VAT Refunds for Software Developers in Vietnam
Circular No. 13/2020/TT-BTTTT stipulates procedures that Vietnam businesses must follow regulations related to software development to be able to enjoy incentives related to VAT refund. We discuss the documentary compliance requirements and software activities covered by the Circular.
In August 2023, VNG Vietnam submitted an IPO registration to Nasdaq, showcasing Vietnam’s booming software sector. By going public, the gaming firm hopes to solidify its position in the domestic and international gaming market.
It’s in this context, with a growing number of Vietnamese firms engaged in the export of software, particularly in the gaming sector, that Circular 13/2020/TT-BTTTT has become very important.
By adhering to procedural compliance requirements in Circular 13, software businesses in Vietnam can claim value-added tax (VAT) refunds for their input expenses. Here’s what they need to do.
What is Circular No. 13/2020/TT-BTTTT?
Circular 13/2020/TT-BTTTT provides clear compliance guidelines for software development activities, ensuring a streamlined and efficient process. By following the prescribed steps, businesses can not only optimize their software development but also maximize the tax benefits available to them.
More specifically, businesses engaged in the export of software products are entitled to receive a reimbursement for the VAT they have paid on inputs, equipment, and service expenses utilized during the software development process.
Why is this circular important?
In recent years, the software product industry and gaming sector, in particular, has witnessed exponential growth, becoming a major driver of Vietnam’s digital economy. As the demand for software products continues to surge, ensuring quality, compliance, and standardization becomes paramount. Therefore, this circular serves as a regulatory framework that sets guidelines and requirements for agencies, organizations, and businesses involved in software product activities.
Furthermore, the tax refund for inputs holds significance as export-oriented software developers often incur substantial expenses in the production process. By alleviating the financial burden, manufacturers are given the opportunity to reduce their overall production costs and invest in greater innovation, research, and development. This, in turn, enhances their competitiveness in the global market.
Who does it apply to?
This Circular applies to a wide range of entities engaged in software product development activities, including agencies, organizations, and businesses that are mentioned under the list of software products regulated by the Ministry of Information and Communications. This includes software development companies, technology startups, software outsourcing firms, and other relevant entities involved in the creation, production, and distribution of software products.
The Circular recognizes the increasingly vital role of software in the modern digital landscape and aims to ensure that such activities adhere to established regulations and quality standards.
The Circular applies to a diverse array of entities, covering both large-scale enterprises and smaller businesses.
The Department of Technology plays a crucial role in the successful implementation of this circular. As the governing body responsible for overseeing technological advancements and regulations, the department is entrusted with the task of ensuring that the provisions outlined in the circular are effectively executed.
However, it is not solely the responsibility of the Department to ensure compliance. Enterprises engaged in software production also hold a significant role in this process. It is imperative for enterprises to be proactive by disseminating relevant information promptly and updating their production processes to align with the requirements stipulated in the Circular.
Compliance requirements for firms
The implementation of the tax refund scheme for the software industry presents a promising avenue for businesses to recover a significant portion of their expenses. By understanding and taking advantage of this circular, software developers can alleviate financial burdens and enhance their competitiveness in the market.
To fully benefit from this tax refund program and incentives, firms should familiarize themselves with the relevant compliance procedures. It is crucial for software developers to fulfill all the necessary requirements to qualify for a refund. This includes following the guidelines of manufacturing as well as gathering and organizing relevant documents and records that validate their export business activities.
Ensuring compliance right from the very early stages of the software production process is vital. To do this firms need clear records of:
- Defined customer requirements
- Analysis and designing processes
- Evidence of programming and coding
- Records of software testing
- Proof of finalization and packaging of products
- Provide installation, instructions, maintenance, and a warranty
- Documentation of the release and distribution of the product
By implementing compliance measures from the earliest phase, this directive serves as a proactive framework for fostering a culture of adherence. This will also help to mitigate the potential risks of not receiving a VAT refund.
Carefully prepare the supporting documents for VAT refund
In order to receive a VAT tax refund, manufacturers are required to substantiate their engagement in software export-related activities.
This entails furnishing a range of documents that validate the operational aspects of each aforementioned production stage.
In addition, evidence of export transactions, such as export contracts, export invoices, and proof of delivery to foreign clients, may also be required for verification.
Furthermore, it is important for firms to maintain accounting records and documents for VAT refunds. These documents include valid receipts, contracts, or debit notes that clearly show what the company paid for the input used in the production of the software.
For assistance applying for a VAT refund on software exports, contact the tax experts at Dezan Shira and Associates.
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