European businesses have expressed a positive assessment of Vietnam's tax environment in recent years, said Thomas McClelland, Chairman of the Tax and Transfer Pricing Sector Committee of the European Chamber of Commerce (EuroCham), at the recent launch of EuroCham's White Book in Vietnam, as reported by Thoi bao tai chinh newspaper.

"We highly appreciate the efforts of the Government of Vietnam in 2023 to support taxpayers. Tax policy and administration have made effective progress and demonstrated a proactive approach to enforcement. The tax reforms are in line with international tax norms and current business trends," affirmed Thomas McClelland.

To further support Vietnam's business investment environment, the Committee suggested that the Vietnamese Government take the opportunity provided by Pillar 2 [which establishes a global minimum corporate tax rate of 15% for multinational enterprises] to comprehensively evaluate existing tax incentives. This should include a thorough study of the impact of the global minimum tax rate on the benefits to current and prospective investors.

Delegates share their recommendations at the recent launch of the EuroCham White Paper in Vietnam. Photo: EuroCham

The committee suggests that the government should explore practical and effective solutions to ensure the directed investment into key projects, offsetting the adverse impacts of Pillar 2 on Vietnam's business investment environment while honoring its commitments.

For instance, adopting incentives based on expenditure rather than income would minimize the impact on businesses under Pillar 2. This approach can incentivize foreign investment in priority sectors and areas while still adhering to commitments.

Expenditure-based incentives might involve accelerated depreciation of machinery and equipment for investment projects and double deduction of labor costs or research and development (R&D) expenses for priority investment projects. The Committee highlights that such expenditure-based incentives can directly reduce investment costs, enhancing the ability to attract additional investments.

Moreover, alongside promoting investment in R&D, the committee recommends considering incentives for innovation and high technology to align with key policy objectives, such as advancing the green transition.

The committee further suggests utilizing revenue from the Qualified Domestic Minimum Top-up Tax to enhance the overall investment environment, including infrastructure development and workforce skill improvement.

According to the committee, Pillar 2 presents an opportune moment for Vietnam to contemplate tax incentive reforms. They emphasize the need for timely action to prevent revenue losses or foreign investment outflows, especially considering that other countries plan to introduce additional taxes from 2024 and are also contemplating revisions to their tax incentive regimes to comply with the global minimum tax rate.

Previously, in July 2021, the G20 finance ministers and central bank governors agreed on a two-pillar solution to address tax challenges arising from digitalization. Pillar 1 focuses on taxing rights based on digital business activities, while Pillar 2 establishes a global minimum corporate tax rate of 15% for multinational corporations.

On December 16, 2022, the Base Erosion and Profit Shifting (BEPS) Global Cooperation Forum announced that 138 countries, including Vietnam as the 100th member, had agreed to the framework of the two-pillar solution. Vietnam expressed its full support without any reservations.

Electronics production at Katolec Vietnam in Quang Minh Industrial Park, Hanoi. Photo: Pham Hung/The Hanoi Times

Three tax laws to be amended in 2024

Agreeing with EuroCham, Truong Ba Tuan, Deputy Director-General of the Department of Tax Policy under the Ministry of Finance, stated that over the past two years, the Ministry of Finance has proactively reviewed nine tax laws to identify shortcomings and areas requiring amendment and supplementation. The findings were then reported to the Government and the Standing Committee of the National Assembly, and a roadmap for amending these tax laws has been established for the upcoming period.

The primary objective of the amendments is to timely institutionalize the guiding principles of tax reform as stipulated in the Party and State documents and resolutions, aiming to promote sustainable development and green growth.

Tuan highlighted a second objective, which is to address shortcomings and practical challenges in the implementation of tax policies in the previous period. The government perceives this as an opportune moment for Vietnam to review flawed regulations and determine appropriate amendment options.

He emphasized that the purpose of the amendments is also to ensure the coherence of the tax policy system and meet the requirements of international economic integration, such as the implementation of Pillar 2 of the Global Minimum Tax.

In response to EuroCham's recommendations on Pillar 2, Truong Ba Tuan pointed out that the National Assembly has adopted Resolution No. 107 on the application of qualified domestic minimum top-up tax in line with the OECD's anti-base erosion and profit-shifting regulations, effective from January 1, 2024.

Additionally, he mentioned that in Resolution No. 110, which addresses the reduction of VAT by 2% for the first six months of 2024, the National Assembly instructed the government to draft a decree on the management and utilization of the investment support fund generated from the Qualified Domestic Minimum Top-up Tax. This decree also calls for a comprehensive review of investment promotion policies, including tax policies.

"Based on the review, we have developed a specific roadmap for the amendment of each tax law. In 2024 and 2025, we will focus on reporting to the Government and the National Assembly on the amendment of three key tax laws, namely VAT, special consumption tax, and corporate income tax. From there, we will set the roadmap for subsequent tax amendments," Tuan explained.