Detailed Guidance on Global Minimum Tax Under Development

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On November 29, 2023, the National Assembly of Vietnam passed Resolution No. 107/2023/QH15, introducing a supplementary corporate income tax (CIT) policy aligned with the global anti-base erosion rules, effective from January 1, 2024 (“Resolution 107”).

To establish a comprehensive legal framework for the collection and payment of supplementary CIT in Vietnam in accordance with Resolution 107, the Government recently released a draft decree detailing the implementation of Resolution 107 (“Draft”).

The Draft primarily focuses on global minimum tax rules, which include two tax principles: the Qualified Domestic Minimum Top-up Tax (“QDMTT”) and the Income Inclusion Rule (“IIR”). Accordingly, the QDMTT applies to foreign multinational groups with member companies in Vietnam, while the IIR applies to Vietnamese investors with investments abroad.

Essentially, the Draft clarifies and specifies issues related to determining taxpayers, principles of application, and methods for calculating the supplementary corporate income tax under the QDMTT and IIR rules, reporting and tax filing procedures, and tax management regulations.

Some notable points in the Draft Decree include:

MNC members must notify the list of constituent entities

According to the Draft, constituent entities of multinational groups subject to Resolution 107 are required to: (i) declare and notify the list of entities subject to Resolution 107 using the prescribed form to the General Department of Taxation (“Tax Authority”) within nine months from the end of the fiscal year; and (ii) update and re-notify the Tax Authority before the deadline for submitting the supplementary corporate income tax return.

The declaration and notification of the aforementioned list of constituent entities can be carried out through direct submission, postal mail, or electronic filing via the Tax Authority’s electronic portal.

Clarifications on exemptions during transitional periods

In addition to clarifying provisions related to QDMTT and IIR, the Draft Decree also supplements and provides more detailed regulations on tax liability exemptions, particularly during transitional periods. These exemptions may include: (i) determining supplementary corporate income tax in a country as 0, and/or (ii) not imposing administrative tax penalties in Vietnam. These exemptions apply in specific cases, as follows:

Multinational Corporations in the Initial Stages of International Operations

In this case, the supplementary corporate income tax (under QDMTT) for multinational corporations in Vietnam is determined as 0.
To qualify as being in the initial stages of international operations, the multinational corporation must meet the following two conditions: has constituent entities in no more than six countries; and the total book value of tangible assets of all constituent entities across all countries (excluding the reference country) does not exceed EUR 50 million.

Exemptions for IIR in Cases Where QDMTT Has Been Implemented

As proposed in the Draft, the supplementary tax payable by a multinational group under the Income Inclusion Rule (IIR) in a jurisdiction applying the QDMTT will be deemed zero for a fiscal year if the group satisfies conditions for liability reduction and has already complied with QDMTT requirements in that jurisdiction.

Exemptions During the Transitional Period

The transitional period is defined as fiscal years commencing on or before December 31, 2026, but not including fiscal years ending after June 30, 2028 (“Transitional Period”). During this Transitional Period, entities subject to tax may have their supplementary tax liability in a jurisdiction reduced to zero for a fiscal year if certain criteria are met.

Additionally, the Draft Decree proposes not imposing administrative tax penalties for violations related to notification, registration, and tax filing procedures during the Transitional Period.

Detailed regulations on tax declaration, payment procedures, and supplementary corporate income tax management

The Draft also supplements detailed provisions on registration procedures, tax declaration, payment requirements, and accompanying declaration forms.

On Tax Registration, Declaration, and Payment

The designated constituent entity of a multinational corporation is responsible for filing tax registration documents within 90 days from the end of the financial reporting year with the tax authority directly managing it. Upon approval, the entity will be issued a 10-digit tax identification number. This tax identification number is used to directly declare and pay the supplementary corporate income tax under the Global Minimum Tax Rules. The tax authority will issue a tax registration certificate to the taxpayer within three working days from the receipt of complete registration documents.

For QDMTT, businesses must declare and pay taxes no later than 12 months after the end of the financial year. For IIR, businesses must declare and pay taxes no later than 18 months after the end of the financial year for the first year the multinational corporation is subject to the rule; this deadline is reduced to 15 months for subsequent years.

On Currency for Tax Declaration, Payment, and Exchange Rates

The Draft Decree specifies two currencies for tax declaration and payment: Vietnamese Dong; and/or The currency used to prepare the consolidated financial statements of the ultimate parent entity.

If the constituent entity opts to declare and pay taxes in Vietnamese Dong, the exchange rate applied will be the average exchange rate for December of the fiscal year for which the tax obligation arises.

At present, the Draft Decree is still under development and open for public consultation. Therefore, the provisions mentioned in the Draft are not yet finalized and may undergo further adjustments, additions, and refinements before being officially approved by the Government. If the proposed provisions in the Draft are officially adopted, businesses must determine whether they fall within its scope and pay close attention to the requirements for registration, tax declaration, and payment in compliance with the regulations.

Special investment procedures for encouraged sectors

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On November 29, 2024, the National Assembly promulgated Law No. 57/2024/QH15, amending and supplementing several provisions of the Law on Planning, the Law on Investment, the Law on Public-Private Partnership Investment, and the Law on Bidding. Notably, a new provision on special investment procedures was introduced to the Law on Investment 2020. Accordingly, the National Assembly authorized the Government to stipulate special investment procedures for investors implementing projects in prioritized development sectors during specific periods.

To ensure the prompt implementation of regulations on special investment procedures and attract investments, the Government has urgently sought public feedback on the Draft Decree detailing the Law on Investment’s provisions regarding special investment procedures (“Draft“). The Draft provides detailed guidance on special investment procedures, with several notable key points outlined below.

Conditions for Applying Special Investment Procedures
Investors may opt for registration under special investment procedures if their projects meet criteria related to investment location and sector.

Regarding investment location requirements, projects eligible for special investment procedures must be implemented in industrial zones, export processing zones, high-tech parks, concentrated information technology zones, free trade zones, or functional areas within economic zones.

Regarding investment sector requirements, projects must fall within the following sectors: Construction of innovation centers or research and development (R&D) centers; Investment in semiconductor integrated circuit industries, technology design, manufacturing of components, integrated electronic circuits (ICs), flexible electronics (PEs), chips, and semiconductor materials; High-tech sectors prioritized for investment and production of products listed as high-tech products encouraged for development under decisions issued by the Prime Minister.

Licensing procedures of investment projects under special investment procedures

Regarding the application for an Investment Registration Certificate under special investment procedures, in addition to the standard requirements for regular investment projects, the Draft Decree mandates two commitments from investors:

(i) Investors must commit that their projects satisfy all conditions, standards, and regulations under laws related to construction, environmental protection, and fire safety in their investment registration applications.
(ii) Investors must identify, forecast, and propose mitigation measures for adverse environmental impacts in
their project proposals.

Beside the two above commitments, investors under special investment procedures will not be required to prepare environmental impact assessment reports, obtain construction permits, or complete approvals related to fire safety.

Additionally, the Draft stipulates that for special investment procedure projects where an investor proposes a project similar to another project they have previously implemented in Vietnam or abroad, the investor may opt to submit approved documents from the previously implemented project in place of a new project proposal.

As a result, implementing investment projects under the special investment procedures proposed in the Draft is expected to significantly reduce the time and costs for investors.

Requirement for deposit or credit institution guarantee for deposit obligations

The Draft requires investors to deposit a guarantee or provide a bank guarantee from a financial institution for their deposit obligations after receiving the Investment Registration Certificate.

The deposit or guarantee may be used to remediate violations of the above commitments. Additionally, investors failing to meet their commitments will face administrative penalties, suspension, termination of investment activities, and other legal sanctions.
Overall, the proposals in the Draft aim to concretize the provisions on special investment procedures recently added to the Law on Investment. This represents a significant step forward in creating favorable mechanisms for strategic investment projects with substantial economic and social impacts. It also underscores Vietnam’s strong commitment to improving the investment environment and attracting strategic capital for economic development.

If the Draft’s proposal are approved, investors operating in eligible sectors and meeting the conditions for special investment procedures will benefit from streamlined licensing processes, significantly reducing the time and costs associated with administrative procedures.

Proposed 30% reduction in land rental fees for 2024

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Based on feedback from ministries, sectors, and local authorities, the Ministry of Finance has consolidated, finalized, and issued the Draft Decree on the reduction of land rental fees for 2024 on December 5, 2024 (“Draft”).

Under the Draft, organizations, entities, enterprises, households, and individuals currently leasing land directly from the State under Decisions, Contracts, or Certificates of Land Use Rights, Ownership of Residential Housing, and Other Assets Attached to Land issued by competent state authorities in the form of annual land rental payments (“Land Lessees”) are eligible for a reduction in land rental fees for 2024. This provision also applies to cases where Land Lessees are not entitled to exemptions or reductions in land rental fees, have exhausted their exemption or reduction periods, or are currently receiving reductions in land rental fees under the provisions of the Land Law and other relevant laws.

To qualify for the reduction, Land Lessees must submit their applications to competent state authorities by no later than March 31, 2025.

The reduction amount is 30% of the land rental fees payable for 2024. Outstanding land rental fees from previous years (before 2024) and late payment penalties are not eligible for this reduction. In cases where Land Lessees are already receiving reductions in land rental fees under regulations and/or deductions for compensation and site clearance costs, the reduction mentioned above will be calculated on the amount of land rental fees payable (if any) after the applicable reductions and/or deductions as prescribed by law.

If Land Lessees have already paid land rental fees for 2024, and after competent authorities determine and approve the reduction, there is an overpayment, the excess amount will be deducted from the rental fees of subsequent payment periods or future years as per the provisions of tax management and other relevant laws. If there are no subsequent payment periods, the excess amount will be offset or refunded in accordance with the provisions of tax management and other relevant laws.

The proposed reduction in land rental fees under the Draft, if approved, will provide support to enterprises in the context of ongoing economic volatility and challenges in both Vietnam and globally. This initiative aims to reduce business costs, thereby supporting production and business operations.

Tightening corporate responsibility for fire prevention and fighting under the New Fire Prevention and Fighting Law 2024

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On November 29, 2024, the National Assembly passed Law No. 55/2024/QH15 on Fire Prevention, Fighting, and Rescue (“Fire Prevention and Fighting Law 2024”), replacing the Fire Prevention and Fighting Law No. 27/2001/QH10, as amended and supplemented by Laws No. 40/2013/QH13 and No. 30/2023/QH15 (“Fire Prevention and Fighting Law 2001”). The new law will take effect on July 1, 2025. Below are notable updates concerning corporate responsibilities for fire prevention and fighting:

Detailed regulations on fire safety conditions during construction

Compared to the 2001 Law, the 2024 Fire Prevention and Fighting Law provides more specific regulations on fire safety conditions that investors, construction owners, and construction contractors must fulfill and maintain during construction. These include: Establishing fire prevention, fighting, and rescue rules suitable for the characteristics and nature of the construction; Posting prohibition, warning, and instruction signs as required; Equipping fire prevention and fighting equipment or systems suitable for the nature and characteristics of the construction, in compliance with safety regulations for construction activities; Assigning personnel to handle fire prevention, fighting, and rescue tasks within their management scope.

These clear provisions make it easier for businesses to identify their responsibilities when participating in construction projects as investors or construction owners.

Additional fire safety conditions for buildings

The 2024 Law introduces new requirements mandating facilities to install fire alarm communication devices connected to the Fire Prevention, Fighting, and Rescue Database System. Additionally, facility owners are required to declare and update relevant fire prevention and rescue data.

The installation of such communication devices and the reporting and declaration of data will be implemented in accordance with the Government roadmap, with a mandatory start date of no later than July 1, 2027.

Specific responsibilities for ensuring fire safety in industrial electricity use

Under the 2001 Law, fire prevention and fighting regulations applied equally to residential and industrial electricity use. However, industrial electricity usage poses unique risks requiring specialized measures to minimize fire and explosion hazards. Therefore, the 2024 Law differentiates responsibilities for fire prevention in electricity installation and use for residential and industrial purposes.

For industrial activities, businesses must ensure the following fire safety conditions: Complying with safety regulations on electricity use for production under the Electricity Law; Ensuring electrical wiring and equipment installed indoors meet safety standards; Regularly inspecting and promptly repairing or replacing electrical wiring and equipment that do not meet fire safety standards; Using specialized electrical equipment in environments with fire or explosion risks, in compliance with legal regulations.

The law also adds responsibilities for businesses dealing in electrical products and equipment. These businesses must provide accurate and complete information about the quality and technical specifications of their products, ensuring suitability for intended purposes. Additionally, retail electricity providers must educate and guide consumers on safe electricity use in residential and industrial contexts as part of their business operations.

The 2024 Fire Prevention and Fighting Law marks a significant step forward in enhancing corporate responsibility for fire prevention and fighting. These new regulations clarify corporate responsibilities for ensuring fire and explosion safety in construction, production, and business activities. The added safety conditions for construction projects and the requirement to install connected fire prevention systems will improve the management, supervision, and effectiveness of fire prevention and response, thereby reducing fire-related accidents. To comply with the new fire safety requirements under the 2024 Law, businesses should proactively study and implement these regulations. Doing so will ensure legal compliance while fostering a safe working environment.

Changes in VAT Rates for Various Goods and Services Effective from July 1, 2025

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After 16 years of implementation, the 2008 Value Added Tax (“VAT”) Law has revealed numerous limitations and inadequacies in practical application. One of the most significant issues is that the VAT rates for many goods and services do not accurately reflect industry practices or international norms. To address these shortcomings, on November 26, 2024, the National Assembly officially passed the 2024 VAT Law replacing the 2008 VAT Law (“2024 VAT Law”). In addition to retaining provisions from the current law, the newly revised and supplemented content primarily pertains to VAT rates, conditions for VAT deduction, and other significant updates. Below are the key highlights of the 2024 VAT Law.

Adjustments to VAT rates for various goods and services

Under the new regulations of the 2024 VAT Law, certain goods and services will be subject to a VAT rate of 10%, instead of the previous rate of 5%. Key items subject to the 10% VAT rate from July 1, 2025, include: Unprocessed forestry products; Sugar and by-products from sugar production, including molasses, bagasse, and mud waste; Specialized equipment and tools for teaching, research, and scientific experimentation; Cultural, exhibition, sports, and artistic performance activities; production, import, distribution, and screening of films.

Similarly, the 2024 VAT Law stipulates that some goods and services previously subject to a 0% VAT rate will now be subject to a 5% rate from July 1, 2025, including: Fertilizers; Offshore fishing vessels; Machinery and equipment specialized for agricultural production.

Addition of goods and services exempt from VAT

The 2024 VAT Law adds four categories to the list of goods and services exempt from VAT, including:
(i) Insurance services for oil and gas facilities, equipment, and foreign-flagged oil storage ships;
(ii) Services related to transporting patients, renting hospital rooms and beds at medical facilities, testing, imaging, blood and blood products used for patients, and elderly and disabled care services, including healthcare, nutrition, and cultural, sports, recreational, physical therapy, and rehabilitation activities; family planning services and health rehabilitation services for patients;
(iii) Public passenger transportation services by metro or inland waterway vehicles;
(iv) Artificial products used as permanent implants in the human body.

New regulations on cashless payments for VAT deductions

The 2024 VAT Law also revises the principles of input VAT deductions. Under the 2008 VAT Law, one of the conditions for input VAT deduction was that payments for goods and services had to be made via non-cash transactions, except for transactions under VND 20 million.

However, the 2024 VAT Law eliminates the exemption from non-cash payment documentation for transactions under VND 20 million to qualify for input VAT deductions. Instead, the 2024 VAT Law stipulates that the threshold for cashless payments will be determined by the Government according to economic and social conditions at different periods.

According to the current Government plan in Decision No. 1813/QD-TTg of 2021 on promoting cashless payments in Vietnam, the threshold for cashless payments applicable to input VAT deductions will gradually decrease over time. This aims to encourage individuals and businesses to limit cash usage, aligning with the Government’s policies. Consequently, in the future, transactions below VND 20 million may still require non-cash payment documentation to meet the conditions for input VAT deductions.

With these prominent updates, the 2024 VAT Law is expected to address existing inadequacies in the current regulations and create a more transparent legal environment for businesses. However, enterprises must promptly update and adjust their internal processes and policies to comply with the new legal requirements.