Vietnam’s tech industry is booming, attracting investments and fostering innovation at an outstanding rate. However, navigating tax incentives for IT businesses in Vietnam can be complex. If your IT venture is ready for success and seeks tax benefits, you’re in the right place. This guide offers a tax incentives roadmap and strategies from VNBG tax advisory experts.
What is the IT Business in Vietnam?
Before we dive into the intricacies of IT tax incentives, it’s crucial to define what constitutes an IT business in the Vietnamese context. The IT industry in Vietnam is diverse, encompassing a wide range of activities, from software development to IT services. Specific business codes identify IT companies, usually falling under VSIC codes 6201, 6202, 6209, and 6311, all of which correspond to CPC codes 842, 849, and 843.
Deciphering Vietnam’s Tax Landscape
What is the Value Added Tax (VAT) in Vietnam?
Value Added Tax (VAT) in Vietnam stands as a comprehensive consumption tax charged on the value of goods and services generated through all stages of production, distribution, and utilization. Applicable on most goods and services traded in Vietnam, it is an indirect tax applied across the country rather than at various levels like state, provincial, or local taxes.
Notably, the standard VAT rate, typically set at 10%, saw a provisional reduction to 8% starting from July 1, 2023. The government’s economic stimulus efforts include this measure, aiming to extend until June 2024. The government will have a new update before the end of June on whether to change the VAT rate to 10% or extend the reduction.
However, some exceptions exist in the IT domain, where certain software products and related services are exempt from VAT. These include software products produced and displayed or stored in any form and can be transferred or sold, and services that support the creation, installation, operation, upgrading, warranty, and maintenance of such software.
- Software Products – Operating system software, network software, application software, tool software, utility software, and more.
- Software Services – These refer to any activities that supplement or support the manufacturing, installation, exploitation, use, upgrading, warranting, and maintenance of software, and other software-related activities.
Some IT services like Website leasing, Data processing, Web portal services, and related offerings are subject to VAT and don’t qualify for VAT reduction. Thus, the standard VAT rate of 10% is applicable to these services as per the current tax laws.
For more details and to review your specific circumstances, feel free to reach out to us for expert tax consultation at no cost.
What is the Corporate Income Tax (CIT) in Vietnam?
The corporate income tax (CIT) in Vietnam, a direct tax levied on the profits of companies and organizations, is generally applicable at a standard rate of 20% on gross revenues minus expenses. For software production and services, companies can enjoy a preferential tax rate of 10%, phased over fifteen years, with dramatic reductions in the initial years.
- From years 1-4: Full exemption from CIT
- Between years 5-13: 50% reduction, resulting in a 5% CIT payment
- Years 14-15: Fixed 10% tax rate
- Year 16 onwards: A regular CIT rate of 20% applies
Additionally, this framework not only eases the tax burden during critical growth phases but also provides long-term stability in tax planning for your IT projects.
Since the publication of this article, the Government has been formulating a new Tax regulation applying the Global Minimum Tax at a flat rate of 15%. This adjustment will directly impact the CIT Incentives for IT enterprises.
The upcoming regulation targets multinational enterprises (MNEs) in the IT sector in Vietnam. Specifically, if your company achieves an annual revenue of at least EUR 750 million for two years out of four. However, this change will intersect with the existing IT Tax Incentives. As a result, the government is finalizing the guidelines and plans to release them soon.
What are the requirements to be eligible for IT Tax Incentives?
In order to be eligible for tax incentives in Vietnam, it is crucial to meet the stringent requirements stipulated by Vietnamese law. Additionally, there are three pillars to consider:
- Your company must be established through a new investment project, securing the Investment Registration Certificate (IRC) in compliance with the laws on Investment in Vietnam. This aspect is particularly significant for FDI companies, which are favored under the tax incentive regime.
- Your IT firm must have products listed under incentivized software categories as specified in the legislation.
- Following the seven stages in the software development process is crucial. These stages typically include:
1. Conceptualization
2. Design
3. Development
4. Testing
5. Deployment
6. Maintenance
7. Operation
Although the law states that completing stages 1 or 2 is enough for qualification, our experience indicates that authorities look for completion of stages 1, 2, 3, and 5. Specific documents will be required depending on the tax department’s audit scenario.
How to claim the IT Tax Incentives?
If you meet the criteria, your business operations will automatically apply these incentives. However, be mindful that tax authorities may conduct audits, and for these inspections, you’ll need to provide relevant documents depending on the specific circumstances:
Scenario 1: B2B Software Development
For businesses offering customized software solutions or IT services to clients,
- Business contracts displaying your role in software production for clients
- Meeting minutes outlining the software development process with your clients
- Acceptance Minutes from each team, providing intricate details of the products’ production process
- The hand-over certificate/report once you deliver your final products to clients
- Service invoices
Scenario 2: Digital Distribution
If you’re publishing software or mobile apps on platforms like Steam or Google Play
- Screenshots showing your products on the app platform
- A Distribution Agreement, establishing your business dealings with the platform for publishing your products
- Acceptance Minutes from each team, detailing each stage of the product’s production
- Acceptance Minutes/Invoices showing how you receive payments from the platform
Keep these documents safe for review by the Tax department during their audits. Additionally, while not all documents may need to be submitted, it is essential to keep them readily available. Inspections may occur anytime within a 3, 5, or even 10-year span, and there is no fixed schedule.
VNBG’s Tax Advisory service assists in navigating the intricate tax environment in Vietnam
At VNBG, we’re your trusted tax advisor for preparing your business in Vietnam and ensuring compliance. Operating in a complex tax environment can be overwhelming, but with our guidance, meet requirements confidently and enjoy incentives.
We prioritize an optimized internal workflow as well as a document/reporting chain. Additionally, our skilled professionals help design an efficient structure for coordination and transparency.
VNBG offers free consultations on tax regulations, aiming to simplify complexities, clarify eligibility for incentives, and support storage procedures and document drafts. Furthermore, we take a hands-on approach, joining you in meetings with tax authorities when needed for proactive issue resolution.
Beyond offering tax services, VNBG is a leading one-stop service solution in Vietnam. Additionally, our range of services includes company incorporation, recruitment, payroll, EOR, license applications, disclosure, and more.
Furthermore, we are committed to providing robust solutions that streamline your internal workflow, foster interdepartmental coordination, and ensure transparency. With VNBG, you can navigate the business terrain in Vietnam with confidence, knowing that we have your back. Contact us today for your free consultation.
