Foreign corporations in Vietnam worried about global minimum tax

By Duc Minh   April 25, 2023 | 02:56 pm PT
Foreign corporations in Vietnam worried about global minimum tax
Workers at Samsung Electronics Vietnam factory in Yen Phong Industrial Park in Bac Ninh Province. Photo by VnExpress/Ngoc Thanh
Major foreign corporations are concerned that the proposed global minimum tax will make investing in Vietnam less profitable, according to the Ministry of Planning and Investment.

The ministry said that over the past four months ending on April 20, foreign investors spent a total of nearly $8.9 billion in Vietnam in the form of registered capital in newly licensed projects, additional capital in operational projects, and the buying of stakes in local companies.

That figure of total foreign investment capital was down 17.9% against the same period last year.

Specifically, additional capital invested in operational projects continued to decrease, while new FDI and the purchase of stakes in Vietnamese companies increased.

Meanwhile, disbursed foreign capital declined by 1.2% to $5.85 billion.

The processing and manufacturing industry attracted the most foreign investment of any sector, totaling over $5.1 billion and accounting for 57.8% of total registered FDI in the four-month period.

Still, this was a year-on-year drop of 17%.

Real estate trading FDI totaled $972 million, down 65.5%, and the amount of wholesale and retail industry FDI was only $372 million, down 44.3%.

The fact that projects with capital of less than $1 million account for nearly 70% of all new projects, while their combined investment makes up only 2.2% of total registered capital indicates that large corporations have been too cautious to invest much in Vietnam, thanks to the possible negative ramifications of the proposed global minimum tax, the ministry said.

The global minimum tax was agreed upon by G7 member states in June 2021 to prevent tax evasion by multinational corporations. However, Vietnam analysts worry the additional taxation will deter foreign direct investors, many of whom are attracted to Vietnam’s preferential tax policies.

The 15% tax would be applied to multinational firms with a consolidated revenue of at least €750 million ($800 million) in at least two of the most recent four years.

Certain regions like the U.K., Japan, South Korea and the EU are expected to apply the tax starting next year. The policy is being considered in Vietnam.

According to statistics from the Finance Ministry, 1,015 foreign-invested enterprises in Vietnam have parent companies that are subject to the tax. Over 70 businesses in Vietnam are likely to be affected by the tax if it is applied in 2024.

Foreign firms such as Samsung, Intel, LG, Bosch, Sharp, Panasonic, Foxconn and Pegatron – which account for a total combined registered capital of nearly 30% of total FDI in Vietnam – are all likely to be affected by the tax. These major corporations and others are asking Vietnam to issue supportive policies to reduce the tax’s impact.

Prime Minister Pham Minh Chinh said April 22 that the Government will provide solutions and support to help investors and new projects if the proposed global minimum tax is applied.

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