Vietnam's GloBE Rules Implementation: Key Features and Compliance

On November 29, 2023, the Vietnam National Assembly took a significant step in aligning the country's tax policies with global standards by adopting Resolution No. 107/2023/QH15. This resolution introduces the Qualified Domestic Minimum Top-Up Tax (QDMTT) and the Income Inclusion Rule (IIR), both integral to the Global Anti-Base Erosion (GloBE) rules under the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

These measures, effective from January 1, 2024, and applicable for fiscal year 2024, aim to ensure that multinational enterprises (MNEs) operating in Vietnam contribute a fair share of taxes to the local economy.

Qualified Domestic Minimum Top-Up Tax (QDMTT)

The QDMTT is designed to apply to any constituent entity operating in Vietnam that is part of an MNE group with significant global revenues and a low effective tax rate in Vietnam.

Key Criteria for Application:

1. Scope of Application: The QDMTT applies to constituent entities that:
   • Operate in Vietnam.
   • Are members of an MNE group with revenues of EUR 750 million or more, as recorded in the ultimate parent entity's consolidated financial statements for two out of the four years preceding the relevant fiscal year.
   • Pay tax in Vietnam at an effective tax rate lower than 15%.
2. Calculation of QDMTT: 

   QDMTT = (Top-up Tax Percentage x Excess Profit) + Additional Current Top-up Tax (if any).

   Top-up Tax Percentage = Minimum Rate – Effective Tax Rate

   Minimum Rate:15%.

   Effective Tax Rate in Vietnam shall be calculated every fiscal year in accordance with the following formula: 

   Effective Tax Rate in Vietnam    =    Regulated total corporate income tax accrued in Vietnam in the fiscal year of constituent entities in Vietnam /  Net GloBE Income in Vietnam in the fiscal year
   
   
3. Exemptions: 
   The Vietnam QDMTT will be considered zero if the following conditions are met:
   1. The average GloBE Revenue of the Vietnam constituent entities is less than EUR 10 million.
   2. The average GloBE Income or Loss of these entities is less than EUR 1 million or is a loss.
      
      
4. Filing and Payment Requirements: In-scope enterprises are required to file the GloBE Information Return, Top-Up Corporate Income Tax Return, and a Report of Explanation for variations in accounting standards within 12 months following the fiscal year end. The deadline for payment coincides with the filing deadline, ensuring timely compliance.

Income Inclusion Rule (IIR)

The IIR is targeted at Vietnamese entities that hold ownership in low-taxed foreign entities, ensuring that taxes are paid on profits earned abroad if they are not adequately taxed in the jurisdiction of the low-taxed entity.

Key Criteria for Application:

1. Scope of Application: 
   • The IIR applies to constituent entities located in Vietnam that are ultimate parent entities, partially owned parent entities, or intermediate parent entities, holding direct or indirect ownership in low-taxed constituent entities in other jurisdictions.
   • These entities must declare and pay tax according to the IIR, in an amount equal to their allocable share of the top-up tax of the low-taxed constituent entity, unless the top-up tax has already been paid under a qualified IIR in another jurisdiction.
2. Calculation of IIR:
   

   Jurisdictional Top-up Tax = (Top-up Tax Percentage x Excess Profit) + Additional Current Top-up Tax (if any) – Qualified Domestic Minimum Top-up Tax (if any)

   Top-up Tax Percentage = Minimum Rate – Effective Tax Rate

   Minimum Rate is 15%.

   Jurisdictional Effective Tax Rate = Regulated total corporate income tax accrued in the jurisdiction in the fiscal year of all constituent entities in that jurisdiction / Net GloBE Income in the jurisdiction in the fiscal year
   
   
3. Exemptions: The Vietnam top-up tax for constituent entities located in a specific jurisdiction will be zero if:
   
   1. The average GloBE Revenue in the jurisdiction is less than EUR 10 million
   2. The average GloBE Income or Loss in the jurisdiction is less than EUR 1 million or is a loss.
      
      
4. Filing and Payment Requirements: In-scope enterprises must file the GloBE Information Return, Top-Up Corporate Income Tax Return, and Report of Explanation about variations in accounting standards within 18 months after the fiscal year end for the first year the MNE becomes in-scope. For subsequent years, the filing and payment deadline is within 15 months after the fiscal year end.

The introduction of Resolution 107 and the corresponding QDMTT and IIR rules signify Vietnam's commitment to ensuring tax fairness and combating base erosion and profit shifting by MNEs.

Vietnam’s implementation of the GloBE rules through Resolution 107 represents a significant move toward greater tax transparency and equity. By adopting the QDMTT and IIR, Vietnam ensures that MNEs operating within its borders are subject to a fair minimum level of taxation, aligning with global efforts to curb tax avoidance. As these rules come into force, MNEs must adapt quickly to remain compliant while strategically managing their tax obligations under the new regime.

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