On November 29, 2023, the National Assembly passed Resolution No. 107/2023/QH15 (“Resolution 107”) on the application of additional corporate income tax (“CIT”) according to the Regulation on preventing basic erosion. Global Anti Base Erosion (hereinafter referred to as “Global Minimum Tax Regulations") have a profound impact on businesses, especially FDIs in Vietnam. Resolution 107 was issued as the first step for the recognition and application of the global minimum tax in Vietnam, creating a premise for the issuance of guiding Decrees on this issue in the near future. Resolution 107 has the following important contents:
1. Subjects paying additional corporate income tax according to the Global Minimum Tax Regulations
1.1. Subjects paying additional corporate income tax according to global minimum tax regulations are constituent units of multinational corporations in one of the following two cases:
(i) A constituent unit or collection of constituent units of a multinational corporation with business activities in Vietnam including subsidiaries, affiliated companies, branches, business establishments... of multinational corporations operating in Vietnam that meet the following conditions:
- Have revenue in the consolidated financial statements of the ultimate parent company for at least 02 years in the 04 years immediately preceding the fiscal year equivalent to EUR 750 million or more;
- Tax rates are being applied lower than the global minimum tax rate.
(ii) The ultimate parent company, partially owned parent company, intermediate parent company in Vietnam is a constituent unit, holding directly or indirectly ownership of the constituent unit in a foreign country that is taxed below the global minimum tax rate and has not paid additional CIT in that country.
1.2. Organizations that are not subject to the global minimum corporate income tax:
(i) Government organizations;
(ii) International organizations;
(iii) Non-profit organization;
(iv) Pension fund;
(v) The investment fund is the ultimate parent company;
(vi) The real estate investment organization is the ultimate parent company;
(vii) Organizations with at least 85% of asset value owned directly or indirectly through the organizations specified above.
2. Method for determining standard domestic minimum additional corporate income tax
a. Subjects of application: Constituent units of multinational corporations with production and business activities in Vietnam.
b. Method for determining additional corporate income tax amount:
- Additional tax rate = Minimum tax rate (15%) - Actual tax rate in Vietnam
Actual tax rate in Vietnam = (The total amount of corporate income tax in Vietnam has been adjusted in the fiscal year of the constituent units in Vietnam) / (Net income in Vietnam during the fiscal year according to Regulations)
- Additional taxable profit = (Net income according to Regulations) - (The value of tangible assets and salaries are deducted according to the Regulations)
The value of tangible assets and salaries to be deducted after the transition period is 5% of the total average annual tangible asset value of all constituent units in Vietnam and 5% of the total salaries of all constituent units in Vietnam. The percentage of tangible assets and salaries deducted for each year in the transition period from 2024 to 2032 fluctuates gradually to reach a level approaching the 5% rate applicable to fiscal year 2033, details according to the appendix attached to the Resolution.
c. Cases where the additional CIT amount QDMTT is determined to be 0:
- The additional CIT amount of QDMTT will be determined equal to 0 if the constituent unit or collection of constituent units meets the following conditions:
Average revenue according to Global Minimum Tax Regulations in Vietnam is less than 10 million EUR; - Average income according to Global Minimum Tax Regulations in Vietnam is less than 01 million EUR or loss.
Example of method for determining additional corporate income tax QDMTT
Group Y - an enterprise of country Z established a 100% YA subsidiary in Vietnam. Due to incentives, YA Company's current corporate income tax rate is 12%. In 2022 and 2023, Group Y will both achieve consolidated revenue of over 750 million EUR. In 2024, YA Company suffered a loss but still had a revenue of over 10 million EUR.
Thus, YA Company will have to pay additional CIT QDMTT in Vietnam for fiscal year 2024. The additional tax amount will be determined as follows:
Additional tax amount = (Additional tax rate [15% - 12%] x Additional taxable profit) + Adjusted additional tax amount for the current year (if any).
3. Method for determining additional corporate income tax in other countries
a. Applicable objects:
Supreme parent company, partially owned parent company, intermediate parent company in Vietnam that directly or indirectly owns a constituent unit subject to low tax rates in a foreign country that has not yet paid tax. supplements in other countries.
b. Method for determining additional corporate income tax in a country
- The total amount of additional tax in a country is determined according to the following formula:
Total additional tax amount = (Additional tax rate x Additional taxable profit) + Adjusted additional tax amount for the current year (if any) - QDMTT additional tax amount (if any). - The additional tax amount of each constituent unit in a country with income under the Global Minimum Tax Regulations is determined according to the following formula:
Additional tax amount of the constituent unit = Total additional taxes in a country x (Income according to the Regulations of that constituent unit/ Total regulatory income of all constituent units in that country)
- The tax amount allocated to the parent company from the additional tax amount of the constituent units subject to low tax rates is determined according to the following formula:
Tax amount allocated to the parent company = Additional tax amount of the constituent unit (x) ratio allocated to the parent company.
In there: Allocation ratio to parent company = (Income according to regulations of the constituent unit during the year - Income allocated according to ownership rights held by other owners) / Income according to the regulations of the constituent units
c. Cases where the additional corporate income tax amount in a country is determined to be 0:
The amount of additional tax in a country will be determined to be zero if the constituent unit or collection of constituent units simultaneously meets the following conditions:
- Average turnover according to the Global Minimum Tax Regulations in that country is less than 10 million EUR;
- Average income according to the Global Minimum Tax Regulations in that country is less than 01 million EUR or a loss.
Example of method for determining additional corporate income tax in a country:
Group A - a Vietnamese enterprise establishes a subsidiary with 100% capital named AB and a subsidiary with 51% capital named AC in country Z and establishes an affiliated company with 25% capital named AD in country Y. Accordingly, the fiscal year In 2022 and 2023, Group A will both achieve revenue of over 750 million EUR.
In country Z, companies AB and AC enjoy a 10% corporate income tax rate and at the same time, country Z does not apply the global minimum tax. In 2024, both companies AB and AC will achieve income of over 1 million EUR.
In country Y, company AD enjoys a corporate income tax rate of 12% and in 2024 will also make a profit of over 01 million EUR. Country Y applies global minimum tax regulations and company AD has paid additional corporate income tax according to regulations in country Y.
Thus, Group A will have to pay additional corporate income tax in Vietnam for the 2024 fiscal year and will be determined by the total additional tax of Company AB and Company AC in country Z. In which:
+ Total additional tax amount of Group A at Company AB = (Additional tax rate [15%-10%] x Additional taxable profit) * Allocation rate to parent company [100%]
+ Total additional tax amount of Group A at Company AB = (Additional tax rate [15%-10%] x Additional taxable profit) * Allocation rate to parent company [50%]
4. Reduce liability during the transition period
4.1. The transition period is determined from January 1, 2024, applicable for fiscal year 2024 until the end of fiscal year 2032.
4.2. The liability reduction is applicable for fiscal years ending before and on June 30, 2028.
4.2. Details about liability reduction:
- The amount of additional tax in a country for a financial year will be considered zero when one of the following criteria is met:
+ During the fiscal year, the multinational corporation has a standard cross-country profit report with total revenue under 10 million EUR and profit before income tax under 01 million EUR or loss in that country;
+ During the fiscal year, the multinational corporation has an effective tax rate in that country of at least 15% for 2023 and 2024; 16% for 2025 and 17% for 2026;
+ The profit (or loss) before income tax of the multinational corporation in that country is equal to or less than the income deduction associated with tangible assets and labor for constituent units residing in that country. that country according to the Cross-Country Profit Report;
- No tax administrative penalties will be imposed for violations of declaration and submission of Information Declarations according to the Global Minimum Tax Regulations and Additional Corporate Income Tax Declarations accompanied by Explanatory Notes point out differences between financial accounting standards.
Resolution 107 takes effect from January 1, 2024, applicable from fiscal year 2024.
Comment: