In the trend of industrial revolution 4.0, with the advent of automation technology in the production of goods, services, provisions and in management and as technology is transferred from abroad to Vietnam, foreign investors are very interested in the incentives that enterprises enjoy when establishing investment projects and companies with foreign investment capital operating in the field of software production.
1. Advantages in administrative procedures when investors establish new projects
Services related to computer software and some other related services fall under the service sectors that have been opened to foreign investors by Vietnam pursuant to the WTO service commitment schedule. This helps investors to carry out procedures for investment registration certificates and enterprise registration certificates quickly at provincial ‘Departments of Planning and Investment’ without obtaining the opinions of relevant Ministries or meeting other relevant conditions as for conditional business sectors.
Therefore, it can be seen that this business sector attracts a lot of foreign investors to invest in establishing new projects in Vietnam. Besides, the advantages in business investment sectors and in administrative procedures are also important factors contributing to speeding up the establishment of such projects and subsidiaries. These factors also help investors’ business activities quickly stabilize as well as develop in the Vietnamese market.
2. Tax incentives for software manufacturing enterprises
Enterprises operating in the field of software production enjoy a lot of tax incentives, namely:
Corporate income tax
Enterprises implementing new investment projects in the field of software production are entitled to a preferential tax rate of 10% for a period of fifteen years (15 years).
- Time of tax exemption and reduction
Tax exemption is applied for four (04) years, and a 50% reduction of payable tax amount is applied for the next nine (09) years for incomes of enterprises from the implementation of investment projects.
The period of tax exemption and reduction shall be calculated continuously from the first year when enterprises with taxable income from new investment projects are entitled to tax incentives.
In case the enterprise does not have taxable income for the first three (03) years from the first year of revenue of the new investment project, the tax exemption or reduction period shall be calculated from the fourth year of such investment projects in which revenue is in development.
- Conditions for enjoying incentives: In addition to the tax and accounting conditions, enterprises must:
- implement accounting, invoicing, documentation and payment of corporate income tax according to declaration, and
- Enterprises must separate income from
(a) Production and business activities entitled to corporate income tax incentives (including preferential tax rates, tax exemption and reduction rates)
(b) Income from business activities not entitled to tax incentives for separate tax declaration and payment.
- Enterprises must prove that they run software product production activities. According to Article 4, Circular 13/2020 / TT-BTTTT, it is stipulated that enterprises must have one of two stages:
- Determination of the requirements
- Analysis and design listed in 07 stages of the software production process including:
(a) Defining a request;
(b) Analysis and design;
(c) Programming, coding;
(d) Testing and testing software;
(e) Finishing and packaging software products;
(f) Installation, transfer, manual, maintenance and warranty of software products;
(g) Release and distribution of software products.
At the same time, enterprises should also note that software products they are manufacturing must be in the ‘List of software products’ issued under ‘Circular 09/2013 / TT-BTTTT’ to be considered software entitled to tax incentives.
Value Added Tax (VAT)
Production of software products and software services is not subject to VAT as prescribed in Clause 21, Article 4, Circular 219/2013 / TT-BTC.
However, please also note that if the enterprises manufacture software products for foreign organizations and individuals and consume them outside of Vietnam; supplies to organizations and individuals in non-tariff zones and for consumption in non-tariff zones as prescribed by law, shall be subject to the VAT rate of 0% if they satisfy the conditions specified in Clause 1 of this Article. Article 9, Circular 219/2013/TT-BTC
Therefore, enterprises should also pay attention to service providers and the location of service provisions like in foreign countries and non-tariff zones to be able to apply tax rates and declare accurately in accordance with laws.
Software manufacturing is an investment field with a lot of advantages among various business sectors. It also has many advantages in administrative procedures and has many tax incentives in accordance with Vietnamese laws. However, the level of preferential treatment for different enterprises will be different. Moreover, the law stipulates that enterprises are responsible for determining the preferential level they are entitled to and the tax authorities will re-examine the enjoyment of this incentive. In case the enjoyment of enterprise incentives is not correct, tax agencies may collect taxes and other handling measures.
The article is based on laws applicable at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable laws and the specific cases that the reader may wish to apply may have changed. Therefore, the article is for referencing only.