– Pursuant to Decree No. 71/2007/ND-CP dated May 3, 2007 of the Government detailing and guiding the implementation of a number of articles of the Law on Information Technology regarding information technology industry:
+ Clause 10, Article 3 provides for the interpretation terms:
“10. 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…”
+ Clause 3, Article 9 provides for software industry activities:
“3. Software services include:
a) Administration, warranty and maintenance of operations of softwares and information systems;
b) Software quality consulting, assessment and evaluation;
e) Software project consulting and formulation;
d) Software evaluation consulting;
dd) Software technology transfer;
e) System integration;
g) Assurance of safety and security for software products and information systems;
h) Distribution and supply of software products;
i) Other software services…”
– Pursuant to Circular No. 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance providing guidance on implementation of the law on value-added tax and Decree No. 209/2013/ND-CP dated December 18, 2013 of the Government providing guidance on some articles of the law on value-added tax:
+ Article 4 provides for goods and services that are not subject to VAT:
“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 includes software products and software services as prescribed by law…”
+ Article 11 provides for the tax rate of 10%:
“10% tax shall be levied on the goods and services that are not mentioned in Article 4, Article 9 and Article 10 of this Circular.”
– Pursuant to Circular No. 103/2014/TT-BTC dated August 6, 2014 of the Ministry of Finance providi for guidelines for fulfillment of tax liability of foreign entities doing business in Vietnam or earning income in Viet Nam:
+ Article 1 provides for regulated entities:
“This Circular is applied to the entities below (except for the cases in Article 2 Chapter I):
Foreign business organizations having permanent establishments in Vietnam or not; foreign business individuals that are residents of Vietnam or not (hereinafter referred to as foreign contractors and foreign sub-contractors) who do business in Vietnam or earn income in Vietnam under contracts, agreements, or commitments between the foreign contractor and a Vietnamese entity or between a foreign sub-contractor and a foreign sub-contractor to perform part of the main contract…”
+ Clause 2, Article 4 provides for taxpayers:
“2. Organizations established and operated under Vietnam’s law or registers its operation under Vietnam law; business entities that purchase services, services attached to goods, or pay income in Vietnam under main contracts or subcontracts; purchase goods in the form of domestic import or under Incoterms; distribute goods or provide services on behalf of foreign entities in Vietnam (hereinafter referred to as Vietnamese entities) include:
…
– Branches of foreign companies permitted to operate in Vietnam:
…
Taxpayers defined in Clause 2 Article 4 Chapter I are obliged to withhold VAT and corporate income tax as prescribed in Section 3 Chapter II before paying foreign contractors and foreign sub-contractors… “
+ Clause 1, Article 5 provides for taxes:
“1. Taxpayers defined in Clause 2 Article 4 Chapter I are obliged to withhold VAT and corporate income tax as prescribed in Section 3 Chapter II before paying foreign contractors and foreign sub-contractors…”
+ Clause 3, Article 7 provides for income subject to corporate income tax:
“3. Incomes earned in Vietnam by foreign contractors and foreign sub-contractors are any incomes they receive under main contracts or subcontracts (except for the case described in Article 2 Chapter I), regardless of their business locations. Taxable incomes of foreign contractors and foreign sub-contractors in some cases:
…
– Income from copyright means any income paid for the right to use, transfer of intellectual property rights and technology transfer, software copyright (including payments for the right to use, transfer of copyright, transfer of industrial property rights, transfer of technologies and software copyright).
“Copyright”, “industrial property rights”, “technology transfer” are defined in the Civil Code, the Law on Intellectual property, the Law on Technology transfers, and their guiding documents… “
+ Article 8 provides for requirements and regulated entities paying VAT using credit-invoice method, paying corporate income tax according to declared revenue and expense:
“A foreign contractor or foreign sub-contractor shall pay tax in accordance with instructions in section 2 Chapter II if the requirements below are satisfied:
- The contractor/subcontractor has a permanent establishment in Vietnam or the contractor/subcontractor is a resident of Vietnam;
- The period of business operation on Vietnam under the main contract or subcontract is 183 days or longer from the effective date of the contract;
- The contractor/subcontractor applies Vietnam’s accounting practice, has applied for tax registration and issued with a taxpayer ID number (TIN) by a tax authority.”
+ Article 11 provides for requirements and regulated entities paying VAT and corporate income tax according to fixed rates (referred to as the direct method):
If the foreign contractor or foreign sub-contractor fails to meet any of the requirements mentioned in Article 8 Section 2 Chapter II, the Vietnamese party shall pay tax on their behalf in accordance with instructions in Article 12 and Article 13 Section 3 of Chapter II.”
+ Article 12 provides for VAT:
“…
Revenue subject to VAT
a) Revenue subject to VAT:
Revenue subject to VAT is total revenue from provision of services and services attached to goods subject to VAT received by the foreign contractor or foreign sub-contractor inclusive of subtracting taxes payable and any costs (if any) paid by the Vietnamese party instead of the foreign contractor or foreign sub-contractor.
…
Revenue VAT rates:
a) VAT rates applied to trade:
| No | Trade | VAT rate |
| 1 | Services, rental of machinery and equipment, insurance; construction, installation exclusive of raw materials, machinery and equipment | 5 |
…”
+ Article 13 provides for corporate income tax:
“…
Revenue subject to CIT
a) Revenue subject to CIT
Revenue subject to CIT is the total revenue exclusive of VAT received by the foreign contractor or foreign sub-contractor, inclusive of taxes payable. Revenue subject to CIT includes the costs paid by the Vietnamese entity on behalf of the foreign contractor or foreign sub-contractor (if any).
…
CIT rate (%)
a) CIT rates (%) applied to trading:
| No | Trade | CIT rate |
| Services, lease of machinery and equipment, insurance, lease of oilrig | 5 | |
| Private:
– Restaurant, hotel, casino management services; |
10 | |
| – Derivative financial services | 2 | |
| … | Income from copyright | 10 |
…”
Based on the above provisions, the referencing principles are as follows:
In case the company purchases software products and software services from foreign contractors and deducts tax before making payments to foreign contractors, then:
+ Regarding VAT: In case the service provided by a foreign contractor is determined to be a software service according to the provisions of law, it is not subject to VAT. In case the above services are not identified as software services according to the provisions of law, they are subject to VAT at the rate of 5%.
+ Regarding CIT: In case the income received by the foreign contractor is from software service provision, a CIT rate of 5% shall be calculated on taxable revenue. In case the foreign contractor’s income is from software copyright, the rate (%) of CIT calculated on taxable revenue is 10%.