By Dr. Andreas Stoffers

Country Director Vietnam

Friedrich-Naumann-Foundation Vietnam

The Global Minimum Tax in Vietnam – A Challenge for Both the Country and Foreign Investors

Vietnam’s economic policy is once again the focus of foreign investors. The Global Minimum Tax (GMT) is something that Vietnam, along with over 140 countries worldwide, has to come to terms with. The task now is to clearly examine the impact on Vietnam’s state budget and take appropriate measures to ensure that Vietnam remains attractive for FDI and does not lose revenue to the state budget. Time is running out, as the GMT is due to come into effect in 2024.

If Vietnam is too slow in implementing the GMT, it can lead to serious disadvantages for the country. Vietnam wouldn’t receive the 8 percent tax differential from the more than 100 FDI companies that would be eligible. This would amount to foregoing several billion U.S. dollars annually for Vietnam’s national budget. In addition, the investment environment in Vietnam would be affected as investors would divert their investments to other countries with a benefit-sharing mechanism related to this new tax rule. In fact, the relatively low taxes for foreign investors in many areas have certainly been a strong asset for Vietnam in attracting FDI in the past.

GMT is a huge challenge, but also brings new opportunities for Vietnam. Tax evasion and transfer pricing were major problems in the past. Now, these issues must be addressed in the context of discussing the legal implementation of mechanisms for this global tax.

Vietnam needs to seize this important GMT implementation opportunity to reconsider the use of tax incentives and improve the investment policy framework in order to continue to be an attractive destination in the long-term, for multinational enterprises as well as for foreign SME. For investors, the reliability of regulations and political stability are important. Vietnam continues to offer many advantages to investors, including strong integration into global value chains, a clear commitment to free trade and investment protection, and a large market of 100 million consumers and a growing affluent middle class. However, in addition to the tax reform related to the GMT, the country’s other problems also need to be tackled vigorously, including compliance issues, infrastructure, administrative processes, labor productivity as well as an education and skills offensive.

It will be important for Vietnam to maintain its open economic policy. Trade and investment partners should be diversified in order to reduce one-sided dependencies. In addition, further areas should be developed, especially in the service sector, in order to reduce dependence on investments in certain industrial sectors. As an essential point, there should also be an improvement of the administration processes and structure in several provinces and municipalities, e.g. in HCMC. This would have a positive impact here in the medium and long term and lift Vietnam to the next level on its way to becoming a prosperous industrialized country. [C]

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