HANOI, April 20 (Xinhua) -- Vietnam is finding ways to maintain the competitiveness of its investment environment amid concerns that the country would lose its edge as a tax-friendly place when global minimum corporate tax rules take effect, Vietnam News reported on Thursday.
More than 140 countries and territories have signed on to a cross-border tax plan which would allow governments to apply a top-up tax to the minimum of 15 percent on profits that a company has recorded in a foreign country with a lower tax rate.
Vietnam's corporate income tax is set at 20 percent but the government also offers various deductions, exceptions and tax breaks to lure foreign investors.
About 7 percent of 1,015 foreign-invested companies in Vietnam, whose parents will be subject to the minimum corporate tax, may be impacted, said Vietnamese Finance Minister Ho Duc Phoc.
The finance minister also estimated that when other countries move ahead with the minimum tax rate, they would be able to collect additional top-up taxes from these businesses worth up to over 12 trillion Vietnam dong (508 million U.S. dollars) when the rules come into force in 2024.
Among those having signed on to the tax deal, South Korea, Singapore and Japan are Vietnam's top source of direct investment pledges and these countries hence would have the largest number of businesses in Vietnam affected by the global minimum corporate tax rate.
"This will present a considerable challenge for us to keep the investment environment competitive," said the finance minister.
Official statistics showed Vietnam has offered a tax rate lower than 15 percent to 335 foreign-invested projects worth over 100 million U.S. dollars in manufacturing and processing industries.
These projects currently account for almost 30 percent of Vietnam's total registered foreign investments inflows, said Dang Ngoc Minh, Deputy Director of the General Department of Taxation.
When Vietnam enacts the global minimum corporate tax agreement, tax incentives would no longer give Vietnam a competitive advantage in attracting foreign investment, he added.
However, the senior tax officer said Vietnam would also have benefits baked into with the minimum tax plan because as other countries enact the rules, they would be taxing the profits of the companies operating in Vietnam, while Vietnam would be missing out on these tax revenues.
Lawmakers have another incentive to implement the tax as they could collect top-up taxes from Vietnamese businesses operating overseas that would otherwise be kept in low tax countries, he added.
Prime Minister Pham Minh Chinh at a business forum last month said that the government is developing new policies, scheduled for completion this year, in line with the global minimum tax and on the principle of creating a favorable business and investment environment in Vietnam.
Vietnam was named among the world's top 20 host economies for foreign direct investment for the first time in 2020.
Foreign investment pledges in the Southeast Asian country rose 9.2 percent to more than 31 billion U.S. dollars in 2021 before dwindling to 27.72 billion in 2022 due to impacts of the pandemic and a global economic slowdown, according to the Ministry of Planning and Investment. ■