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The global minimum tax is no longer just a matter for group headquarters. Now that Vietnam applies a top-up tax under the global anti-base erosion rules, FDI subsidiaries must provide data, recalculate their effective tax rate and may incur a payment obligation in Vietnam. This article by ACCA Consulting Vietnam helps you understand the mechanism, assess your exposure and prepare your books early.
1. What is the global minimum tax (Pillar Two)?
Pillar Two (Trụ cột 2) is a set of rules developed by the OECD/G20 to ensure that large multinational groups bear a minimum effective tax rate in each jurisdiction where they operate. If the effective tax rate in a country falls below the minimum, the difference is collected as a top-up tax.
The key point: the question is not "what is the headline rate?" but "after all incentives, exemptions and reductions, how much is actually paid on profit?". A company enjoying a preferential rate or a tax holiday can have a very low effective tax rate, even though Vietnam's standard corporate income tax (CIT/TNDN) rate is 20%.
The group consolidated revenue threshold, the minimum rate and the detailed calculation are set out in separate legal documents. Companies should check the current regulations or ask the group tax function rather than relying on hearsay.
Two collection mechanisms commonly referred to
- Qualified Domestic Minimum Top-up Tax (QDMTT): the host country (Vietnam) itself collects the top-up tax of the subsidiary located in Vietnam, instead of leaving it to another country.
- Income Inclusion Rule (IIR): the country of the ultimate parent company collects the shortfall from subsidiaries with a low effective tax rate.
- In practice: if Vietnam does not collect it, that tax may be collected elsewhere. Traditional tax incentives therefore no longer deliver their full benefit to in-scope groups.
2. Which FDI companies are affected by the global minimum tax?
Not every FDI company is in scope. Typically, the rules cover constituent entities of multinational groups whose consolidated revenue exceeded the prescribed threshold in a number of recent years. Small FDI companies set up by individual investors are usually out of scope, but it is still advisable to obtain written confirmation from the group.
| Question | If "Yes" | Next step |
|---|---|---|
| Does the ultimate parent prepare global consolidated financial statements? | Possibly in scope | Ask the group for consolidated revenue figures |
| Does consolidated revenue exceed the prescribed threshold? | Subject to review | Determine the role of the Vietnamese company |
| Is the company enjoying CIT incentives, exemptions or reductions? | The effective tax rate may be low | Run a trial calculation of the effective tax rate for each year |
| Are there deferred taxes or large VAS–IFRS adjustments? | Figures need conversion | Prepare a VAS – IFRS bridge |
| Does the group already have Pillar Two advisers? | There is a data contact point | Agree the data template and submission deadlines |
3. Practical impact: an illustrative effective tax rate example
Suppose an FDI manufacturer with stable accounting profits is exempt from tax in its first years and then enjoys reduced tax in the following years. The chart below is only an illustrative example to show how the effective tax rate changes; it does not reflect the incentive schedule of any specific project.
Illustrative example. Year 5 uses the standard rate of 20%. Effective tax rate = adjusted CIT / adjusted profit under the Pillar Two rules.
View as table
| Year 1 | 0% |
| Year 2 | 0% |
| Year 3 | 5% |
| Year 4 | 10% |
| Year 5 | 20% |
In years when the effective tax rate is below the minimum, an in-scope group may have to pay the difference. Consequences for the Vietnamese subsidiary:
- The benefit of tax incentives shrinks; expected cash flows for profit repatriation may decrease.
- New filing and data-provision obligations arise, with their own templates and deadlines, in addition to the usual CIT finalization.
- The group may shift its interest to forms of support other than preferential tax rates.
4. Accounting data to prepare for the global minimum tax
Most of the difficulty lies in the data, not the formula. The subsidiary needs to produce figures under the accounting framework used for consolidation (usually IFRS or the parent's framework), then adjust them under the Pillar Two rules. For how to build the conversion schedule, see the reporting package sent to the parent company.
- Profit before tax under Vietnamese Accounting Standards (VAS) and under the consolidation framework, with a reconciliation of differences
- Current CIT per the finalization return and amounts provisionally paid each quarter
- Deferred tax liabilities, deferred tax assets and their basis
- List of incentives, exemptions and reductions being enjoyed and their expiry
- Payroll costs and tangible asset values (for the carve-outs under the rules)
- Related-party transactions and transfer pricing adjustments during the year
- Contact person and data submission schedule required by the group
5. A 5-step preparation roadmap for FDI subsidiaries
- 1Confirm scope
Ask the group to confirm in writing whether the company is in scope.
- 2Inventory incentives
List CIT incentives, their conditions and expiry years.
- 3Standardize the VAS books
Close the books on time; reconcile deferred tax and related-party transactions.
- 4Run a trial calculation
Estimate the effective tax rate to forecast any top-up obligation.
- 5Set the filing calendar
Add the top-up tax filing deadlines to the company's overall tax calendar.
Coordinate with the usual CIT finalization calendar: the deadline for the CIT finalization return and the annual financial statements is the last day of the third month after the financial year end, and FDI companies must have their annual financial statements audited. Top-up tax figures should be based on audited numbers to avoid repeated adjustments.
FAQ
Do small FDI companies need to worry about the global minimum tax?
Usually not, because the rules target groups with large consolidated revenue. Even so, you should obtain confirmation from the parent company for your records and to avoid misunderstandings if the tax authority asks.
Does the domestic top-up tax replace CIT?
No. CIT is still declared, provisionally paid and finalized as usual. The top-up tax is a separate obligation, calculated on the shortfall in the effective tax rate.
Will a company currently enjoying tax incentives lose them?
Incentives under Vietnamese law are still recognized, but if the group is in scope, the tax saved may be collected back through the top-up tax. A trial calculation is needed to see the actual impact.
Who in the company should be responsible for this data?
Usually the chief accountant or the finance director, working with the group tax function. An accounting service provider can help prepare the base figures from the books.
Prepare group tax data straight from your books
ACCA Consulting Vietnam provides accounting services in Ho Chi Minh City for FDI companies, from the monthly close to the data the group needs. Get advice and a preliminary review.
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