Circular No. 31/2001/TT-BTC dated May 21, 2001 of the Ministry of Finance guiding the application of tax preferences provided for in the Prime Minister’s Decision No. 128/2000/QD-TTg dated November 20, 2000 on a number of policies and measures to promote the investment in and development of software industry

CIRCULAR

GUIDING THE APPLICATION OF TAX PREFERENCES PROVIDED FOR IN THE PRIME MINISTER’S DECISION No. 128/2000/QD-TTg OF NOVEMBER 20, 2000 ON A NUMBER OF POLICIES AND MEASURES TO PROMOTE THE INVESTMENT IN AND DEVELOPMENT OF SOFTWARE INDUSTRY

Pursuant to the tax laws;

Pursuant to the Prime Ministers Decision No.128/2000/QD-TTg of November 20, 2000 on a number of policies and measures to promote the investment in and development of software industry;

The Finance Minister hereby guides the implementation thereof as follows:

A. OBJECTS OF APPLICATION

Organizations and individuals of all economic sectors at home, overseas Vietnamese and foreign organizations and individuals that invest in the production of software products and the provision of software services in Vietnam (hereinafter collectively called software enterprises for short) shall be eligible for tax preferences under the guidance in this Circular.

In cases where a software enterprise concurrently conducts other goods-producing or service-providing activities, it may only enjoy tax preferences provided for in this Circular for activities of producing software products and providing software services.

B. TAX PREFERENCES FOR SOFTWARE ENTERPRISES

I. REGARDING ENTERPRISE INCOME TAX

1. Vietnamese software enterprises and foreign software enterprises operating in Vietnam not under the Law on Foreign Investment in Vietnam shall enjoy the following enterprise income tax rates:

a/ The tax rate of 25 %.

b/ The tax rate of 20%, for enterprises investing in geographical areas with difficult socio-economic conditions.

c/ The tax rate of 15%, for enterprises investing in geographical areas with particularly difficult socio-economic conditions:

Geographical areas with difficult socio-economic conditions and those with particularly difficult socio-economic conditions are specified in Lists B and C of the Appendix to the Governments Decree No.51/1999/ND-CP of July 8, 1999 detailing the implementation of the Law on Domestic Investment Promotion (amended).

2. Foreign-invested software enterprises operating under the Law on Foreign Investment in Vietnam shall enjoy the enterprise income tax rate of 10%.

3. Enterprise income tax exemption:

- Software enterprises shall be exempt from enterprise income tax for the proportion of income generated from activities of producing software products and providing software services for the first four years counting from the time the taxable income is generated. For software enterprises which are in operation and have already earned incomes from activities of producing software products and providing software services, the duration of enterprise income tax exemption for such incomes shall be four years in a row as from January 1, 2001.

- Software enterprises shall not have to pay enterprise income surtax for incomes from activities of producing software products and providing software services.

Software enterprises being concurrently engaged in activities of producing and trading in other goods and/or providing other services, such as: manufacture and/or assembly of computers, electronic equipment, sale of machinery and equipment, etc., shall have to separately account their turnover, cost and income from those of activities of producing software products and providing software services in order to determine the enterprise income tax amounts entitled to the preferential tax rates as well as the income tax amounts to be exempted or reduced. In cases where an enterprise fails to account incomes generated from activities of producing software products and providing software services separately from other business incomes, the income amount from activities of producing software products and providing software services shall be determined according to the ratio of turnover from activities of producing software products and providing software services to its total turnover.

II. REGARDING THE TAX ON TRANSFER OF PROFITS ABROAD

Overseas Vietnamese who invest in the software industry in the country under the foreign investment law and foreign investors in the software industry shall enjoy the tax rate of 3% on transfer of profits abroad for incomes from activities of producing software products and providing software services.

III. REGARDING VALUE ADDED TAX

Value added tax applicable to software products and software services shall be imposed under the guidance in the Finance Ministrys Circular No.122/2000/TT-BTC of December 29, 2000 guiding the implementation of the Governments Decree No.79/2000/ND-CP of December 29, 2000 detailing the implementation of the Value Added Tax Law.

It shall be applied concretely as follows:

- Software products and software services supplied by the software enterprises to consumers in Vietnam shall not be subject to value added tax. Such enterprises shall not have to calculate and pay value added tax for these products and services, but they shall not be entitled to the deduction or reimbursement of the input value added tax on goods and/or services used in the production of VAT-free software products and/or the provision of VAT-free software services.

- For export software products and software services, the value added tax rate of 0% shall apply.

In cases where a software enterprise produces software products and provides software services both for domestic consumption and for export, it may only enjoy the deduction or reimbursement of the input value added tax on goods and services used in the production of software products and services for export.

Enterprises shall have to separately account the value added tax on goods and services used in the production of software products and services for export in order to determine the input value added tax amount to be deducted or reimbursed according to regulations. For the input value added tax on goods and services used in the production of both software products and services for export and those for domestic consumption, which are free from value added tax, the to be-deducted or-reimbursed input value added tax amount shall be calculated according to the ratio of the turnover from export software products and software services to the total turnover.

IV. REGARDING INCOME TAX ON HIGH-INCOME EARNERS

Article 5 of the Prime Ministers Decision No.128/2000/QD-TTg of November 20, 2000 on a number of policies and measures to promote the investment in and development of software industry prescribes: "For professional laborers who are Vietnamese and personally engaged in the software production and service activities, the minimum taxable income level and progressive tax rates prescribed for foreigners shall apply".

Basing themselves on the above prescription, enterprises shall make by themselves lists of professional laborers being Vietnamese and personally engaged in software production and service activities, who shall pay income tax on high-income earners at the minimum taxable income level and progressive tax rates prescribed for foreigners, and register them with the tax authorities directly managing the enterprises. Besides the above-said subjects, laborers at enterprises, who perform other professional jobs, such as: production of and/or trading in other goods and services, sale of computer components, managerial work, administrative work, guard, car driving, etc., and earn high incomes, shall till make the declaration for high-income tax payment according to the partially progressive tax rate table prescribed for Vietnamese citizens and other individuals permanently residing in Vietnam, who earn high incomes.

Enterprises directors shall have to take responsibility for the accuracy and truthfulness of the lists regarding the number of persons liable to income tax on high-income earners according to the tax rate table prescribed for foreigners and those subject to the tax rate table prescribed for Vietnamese.

V. REGARDING EXPORT TAX AND IMPORT TAX

1. Raw materials and materials, which cannot be turned out at home yet and are imported in direct service of the production of software products, shall be exempt from import tax and value added tax at the import stage.

In order to be exempt from import tax on raw materials and materials in service of production of software products, which cannot be turned out at home yet, software enterprises shall, besides import declaration dossiers as prescribed, have to supply the customs authorities with the following:

- Plans on production of software products, clearly determining the quantity and categories of raw materials and materials which cannot be turned out at home yet and need to be imported for production of software products. Enterprises directors shall sign and take personal responsibility for the lists of these import raw materials and materials.

The customs authorities shall base themselves on the list of raw materials and materials in service of the production of software products, which can be turned out at home, promulgated by the Ministry of Science, Technology and Environment, to determine which types of import raw materials and materials shall be exempt from import tax. In cases where the Ministry of Science, Technology and Environment has not yet promulgated the general list, but gives specific certification on the enterprises declarations of import raw materials and materials, which cannot be turned out at home, the customs authorities shall base themselves on such certification to effect the import tax exemption.

Import raw materials and materials, which cannot be turned out at home yet and are used for the production of software products and exempt from import tax, shall also be exempt from value added tax at the import stage.

2. Export software products shall be exempt from export tax.

VI. LAND USE AND LAND RENT PREFERENCES

Vietnamese software enterprises shall be entitled to land use levy, land rent and/or land and house tax exemption or reduction according to the provisions of the Governments Decree No.51/1999/ND-CP of July 8, 1999.

Software enterprises governed by the Law on Foreign Investment in Vietnam shall enjoy preferences according to the current regulations on land rent.

C. ORGANIZATION OF IMPLEMENTATION

1. Software enterprises shall base themselves on tax exemption or reduction preferences they are enjoying to declare the arising tax amount, that to be exempted or reduced, and that to be paid; make tax payment and annual settlement with the tax authorities according to the prescribed regime.

Software enterprises, which are eligible for the preferential policies under Decision No.128/2000/QD-TTg and, at the same time, enjoy the preferences under the Law on Domestic Investment Promotion, the Law on Enterprise Income Tax, the Law on Foreign Investment in Vietnam, etc., shall be entitled to only one of such preferential policies, chosen by themselves.

2. Tax authorities shall base themselves on the tax exemption or reduction regime enjoyed by enterprises to guide such enterprises in calculating, declaring and paying taxes. Annually, basing themselves on enterprises tax settlements, the tax collection-managing bodies shall inspect and concretely determine tax amounts to be exempted or reduced, and those to be paid by enterprises, then notify such to the concerned units for implementation.

3. Organizations and individuals that commit acts of making false declarations in order to enjoy tax preferences provided for in this Circular shall have to refund the tax amounts they have illegitimately enjoyed, and depending on the nature and seriousness of their violations, be sanctioned for administrative violations in the field of taxation or examined for penal liability according to the provisions of law.

4. This Circular takes effect 15 days after its signing. The previously promulgated regulations on tax and budgetary remittance preferences for software enterprises, which are contrary to the Governments regulations and this Circulars guidance, are no longer effective. Tax amounts and other revenues, which had been declared and remitted by enterprises into the State budget according to the current regulations before the effective date of this Circular, and at the levels different from the preferential levels provided for in this Circular, shall not be retrospectively collected or reimbursed. Particularly, enterprise income tax, income tax on high-income earners, land use levy and land rent shall be re-calculated as from January 1, 2001 according to the provisions of this Circular.