Software businesses enjoy tax incentives for software, which is favorable for business, however, applying tax incentives for software contains many risks that can lead to serious consequences. To clarify and confidently apply tax incentives for software, the following is a guide on how to determine what constitutes software production activities in the most complete way.
Principles of determining software production activities for tax incentives
The term “SOFTWARE PRODUCTION” is a common term for software production activities. However, within the legal framework, the term "PRODUCTION OF SOFTWARE PRODUCTS" applies. Within the scope of this article, the terms "software production" and "software product production" are understood equally.
To identify an enterprise software-related activity as the production of software products and thus to be eligible for tax incentives, the activity must be meet all 3 conditions The following:
Condition 1: General conditions for business registration of software production organizations
Software production enterprises must have an enterprise registration certificate, in case of establishment under the investment law, an investment registration certificate.
Enterprises must have a business line suitable for the production of software products according to the national industry code system for business registration.
Condition 2: Software products must be on the List of software products as prescribed by the Ministry of Information and Communications
Producing software products must be on the list of software products according to regulations of the Ministry of Information and Communications
Condition 3: The software production process must satisfy the regulations on the number of implementation stages
A complete software production process includes the following 7 stages:
- Stage 1: Determine the requirements
- Stage 2: Analysis and design
- Stage 3: Programming, writing code
- Stage 4: Software testing and testing
- Stage 5: Completing and packaging software products
- Stage 6: Installation, transfer, user manual, maintenance and warranty of software products
- Stage 7: Release and distribution of software products
Determining whether an activity is a software production activity or not, it is necessary to strictly apply the regulations at a specific time, which stipulate the minimum steps that need to be performed to be considered by the law as a software production activity. “manufacturing software products”.
How to define software production
- For the period before August 18, 08, the provisions of Circular No. 2020/16/TT-BTTTT shall be applied: Requirements on stages for software product production are activities belonging to one or more stages in the manufacturing process. stages from 2014 to 2 of the software product manufacturing process (4. Analysis and design; 2. Programming, writing code; 3. Software testing and testing).
- From August 19, 08 to present, Circular No. 2020/13/TT-BTTTT is applied: Requirements on stages for software product production are that enterprises must perform at least one of two stages. : Define requirements, Analyze and design.
For detailed cases, see the following instructions
How to determine software production From August 18, 08 onwards
Base: Applying Circular 16/2014/TT-BTTTT stipulating the determination of software production activities:
Step 1: Understanding the Software Product Manufacturing Process
According to the provisions of Article 5, Circular 16/2014/TT-BTTT, the software product manufacturing process includes the following 07 stages:
1. Determine requirements: including one of the following activities: surveying customer requirements, business analysis; collect, build requirements; process adjustment advice; Unified request, review and approval.
2. Analysis and design: includes one of the following operations: requirements specification; development problem establishment; data modeling; functional modeling; information flow modeling; software solution identification; software system design; software module and unit design.
3. Programming, writing code: includes one of the following operations: writing software programs; programming software units and modules; editing, customizing, and refining software; integrating software units; integrating software systems.
4. Software testing: includes one of the following operations: building test scenarios, testing software units and modules; software testing; software system testing; software function testing; software quality assessment; error potential assessment; determining customer satisfaction; software acceptance.
5. Completing and packaging the software: includes one of the following operations: building software description documents, software installation and usage instructions; software packaging; model registration; intellectual property registration.
6. Software installation, transfer, user manual, maintenance and warranty: includes one of the following operations: software installation instructions; software installation implementation; user training and guidance; software testing after handover; software error correction after handover; post-handover support, software warranty; software maintenance.
7. Release and distribution of software products: includes one of the following operations: marketing, promoting, selling, distributing software products; releasing software products.
Step 2: Determine software product production activities on a case-by-case basis
According to Article 6, Circular 16/2014/TT-BTTT then cases that meet the following conditions are accepted as software product production:
1. General requirements for organizations, enterprises and individuals producing software products:
a) For organizations and enterprises: having business registration certificates, investment certificates, or documents regulating functions and tasks granted by competent persons. For individuals: have personal tax code; have a tax declaration which clearly states the income from software production;
b) Software products manufactured by individuals, organizations or enterprises belong to one of the types of software products specified in the list of software products issued under Circular No. 09/2013 / TT-BTTTT dated April 08, 4 by Minister of Information and Communications.
2. Activities of organizations, businesses and individuals are defined as activities of producing software products and meeting the process when organizations, businesses and individuals meet the requirements in this section, and operate. that action is one or more of the following:
a) Operating in one or more stages in stages from 2 to 4 of the process of producing software products specified in Clauses 2, 3, 4 Article 20 of this Circular for the above-mentioned software products. Point b, Item 5 This.
b) Activities mentioned at the stage of production and sale, the production process of the software production process specified in Clause 1 and Item 5 Article 1 of this Circular, when such organizations, enterprises and individuals conduct activities. satisfy the provisions of Point a of this Clause for the same software product.
c) Operate in stage 6 of the software product manufacturing process as prescribed in Clause 6 Article 5 of this Circular, when such organization, enterprise or individual operates in all 5 stages from 1 to 5 of the software product manufacturing process is specified in Clauses 1 thru 5 Article 5 of this Circular for the same software product.
How to determine software production From August 19, 08 to present
Step 1: Understanding the Software Product Manufacturing Process
According to the provisions of Article 3, Circular 13/2020/TT-BTTT, the stages in the software product manufacturing process include the following:
1. Determine requirements: includes one or more activities such as: generating or perfecting ideas for software product development; describing product characteristics (requirements), product usage contexts; proposing, surveying, clarifying requirements for software products; analyzing business processes; building complete requirements for software products; consulting on process adjustment; unifying requirements, reviewing requirements, control capabilities and bases for confirming product compliance with requirements.
2. Analysis and design: includes one or more activities such as: requirements specification (functional and non-functional requirements, problems to be solved); development problem establishment; appropriate techniques are implemented to optimize the solution, analysis of software correctness and testability, analysis of the impact of software requirements on the operating environment, requirements are prioritized, approved and updated when necessary; data modeling; functional modeling; information flow modeling; software solution identification; solution design, software system design; data design, software architecture design, design of software component units and modules; security design, information security for software; customer experience interface design.
3. Programming, writing code: includes one or more operations such as: writing software programs; programming software units and modules; editing, customizing, and refining software; integrating software units; integrating software systems.
4. Software testing: includes one or more operations such as: building test scenarios, testing software units and modules; software testing; software system testing; software function testing; software quality assessment; error-proneness assessment; security testing, information security for software; determining customer satisfaction; software acceptance.
5. Completing and packaging software products: This includes one or more operations such as: developing software product description documents, installation manual (in case of package product delivery), software product manual (for service user or tenant); packaging of software products; registration of models; registration of intellectual property rights.
6. Installation, transfer, user manual, maintenance, and warranty of software products: includes one or more operations such as: transfer (package of product or right to use product on rental form); instructions for installing software products (in case of package delivery); install software products (on customers' systems in case of package transfer or on service delivery systems in case of software product leasing); training, guidance (users or service hires); check software products after handing over or software products on the system of service provision; fix errors of software products after handover or software products on the system of service providers; support after handover in the process of leasing services; product warranty after handover or during rental service; software product maintenance (either on the customer's system or on the service delivery system).
7. Release and distribution of software products: includes one or more operations such as selling, leasing, distributing, and releasing self-produced software products.
Step 2: Identify the software product manufacturing activity that meets the process
Apply Article 4, Circular 13/2020/TT-BTTT:
Article 4. Determining software product production activities that meet the process:
1. The production of a software product by an organization or enterprise specified in Article 3 of this Circular is defined as the production of a software product that meets the process when, for such product, the organization, enterprises perform at least one of two stages: Requirement definition, analysis and design the respective regulations in Clause 1 and Clause 2 Article 3 of this Circular.
2. The production of software products satisfying the process specified in Clause 1 of this Article is indicated by one or more of the following documents, corresponding to each operation of the stages carried out by the organization or enterprise. show:
a) Documents proving each operation of the Requirement Determination stage: Describe the idea of the product development method; describe product characteristics (requirements), product use contexts; description of proposals, survey results, results of clarification, completion of requirements for products; detailed professional analysis description; a complete description of product requirements; describe the content of process adjustment consultant; requirement agreement, requirement review, description of product's control capabilities and the bases for verifying compliance with requirements; or documents with similar content.
b) Documents proving each operation of the Analysis and design stage: Description of requirements; describe development problems; describe the appropriate techniques performed to optimize the solution, analyze the correctness and testability of the software, analyze the effect of software requirements on the operating environment, list requirements are prioritized, approved and updated as needed; describe data model, functional model, information flow model; software solution description; solution design, software system design, data design, architectural design, software unit design, component modules; designing confidentiality and information safety for the software; customer experience interface design; or documents with similar content.
c) Documents proving the operations of the programming and coding stages: Some main source code segments show that the enterprise has written software code; description of the integrated software system; or documents with similar content.
d) Documents proving each operation of the stage of software testing and testing: Test scripts, software unit testing, software modules; description of software testing results, software system testing results, software function testing results, software quality testing results; error description evaluation; describing information security and safety testing results for software; confirm the software meets customer requirements; software acceptance report; or documents with similar content.
e) Documents proving each operation of the Product Completion and Packaging stage: Full introduction of the software product; installation instructions (in case of transferring a complete product), instructions for using the product or service (for users or service renters); copy of the certificate of design registration (if any); copy of the certificate of intellectual property registration (if any); or documents with similar content.
f) Documents proving each operation of the Installation, transfer, user manual, warranty, and product maintenance stages: Minutes or transfer contract (full product package or right to use the product in the form of rental); instructions for installing the software product (in case of full product transfer); description of the software product installation results (on the customer's system in case of full package transfer or on the service providing system in case of software product rental); training and instruction content (user or service lessee); description of software product testing activities after handover or software products on the service providing system; description of software product error correction activities after handover or software products on the service providing system; description of post-handover support activities during the service rental process; description of product warranty activities after handover or during the service rental process; Describes software product maintenance activities (on customer systems or on service delivery systems).
FAQ - Frequently Asked Questions
How to explain to the tax authorities about software production activities
Businesses need to prepare the following necessary information:
- Certificate of business registration or business license of equivalent value, proving that the business activities of the enterprise are legal.
- Specify to the tax authority that the product is a product of the manufacturing enterprise on the list of software products according to Circular 09/2013/TT-BTTTT.
- Provide information and evidence to explain software production activities of enterprises according to the guidance of Circular 16/2014/TT-BTTTT (From August 18, 08 onward) or Circular 2020/ 13/TT-BTTTT (From August 2020, 19).
Is website programming considered software production?
Depends on the case!
Still applying the same regulations as the above guidance, if website programming activities satisfy 3 conditions on software production, it is considered as software production.
The Circular of the Ministry of Information and Communications stipulates: Enterprises are solely responsible for the accuracy of the information in the application for tax incentives for software production activities and self-determination of software production activities that meet the requirements of regulations. submit.
Does software outsourcing have tax incentives?
Outsourcing software, if fully meeting the conditions & software production process, is also entitled to incentives in terms of VAT and CIT in accordance with regulations.
Enterprises need to determine that their outsourcing activities meet the conditions for determining as software production activities as guided above in order to enjoy tax incentives.
Is software leasing eligible for tax incentives?
Software rental is computer software copyright rental is not a specified software service, therefore this activity is subject to subject to VAT at the rate of 10%.
Refer to Official Dispatch 10684/CT-TTHT
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GENERAL TAXES |
SOCIAL REPUBLIC OF VIETNAM |
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Number: 10684/CT-TTHT |
Hanoi, date 20 month 03 year 2018 |
Dear: CMC Technology Group Joint Stock Company
(Address: 17th Floor, CMC Tower, 11 Duy Tan Street, Dich Vong Hau Ward, Cau Giay District, Hanoi City – MST: 0100244112)
Responding to Official Dispatch No. 33/CV-CMC dated March 08, 3 of CMC Technology Group Joint Stock Company (hereinafter referred to as the Company) asking about tax policy, Hanoi Tax Department has the following comments: :
– Pursuant to Decree 71/2007/ND-CP dated May 03, 5 of the Government detailing and guiding the implementation of a number of articles of the Law on Information Technology on the information technology industry:
Article 3 provides the following:
“Article 3. Interpretation of terms
In this Decree, the terms below are construed as follows:
1. Software product is software and accompanying documents produced and displayed or stored in any physical form, which can be bought, sold or transferred to another object for exploitation and use. .
…
10. Software service means activities that directly support and serve the production, installation, exploitation, use, upgrade, warranty, maintenance of software and other similar activities related to software. soft.
… '
+ Article 9 provides for the following types of software products and software services:
"2. Types of software products include:
a) System software;
b) Application software;
c) Utility software;
d) Tool software.
d) Other software.
3. Types of software services include:
a) Administration, warranty and maintenance services of software and information systems;
b) Software quality consulting, assessment and appraisal services;
e) Consulting services, building software projects;
d) Software pricing consulting services;
dd) Software technology transfer services;
e) System integration services;
g) Safety and security assurance services for software products and information systems;
h) Software product distribution and supply services;
i) Other software services.”
– Pursuant to Circular 219/2013/TT-BTC dated March 31, 3 of the Ministry of Finance guiding the implementation of the Law on Value-Added Tax and Decree No. 2013/209/ND-CP dated December 2013, 18 of the Ministry of Finance. The Government details and guides the implementation of a number of articles of the Law on Value Added Tax:
+ In Clause 21, Article 4, non-taxable subjects include:
"...
Computer software includes software products and software services as prescribed by law.
+ In Article 11 the VAT rate of 10% is as follows:
“Article 11. Tax rate of 10%
The 10% tax rate applies to goods and services not specified in Articles 4, 9 and 10 of this Circular.
... "
Based on the above provisions, because the unit did not provide specific documents, the Hanoi Tax Department replied in principle as follows:
– In case the Company sells software products and software services according to the provisions of Articles 3 and 9 of Decree 71/2007/ND-CP dated May 03, 5 of the Government above, if the products software and software services that are computer software according to law are not subject to VAT.
– In case the company leases the copyright of computer software that is not a software service as prescribed in Clause 3, Article 9 of Decree 71/2007/ND-CP dated May 03, 5 of the Government, this activity subject to VAT at the rate of 2007%.
The Company is requested to base on the actual situation at the unit, compare with the provisions of Decree 71/2007/ND-CP dated May 03, 5 of the Government to comply with the provisions of law. If you still have problems, please contact Tax Inspection Department No. 2007 - Hanoi Tax Department for answers.
The Hanoi Tax Department replied that the company was known to implement./.
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KT. DIRECTOR |
Do software manufacturing enterprises need to obtain certification from the Department of Information and Communications to prove software production?
Circular No. 16/2014/TT-BTTTT, Circular 13/2020/TT-BTTTT have set out criteria and ways to determine software production activities. The Circular does not stipulate that information and communication agencies must issue certifications on software production activities.
The higher-level document as the basis for promulgating the above Circulars of the Ministry of Information and Communications, Decree No. 218/2013/ND-CP, also does not stipulate that information and communication agencies must issue this certification.
The above two Circulars of the Ministry of Information and Communications stipulate that organizations, enterprises and individuals participating in software production activities "are solely responsible for the authenticity of the information in the relevant declaration documents as well as for determining their software product production activities".
Thus, the accountability for software production activities belongs to the enterprise. Tax authorities shall base themselves on the Circulars of the Ministry of Information and Communications to verify the dossiers of enterprises.
To explain to tax authorities about their software production activities, enterprises rely on the two Circulars mentioned above.
Answer of the Government Portal on determining software production (April 29, 04)
Question:
My company was established in October 10, the main industry is computer programming. The main activities include modeling data and creating entity-relationship diagrams that describe data structures and relationships in graphical form; provide key examples in the program; provide test scripts. Pursuant to Circular No. 2020/13/TT-BTTTT dated July 2020, 3 of the Ministry of Information and Communications regulating the determination of software production activities that meet the process, I understand that the above activities of the company The company is in the process of analyzing and designing, programming, coding and testing software. Therefore, this activity is considered as the production of software products that meet the process. So, is my understanding correct? In order to demonstrate these activities, does my company have to provide all relevant documents for each stage, or just one of the documents mentioned?
Reply:
The Ministry of Information and Communications responded to this issue as follows: Clause 1, Article 4 of Circular No. 13/2020/TT-BTTTT dated July 3, 7 of the Ministry of Information and Communications providing for the determination of production activities. software products that meet the prescribed process: “The production of a software product by an organization or enterprise specified in Article 2020 of this Circular is defined as the production of software products that meet the prescribed standards. process when for that product, the organization or enterprise performs at least one of two stages: Determination of requirements, analysis and design as prescribed in Clauses 3 and 1, Article 2 of this Circular, respectively.
Based on this regulation, enterprises must perform at least one of two stages: Requirements determination, analysis and design.
Article 2 of Circular No. 13/2020/TT-BTTTT stipulates: “This Circular applies to management agencies, organizations and enterprises involved in the production of software products on the List of products. software products according to regulations of the Ministry of Information and Communications”.
Pursuant to this regulation, software products of enterprises must be on the list specified in Circular No. 09/2013/TT-BTTTT dated April 8, 4 of the Ministry of Information and Communications promulgating the list of software products. software and hardware, electronics.
Regarding the proof that the software product production activities meet the process, the enterprise needs to prepare documents corresponding to each operation of the stages that the enterprise has performed to demonstrate the production activities. export enterprise software.
Documents to be developed are specified at Points a, b, c, d, dd, e, Clause 2, Article 4 of Circular No. 13/2020/TT-BTTTT.
For example: For the Analysis and Design stage, if the enterprise performs the "data modeling" operation, the enterprise needs to develop a document describing the "data modeling" operation.
In the document/file, the enterprise clearly states/classifies its software products according to the list of software products as prescribed in Circular No. 09/2013/TT-BTTTT.
For example: If an enterprise manufactures accounting software products, it should clearly state that its software product is Accounting software with ordinal number 1.2.2.03 in Appendix 01 of Circular No. 09/ 2013/TT-BTTTT.
Thus, the Government Portal's reply is consistent with the provisions of Circular 13/2020/TT-BTTTT, "enterprises must perform at least one of two stages: Determine requirements, analyze and design next"
Does an enterprise only need to sign a contract to produce software, then that activity is automatically considered as software production?
Are not !
Even if the contract signed with the customer is "Software Production Contract", but the actual work does not meet the above 3 conditions, it is still not considered as software production.
Look up the legal provisions related to the determination of software production
Complying with regulations and following the right process not only helps you avoid legal risks, but also contributes to the transparency and financial health of your business.
Doing the above is not easy for businesses, the effective solution is to use a professional service: Cooperate with a financial, accounting and tax expert to ensure you follow the correct process and comply with the regulations. legislation.
See detailed information about our services in the article
