The world is witnessing the booming transformation into the digitalization era, in which software production has become increasingly more important. In Vietnam, this industry has experienced considerable growth, almost doubling in the number of software businesses over the last five years (i.e., from approximately 7,400 enterprises in 2016 to more than 13,500 in 2020).
Currently, the Vietnamese Government prioritizes the development of software products and services with many preferential policies, especially regarding taxes. In this article we summarize the core regulations and conditions for applying tax incentives in Vietnam.
- Value Added Tax (“VAT”): Software products and software services as defined in Decree No. 71/2007/ND-BTTTT (May 03, 2007) are not subject to VAT.
- Software products imply software and accompanying documents which are produced and displayed or stored in objects of any form and can be purchased, sold, or transferred to other subjects for exploitation or use (see Appendix 01 of Circular No. 09/2013/TT-BTTTT dated April 08, 2013).
- Software services refer to supplementary, supportive activities for manufacturing, installing, exploiting, using, upgrading, warranting, and maintaining software and other similar activities related to software.
- Corporate Income Tax (“CIT”): Enterprises are eligible for CIT incentives on incomes from investment projects regarding software production including a preferential tax rate of 10% over a fifteen-year period (*) and tax exemption for four years with a 50-percent tax deduction for the following nine years (**).
- The application term of the preferential tax rate (*) is calculated continuously beginning with the first year of an enterprise generating revenue from its new investment project entitled to tax incentives;
- The period of tax exemption and deduction (**) is counted consecutively from the first year an enterprise has taxable income from its new investment project entitled to tax incentives in Vietnam. However, if the enterprise does not have taxable income in the first three operating years, the incentive term is determined from the fourth year of revenue generation from its new investment project.
- Furthermore, to enjoy the CIT incentives above, enterprises must satisfy the following conditions:
- Its products should be classified as software products as prescribed in Appendix 01 of Circular No. 09/2013/TT-BTTTT;
- The entity performs at least one or two first stages of the software manufacturing process, namely the phase of clarifying the requirements and the phase of analyzing and designing software as stipulated in Circular No. 13/2020/TT-BTTTT dated July 03, 2020. The next stages of the software manufacturing process include:
- Programming and coding;
- Examining and experimenting;
- Completing and packaging;
- Installing, transferring, instructing, and maintaining; and
- Publishing and distributing.
- The entity prepares the supporting documents to prove that its software-producing activities in each step are performed in line with the prescribed software production process. The details of supporting documents are also instructed in Circular No. 13/2020/TT-BTTTT.
We highly recommend that investors in the software production and software services sector should conduct careful regulation research, check with the local competent authorities for instructions and practice, and have a compliant plan of documentation before applying tax incentives.
For further information please contact:
Nghia Tran, Partner, ECOVIS AFA VIETNAM, Da Nang City, Vietnam