Taxpayers under Global Anti-Base Erosion rules from January 1, 2024 in Vietnam

Taxpayers under Global Anti-Base Erosion rules from January 1, 2024 in Vietnam as of January 1, 2024 (Internet image) 

On November 29, 2023, the National Assembly passed Resolution 107/2023/QH15 providing for the application of Top-up Tax to taxpayers under Global Anti-Base Erosion (GloBE) rules.

1. Taxpayers under Global Anti-Base Erosion rules as of January 1, 2024 in Vietnam

Specifically, Article 2 of Resolution 107/2023/QH15 stipulates that any constituent entity of a Multinational Enterprise (MNE) Group that generates a revenue of at least 750 million euros (EUR) for at least 02 years out of 04 years preceding the fiscal year according to the consolidated financial statement of its ultimate parent entity, except for the following cases:

- Governmental entities;

- International organizations;

- Non-profit organizations;

- Pension funds;

- Any investment fund that is an ultimate parent entity;

- Any real estate investment vehicle that is an ultimate parent entity;

- Any entity where at least 85% of its asset value is owned directly or through a chain of excluded entities mentioned in Point a through e of Clause 1 of Article 2 of Resolution 107/2023/QH15.

2. Regulations on tax declaration, payment and administration in Vietnam

Pursuant to Article 6 of Resolution 107/2023/QH15 regulating tax declaration, payment and administration in Vietnam as of January 1, 2024 as follows:

- With regard to regulations on QDMTT, the time limit for submission of declarations of QDMTT, Top-up Tax enclosed with written explanation for differences between financial accounting standards and payment of Top-up Tax is 12 months after the end of the fiscal year.

- Regarding Income Inclusion Rule (IIR), the time limit for submission of information declarations under the GloBE rules, declarations of Top-up Tax enclosed with written explanation for differences between financial accounting standards and payment of Top-up Tax is 18 months after the end of the first fiscal year in which the MNE Groups become subject to the GloBE rules; 15 months after the end of succeeding fiscal years.

- Constituents entities that have to declare and pay tax shall be identified as follows:

+ If an MNE Group has 01 constituent entity in Vietnam, such constituent entity shall declare and pay Top-up Tax under the GloBE rules;

+ If an MNE Group has more than 01 constituent entity in Vietnam, within 30 days from the end of the fiscal year, the MNE Group shall issue a document designating one of these constituent entity to declare and pay Top-up Tax under the GloBE rules;

If the MNE Group fails to designate a constituent entity to declare and pay Top-up Tax under the GloBE rules within 30 days from the end of the fiscal year, the tax authority will select a constituent entity in Vietnam to declare and pay tax within 30 days from the expiration of the aforementioned time limit.

+ In case of an event that leads to a change of the constituent entity responsible for declaring and paying tax, the MNE Group shall notify the tax authority within 10 days from the date of occurrence of such event. If the MNE Group fails to make a notification within 10 days from the day on which information is available, the tax authority will select a constituent entity to declare and pay tax;

+ In case the tax authority has issued a notification of selection of the constituent entity responsible for declaring and paying tax under Point b or Point c of Clause 3 of Article 6 of Resolution 107/2023/QH15 before the tax authority is informed of the event that leads to a change of the constituent entity responsible for declaring and paying tax, the tax authority shall issue a notification of selection of another constituent entity responsible for declaring and paying tax.

- Top-up Tax under the GloBE rules shall be paid to central government budget.

- The exchange rate for determination of revenue and income thresholds prescribed in Articles 2, 4, 5 and 6 of Resolution 107/2023/QH15 shall be the average central rate of 12 years preceding the year in which the reference revenue or income is earned, which is announced by State Bank of Vietnam.

- Transitional relief for obligations for fiscal years before December 31st 2026 excluding the fiscal year that ends after June 30th 2028:

+ During the transitional period, Jurisdiction Top-up Tax in a fiscal year shall be zero (0) if one of the following criteria is satisfied:

++ In the fiscal year, the MNE Group has a qualified country-by-country report in which the aggregate revenue is less than 10 million EUR and pre-tax profit is less than 01 million EUR or is a loss in such country;

++ In the fiscal year, the MNE Group has an Effective Tax Rate in such country of at least 15% for 2023 and 2024; 16% in 2025 and 17% for 2026;

++ The pre-tax profit (or loss) of the MNE Group in such country is equal to or less than the substance-based income exclusion (sum of the tangible asset carve-out and payroll carve-out) calculated under the GloBE rules of the constituent entities in such country according to the country-by-country report;

+ During the transitional period, administrative penalties shall not be imposed for violations against regulations on preparation and submission of information declarations under the GloBE rules and declarations of Top-up Tax enclosed with written explanation for differences between financial accounting standards;

- Constituent entities may choose simple computation methods for determination of their eligibility for relief of obligations in terms of Excess Profit, average income and revenue, effective tax rate.

- Top-up Tax that have been paid in accordance with Resolution 107/2023/QH15 may be offset against corporate income tax payable in Vietnam on the income from investment in other countries.

- Pursuant to the regulations of Article 6 of Resolution 107/2023/QH15, the Law on Tax Administration and relevant regulations of law, the Government shall promulgate regulations on administration of Top-up Tax under the GloBE rules.

Ho Quoc Tuan

>> CLICK HERE TO READ THIS ARTICLE IN VIETNAMESE