Are software services subject to VAT in Vietnam?

What are types of software products and software services in Vietnam?

Based on Article 9 of Decree 71/2007/ND-CP guiding the Law on Information Technology regarding software industry operations, the types of software products and software services are as follows:

- Types of software products include:

+ System software;

+ Application software;

+ Utility software;

+ Tool software;

+ Other software.

- Types of software services include:

+ Services for management, warranty, maintenance of software and information systems;

+ Consulting, assessment, and quality appraisal services for software;

+ Consulting services for software project development;

+ Valuation consulting services for software;

+ Software technology transfer services;

+ System integration services;

+ Security assurance services for software products and information systems;

+ Distribution and provision services for software products;

+ Other software services.

Are software services subject to VAT in Vietnam? (Image from the Internet)

Are software services subject to VAT in Vietnam?

Based on Article 5 of VAT Law 2009 (supplemented by Clause 1 Article 3 of the Law on Amendments of Tax Laws 2014; amended by Article 1 of the Law on Amendments of the VAT, Special Consumption Tax and Tax Administration Laws 2016), the non-VAT objects include:

[1] Products from cultivation, breeding, aquaculture, and fishing that have not been processed into other products or have only gone through preliminary processing, sold by the producing or catching organization/individual, and at the import stage.

Enterprises, cooperatives that purchase unprocessed or preliminarily processed agricultural and aquatic products to sell to other enterprises and cooperatives shall not file and pay VAT but are eligible for input VAT deduction.

[2] Breeding animals and plant cultivars, including breeding eggs, breeding animals, seeds, seedlings, semen, embryos, and genetic materials.

[3] Water irrigation and drainage; land plowing; desilting of in-field canals and trenches for agricultural production; harvesting services for agricultural products.

[4] Salt produced from seawater, mined salt, refined salt, iodized salt with sodium chloride (NaCl) as the main ingredient.

[5] State-owned houses sold to renters by the state.

[6] Land use rights transfer.

[7] Life insurance, health insurance, student insurance, other human-related insurance services; animal insurance, plant insurance, other agricultural insurance services; insurance for vessels, fishing vessels, and other necessary equipment for direct fishing; reinsurance.

[8] Financial services, banking, and securities trading services as follows:

- Credit granting services include: lending; discounting and rediscounting of negotiable instruments and other valuable papers; guarantees; financial leasing; credit card issuance; domestic and international factoring; other forms of credit granting according to law;

- Loan services of non-credit institutions;

- Securities trading including: brokerage; proprietary trading; underwriting; investment advisory; depository services; fund management; asset management services; market organization of stock exchanges or trading centers; other securities trading activities according to the law on securities;

- Capital transfer including: transfer of all or part of the investment capital, including cases of selling enterprises to other enterprises for production, business, or securities transfer; other forms of capital transfer according to law;

- Debt selling;

- Foreign exchange trading;

- Derivative financial services including: interest rate swaps; forwards; futures; options; other derivative financial services according to the law;

- Selling secured assets of debts by organizations wholly owned by the Government of Vietnam established to handle bad debts of Vietnamese credit institutions.

[9] Medical and veterinary services including healthcare, disease prevention, and treatment services for humans and animals; elderly care services, services for the disabled.

[10] Universal postal and telecommunications services and popular Internet services under the program of the Government of Vietnam.

[11] Services for maintaining zoos, flower gardens, parks, street greenery, public lighting; funeral services.

[12] Maintenance, repair, construction funded by people's contributions or humanitarian aid for cultural, artistic works, public service projects, infrastructure, and housing for social policy beneficiaries.

[13] Education and vocational training according to law.

[14] Radio and television broadcasting funded by the state budget.

[15] Publishing, importing, and distributing newspapers, magazines, newsletters, specialized journals, political books, textbooks, curricula, legal documents, scientific-technical books, books printed in ethnic minority languages, and propaganda pictures or posters, including those in the form of audio or video tapes, electronic data; money, banknotes.

[16] Public passenger transportation by bus, trolleybus.

[17] Machines, devices, spare parts, materials domestically unavailable and required for direct use in scientific and technological research and development; machinery, equipment, replacement parts, specialized transportation, and materials domestically unavailable and required for oil and gas exploration and development; aircraft, drilling rigs, ships domestically unavailable and required for creating fixed assets of enterprises or leased from abroad for production, business, leasing, sub-leasing.

[18] Specialized weapons and ammunition for national defense and security.

[19] Imported goods in case of humanitarian aid, non-refundable aid; gifts to state agencies, political organizations, socio-political organizations, socio-political-professional organizations, social organizations, socio-professional organizations, people's armed units; gifts to individuals in Vietnam according to the Government's regulations; personal effects of foreign organizations and individuals according to diplomatic immunity standards; goods carried by persons following tax-free luggage standards.

Goods and services sold to foreign organizations, individuals, or international organizations for humanitarian or non-refundable aid to Vietnam.

[20] Goods in transit through Vietnam; goods temporarily imported for re-export; goods temporarily exported for re-import; raw materials imported for producing, processing export goods under production contracts; processing contracts signed with foreign parties; goods, services traded between foreign countries and non-tariff zones and between non-tariff zones.

[21] Technology transfer under the Law on Technology Transfer; transfer of intellectual property rights under the Law on Intellectual Property; computer software.

[22] Imported gold in bar or nugget form that has not been crafted into jewelry, artifacts, or other products.

[23] Export products that are natural resources or minerals not processed into other products; export products processed from natural resources, minerals where the total value of natural resources and minerals plus energy costs is 51% or more of the product cost.

[24] Assistive products for substituting parts of the body of the disabled; crutches, wheelchairs, and other specialized tools for the disabled.

[25] Goods and services of business households and individuals with an annual revenue of one hundred million VND or less.

Business establishments dealing with goods or services not subject to VAT under this Article are not entitled to input VAT deduction and refund except for the application of the 0% tax rate provided for in Clause 1 Article 8 VAT Law 2009 as amended by Clause 2 Article 1 VAT Law, Special Consumption Tax Law, Tax Administration Law Amendments 2016).

In particular, regarding computer software as stipulated in Clause 21 Article 4 of Circular 219/2013/TT-BTC:

Non-VAT Objects

...

21. Technology transfer regulation by the Law on Technology Transfer; transfer of intellectual property rights by the Law on Intellectual Property. In cases where technology transfer contracts or intellectual property rights transfer contracts include machinery, equipment, the non-VAT shall be applied to the transferred technology value, transferred intellectual property rights. If it cannot be separately calculated, VAT applies to the entire transfer value along with machinery, equipment.

Computer software includes software products and software services as stipulated by law.

...

Thus, according to the above provisions, software services are not subject to VAT.

*Note: Software leasing activities shall be subject to a 10% VAT rate according to Article 11 of Circular 219/2013/TT-BTC.

Which entities are VAT payers in Vietnam?

According to Article 3 of Circular 219/2013/TT-BTC defining who are VAT payers:

VAT payers are organizations and individuals that produce and trade in goods and services subject to VAT in Vietnam, regardless of business sector, business format, business organization (hereinafter referred to as business establishments), and organizations/individuals that import goods and purchase services from abroad subject to VAT (hereinafter referred to as importers) including:

- Business organizations established and registering for business under the Enterprise Law, State-Owned Enterprise Law (now Enterprise Law), Cooperative Law, and other specialized business laws;

- Economic organizations of political organizations, socio-political organizations, social organizations, socio-professional organizations, people's armed forces units, career organizations, and other organizations;

- Enterprises with foreign invested capital and foreign partners participating in business cooperation under the Law on Foreign Investments in Vietnam (now Investment Law), foreign organizations and individuals conducting business activities in Vietnam without establishing legal entities in Vietnam;

- Individuals, households, independent business groups, and other entities conducting production, business, or import activities;

- Organizations and individuals producing and doing business in Vietnam who purchase services (including services associated with goods) from foreign organizations without a permanent establishment in Vietnam, individuals residing abroad who are non-residents in Vietnam, the organizations or individuals purchasing the services are the taxpayers, except in cases that are non-declaration, non-payment of VAT guided at Clause 2, Article 5 of Circular 219/2013/TT-BTC.

The regulations on permanent establishments and non-resident entities are as indicated in the laws on corporate income tax and personal income tax.

- Branches of export processing enterprises established to conduct trading and activities related directly to the trading of goods in Vietnam according to the regulations of industrial zones, export processing zones, and economic zones.

Example 1: Sanko Co., Ltd. is an export processing enterprise. Besides its export production activities, Sanko Co., Ltd. is also licensed to carry out import rights for sale or export. Sanko Co., Ltd. must establish a branch to conduct these activities according to the law, and the branch shall account separately and declare, pay VAT separately for these activities, without combining them with export production activities.

When importing goods for distribution (sale), the branch of Sanko Co., Ltd. shall declare and pay VAT upon import. When selling (including export), Sanko Co., Ltd. shall use invoices, declare and pay VAT as per regulations.