Vietnam's resolution on additional corporate income tax to MNE

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Vietnam resolution on additional corporate income tax to MNE

Vietnam's resolution on additional corporate income tax to MNE

January 30, 2024

On 29 November 2023, the National Assembly issued Resolution No.107/2023/QH15 on imposition of additional corporate income tax in accordance with the global anti-base erosion rules (“Resolution 107/2023”). Resolution 107/2023/QH15 is effective from 1 January 2024 and applies from the fiscal year 2024.

Under the Resolution, entities subject to the additional corporate income tax include the constituent entities of multinational enterprise groups with revenue in the consolidated financial statements of the ultimate parent entity of at least 750 million euro (“EUR”) for a period of at least two out of the four consecutive years prior to the fiscal year of tax implementation¹. The minimum tax rate is 15%.

Resolution 107/2023 acknowledges two principles under the Global Anti-Base Erosion Rules (“GloBE”) that Vietnam will apply for the additional corporate income tax, which are (i) Qualified Domestic Minimum Top-up Tax (“QDMTT Rule”); and (ii) Income Inclusion Rule (“IIR Rule”). Additional income tax is not applicable (or nil) if certain conditions are met.

QDMTT applies to a constituent entity or a group of constituent entities of multinational enterprise groups that generate income from business activities in Vietnam during the fiscal year subject to a corporate income tax rate lower than 15%.

IIT will apply to the parent entity, including the ultimate parent entity, a partially-owned parent entity, or an intermediate parent entity, which is a tax resident in Vietnam, holds direct or indirect ownership in a constituent entity abroad with a corporate income tax rate lower than 15% in that country.

The tax computations provided in the Resolution are generally in line with the GloBE’s guidelines which are relatively complicated.

Regarding tax declarations are as follows²:

Tax declaration includes an information declaration according to the GloBE, a declaration of additional corporate income tax accompanied by an explanatory statement explaining differences due to the dissimilarity between the financial accounting standards (“Tax Declaration”).
The deadline for submitting the Tax Declaration and paying the additional corporate income tax:

For QDMTT Rule: no later than 12 months after the end of the fiscal year³.
For IIR Rule: no later than 18 months after the end of the first fiscal year; for subsequent years, no later than 15 months after the end of the fiscal year⁴.

Additional income tax in the transitional period will be exempted/reduced from fiscal years from 31 December 2026 backward, (excluding fiscal years ending after 30 June 2028 (“Transitional Period”), the amount of additional income tax in a country for a financial year will be zero (nil) if one of the following criteria is met:⁵

In the fiscal year, multinational enterprise group (“MNE Group”) with a standardized inter-country profit report with total revenue under 10 million EUR and pre-tax profit under 1 million EUR or losses in that country;
In the fiscal year, MNE Groups apply a simple actual tax rate in that country of at least 15% for 2023 and 2024; 16% for 2025, and 17% for 2026;
The pre-tax profit (or loss) of the MNE Groups in that country is equal to or lower than the substance-based income exclusion based on payroll and tangible assets calculated according to the GloBE for the constituent entity with operation in that country according to the Inter-country Profit Report.

In addition, during this Transitional Period, violations of the declaration and submission of the Tax Declaration as specified above will not be subject to administrative tax penalties⁶.

Disclaimer: This publication is for general update. This should not constitute our professional advice for a particular case, entity, or any person. Should you need further information on the matter or our professional assistance for your specific cases, please contact us.