Circular No. 123/2004/TT-BTC guiding tax incentives for software enterprises

CIRCULAR

Guidelines for Implementing Tax Incentives for Software Enterprises

Pursuant to the Law on Corporate Income Tax No. 09/2003/QH11 dated June 17, 2003;

Pursuant to the Decree No. 152/2004/NĐ-CP dated August 6, 2004 of the Government amending and supplementing certain articles of the Decree No. 164/2003/NĐ-CP dated December 22, 2003 of the Government detailing the implementation of the Law on Corporate Income Tax;

Pursuant to the Resolution No. 07/2000/NQ-CP dated June 5, 2000 of the Government on building and developing the software industry for the period 2000-2005;

Pursuant to the Decision No. 128/2000/QĐ-TTg dated November 20, 2000 of the Prime Minister on some policies and measures to encourage investment and develop the software industry;

Pursuant to the Decree No. 77/2003/NĐ-CP dated July 1, 2003 of the Government on the functions, tasks, powers, and organizational structure of the Ministry of Finance;

The Ministry of Finance hereby issues guidelines for implementing tax incentives for software enterprises as follows:

A. OBJECTS AND SCOPE OF APPLICATION

1. Business establishments established from projects investing in the production of products and provision of software services (hereinafter referred to as software enterprises) in accordance with Decision No. 128/2000/QĐ-TTg dated November 20, 2000 of the Prime Minister on some policies and measures to encourage investment and develop the software industry shall be the objects entitled to apply tax incentives as guided herein.

2. Tax incentives as guided herein shall only apply to activities of producing software products and providing software services.

B. TAX INCENTIVES FOR SOFTWARE ENTERPRISES

I. CORPORATE INCOME TAX INCENTIVES

1. Newly-established software enterprises shall enjoy a corporate income tax rate of 10% for fifteen years, starting from the date when the newly-established software enterprise begins its business operations.

2. Newly-established software enterprises shall be exempted from corporate income tax for four years, starting from the date when they have taxable income, and shall have their corporate income tax reduced by 50% for the next nine years.

3. Software enterprises that have been granted Investment License or Investment Incentive Certificate shall continue to enjoy corporate income tax incentives as recorded in the Investment License or Investment Incentive Certificate. In cases where the level of tax incentives (including preferential tax rates and tax exemption and reduction periods) recorded in the Investment License or Investment Incentive Certificate is lower than the levels of tax incentives as guided at Points 1 and 2, Section I, Part B, of this Circular, such software enterprises shall have the right to choose to enjoy corporate income tax incentives as guided at Points 1 and 2, Section I, Part B, of this Circular for the remaining incentive period.

4. For software enterprises engaged in the production and business of other goods and services such as computer assembly, electronic equipment, machinery and equipment trading, etc., the enterprise must separately account for revenue, costs, and income from the production of software products and software services to determine the amount of corporate income tax eligible for preferential corporate income tax. In cases where the enterprise cannot separately account for these items, the income from the production of software products and software services shall be determined based on the ratio between the revenue from the production of software products and software services and the total revenue of the enterprise.

II. VALUE ADDED TAX INCENTIVES

1. Software products and software services consumed in Vietnam are exempt from value added tax; when software enterprises provide such products and services to consumers for consumption in Vietnam, they are not required to calculate and pay value added tax, nor can they deduct or refund value added tax paid at the input stage for goods and services used in the production of software products and software services consumed in Vietnam. The input value added tax not deductible shall be included in reasonable expenses.

2. Software products and software services exported shall be subject to a zero percent value added tax rate. Input value added tax paid on goods and services used to produce software products and provide software services for export shall be deductible and refunded according to regulations.

Software enterprises must separately account for input value added tax on goods and services used for the production and provision of software products and services for export and input value added tax on goods and services used for the production and provision of software products and services consumed in Vietnam. In cases where software enterprises cannot separately account for input value added tax paid on goods and services used to produce software products and services for export, the input value added tax shall be deductible based on the ratio of revenue from software products and services for export to the total revenue from software products and services of the enterprise.

III. INCOME TAX INCENTIVES FOR HIGH-INCOME INDIVIDUALS

Article 5 of Decision No. 128/2000/QĐ-TTg dated November 20, 2000 of the Prime Minister on certain policies and measures to encourage investment and develop the software industry stipulates: "Professional workers are Vietnamese individuals directly participating in software production and service activities shall be subject to tax at the progressive rate applicable to foreigners."

Based on the above provision, enterprises shall establish their own list to identify professional workers who are Vietnamese directly involved in software product manufacturing and service activities, which shall be taxed under the progressive tax rate for high-income earners as prescribed in Clause 1.b, Article 7 of Decree No. 147/2004/NĐ-CP dated July 23, 2004 of the Government detailing the implementation of the Ordinance on Income Tax for High-Income Earners, and register with the direct managing tax authority. In addition to professional software workers who are Vietnamese, other workers within the enterprise with high income shall declare and pay income tax according to the provisions of the Ordinance on Income Tax for High-Income Earners.

The General Director of a software enterprise shall bear full responsibility under the law for the accuracy and truthfulness of the list of professional software workers who are Vietnamese and are subject to income tax for high-income earners based on the tax rate applicable to foreigners.

IV. TAX INCENTIVES FOR EXPORTS AND IMPORTS

1. Exemption from import tax on raw materials imported directly for the production of software products that are not yet produced domestically.

To qualify for exemption from import tax on raw materials for producing software products that are not yet domestically produced, software enterprises must provide customs authorities with declaration forms for imported goods as prescribed and a list of raw materials imported for software production. The list of imported raw materials for software production must clearly specify the quantity and type of raw materials that are not domestically produced and required for software production. The General Director of the enterprise signs and bears full responsibility under the law for this list of imported raw materials.

Customs authorities will base their determination of exempted raw materials for software production on the list of raw materials that are domestically produced issued by the Ministry of Science and Technology. In cases where the Ministry of Science and Technology has not issued a general list but has provided specific confirmation on the declaration form of imported raw materials of the enterprise indicating those not domestically produced, customs authorities will rely on this confirmation to implement the exemption from import tax.

Raw materials imported for software production that are not domestically produced and are exempt from import tax are also exempt from value-added tax at the import stage.

2. Software products exported are exempt from export tax.

V. INCENTIVES ON OTHER TYPES OF TAXES AND STATE REVENUES

Incentives on other types of taxes and state revenues are implemented in accordance with current legal regulations.

C IMPLEMENTATION

1. The principles and procedures for enjoying corporate income tax incentives as stipulated in Section I, Part B, of this Circular are carried out in accordance with the guidance provided in Section IV, Part E, of Circular No. 128/2003/TT-BTC dated December 22, 2003 of the Ministry of Finance guiding the implementation of Decree No. 164/2003/NĐ-CP dated December 22, 2003 of the Government detailing the implementation of the Law on Corporate Income Tax, and in accordance with the guidance provided in Circular No. 88/2004/TT-BTC dated September 1, 2004 of the Ministry of Finance amending and supplementing Circular No. 128/2003/TT-BTC.

This Circular takes effect 15 days after its publication in the Official Gazette and applies to the settlement of value-added tax, corporate income tax, and income tax for high-income earners from 2004 onwards.

The corporate income tax incentives guided in Points 1, 2, and 3, Section I, Part B, of this Circular cease to be effective upon the expiration of Resolution No. 07/2000/NQ-CP dated June 5, 2000 of the Government on building and developing the software industry for the period 2000-2005.

Repeal Circular No. 31/2001/TT-BTC dated May 21, 2001 of the Ministry of Finance guiding the implementation of tax incentives as prescribed in Decision No. 128/2000/QĐ-TTg dated November 20, 2000 of the Prime Minister on certain policies and measures to encourage investment and develop the software industry.

During the implementation process, if any difficulties arise, units are requested to report to the Ministry of Finance for research and resolution.