Vietnam Tax Landscape Shifts: In a significant move, Vietnam’s parliament has given the green light to an effective tax rate increase for multinationals, including tech giant Samsung, raising it to 15% from January 1. This decision is aligned with a broader global tax reform initiative. However, the delayed release of specific incentives to offset this higher levy has raised concerns about potential implications for foreign investments, a vital component of Vietnam’s economic growth.
The decision by the National Assembly to approve the higher tax rate stems from Vietnam’s commitment to the global tax reform agreed upon by more than 140 countries in 2021. Under this framework, a minimum 15% tax is set to be imposed from 2024 on multinationals with annual global turnover exceeding 750 million euros ($825 million), irrespective of their location.
While this move aligns Vietnam with international standards, it poses challenges for foreign companies operating in the country, particularly major players like Samsung. The new effective tax rate will impact 122 foreign companies, with Samsung expected to shoulder a significant portion of the additional tax bill. The South Korean electronics giant, a cornerstone of Vietnam’s manufacturing landscape, faces a considerable increase from its previous tax rates, potentially affecting its operational costs.
Vietnam has traditionally offered lower effective tax rates to attract large foreign investors, contributing to the influx of over $450 billion in foreign direct investment, surpassing the nation’s GDP. The decision to raise the effective tax rate to 15% could prompt a reevaluation by multinational corporations of their investment strategies in the country.
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Despite the tax increase, the government has not issued a separate resolution on investment incentives at this time, leaving a degree of uncertainty about the overall attractiveness of Vietnam for foreign investors. This delay in specifying offsetting measures raises questions about the nation’s ability to provide alternative economic benefits to maintain its appeal.
The proposed plan, as outlined in August by the investment ministry, includes tax offsets for high-tech companies with significant investments. However, parliamentary discussions on this plan have been delayed, with lawmakers expressing the need for more time to ensure compliance with global rules and to address potential legal risks.
Experts emphasize that Vietnam may witness a decline in foreign investment if it does not present adequate alternative economic benefits to those affected by the new tax. The nation’s ability to navigate these changes while ensuring its attractiveness to foreign investors will play a crucial role in shaping its economic trajectory.
As Vietnam grapples with the implications of the tax increase, the global context of tax reforms and the evolving dynamics of foreign investments underscore the challenges and opportunities the nation faces in maintaining its status as a key player in the international business landscape.
Our Reader’s Queries
What is the tax structure in Vietnam?
Tax rates vary depending on the type of tax. Corporate income tax ranges from 0% to 20%, while value-added tax can be either 0% or 5%. Foreign contractors tax is subject to VAT and ranges from 2% to 10%, while CIT ranges from 1% to 10%. These rates may change depending on the country and its tax laws.
Does Vietnam have a progressive tax system?
Vietnam’s personal income tax rates follow a progressive structure, with the highest rate reaching up to 35%.
What is the tax residency in Vietnam?
In Vietnam, a tax resident is an individual who has lived in the country for at least 183 days in a calendar year or a continuous 12-month period starting from their arrival date. This definition is crucial for determining an individual’s tax obligations in the country.
What is FCT in Vietnam?
When making payments to foreign contractors, it’s important to note that Foreign Contractor Tax (FCT) will be withheld. This is a necessary measure to ensure compliance with regulations and avoid any potential legal issues. As such, it’s important to factor in this tax when budgeting for payments to foreign contractors. By staying informed and up-to-date on FCT regulations, businesses can ensure smooth and hassle-free transactions with their international partners.