[Vietnam Biz – Part 21] Are you ready for global tax compliance? Key corporate income tax risks and countermeasures in Vietnam (Part 2)

2. Pitfalls of Vietnam Corporate Income Tax Faced by Expanding Companies

Many Japanese companies expanding their business into Vietnam face unexpected challenges regarding Corporate Income Tax (CIT). Particularly amid the advancement of global tax compliance, multi-faceted pitfalls exist, including the complication of tax incentives, increasing tax filing obligations, group-wide tax management, and the risk of cost increases due to tax reforms.

Without sufficient prior preparation and system established, these factors can lead to unnecessary costs and administrative burdens, potentially undermining the benefits of expansion. Here, we outline four typical challenges and look into the specific reality of each.

• Complex application conditions for tax incentives

• Increase in tax filing and reporting obligations

• Necessity of group-wide tax management

• Risk of additional burdens due to tax reforms

2.1. Complex application conditions for tax incentives

In Vietnam, different tax incentives are established for each region and industry, making it easy to perceive that “low tax rates are advantageous” at the initial stage of expansion. However, to qualify for these incentives, companies must meet complex conditions such as business scale, industry type, investment amount, and the number of employees.

In addition, with the introduction of the global minimum tax, multinational enterprises may become subject to top-up taxation if their effective tax rate after applying incentives falls below 15%. Expanding without accurately understanding these conditions increases the risk of not being able to fully enjoy the expected tax benefits.

2.2. Increase in tax filing and reporting obligations

Following the implementation of the global minimum tax, new tax filing and reporting obligations have also arisen for local subsidiaries in Vietnam. For instance, companies are required to understand the revenue status of the entire group and, if certain requirements are met, perform top-up tax payments or detailed information disclosure.

Even companies that previously relied on regional tax incentives must now prepare an infrastructure for timely data management and consolidated group tax filing. It is essential for the operational level to recognize that administrative procedures are becoming more complicated and the burden of compliance response is increasing.

2.3. Necessity of group-wide tax management

Even if tax compliance was previously handled individually by each local subsidiary, the era of global minimum tax demands management across the entire group, including the parent company and bases in other countries. For example, if the group’s revenue exceeds a certain scale (over 750 million euros), filings and top-up tax payments must be made based on the overall revenue and tax payment status, rather than just the Vietnamese subsidiary alone.

Furthermore, since transfer pricing policies and the transparency of intercompany transactions are heavily emphasized, collaboration with the Japanese headquarters and the restructuring of the overall corporate tax strategy become crucial themes.

2.4. Risk of additional burdens due to tax reforms

Following the introduction of the global minimum tax in Vietnam, further tax reforms and reviews of incentive systems are expected in the future. For example, while companies not receiving incentives face little impact since the standard CIT rate is currently 20%, companies utilizing tax incentives are more susceptible to cost increases due to top-up taxes or system changes.

Moreover, as the local government considers new incentive measures and support policies, it is necessary to pay close attention to changes not only in the tax system but also in the overall business environment.