. For IIR, businesses must declare and pay taxes no later than 18 months after the end of the financial year for the first year the multinational corporation is subject to the rule; this deadline is reduced to 15 months for subsequent years.
On Currency for Tax Declaration, Payment, and Exchange Rates
The Draft Decree specifies two currencies for tax declaration and payment: Vietnamese Dong; and/or The currency used to prepare the consolidated financial statements of the ultimate parent entity.
If the constituent entity opts to declare and pay taxes in Vietnamese Dong, the exchange rate applied will be the average exchange rate for December of the fiscal year for which the tax obligation arises.
At present, the Draft Decree is still under development and open for public consultation. Therefore, the provisions mentioned in the Draft are not yet finalized and may undergo further adjustments, additions, and refinements before being officially approved by the Government. If the proposed provisions in the Draft are officially adopted, businesses must determine whether they fall within its scope and pay close attention to the requirements for registration, tax declaration, and payment in compliance with the regulations.
