In today's interconnected world, businesses are constantly seeking new avenues for growth and expansion. The IT industry’s a key player in this global trend, and Vietnam has emerged as a destination for foreign investors. With its thriving economy and legal support policies, Vietnam offers potential for companies looking to venture into the IT sector.
One crucial factor that instills confidence in investors is the presence of robust legal support policies specifically designed to benefit software product companies operating in Vietnam. These policies provide a framework for business operations, ensuring a favorable and secure environment for both domestic and international players. From tax incentives to property protection, Vietnam implemented a range of measures to support the growth of the software industry.
In this article, we will delve deeper into the legal support policies that make Vietnam an attractive choice for foreign investors in the software sector. We will explore the various incentives offered, examine the landscape, and shed light on the broader market conditions in Vietnam. Join us on this journey as we uncover the opportunities and advantages that await investors in Vietnam's thriving IT market.
1. Corporate Tax incentives for software product companies in Vietnam
According to current tax legislation, the tax incentives level of software production projects is most beneficial with the following scheme:
- Preferential rate 10% for 15 years(*)
- 04 years of tax exemption (**) and 50% of tax rate deduction for the next 09 years.
(*) the first year of 15 years beginning with the first year of revenue generation from a new investment project; (**) beginning with the first year the firm has taxable income from a new investment project to qualify for tax benefits. If no taxable income for the first three years of a new investment project, the tax exemption/reduction period commences from the fourth year. This period starts with the first year of revenue generation.
Software product manufacturing enterprises in Vietnam benefit from appealing tax incentives and priorities and must adhere to specific regulations. These requirements encompass both tax authority guidelines and regulations set forth by the Ministry of Information and Communications. It is imperative for these enterprises to ensure compliance with these legal frameworks while conducting business operations in Vietnam.
2. Software products are eligible for CIT incentives
Under the current IT legislation, a software product is defined as software accompanied by associated documents or manuals. These products can be created, presented, or stored in any form and are intended for sale or transmission to other entities for use. This broad definition encompasses the diverse range of software products in the market today. This differentiation allows for targeted benefits and incentives to be provided to software products meeting the criteria outlined in Circular 09/2013. The classification in "Appendix 1- SOFTWARE PRODUCTS LIST" provides clear guidelines for determining eligibility for CIT incentives.
The differentiation established in Circular 09/2013 facilitates targeted benefits and incentives for software products meeting specific criteria. This aspect plays a vital role in the legal support framework governing Vietnam's software industry. The legislation's clear definition of eligible software products ensures transparency and consistency when implementing CIT incentives, creating an environment that nurtures the growth and development of the software sector. The cohesive application of these measures contributes to the overall advancement and prosperity of Vietnam's software industry. In the subsequent sections, we will delve deeper into the specific requirements and implications of this classification system, shedding light on the implications for businesses operating in the software domain in Vietnam.
3. VAT on software product companies
The General Department of Customs published Official Letter No. 3530/TCHQ-TXNK on VAT and taxable value for software on July 13, 2021, with the following contents:
If the imported commodities are machines/equipment and an operating system, the customs value is the transaction value of the machines/equipment and the operating system.
An operating system serves as an intermediary between a user and a machine/equipment, facilitating communication through many forms. It encompasses data, programs, and guidelines that enable users to operate and control machine/equipment functions within its integrated environment. This crucial software component provides users with a platform to interact with and manage the operations of a machine or equipment.
When importing an operating system, it is intended for the purpose of upgrading or replacing an existing operating system. The value of the imported operating system is not combined with the customs value of the machines/equipment initially imported. Instead, the operating system is treated separately in terms of customs valuation.
If the company imports advanced software that is installed on the computer to further upgrade the system management and control features at the request of the user, the value of the imported operating and control software shall not be aggregated with the customs value of machinery and equipment.
Computer software, including software items and software services, is exempt from VAT.
4. Foreigners register the business in Vietnam and related procedures with legal support policies
Under Article 7 of Decree 108/2006/ND-CP, foreign individuals are permitted to register their business in Vietnam and hold the position of a legal representative. This provision outlines the rights granted to foreigners and provides guidance on the implementation of certain articles of the Investment Law. Such regulations aim to facilitate foreign investment and create a favorable environment for foreigners to actively participate in the business landscape of Vietnam. By allowing foreigners to act as legal representatives, the country encourages international collaboration and contributes to the growth and diversification of its economy.
General conditions and documents to be prepared for foreigners to establish companies in Vietnam are as follows:
Notarized Passport of Foreigner
Make sure there is a project site
In case that person hires another person to manage the business, there are 2 options:
Option 1: be both the owner of the company and the legal representative of the company. In this case, that person can authorize the tenant to manage to act on behalf of and on behalf of the company to manage and run the company.
Option 2: hire a legal representative. In this way, the manager has the right to manage the business.
5. Enterprise establishment expenses
In order to establish a business in Vietnam while minimizing costs, it is essential to familiarize yourself with the pricing structure of the business registration process. Having a clear understanding of where and how expenses are incurred will enable you to make informed decisions, avoid unnecessary expenditures and seek more cost-effective alternatives. By gaining this knowledge, you can optimize your budget and allocate resources efficiently, ultimately saving money and maximizing the value of your business setup in Vietnam.
Capital investment is the most expensive component of starting a business in Vietnam. The initial investment in your firm is what you must do before being self-employed.
A business address is one of the most fundamental prerequisites for establishing a company in Vietnam. A home address is not the same as a business address. This is accomplished by showing a leasing agreement that explains why the firm was registered.
Hire a permanent director: A permanent director must be appointed throughout the registration procedure. You will need to authorize or engage someone if the investor is not in the nation at the time of registration.
Document preparation (document certification, legalization), state fees, and service costs paid to facilitators or agents to assist with the application procedure are all included in the application administration price.
The costs of establishing a business in Vietnam are determined by your knowledge of the market and your social networks in Vietnam.
6. Set up a company in Vietnam with the lowest cost
Keep these guidelines in mind if you have a business concept but are unsure how to implement it on a limited budget.
In contrast to other nations, there are no minimum capital requirements for international corporations to register in Vietnam. Before extending their operations in Vietnam, foreign enterprises must acquire authorization from the Ministry of Planning and Investment. The program's minimal contribution must equal the company's actual program expenditures to be authorized.
You may start a business in Vietnam for as little as USD 3,000. Manufacturing makes far more money than the cost of the machine.
In Vietnam, the average beginning capital on hand is $10,000. This is significantly less than the minimum wage in other nations, such as Indonesia. In Vietnam, several particular business fields, such as language centers, real estate businesses, and vocational schools, have minimum capital requirements that necessitate meticulous compliance with government rules.
7. Common issues and embarrassments that software product manufacturing companies have with tax authorities
Although competent authorities have introduced a legal support basis for (i) identifying the software service/production, (ii) required supporting documents for each stage of software production, and (iii) tax incentives regime, IT enterprises may encounter difficulties in arranging such required supporting documents and may be challenged by the tax authority due to insufficient supporting documents/evidence for proving or explaining such its manufactured software is a software product.
On the other hand, the Ministry of Information and Communications may not have a procedure in place to assess and support businesses to issue Certificates confirming that the software products/software services/hardware/electronic products manufactured are software products and qualified as such. As a result, the burden of describing software production operations currently rests with the enterprise.
However, some problems in the legal support policy, as well as do not fully understand the working culture in Vietnam, are a hindrance for foreign enterprises to enter this market. To this state recovery, many businesses choose Software Engineer Staffing Agency, typically TSC, as their partner to assist them in legal-related problems and alleviate the procedural burden.
Get top-notch Staffing and Payroll solutions from TSC in Asia. Our services, including Staffing and Payroll Outsourcing, BPO/RPO, and BOT model, enable businesses of all sizes to hire and operate cost-effectively. Since 2018, our recruitment team has provided candidates in diverse fields catering to specific client needs, from junior to management positions.