New legislation on global minimum tax to take effect 1 January 2024

In brief

On 29 November 2023, the Vietnam National Assembly adopted Resolution No. 107/2023/QH15, regarding the application of top-up corporate income tax according to the Global Anti-Base Erosion rules ("Resolution 107"). Resolution 107 covers both Qualified Domestic Minimum Top-Up Tax (QDMTT) and Income Inclusion Rule (IIR). It will take effect from 1 January 2024 and be applicable from fiscal year 2024.

Key takeaways

• Resolution 107 is brief (only 8 articles), with reference to the Global Anti-Base Erosion rules provided by the Inclusive Framework on BEPS.
• The government will issue implementing regulations to provide further details for definition of terms, determination of QDMTT and IIR payables, and other issues related to tax administration.
• Articles 4 and 5 of the Resolution provide the formulas to calculate QDMTT and IIR without details on how to determine each factor, which will be provided in the government's implementing regulations.
• The foreign currency exchange rate that is used to determine the thresholds of revenue/income quoted in foreign currency under Resolution 107 is the average of the central rate issued by the State Bank of Vietnam for December of the year preceding the relevant year of revenue/income.
• The government is assigned to prescribe any updates/changes adopted after 1 January 2024 by the Inclusive Framework. This means that changes to the Pillar 2 rules will be reflected in under-law legal normative documents. However, if such changes are contrary to the Resolution, the government will need to report to the National Assembly for further consideration.
• Amended CIT Law that reflects this new tax policy will be added to the legislation agenda of 2024.
• The Vietnam top-up tax under the QDMTT and IIR will be paid to the central state budget.

In more detail

QDMTT

• Object of application: Any constituent entity that: (i) operates in Vietnam; (ii) is a member of an in-scope MNE having revenues of EUR 750 million or more recorded in its ultimate parent entity's consolidated financial statements for two of four years preceding the concerned fiscal year; and (iii) pay tax in Vietnam at an effective tax rate lower than 15%
• Formulas to determine the Vietnam effective tax rate and minimum top-up tax are aligned with those provided under the Model Rules of the Inclusive Framework on BEPs.
• Tangible assets and payroll carveouts in determination of profits subject to top-up tax are allowed at the rate of 5%. Higher rate will apply during the period from 2024 to 2032.
• The Vietnam QDMTT will be deemed to be zero if both of the following conditions are satisfied:
  • Average GloBE Revenue of the Vietnam constituent entities is less than EUR 10 million.
  • Average GloBE Income or Loss of the Vietnam constituent entities is a loss or is less than EUR 1 million.
• Filing and payment timeline: In-scope enterprises must file the GloBE Information Return, Top-Up Corporate Income Tax Return and Report of Explanation about variations of accounting standards within 12 months after a fiscal year end. The timeline for payment is the same as the timeline for filing.

IIR

• Object of application: A constituent entity that is an ultimate parent entity, partially owned parent entity, or intermediate parent entity that is located in Vietnam, holding directly or indirectly ownership in a low-taxed constituent entity at any time in a fiscal year  ̶  Such entity shall declare and pay tax according to the IIR in an amount equal to its allocable share of the top-up tax of that low-taxed constituent entity for the fiscal year unless such top-up tax is paid under a qualified IIR in another jurisdiction according to the priority in the application of the IIR as provided under the Global Anti-Base Erosion rules.
• Formulas to determine the Vietnam effective tax rate and minimum top-up tax are aligned with those provided under the Model Rules of the Inclusive Framework on BEPs.
• Tangible assets and payroll carveouts in determination of profits subject to top-up tax are allowed at the rate of 5%. A higher rate will apply for the period from 2024 to 2032.
• The Vietnam top-up tax for constituent entities located in a jurisdiction will be deemed to be zero if both of the following conditions are satisfied:
  • Average GloBE Revenue of such jurisdiction is less than EUR 10 million.
  • Average GloBE Income or Loss of such jurisdiction is a loss or is less than EUR 1 million.
• Filing and payment timeline: In-scope enterprises must file the GloBE Information Return, Top-Up Corporate Income Tax Return and Report of Explanation about variations of accounting standards within 18 months after the fiscal year end with respect to the first year the MNE becomes in-scope; and within 15 months after the fiscal year end for subsequent years. The timeline for payment is the same as the timeline for filing.