Analyzing the Impact of BEPS and the Global Minimum Tax on FDI in Vietnam: Risks of Double Taxation and Policy Adjustment Solutions

Analyzing the Impact of BEPS and the Global Minimum Tax on FDI in Vietnam: Risks of Double Taxation and Policy Adjustment Solutions

Introduction

In the context of deepening global economic integration, ensuring tax fairness has become an urgent priority for governments worldwide. Vietnam, as an increasingly attractive destination for foreign direct investment (FDI), has entered a new phase of implementing Base Erosion and Profit Shifting (BEPS) measures and the Global Minimum Tax (GMT) starting from 1 January 2024.

However, these new regulations also introduce a complex challenge: the potential risk of double taxation for FDI enterprises if there is insufficient coordination between Double Taxation Agreements (DTAs) and the mechanisms associated with the global minimum tax framework.

Context and Implementation of BEPS Regulations in Vietnam

BEPS (Base Erosion and Profit Shifting) refers to a set of tax planning strategies employed by multinational enterprises (MNEs) to shift profits from high-tax jurisdictions to low-tax jurisdictions, thereby eroding the tax base of countries with higher corporate income tax rates.

To address this issue, Vietnam has officially implemented two key mechanisms designed to ensure the application of a minimum tax level on multinational groups operating within its jurisdiction:

• Qualified Domestic Minimum Top-up Tax (QDMTT)
• Income Inclusion Rule (IIR)

These provisions apply to constituent entities of multinational groups whose Ultimate Parent Entity (UPE) is located abroad, provided that the group’s consolidated revenue reaches at least EUR 750 million in at least two of the four preceding fiscal years.

The primary objective of these mechanisms is to ensure that the effective tax rate (ETR) on the profits of constituent entities is not lower than 15%, which aligns with the minimum threshold established by the OECD Global Anti-Base Erosion (GloBE) rules.

In addition, the top-up tax amount will be remitted directly to the central state budget, representing a significant shift from the current tax allocation mechanism.

Under the new framework, if an FDI enterprise benefits from investment incentives such as preferential tax rates (e.g., 10% corporate income tax) or temporary tax holidays, the difference between the preferential tax rate and the 15% minimum rate will be subject to a top-up tax.

Risk of Double Taxation and Implications for FDI Enterprises

While the adoption of the global minimum tax aims to safeguard national tax revenues, it may also create substantial risks for FDI enterprises, particularly those benefiting from investment incentive regimes.

Vietnam has signed nearly 75 Double Taxation Agreements (DTAs) with international partners. However, with the introduction of BEPS-aligned tax mechanisms, these agreements may no longer fully align with the new regulatory framework.

Without consistent interpretation and coordination by tax authorities, businesses may face taxation under two separate regimes:

1. preferential tax treatment under DTAs or investment incentive policies; and
2. additional taxation under the QDMTT or IIR mechanisms.

Many FDI enterprises currently enjoy preferential corporate income tax rates due to investment promotion policies or incentives offered in industrial zones and economic zones.

However, if the effective tax rate of these enterprises falls below the 15% threshold, they will be required to pay additional top-up tax.

This situation may result in tax layering, effectively reducing business profitability and weakening the competitive position of enterprises operating in Vietnam.

For example, an FDI enterprise operating in the food processing sector may benefit from a 10% corporate income tax rate during its initial investment period.

Under BEPS rules, if the company’s profits are taxed at the preferential 10% rate, the top-up tax would be calculated as the difference between the minimum 15% rate and the 10% preferential rate applied to taxable profits exceeding the relevant threshold.

As a result, the enterprise would be required to:

• pay corporate income tax at the preferential rate, and
• pay an additional top-up tax to meet the 15% global minimum tax requirement.

This effectively means that the same profit could be taxed under two different regimes—first under local investment incentives and second under the global minimum tax framework.

Without proper coordination between the global minimum tax rules and existing DTAs, the risk of double taxation could become increasingly significant.

Impact on FDI Business Strategies

The implementation of BEPS and the global minimum tax not only affects the tax liabilities of enterprises but also has broader implications for corporate investment strategies and reinvestment planning.

In an increasingly competitive global environment, any change in tax costs may alter long-term investment calculations.

Enterprises operating in manufacturing and processing sectors, which traditionally benefit from substantial incentives in industrial zones and economic zones, may face the need to restructure their operations if additional tax obligations significantly increase financial burdens.

For example, food processing enterprises that previously enjoyed a 10% tax incentive to stimulate investment may experience a reduction in net profit once the top-up tax required to meet the 15% minimum threshold is imposed.

Consequently, corporate managers must reconsider whether to:

• maintain the existing incentive structure and limit expansion, or
• restructure operational models to optimize tax efficiency.

Tax Compliance Obligations and Safe Harbour Thresholds

In the context of BEPS and the global minimum tax implementation, FDI enterprises in Vietnam not only face potential double taxation risks but must also comply with a complex tax reporting framework.

According to the Resolution No. 107/2023/QH15 of the National Assembly on the Application of Additional Corporate Income Tax in accordance with the Global Anti-Base Erosion (GloBE) Rules, enterprises subject to the QDMTT and IIR regimes are required to submit:

• Global minimum tax information returns
• Supplementary corporate income tax returns
• Explanatory reconciliation reports between financial accounting standards and tax rules

The filing deadlines are:

• 12 months after the fiscal year-end for QDMTT, and
• 18 months for the first fiscal year and 15 months for subsequent years for IIR.

These requirements are intended to enhance transparency and regulatory oversight, enabling tax authorities to closely monitor corporate tax compliance.

However, they also create a significant administrative burden for multinational enterprises, many of which already implement sophisticated tax planning strategies.

To mitigate transitional pressures, the resolution also introduces safe harbour provisions and mitigating measures.

Specifically, if a multinational group:

• files a qualified Country-by-Country Report (CbCR), and
• records revenue below EUR 10 million and profit before tax below EUR 1 million in a given jurisdiction (or incurs losses),

then the top-up tax under QDMTT and IIR may be exempted.

Furthermore, if the effective tax rate already reaches at least 15% (with transitional increases to 16% in 2025 and 17% in 2026), no additional top-up tax will be required.

These provisions effectively establish a “safe harbour threshold” for smaller enterprises or those with relatively straightforward tax structures, while also reducing the risk of administrative penalties during the transition period.

Expert Perspectives and Strategic Recommendations for FDI Enterprises

Tax experts have raised several concerns regarding the implications of BEPS implementation for FDI enterprises in Vietnam.

One of the most critical issues is the lack of alignment between the new global minimum tax rules and existing Double Taxation Agreements (DTAs) signed with more than 75 countries.

Without timely adjustments, enterprises may be required to pay additional tax in Vietnam while being unable to claim tax credits or exemptions in other jurisdictions, leading to genuine double taxation risks.

Experts therefore recommend that the government:

• review and revise existing DTAs to ensure compatibility with BEPS-aligned regulations; and
• issue detailed implementation guidelines to clarify the calculation of top-up taxes, eligibility for exemptions, and compliance procedures.

During the transition period, insufficient guidance may make it difficult for enterprises to accurately determine their tax obligations, increasing the risk of compliance violations and unnecessary administrative costs.

At the corporate level, FDI enterprises must proactively strengthen their internal tax governance and financial accounting capabilities.

Investing in advanced tax management software systems and collaborating with professional tax advisors will enable businesses to stay informed about regulatory changes and optimize their tax strategies.

From a strategic perspective, the adoption of BEPS rules may require enterprises to restructure their organizational and financial models.

Key measures may include:

• reassessing the relationship between parent companies and Vietnamese subsidiaries,
• optimizing internal cash flows and profit allocation, and
• ensuring compliance with global minimum tax requirements.

Enterprises should also enhance digitalization and automation in tax management systems to minimize reporting errors and ensure compliance with the new regulatory framework.

Beyond compliance, maintaining constructive dialogue with tax authorities is equally important.

Regular communication channels can help enterprises stay informed about policy developments and facilitate dispute resolution if tax controversies arise.

In the long term, enterprises that proactively adapt their tax strategies and governance frameworks will gain a stronger competitive advantage—ensuring regulatory compliance while sustaining profitability in a business environment increasingly shaped by global tax standards.

 (*) Reference: Resolution No. 107/2023/QH15 of the National Assembly on the Application of Additional Corporate Income Tax in accordance with the Global Anti-Base Erosion (GloBE) Rules.