Digital technology transformation is being a goal at which enterprises are aiming. If this transformation previously only gathered in enterprises operating in the field of manufacturing and e-commerce, then now enterprises operating in that of consulting and service are applying digital technology thoroughly into the enterprises’ activities. This trend along with other preferential policies of the Vietnamese Government as for the software field has been attracting many investors choosing Vietnam as a destination.

The following article will help Foreign investor determine the tax advantages that Investor can receive when operating in the software field in Vietnam

1. Corporate Income Tax Preference (CIT Preference)

A foreign investor having an investment project in Vietnam (new investment project) operating in the field of software manufacturing will enjoy a preferential CIT rate of 10% for a period of 15 years from the date that project has revenue.

In addition, the enterprise is exempted from tax for 04 years from the first year in which the enterprise has the taxable income from the investment project and reduces 50% of payable tax amounts (applying a tax rate of 10%) maximum of no more than the next 9 years. The period of tax exemption and tax reduction shall be calculated continuously from the first year the enterprise has taxable income from the new investment project enjoyed tax preference. In case the enterprise has no taxable income in the first three years since the first year having income from the new investment project, the period of tax exemption, tax reduction shall be calculated from the fourth year the new investment project generates revenue.

For instance: In 2014, enterprise A has a new investment project of software product manufacturing. If in 2014 enterprise A already had taxable income from the project of software product manufacturing, the period of tax exemption and reduction shall be calculated continuously from 2014. In case the new investment project manufacturing software product of the enterprise A generates revenue from 2014, to 2016 the new investment project of enterprise A still had no taxable income, the tax exemption and reduction period shall be calculated continuously from 2017.

The period of tax exemption and tax reduction for an advanced technology enterprise, or agricultural enterprise according to the above regulation shall be calculated from the year of being granted Certificate of recognition as an advanced technology enterprise, or agricultural enterprise applying advanced technology.

CIT preference is only applied with the enterprise performing the accounting regime, bill, invoice and pay CIT as declared.

2.Value-added Tax (VAT) on service and software product

Currently, the VAT rate is applying 10%, 5% depending on each product and service. However, software product and software service are subjects not to be chargeable of VAT, then in VAT invoices, tax information is not shown.

In fact, tax obligation, specifically the amounts of tax payable of the enterprise, is always something that the enterprise cares about. However, as for the enterprise operating in the field of software product manufacturing, tax obligation enjoys many preferences. This way helps the enterprise reduce burdens of cost.

3. What does an investor need to notice?

During the time of enjoyment of tax CIT preference, if the  enterprise performs many production and business activities, the enterprise shall separately calculate income from production and business activities enjoyed CIT preference (including tax preference rate, the rate of tax exemption, and tax reduction) and income from business activities (including preferential tax rate, the rate of tax exemption, tax reduction) and income from business activities not enjoyed tax preference to declare, pay tax separately.

In case in a tax period, the enterprise does not calculate separately income from production and business activities enjoyed tax reference and income from that not enjoyed tax reference, then the income of production and business activities is determined by (=) total taxable income multiplied (x) by a percentage (%) of deductible revenue or expenses of production and business activities enjoyed tax preference compared to total revenue or total deductible expenses of enterprise in tax period.

In case there is a deductible revenue or expense that cannot be separately accounted for, that deductible revenue or expense shall be determined in proportion between the deductible revenue or expense of the production and business activities enjoyed tax preference on the total deductible revenue or expense of the enterprise.

Time of writing: 14/03/2023

The article contains general information which is of reference value, in case you want to receive legal opinions on issues you need clarification on, please get in touch with our Lawyer at info@cdlaf.vn