VietNamNet Bridge – Under the current regulations, the firms which implement software outsourcing contracts cannot enjoy the tax incentives designed for software production firms.

High technology firms cannot enjoy tax incentives



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Director of the HCM City Information and Communication Department Le Thai Hy complained at a meeting with the leaders of the Ministry of Information and Communication (MIC) in mid March that it is unfair not to offer tax incentives to software outsourcing firms.

A software firm in HCM City, which employs 450 workers, 85 percent of whom are engineers, has been asked by the HCM City Taxation Agency to pay VND3 billion in corporate tax arrears.

The firm specializes in making software products for the US market, undertaking all the phases of the production process, from designing, processing, coding and delivering. This means that the firm makes products and delivers finished products to the US partners.

However, in the contracts with the US partners, the works were described as the software outsourcing. As a result, the firm has been requested to pay VND3 billion in corporate tax arrears.

The HCM City Taxation Agency, which made the request, said that the software outsourcing does not mean software production, and that software outsourcing is not the subject to enjoy the corporate income tax incentives.

The firm argued that the works it did, by nature, was the software production, refusing to amend the contracts signed with the US partners as suggested to be eligible for the tax incentives.

The case was intervened by the HCM City People’s Committee, which certified that the firm really “produced software,” because it did the designing, processing, coding and other necessary works of the software production chain.

In early February, the HCM City Taxation Agency replied that the firm could meet the requirements to be able to enjoy the tax incentives. However, it did not clarify if the decision on VND3 billion tax arrears collection is retroactive.

To date, the “suspended sentence” is still hanging over the firm, while the managers of the company do not know if it can enjoy the tax incentives for the next contracts, which show that the firm does the “outsourcing.”

Hy went on to say that the taxation body should create most favorable conditions for enterprises to develop rather than trying to collect tax as much as possible.

Who to blame?

The problem, according to the Director of the MIC’s Information Technology Department Nguyen Trong Duong, lies in the Prime Minister’s Decision No. 10 which was released 10 years ago.

The decision showed the list of the IT fields subject to tax incentives. However, since the legal document was released a long time ago, it has become out of date with a lot of branches having not updated in the list.

Duong said MIC is drafting a circular to clarify the tax impositions on software firms.

Under the draft circular, there are six steps of a software production process, including 1) users’ requirement defining, 2) design analyzing 3) programming, 4) testing 5) completing and packaging 6) Installation, warranty, maintenance.

One just needs to take one of the four core steps, from the design analyzing to completing & packaging will be recognized as software production firm.

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