Category: Tax

Pillar Two in Vietnam: What Multinational Companies Need to Know About Global Minimum Tax

Pillar Two in Vietnam: What Multinational Companies Need to Know About Global Minimum Tax

khushbuthakkar

As Pillar Two implementation gathers pace around the world, multinational enterprises are facing a new reality: tax strategies that were once effective may no longer deliver the same benefits under a global minimum tax regime. In Vietnam, the adoption of these rules is prompting businesses to reassess transfer pricing arrangements, cross-border operating models and investment strategies.

For multinational enterprises (MNEs), the implications extend far beyond tax compliance. As governments seek to curb base erosion and profit shifting, the era of relying heavily on low-tax jurisdictions and preferential tax incentives is rapidly coming to an end. In its place, businesses are being pushed towards greater transparency, stronger economic substance and more robust transfer pricing governance.

Against this backdrop, business leaders must evaluate whether their existing structures remain fit for purpose in an environment where value creation, operational substance and tax governance are under increasing scrutiny.

What Is Pillar Two and Why Does It Matter?

Pillar Two is a global tax initiative developed by the Organisation for Economic Co-operation and Development (OECD) to establish a minimum effective corporate tax rate of 15% for large multinational enterprise groups with consolidated revenues of EUR750 million or more in at least two of the four fiscal years immediately preceding the tested year.

In Vietnam, these rules took effect on 1 January 2024 under Resolution 107/2023/QH15 of the National Assembly, through two mechanisms. The Qualified Domestic Minimum Top-up Tax (QDMTT) applies to Vietnamese entities of foreign in-scope groups, so any top-up tax on profits earned in Vietnam is collected in Vietnam rather than in the parent company’s jurisdiction. The Income Inclusion Rule (IIR) applies to Vietnam-headquartered groups in respect of their low-taxed overseas subsidiaries. Together, these measures ensure that profits generated by in-scope multinational groups are subject to a minimum level of taxation, regardless of where those profits are reported.

For multinational businesses operating in Vietnam, the effects of Pillar Two may be felt across multiple areas of the organisation, including:

  • Transfer pricing strategies
  • Intercompany financing arrangements
  • Intellectual property structures
  • Supply chain configurations
  • Legal entity models
  • Tax incentive planning
  • Financial reporting and compliance processes

More importantly, Pillar Two may alter the economics of existing group structures. Arrangements that were previously efficient from a tax perspective may no longer deliver the same benefits once top-up taxes are factored in. As a result, multinational groups should assess not only their compliance obligations, but also the financial and strategic impact of Pillar Two on their broader business operations.

“The biggest misconception is that Pillar Two is simply a tax compliance exercise. In reality, it has the potential to influence investment decisions, operating models and the way multinational groups allocate resources across jurisdictions,” said BoardRoom Vietnam’s Country Manager, Brian Nguyen.

The End of Traditional Profit Shifting Strategies

Historically, multinational groups could optimise global tax positions by allocating profits to jurisdictions with lower tax rates. Under Pillar Two, any tax benefits derived from low-tax jurisdictions may ultimately be offset through top-up taxes, significantly reducing the effectiveness of these structures.

This means companies must revisit their transfer pricing policies and ensure related party transactions reflect genuine commercial substance and arm’s length principles. Transactions involving management fees, intercompany loans, shared services and intellectual property licensing are likely to face greater scrutiny from tax authorities worldwide.

Against this backdrop, business leaders must evaluate whether their existing structures remain fit for purpose in an environment where value creation, operational substance and regulatory compliance are under increasing scrutiny.

Why Transfer Pricing Is Back in the Spotlight

Transfer pricing remains one of the most important tax considerations for multinational corporations and Pillar Two has only heightened its significance.

Vietnam’s evolving regulatory environment places greater emphasis on related party transaction monitoring and transfer pricing oversight. Recent regulatory developments, including Decree 20/2025/ND-CP amending Decree 132/2020/ND-CP, have refined and broadened the definition of related parties (for example, to cover independent-accounting branches and credit institutions with their subsidiaries and affiliates) and strengthened information sharing between the tax authorities and the State Bank of Vietnam on cross-border loans.

For businesses, this raises several important questions:

  • Are current transfer pricing models sustainable under Pillar Two?
  • Could year-end transfer pricing adjustments trigger unintended tax consequences?
  • Are intercompany arrangements appropriately documented?
  • Do current structures accurately align profits with economic substance?

Organisations that fail to address these questions may face increased audit scrutiny, potential double taxation risks and higher compliance costs.

From Tax Optimisation to Tax Governance

Perhaps the biggest change brought by Pillar Two is the shift in mindset required from multinational businesses.

Rather than focusing primarily on reducing tax rates, companies must now prioritise:

  • Tax risk management
  • Regulatory compliance
  • Data accuracy
  • Operational substance
  • Governance and transparency

Businesses may need to reassess supply chains, operating models and group structures to ensure they remain commercially viable while meeting the requirements of the new global tax environment.

Increasingly, competitive advantage will come not from aggressive tax structuring, but from efficient business operations supported by strong tax governance.

Technology and Data Are Becoming Critical

Pillar Two introduces new reporting and calculation requirements that many organisations are not currently equipped to manage. To determine effective tax rates across multiple jurisdictions, businesses need reliable financial data, consistent reporting methodologies and robust compliance processes. This is driving greater investment in tax technology, data analytics and digital transfer pricing documentation.

For many multinational groups, achieving Pillar Two readiness may require collaboration across tax, finance, legal and operational teams.

What This Means for Vietnam's Investment Landscape

The implementation of the global minimum tax regime presents both opportunities and challenges for Vietnam.

On one hand, alignment with international tax standards can strengthen investor confidence, improve transparency and support a more sustainable investment environment. It also encourages businesses to focus on genuine economic activity rather than purely tax-driven structures.

On the other hand, traditional tax incentives that have historically attracted foreign direct investment may become less influential in investment decisions. Companies evaluating expansion into Vietnam will increasingly assess factors such as workforce quality, infrastructure, supply chain resilience, market access and operational efficiency alongside tax considerations.

“Many organisations are still assessing their exposure to Pillar Two. Those that act early will be better positioned to identify potential risks, assess the impact on transfer pricing arrangements and make informed decisions before compliance requirements become more complex,” Brian advised.

Preparing for the Next Phase of Global Tax Reform

As Pillar Two implementation continues to evolve globally, multinational enterprises cannot afford a wait-and-see approach.

The interaction between global minimum tax rules, transfer pricing regulations, related party transactions and corporate tax compliance presents a complex challenge for finance, tax and business leaders. Organisations that proactively review their structures, assess potential exposure and strengthen governance frameworks will be better positioned to navigate the changing landscape.

For businesses operating across multiple jurisdictions, the key question is no longer whether Pillar Two will have an impact. The question is how significant that impact will be on your tax position, transfer pricing arrangements and long-term investment strategy.

Need Guidance on the Impact of Pillar Two on Your Business?

Whether you are assessing Pillar Two readiness, reviewing transfer pricing arrangements, evaluating the impact of top-up taxes or navigating Vietnam’s evolving tax landscape, our team can help you understand the implications and develop an effective response strategy.

Contact BoardRoom today to discuss how Pillar Two could affect your organisation and the steps you should be taking now to stay compliant, mitigate risk and support sustainable growth.

Tax and Accounting Best Practices for Foreign Investors Entering Vietnam

Tax and Accounting Best Practices for Foreign Investors Entering Vietnam

khushbuthakkar

Vietnam’s rapid economic expansion, substantial foreign direct investment (FDI) inflows, and rising global competitiveness have positioned it as one of Asia’s most attractive destinations for foreign investors. Manufacturing, technology, professional services, and consumer-driven industries continue to draw multinational companies seeking growth opportunities in Southeast Asia.

Alongside this growth, Vietnam’s tax and accounting framework has evolved significantly. The government has intensified its push for transparency, digitalization of tax administration, and gradual alignment with international reporting standards through the phased adoption of the International Financial Reporting Standards (IFRS). For foreign investors, this evolution brings both opportunity and responsibility.

Vietnam’s tax environment is highly rules-based and documentation-driven. Compliance failures often caused by misunderstandings of local regulations or misalignment with Vietnamese Accounting Standards (VAS) can result in penalties, audits, and operational disruption.

Brian Nguyen, Country Manager of BoardRoom Vietnam, explains, “Vietnam is very clear on tax obligations, but it is also very strict. Most issues we see come down to documentation gaps or late filings rather than intentional non-compliance.”

This article outlines the essential tax obligations, accounting standards, reporting timelines, and best practices foreign investors should follow to operate smoothly in Vietnam. It also highlights how proactive planning, accurate record-keeping, and the right advisory support can help businesses minimize risk while optimizing financial efficiency.

Navigating Vietnam’s Tax Landscape

Foreign investors operating in Vietnam are subject to several core taxes that form the foundation of ongoing compliance.

Corporate Income Tax (CIT) is levied at a standard rate of 20%, while Value-Added Tax (VAT) applies at 0%, 5%, or 10% depending on the nature of goods or services. However, under Resolution 204/2025/QH15 and Decree 174/2025/ND-CP, the VAT rate for most goods and services ordinarily subject to the 10% rate has been temporarily reduced to 8% from 1 July 2025 to 31 December 2026, subject to certain exclusions. Other key taxes include Foreign Contractor Tax (FCT) on cross-border services, Personal Income Tax (PIT) for employees, and import and export duties for trading or manufacturing businesses.

Before commencing operations, companies must complete tax registration as part of company incorporation, ensuring that business activities align with the registered scope. Incorrect classification of activities is a frequent source of compliance issues. Brian notes, “Tax planning should start before the entity is even incorporated. The investment structure, business model, and transaction flow all affect tax exposure later on.”

Common challenges include inconsistent documentation, misunderstanding industry-specific tax treatments, and insufficient tax planning when selecting an entity structure. Engaging experienced tax advisors early allows investors to anticipate liabilities, structure transactions efficiently, and reduce downstream compliance risks.

VAS and IFRS Transition

VAS govern statutory financial reporting for all companies operating in Vietnam. While VAS is broadly principles-based, it differs from IFRS in key areas, such as revenue recognition, financial instruments, asset valuation, and consolidation.

Foreign investors often underestimate the operational impact of these differences. Brian explains, “Many multinational companies prepare group accounts under IFRS, but Vietnam statutory reporting must follow VAS. Bridging the two requires careful planning and strong internal controls.”

Vietnam has announced a phased roadmap toward IFRS adoption, starting with voluntary application for eligible companies before wider implementation. While this transition is promising, VAS remains mandatory for statutory purposes in the near term.

Best practices include maintaining VAS-compliant bookkeeping from day one, implementing dual-reporting frameworks when necessary, and ensuring supporting documents meet local regulatory requirements. Companies relying solely on global accounting templates often encounter reconciliation issues during audits.

Reporting, Filing, and Audit Requirements

Vietnam’s reporting obligations operate on a fixed and non-negotiable compliance calendar. Foreign-owned companies must manage monthly, quarterly, and annual filings across multiple authorities.

Key obligations include VAT returns, PIT declarations, provisional CIT filings, and annual financial statements. Statutory audits are mandatory for all foreign-invested entities, regardless of size or revenue.

Critical deadlines include submission of annual financial statements and final CIT declarations within 90 days of the financial year-end. Missing these deadlines can trigger fines, tax reassessments, and increased audit scrutiny.

Brian highlights the importance of disciplined reporting, “Vietnam does not offer much flexibility on deadlines. Once a filing is late, penalties are automatic, and that can quickly escalate into broader compliance reviews.”

This is where structured global accounting services play a critical role—helping finance teams track deadlines, prepare accurate submissions, and manage audit processes efficiently.

Payroll, PIT, and HR-Related Tax Compliance

Payroll and employment-related tax compliance is an area where foreign investors frequently face challenges. Employers are responsible for withholding and remitting Personal Income Tax (PIT) on employee salaries, as well as contributing to mandatory social, health, and unemployment insurance schemes.

Tax residency rules significantly affect PIT calculations for expatriates. Individuals residing in Vietnam for 183 days or more in a tax year are treated as tax residents and taxed on worldwide income. Brian notes, “Payroll compliance is closely monitored, especially for foreign employees. Errors in PIT or insurance contributions often trigger audits.”

Maintaining clean payroll records, consistent employment contracts, and accurate tax calculations is essential. Outsourcing payroll services to experienced providers helps companies reduce administrative burden while ensuring compliance with evolving labor and tax regulations.

Tax Incentives and Optimization Opportunities

Vietnam offers a range of tax incentives designed to attract foreign investment into priority sectors and locations. These include CIT holidays, reduced CIT rates, and preferential treatment for high-tech, research and development, environmental, and infrastructure projects, as well as preferential CIT rates of 15% or 17% for qualifying small and micro-enterprises. These preferential rates generally do not apply to subsidiaries or related parties.

Incentives are also available for companies operating in industrial zones, export processing zones, and economic zones. However, qualification requires strict adherence to documentation, investment thresholds, and operational commitments.

Brian advises caution, “Tax incentives are attractive, but they must be structured correctly from the beginning. Retrospective claims are extremely difficult.”

Effective tax optimization in Vietnam is not about aggressive planning, but about aligning investment structure, location, and business activities with available incentives — while maintaining full compliance. This requires coordination between legal, finance, and operational teams, often supported by corporate advisory services.

Best Practices for Strong Tax and Accounting Compliance

Foreign investors can significantly reduce compliance risk by adopting best practices from day one. These include maintaining consistent, accurate supporting documents, aligning internal accounting policies with VAS, and using digital platforms for tax submissions and reporting.

Early preparation for year-end audits is also critical. Brian explains, “Audits go much more smoothly when documentation is organized throughout the year rather than prepared at the last minute.”

Working with experienced tax advisors and accounting professionals allows companies to stay ahead of regulatory changes, manage transfer pricing risks, and address compliance issues before they escalate. Integrated support across business registration services, accounting, tax, and compliance ensures continuity as companies scale.

Strengthening Compliance and Unlocking Success in Vietnam — How BoardRoom Supports Your Journey

Vietnam’s tax and accounting landscape will continue to evolve as the country deepens its global integration and advances digital tax reforms. For foreign investors, success will depend on the ability to adapt to regulatory change while maintaining disciplined financial governance.

Brian offers a forward-looking perspective, “Over the next few years, Vietnam’s tax system will become more digital, more transparent, and more closely aligned with international standards. Companies that invest early in strong compliance frameworks will be best positioned to grow.”

BoardRoom is a trusted partner for foreign investors navigating Vietnam’s regulatory environment. With deep regional expertise across corporate compliance services, global accounting services, company incorporation, incorporation compliance, payroll services, business registration services, and corporate advisory services, BoardRoom supports businesses in managing tax and accounting obligations with confidence and precision.

As Vietnam’s tax and accounting framework continues to transform over the next three to five years, companies that combine proactive planning with experienced local support will be well positioned to unlock sustainable growth in one of Asia’s most dynamic markets.

Get in touch with BoardRoom today to explore how we can support your business in achieving compliant, sustainable growth in Vietnam.