Vietnamese Tax Incentives On Corporate Income Tax In Software Sector

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To encourage and facilitate the development of software industry, Vietnam Government has special incentives on corporate income tax (CIT) for enterprises operating in this industry such as: preferential tax rates, CIT exemption and reduction period,…

1. As prescribed by laws, enterprises implementing new investment projects in the field of software production are eligible for a preferential CIT rate of 10% during 15 years, commencing from the first year in which the new investment projects start earning revenue.

Enterprises carrying out software production investment projects are exempt from CIT for maximum 4 years since the first year in which taxable income is generated from investment projects; in case there is no taxable income earned within 3 years from the first revenue-generating year, tax exemption period shall be counted from the beginning date of the fourth year of revenue generation of such investment projects.

Enterprises undertaking software production investment projects are eligible to enjoy a 50% reduction on the 10% CIT rate they are entitled to for a maximum of 9 subsequent years. For instance: In 2014, enterprise A has a software production investment project. If enterprise A earns taxable income from such investment project in 2014, the period of tax exemption and reduction shall be calculated continuously since then. In contrast, if the new software production investment project starts generating revenue in 2014 but has yet any taxable income until 2016, the tax exemption and reduction period shall be calculated continuously from 2017.

Note: CIT incentives are only applied to enterprises implementing the regime of accounting, invoices, vouchers and submitting CIT as declared.

While enjoying CIT incentives, enterprises carrying out plenty of production and business activities must separately calculate income earned from software production (including preferential tax rates, tax exemption and reduction rates) and those of other production and business activities in order to declare separate tax payments.

In case where enterprises, during taxable period, fail to separately calculate income earned from software production and other business and production activities, the income gained from software production will equal: total taxable income times (x) the percentages of revenue or deductible expenses of software production in comparison with the enterprise’s total revenue or total deductible expenses during taxable period. 

In case where an amount of revenue or deductible expense cannot be separately accounted, such revenue and expense will be determined according to the ratio between the revenue or deductible expenses of software production and the enterprise’s total revenue or deductible expenses.

2/ After the taxable period of 2013, enterprises with investment projects enjoying CIT incentives (e.g. preferential tax rate, tax exemption and reduction) according to the regulations on CIT issued before the effective date (January 01st, 2014) of the amended and supplemented Law on CIT – shall be allowed to continue enjoying such incentives for the remaining time as provided for by such regulations.

PLF Law Firm 

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