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Corporate Income Tax (CIT) Incentives for IT Enterprises (Software Production)
- Van Pham LLC
- 7 days ago
- 4 min read
I. Legal Basis
The corporate income tax (CIT) incentives for IT enterprises are governed by the following primary legal documents:
Law on Investment No. 61/2020/QH14 and Law on Corporate Income Tax No. 14/2008/QH12 (as amended in 2013 and 2014): Stipulate the eligibility, conditions, and levels of tax incentives.
Decree No. 218/2013/NĐ-CP (dated December 31, 2013): Provides detailed guidance on the implementation of the Law on CIT regarding tax incentives.
Circular No. 78/2014/TT-BTC (dated June 18, 2014) and Circular No. 96/2015/TT-BTC (dated June 22, 2015): Provide guidance on CIT, including provisions for technology enterprises.
Circular No. 13/2020/TT-BTTTT (dated June 30, 2020) of the Ministry of Information and Communications (MIC): Defines software products and software production activities eligible for incentives.
Circular No. 09/2013/TT-BTTTT: Defines the list of IT industry products eligible for investment incentives.
II. Eligibility Conditions
1. Regarding Production Activities
Pursuant to Circular 13/2020/TT-BTTTT, an enterprise is considered engaged in software production if it performs at least one of the following two stages in the software development lifecycle:
Stage 1: Requirement Specification - Analyzing and defining functional and non-functional requirements of the software.
Stage 2: Analysis and Design - System architectural design, and detailed design of modules and user interfaces.
Activities NOT considered as software production:
Purchasing/selling off-the-shelf software.
Providing only consulting or system administration services.
Distributing or trading third-party software.
2. Regarding Software Products
Software products must be listed in the List of IT industry products eligible for investment incentives under Circular 09/2013/TT-BTTTT, including:
System software.
Application software.
Utility software and embedded software.
Other software products as prescribed by law.
3. Regarding Investment Projects
Tax incentives apply only to new investment projects in the field of software production. They do not apply to existing conventional business operations.
III. Level of Tax Incentives
According to the Law on CIT and Decree 218/2013/NĐ-CP, software production enterprises meeting the criteria are entitled to:
1. Tax Exemption and Reduction
Tax Exemption: 4 years from the first year of taxable income generated from the project.
Tax Reduction: 50% reduction in CIT payable for the subsequent 9 years.
2. Preferential Tax Rate
Following the expiration of the exemption/reduction period, enterprises may be eligible for a preferential tax rate of 10% (compared to the standard rate of 20%) for a specific duration, depending on project-specific regulations.
IV. Documentation and Procedures
1. Self-Declaration Principle
Under Circulars 78/2014/TT-BTC and 96/2015/TT-BTC, enterprises are responsible for self-assessing, self-declaring, and assuming responsibility for:
Compliance with tax incentive conditions.
Applicable preferential tax rates.
Duration of tax exemption/reduction.
Carry-forward of tax losses.
2. Required Documentation
Enterprises must maintain and produce the following documents upon request by tax authorities:
a) Proof of software production activities: Product concept description, requirement specifications, design documents, system architecture, source code, programming documentation, and testing records (test cases, reports).
b) Proof of eligibility of the product: Detailed description of the software and justification of its classification under the list in Circular 09/2013/TT-BTTTT.
c) Financial and Accounting Records: Financial statements, accounting books separating income from software production from other activities, and related commercial contracts.
3. Procedural Steps
Step 1: Self-assess eligibility for tax incentives.
Step 2: Submit updated information regarding software products and production stages to the relevant authority under the Ministry of Science and Technology (formerly MIC) for monitoring.
Step 3: Declare tax incentives in the annual CIT finalization return to the direct tax supervisory authority.
Step 4: Maintain full records and documents for inspection or audit purposes.
4. Tax Declaration
Enterprises must clearly separate income from incentivized software production activities from income derived from other activities.
Only income from eligible activities qualifies for the incentives.
Separate accounting is mandatory to accurately determine taxable income subject to incentives.
V. Important Considerations
Determination of Timeline: The tax exemption period commences from the first year the project generates taxable income, not the year of incorporation. If the project has not generated taxable income (or is at a loss), the exemption period has not yet begun.
Legal Risk: Enterprises bear full responsibility for the accuracy of their declarations. Failure to provide sufficient documentation or prove eligibility may lead to the denial of incentives and subsequent tax arrears collection. It is recommended to proactively seek written guidance from tax authorities or the local Department of Science and Technology (formerly Department of Information and Communications) if uncertainties arise.
Accounting: A separate management accounting system is required to track costs and revenue per activity. General costs must be reasonably allocated between incentivized and non-incentivized activities.
Changes in Law: Tax regulations are subject to periodic updates. Enterprises should regularly monitor the latest legal documents issued by the Ministry of Finance (regarding tax) and the Ministry of Science and Technology (regarding software product criteria).
Conclusion
Tax incentives for software production enterprises represent a significant benefit that can improve cost-efficiency and competitiveness. However, to legally qualify, enterprises must strictly adhere to production and product criteria, maintain comprehensive documentation, and ensure transparent tax declarations. For complex matters, seeking professional legal counsel or contacting tax authorities directly is highly recommended.
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