Responses to VAT problems regarding software manufacturing contracts in Vietnam

Responses to VAT problems regarding software manufacturing contracts in Vietnam (Internet image)

1. Regulations on VAT rates for software manufacturing contracts in Vietnam

According to Official Dispatch 50816/CTHN-TTHT dated October 20, 2022 of the Tax Department of Ho Chi Minh City. In Hanoi, regulations on VAT (value added tax) for software production contracts are as follows:

1.1 Regulations on software industry activities in Vietnam

Pursuant to Clauses 1 and 10, Article 3 of Decree 71/2007/ND-CP:

- Software product means software, and accompanying documents which are produced and displayed or stored in objects ofany formand can be purchased, sold or transferred to other subjects for exploitatioiior use.

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.

In addition, Article 9 of Decree 71/2007/ND-CP stipulates software industry activities as follows:

- Software industry activities 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.

- Software products include:

+ System softwares;

+ Application softwares;

+ Utility softwares;

+ Tool softwares;

+ Other softwares.

- Software-services include:

+ Administration, warranty and maintenance of operations ofsoftwares and information systems;

+ Software quality counseling, assessment and evaluation;

+ Software project counseling and formulation;

+ Softwarevaluation counseling;

+ Software technology transfer;

+ System integration;

+ Assurance of safety and security for software products and information systems;

+ Distribution and supply ofsoftware products;

+ Other software services.

1.2 Regulations on VAT for software manufacturing contracts 

Pursuant to Clause 21, Article 4 of Circular 219/2013/TT-BTC, computer software including software products and software services as prescribed by law.

Clause 1, Article 9 of Circular 219/2013/TT-BTC stipulates the tax rate of 0% as follows:

 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.

In there:

- 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.

- 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.

According to point b, clause 2, Article 9 of Circular 219/2013/TT-BTC, 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;

In addition, Article 11 of Circular 219/2013/TT-BTC stipulates that 10% tax shall be levied on the goods and services that are not mentioned in Article 4, Article 9 and Article 10 of Circular 219/2013/TT-BTC.

2. Responses to VAT problems regarding software manufacturing contracts in Vietnam

Based on the above provisions, the Hanoi Tax Department has the following responses:

In case a taxpayer (declares and pays value-added tax by method, withholding) provides services directly to organizations and individuals abroad and consumes them outside Vietnam, if the following conditions are met: the conditions specified at Point b, Clause 2, Article 9 of Circular 219/2013/TT-BTC, and not in the cases specified in Clause 3, Article 9 oCircular 219/2013/TT-BTC (amended by Circular 130/2016/TT-BTC), the taxpayer is subject to the VAT rate of 0%.

Van Trong

>> CLICK HERE TO READ THIS ARTICLE IN VIETNAMESE