What is the Global Minimum Tax? When will Vietnam officially apply the Global Minimum Tax?

What is the Global Minimum Tax? When will Vietnam officially apply the Global Minimum Tax?

The global minimum corporate income tax, also known as the Global Minimum Tax, is part of the Base Erosion and Profit Shifting (BEPS) Action Plan initiated by the OECD in June 2013. This tax rate is set at 15% and applies to multinational companies with total consolidated global revenues of at least 750 million EUR (800 million USD) in at least two of the previous four years.

Some Southeast Asian countries such as Malaysia, Indonesia, and Thailand are adjusting their tax policies to maintain attractiveness to foreign investors when this mechanism comes into effect.

According to Paragraph 1, Article 8 of Resolution 107/2023/QH15, Vietnam will officially apply the Global Minimum Tax from the fiscal year 2024.

What is the Global Minimum Tax? When will Vietnam officially apply the Global Minimum Tax? (Image from Internet)

Which entities are subject to the Global Minimum Tax in Vietnam?

07 entities are not subject to the Global Minimum Tax according to Resolution 107/2023/QH15 including:

- Government organizations;

- International organizations;

- Nonprofit organizations;

- Pension funds;

- Investment funds as ultimate parent companies;

- Real estate investment organizations as ultimate parent companies;

- Organizations with at least 85% of the asset value being directly or indirectly owned through the above-mentioned organizations.

How to declare the Global Minimum Tax in Vietnam?

According to Article 6 of Resolution 107/2023/QH15, the regulations are as follows:

Declaration, payment, and management of the tax

1. For regulations on achieving the domestic minimum supplemental corporate income tax standard, the deadline for submitting the Information Declaration under the Global Minimum Tax regulations, the supplemental corporate income tax declaration accompanied by the Explanatory Statement detailing differences due to varying financial accounting standards, and the deadline for paying the supplemental corporate income tax is no later than 12 months after the end of the fiscal year.

2. For regulations on compiling minimum taxable income, the deadline for submitting the Information Declaration under the Global Minimum Tax regulations, the supplemental corporate income tax declaration accompanied by the Explanatory Statement detailing differences due to varying financial accounting standards, and the deadline for paying the supplemental corporate income tax is no later than 18 months after the end of the fiscal year for the first year the multinational group is subject to the regulation; the deadline is no later than 15 months after the end of the fiscal year for subsequent years.

3. The determination of the constituent entity responsible for declarations and tax payments is as follows:

a) A multinational group with one constituent entity in Vietnam must have that entity file the declaration and pay the supplemental corporate income tax under the Global Minimum Tax regulations;

b) A multinational group with more than one constituent entity in Vietnam must, within 30 days after the end of the fiscal year, designate one of the constituent entities in Vietnam to file the declaration and pay the supplemental corporate income tax of the group under the Global Minimum Tax regulations. If the multinational group does not designate a constituent entity within the 30-day period, the tax authority will designate one within 30 days after the period ends;

c) If there is an event leading to a change in the responsible constituent entity, the multinational group must notify the tax authorities within 10 days of the event. If the group fails to notify, the tax authorities will designate a new responsible entity within 10 days after receiving the information;

d) If the tax authority has already designated a responsible entity and an event occurs that necessitates a change, the tax authority will notify a new responsible entity within 10 days.

4. Supplemental corporate income tax under the Global Minimum Tax regulations is paid into the central budget.

5. The exchange rate for determining the revenue thresholds specified in Articles 2, 4, 5, and 6 of this Resolution is the average central exchange rate for December of the year preceding the revenue or income year, as published by the State Bank of Vietnam.

6. Transitional relief for fiscal years ending on or before December 31, 2026, except for fiscal years ending after June 30, 2028, includes:

a) In the transitional period, the supplemental tax for a fiscal year in a country will be considered zero (0) if one of the following conditions is met:

a.1) The multinational group has a compliant country-by-country profit report with total revenue under 10 million EUR and pre-tax profit under 1 million EUR or a loss in that country;

a.2) For fiscal years 2023 and 2024, the multinational group has a simplified effective tax rate in that country of at least 15%; 16% for 2025, and 17% for 2026;

a.3) The pre-tax profit (or loss) of the multinational group in that country is equal to or lower than the income deduction relating to tangible assets and labor under the Global Minimum Tax regulations for constituent entities resident in that country according to the country-by-country profit report;

b) During the transitional period, no administrative penalties for tax violations will be imposed for violations relating to the declaration and submission of the Information Declaration and the supplemental corporate income tax declaration accompanied by the Explanatory Statement detailing differences due to varying financial accounting standards.

Hence, the Global Minimum Tax declaration is as follows:

- For regulations on achieving the domestic minimum supplemental corporate income tax standard:

The deadline for submitting the Information Declaration, the supplemental corporate income tax declaration accompanied by the Explanatory Statement detailing differences due to varying financial accounting standards, and paying the supplemental corporate income tax is no later than 12 months after the end of the fiscal year.

- For regulations on compiling minimum taxable income:

The deadline for submitting the Information Declaration, the supplemental corporate income tax declaration accompanied by the Explanatory Statement detailing differences due to varying financial accounting standards, and paying the supplemental corporate income tax is no later than 18 months after the end of the fiscal year for the first year, and no later than 15 months after the end of the fiscal year for subsequent years.