Are software production contracts subject to value added tax in Vietnam? What are software industry activities in Vietnam?
What are software industry activities in Vietnam?
Pursuant to the provisions of Clause 1, Article 9 of Decree No. 71/2007/ND-CP, software industry activities in Vietnam are activities of designing, manufacturing and supplying software products and services, including manufacturing packaged softwares, manufacturing softwares under orders or embedded softwares; processing softwares and providing software services.
According to the provisions of Clause 10, Article 3 of Decree No. 71/2007/ND-CP, software service means activities in direct support or service of the manufacture, installation, exploitation, use, upgrading, warranty and maintenance of software and other similar activities related to software.
Types of software services include:
+ Administration, warranty and maintenance of operations of softwares and information systems;
+ Software quality counseling, assessment and evaluation;
+ Software project counseling and formulation;
+ Software Evaluation counseling;
+ Software technology transfer;
+ System integration;
+ Assurance of safety and security for software products and information systems;
+ Distribution and supply of software products;
+ Other software services.
In addition, Clause 1, Article 3 of Decree No. 71/2007/ND-CP explains that software product means software, and accompanying documents which are produced and displayed or stored in objects of any form and can be purchased, sold or transferred to other subjects for exploitation for use.
Types of software products include:
+ System softwares;
+ Application softwares;
+ Utility softwares;
+ Tool softwares;
+ Other softwares.
Are software production contracts subject to value added tax in Vietnam? What are software industry activities in Vietnam?
Are trading in software services and software products subject to value added tax?
Pursuant to the provisions of Clause 21, Article 4 of Circular No. 219/2013/TT-BTC, the following entities are not subject to value-added tax:
Goods and services that are not subject to VAT
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21. Technology transfers according to the Law on Technology transfers; intellectual property right transfers according to the Law on Intellectual property. If a contract of technology transfer or intellectual property right transfer is associated with a transfer of machinery/equipment, only the value of transferred technology or intellectual property right is not subject to VAT. If such value cannot be separated, VAT shall be imposed on the total value of the transferred technology or intellectual property right and machinery/equipment.
Computer software including software products and software services as prescribed by law.
Thus, according to the above provisions, providers of software services and software products are not subject to value added tax.
Are software production contracts subject to value added tax in Vietnam?
Recently, Hanoi Tax Department issued Official Dispatch No. 50816/CTHN-TTHT in 2022 guiding Ohmidas Vietnam Co., Ltd on the application of tax rates to software production contracts.
According to that, based on the provisions in Article 9 of Circular No. 219/2013/TT-BTC on the tax rate of 0% as follows:
Tax rate of 0%
1. 0% VAT is applied to exported goods and services; construction and installation overseas and in free trade zones; international transport; exported goods and services that are not subject to VAT, except for the cases in Clause 3 of this Article, in which 0% VAT is not applied.
Exported goods and services are those that are sold to overseas organizations and individuals and are consumed outside Vietnam, sold to the entities in free trade zones, or sold to foreign customers as prescribed by law.
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b) Exported services include the services directly provided for overseas organizations and individuals and are consumed overseas; the services provided for the entities in free trade zones and consumed within the free trade zones.
Overseas individuals are the foreigners that do not reside in Vietnam, the Vietnamese people that reside overseas and are not present in Vietnam when the services are provided. The entities in free trade zones are the entities that have registered their business and other cases prescribed by the Prime Minister.
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dd) Other goods and services:
- Construction or installation overseas or in free trade zones;
- The goods and services that are not subject to VAT when being exported, except for the cases in Clause 3 of this Article, in which 0% tax is not applied;
- Repairs to foreign aircraft and ship vessels.
Thus, the conditions for application of 0% tax are specified in Clause 2, Article 9 of Circular No. 219/2013/TT-BTC as follows:
Tax rate of 0%
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2. Condition for application of 0% tax:
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b) The documents below are compulsory for exported services:
- A contract to provide services for an organization or individual in another country or in a free trade zone;
- Bank receipts for payment for exported services and other documents prescribed by law;
Apart from presenting the aforesaid documents, providers of repair services for foreign aircraft and sea vessels must follow the procedure for importing the aircraft or vessel to Vietnam, and follow the procedure for exporting them after they are repaired in order to be eligible for 0% tax.
Through Official Dispatch No. 50816/CTHN-TTHT in 2022 guiding the case Ohmidas Vietnam Co., Ltd (declaring and paying value added tax by deduction method) providing services, directly to organizations and individuals overseas and consumed outside Vietnam, if it meets the conditions specified at point b, clause 2, Article 9 of Circular No. 219/2013/TT-BTC and does not fall into the cases where the tax rate of 0% is not applied according to the provisions of the Circular No. specified in Clause 2, Article 1 of Circular No. 130/2016/TT-BTC, the software production contract of the Company is subject to the VAT rate of 0%.
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