Circular No. 123/2004/TT-BTC dated December 22, 2004 of the Ministry of Finance guiding the implementation of tax preferences for software enterprises

CIRCULAR

GUIDING THE IMPLEMENTATION OF TAX PREFERENCES FOR SOFTWARE ENTERPRISES

Pursuant to Business Income Tax Law No. 09/2003/QH11 of June 17, 2003;

Pursuant to the Government’s Decree No. 152/2004/ND-CP of August 6, 2004 amending and supplementing a number of articles of the Government’s Decree No. 164/2003/ND-CP of December 22, 2003 which details the implementation of the Business Income Tax Law;

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

Pursuant to the Prime Minister’s Decision No. 128/2000/ND-CP of November 20, 2000 on a number of policies and measures to encourage investment in, and development of, software industry;

Pursuant to the Government’s Decree No. 77/2003/ND-CP of July 1, 2003 defining the functions, tasks, powers and organizational structure of the Ministry of Finance,

The Ministry of Finance hereby guides the implementation of tax preferences for software enterprises as follows:

A. SUBJECTS AND SCOPE OF APPLICATION

1. Business establishments set up under investment projects on manufacture of software products and provisions of software services (hereinafter referred collectively to as software enterprises), as prescribed in the Prime Minister’s Decision No. 128/2000/ND-CP of November 20, 2000, on a number of policies and measures to encourage investment in and development of software industry, shall be entitled to tax preferences guided in this Circular.

2. Tax preferences guided in this Circular shall apply only to the manufacture of software products and provision of software services.

B. TAX PREFERENCES FOR SOFTWARE ENTERPRISES

I. BUSINESS INCOME TAX (BIT) PREFERENCES

1. Newly-set up software enterprises shall enjoy the BIT rate of 10% for 15 years as from the date they commence their business activities.

2. Newly-set up software enterprises shall be exempt from BIT for 04 years after taxable incomes are generated, and enjoy a 50% reduction of the payable tax amounts for 09 subsequent years.

3. Software enterprises which have been granted investment licenses or investment preference certificates shall continue to enjoy BIT preferences inscribed in their investment licenses or investment preference certificates. In cases where the BIT preferences (including preferential tax rates and tax exemption/reduction duration) inscribed in investment licenses or investment preference certificates are lower than those guided at Points 1 and 2, Section I, Part B of this Circular, software enterprises may opt to enjoy the BIT preferences guided at Points 1 and 2, Section I, Part B of this Circular for the remaining preference duration.

4. Software enterprises which produce and/or trade in other goods or services such as manufacture and assembly of computers and electronic equipment, trading in machinery and equipment, etc. must separately account turnovers, expenditures and incomes of software-product manufacture and software-service provision activities for determination of the preferential BIT amounts which they are entitled to. In cases where enterprises cannot make separate accounting, incomes from software-product manufacture and software-service provision activities shall be determined according to the ratios between the turnover of software-product manufacture and software-service provision activities and the total turnover of the enterprises.

II. VALUE ADDED TAX (VAT) PREFERENCES

1. Software products and services consumed in Vietnam shall not be subject to VAT; software enterprises, when providing the above-said products and services to different subjects for consumption in Vietnam, shall not have to calculate and pay VAT, and shall not be entitled to credit or refund of the paid amounts of input VAT on goods and services used for manufacture of software products and/or provision of software services consumed in Vietnam. The non-creditable input VAT amounts shall be accounted as reasonable expenditures for BIT purpose.

2. For exported software products and services, the VAT rate of 0% shall apply. The paid amounts of input VAT on goods and services used for manufacture of software products and provision of software services for export shall be credited and refunded according to regulations.

Software enterprises must separately account the input VAT on goods and services used for manufacture of software products and provision of software services for export and the input VAT on goods and services used for manufacture of software products and provision of software services for consumption in Vietnam. In cases where software enterprises cannot separately account the paid amounts of input VAT on goods and services used for manufacture of software products and provision of software services for export, the input VAT shall be credited according to the ratio between the turnover of exported software products and services and the total turnover of software products and services of enterprises.

III. PREFERENCES OF INCOME TAX ON HIGH-INCOME EARNERS

Article 5 of the Prime Minister’s Decision No. 128/2000/QD-TTg of November 20, 2000 on a number of policies and measures to encourage investment in and development of software industry stipulates “For Vietnamese professional laborers personally engaged in software-product manufacture and/or software-service provision activities, the initial taxable incomes and progressive tax rates shall be the same as those prescribed for foreigners”.

Basing themselves on the above-said stipulation, enterprises shall make by themselves lists of Vietnamese professional laborers personally engaged in software-product manufacture and/or software-service provision activities, who pay income tax on high-income earners according to the Table of Partially Progressive Tax Rates applying, applicable to foreigners residing in Vietnam and Vietnamese citizens laboring and working overseas as prescribed in Clause 1.b, Article 7 of the Government’s Decree No. 147/2004/ND-CP of July 23, 2004 detailing the implementation of the Ordinance on Income Tax on High-Income Earners, and register for implementation of such lists with the tax offices directly managing the enterprises. Beside professional software laborers being Vietnamese, other laborers in the enterprises, if earning high incomes, shall declare and pay income tax according to the provisions of the Ordinance on Income Tax on High-Income Earners.

Directors of software enterprises shall take self-responsibility before law for the accuracy and truthfulness of the lists of Vietnamese professional software laborers who pay income tax on high-income earners according to the Table of tax rates applicable to foreigners.

IV. EXPORT DUTY AND IMPORT DUTY PREFERENCES

1. Import duty shall be exempted for raw materials and materials imported in direct service of manufacture of software products, which cannot be manufactured at home.

To be exempted from import duty on raw materials and materials in service of manufacture of software products, which cannot be manufactured at home, software enterprises must submit to the customs offices dossiers of import goods declaration according to regulations and lists of raw materials and materials imported for manufacture of software products. The lists of raw materials and materials imported for manufacture of software products must clearly specify the volumes and categories of raw materials and materials, which cannot be manufactured at home and need to be imported for manufacture of software products. The enterprise directors shall sign in, and take self-responsibility before law for such lists of import raw materials and materials.

On the basis of the lists of raw materials and materials in service of manufacture of software products, which can be manufactured at home, promulgated by the Ministry of Science and Technology, the customs offices shall determine which raw materials and materials which cannot be manufactured at home are exempt from import duty. In cases where the Ministry of Science and Technology has not promulgated the general lists but has made specific certifications on the enterprises’ declarations of import raw materials and materials which cannot be produced at home, the customs offices shall base themselves on these certified declarations to apply import duty exemption.

For import-duty exempt raw materials and materials which cannot be produced at home and imported for the manufacture of software products, the VAT at the importation stage shall also be exempted.

2. Export software products shall be exempted from export duty.

V. PREFERENCES ON OTHER TAXES AND STATE BUDGET COLLECTIONS

The preferences on other taxes and State budget collections shall comply with current legal documents.

C. ORGANIZATION OF IMPLEMENTATION

1. The principles and procedures for enjoyment of BIT preferences prescribed in Section I, Part B of this Circular shall comply with the guidance in Section IV, Part E of the Finance Ministry’s Circular No. 128/2003/TT-BTC of December 22, 2003 guiding the implementation of the Government’s Decree No. 164/2003/ND-CP of December 22, 2003 which details the implementation of the BIT Law, and the guidance in the Finance Ministry’s Circular No. 88/2004/TT-BTC of September 1, 2004 amending and supplementing Circular No. 128/2003/TT-BTC.

2. This Circular takes effect 15 days after its publication in the CONG BAO. The settlement of VAT, BIT and income tax on high-income earners shall comply with current legal documents.

The BIT preferences guided at Points 1, 2 and 3, Section I, Part B of this Circular shall cease to be effective upon the cessation of effect of the Government’s Resolution No. 07/2000/NQ-CP of June 5, 2000, on building and developing software industry in the 2000-2005 period.

To annul the Finance Ministry’s Circular No. 31/2001/TT-BTC of May 21, 2001, guiding the implementation of tax preferences prescribed in the Prime Minister’s Decision No. 128/2000/ND-CP of November 20, 2000, on a number of policies and measures to encourage investment in and development of software industry.

In the course of implementation, if problems arise, units should report them to the Ministry of Finance for study and settlement.