Second Certainty
Large foreign companies doing business in Vietnam, including Samsung and LG, have asked the Vietnamese government for a response to the introduction of a global minimum corporate tax, Reuters reported on May 30 (local time).
The 15 percent global minimum tax will apply to multinational companies with annual revenue of more than 750 million euros (US$803 million) starting from 2024. The system is designed to prevent multinationals from paying less tax by setting up subsidiaries in countries with lower corporate tax rates. For example, if a Korean company builds a factory in a country with a low corporate tax rate and pays a 10 percent tax, it will have to pay an additional 5 percent tax in Korea.
Vietnam has also decided to adopt the global minimum tax system. This will increase tax rates for large foreign companies in Vietnam. Those tax rates have been significantly lower due to various tax breaks in Vietnam.
Vietnam, which relies heavily on foreign investment to rev up its economy, is worried that the introduction of the minimum tax will cause large foreign companies to leave, Reuters reported.
“If this issue is not fully resolved, it will undermine Vietnam’s competitiveness,” said Hong Seon, chairman of the Korean Chamber of Commerce in Vietnam, adding that Korean investors are particularly sensitive to such changes.
Korea has invested tens of billions of dollars in Vietnam. Samsung is the country’s largest foreign investor, employing around 160,000 people and accounting for 25 percent of Vietnam’s total exports. More than 50 percent of Samsung’s smartphones are produced in Vietnam.
According to local media reports, Samsung’s corporate tax rates vary by region in Vietnam. In 2019 they ranged from 5.1 percent to 6.2 percent in two provinces where it produced smartphones.
According to a local source, companies that make large investments in Vietnam will be offered tax rebates for research and development. “It will amount to at least US$200 million a year,” the source said. “The total amount will be almost the same as the tax Vietnam will impose on large foreign companies.”