Overview of Tax Incentives for IT Companies in Vietnam

Vietnam’s government has introduced a range of tax incentives designed to foster the growth of the country’s IT sector, especially for businesses involved in software development and high-tech industries. These tax benefits are part of the nation’s efforts to attract both domestic and foreign investors looking to establish IT enterprises in Vietnam. Below is an overview of the main tax incentives available:

1. Corporate Income Tax (CIT) Incentives for IT Companies

Vietnam offers substantial CIT incentives for IT companies, with the goal of reducing the financial burden on new startups and promoting long-term growth in the sector. The key features of these incentives include:

• Standard CIT Rate: The standard CIT rate for most businesses in Vietnam is 20%. However, IT companies can benefit from more favorable rates based on their industry and investment status.
• Preferential CIT Rate: IT companies, especially those in software production or high-tech sectors, may qualify for a preferential CIT rate of 10% for up to 15 years.
• Tax Exemption and Reduction for New IT Projects: Vietnam offers full tax exemption for the first 4 years of operation. This exemption is particularly beneficial for startups, as it provides a significant tax relief during the early years of business. After the initial 4-year tax exemption, companies can enjoy a 50% tax reduction on their CIT for the next 9 years. This reduction further supports IT companies, allowing them to reinvest in growth, innovation, and technology.

The preferential CIT rate period begins once the company starts generating taxable income, making it easier for new IT companies to access these benefits and maintain profitability during their initial growth phase.

2. Value-Added Tax (VAT) Exemptions for IT Products and Services

In addition to CIT incentives, certain software products and IT services in Vietnam are eligible for VAT exemptions, as stipulated in Circular 219/2013/TT-BTC. This includes software products listed in Circular 09/2013/TT-BTTTT (amended by Circular 20/2021/TT-BTTTT), such as operating systems, productivity software, and specialized software used in sectors like education, healthcare, and business management. These exemptions are designed to reduce costs for companies in the software development and technology industries. The key VAT exemptions for IT businesses include:

• Software Products: Specific software products that are produced, displayed, stored, and transferred or sold, either in digital or physical form, are exempt from VAT. This includes software related to operating systems, productivity software, and specialized software used in sectors like education, healthcare, and business management.
• IT Services: Services directly related to the creation, installation, operation, upgrading, warranty, and maintenance of software are also exempt from VAT. This includes a broad range of IT services, such as:
  • Software development
  • System installation and configuration
  • Regular maintenance and upgrades
  • Troubleshooting and support

These VAT exemptions are intended to reduce costs for IT companies and make software products more affordable for consumers and businesses. However, not all IT-related services are eligible for VAT exemptions.

3. VAT Applicability on Certain IT Services

While many software products and IT services are VAT-exempt, some services may still be subject to the standard 10% VAT rate. These services include, but are not limited to:

• Website Leasing: Services that involve leasing or renting websites or domain names are subject to the standard VAT rate of 10%.
• Data Processing Services: IT services related to processing and managing data, such as cloud storage services and data analytics, are also subject to VAT at the standard rate.
• Web Portal Services: Services that provide access to web portals (including those for e-commerce platforms, social media sites, etc.) are not VAT-exempt and are taxed at the 10% VAT rate.

These tax incentives create a favorable environment for IT businesses, particularly those in software production and high-tech industries, enabling them to grow, innovate, and contribute to the development of Vietnam’s thriving IT sector.

Eligibility Criteria

To be eligible for the tax incentives offered by the Vietnamese government, IT enterprises must meet certain specific conditions outlined in the regulations. These criteria ensure that only qualifying software production and high-tech businesses benefit from these tax breaks. Below is a detailed overview of the eligibility requirements for IT companies seeking to take advantage of Vietnam’s CIT and VAT incentives.

1. New Investment Projects

For an IT company to qualify for tax incentives, it must be established through a new investment project that complies with the investment laws of Vietnam. This includes securing the Investment Registration Certificate (IRC) from the Vietnamese authorities.

• Investment Registration Certificate (IRC): The IRC is an official document that proves the legality of the investment in Vietnam. It must be obtained from the Department of Planning and Investment. The registration ensures that the business meets the legal requirements for foreign and domestic investments in Vietnam.
• Compliance with Investment Laws: The new investment project must meet the guidelines set forth in Vietnam’s Investment Law, which regulates the types of businesses eligible for tax incentives. These businesses must contribute to sectors that are critical for Vietnam’s economic growth, such as the IT and software industries.

By establishing a new investment project, IT companies can access a range of tax benefits, including reduced CIT rates and VAT exemptions. This helps to create a more favorable business environment for growth and innovation.

2. Software Production Activities

In order to qualify for tax incentives, an IT enterprise’s activities must align with the specific criteria set forth in Circular 13/2020/TT-BTTTT, which defines the various stages of software production.

The main stages of software production activities include:

• Requirement Determination: The first stage involves identifying the technical requirements and specifications of the software. This is a crucial step for ensuring the software meets the needs of its users and stakeholders.
• Analysis and Design: The next step focuses on analyzing the requirements and designing the architecture and interface of the software. This phase sets the foundation for coding and ensures that the software meets its intended purpose.
• Coding: The coding phase is where the actual software development happens. It involves writing the code that will run the software, following the design specifications set in the previous phase.
• Testing: After coding, testing is necessary to identify and fix any bugs or issues in the software. Thorough testing ensures that the software is stable and functional.
• Deployment: Once the software passes testing, it is deployed for use. Deployment includes activities such as installation, configuration, and making the software available to users.
• Maintenance: Continuous maintenance is required to ensure the software remains up-to-date, functional, and secure. This phase involves regular updates, bug fixes, and improvements to the software.
  Operation: The final stage involves the ongoing use and support of the software, including monitoring its performance and resolving any issues that arise.

For eligibility, IT companies must engage in at least one of the first two stages—Requirement Determination and Analysis and Design. This ensures that the company is actively involved in software development and contributes to the high-tech sector.

3. Product Classification

To be eligible for tax incentives, the software products developed by the IT enterprise must be classified in accordance with Circular 09/2013/TT-BTTTT, as amended by Circular 20/2021/TT-BTTTT. These circulars define which software, hardware, and electronic products qualify for tax exemptions and reductions.

• Eligible Products: The circular specifies the types of software products that qualify for tax benefits. These include software products used for business management, education, healthcare, government services, and other essential sectors.
• Software, Hardware, and Electronics: The classification also includes certain hardware and electronic products that work in tandem with software, such as computers, servers, and other high-tech equipment used in the production, deployment, and maintenance of software solutions.
• Updating Product Listings: IT companies must ensure their software products are included in the official list of eligible products. This list is periodically updated, and companies must stay informed about any changes in classification to maintain their eligibility for tax incentives.

Application Process

To successfully avail of the tax incentives provided by the Vietnamese government, IT enterprises must follow a structured application process. This process involves several key steps to ensure that the business meets all legal and regulatory requirements, ensuring a smooth and efficient application for tax reductions and exemptions. Below is a step-by-step guide to the application process for IT enterprises seeking tax incentives in Vietnam.

1. Secure the Investment Registration Certificate (IRC)

The first and most crucial step to avail of the tax incentives is to obtain the Investment Registration Certificate (IRC) from the Department of Planning and Investment. It certifies that the enterprise complies with the country’s investment laws and is authorized to carry out business operations within specific sectors, including IT and software development. To obtain the IRC, the enterprise must submit a detailed investment proposal to the relevant authorities. This proposal must include key details such as the business objectives, location, investment capital, and planned business activities. After reviewing the submitted documents, the Department of Planning and Investment will issue the IRC if the project complies with Vietnamese regulations.

2. Register with the Tax Authorities

After securing the Investment Registration Certificate (IRC), the next step is to register with the Vietnamese tax authorities. This registration ensures that your company is officially recognized as a tax-paying entity and eligible for the tax incentives available for IT enterprises.

• What Documents Are Required for Tax Registration?
  The company must submit several documents to the tax authorities to complete the registration process. These documents include:
  
  • A copy of the Investment Registration Certificate (IRC).
  • A valid business license for the IT enterprise.
  • A detailed description of the company’s software production activities, including a breakdown of the software development stages (e.g., analysis, design, coding, testing, deployment, and maintenance). 
• How to Register with the Tax Authorities?
  To register with the Vietnamese tax authorities, the enterprise must visit the local tax office and submit the required documents. The tax office will then process the registration and assign a tax identification number (TIN) to the enterprise. This number is essential for all future tax-related activities, including the submission of tax returns and eligibility for CIT and VAT exemptions.

3. Maintain Comprehensive Documentation

Once the registration process is completed, it is crucial for IT enterprises to maintain comprehensive documentation of all activities related to their software production. This documentation will be essential for audits and verifying the company’s compliance with the criteria for receiving tax incentives.

• What Documentation Should Be Maintained?
  IT companies should keep detailed records of all the following:
  • Contracts and Agreements: Any contracts related to software development, licensing agreements, or partnerships with clients and vendors.
  • Invoices: Detailed invoices for all transactions, including payments made for software development, maintenance, and other related services.
  • Development Stages: Documentation of each stage of software development, including design, coding, testing, and deployment. This can include design documents, code repositories, and project management records.
  • Financial Records: Keep records of any tax payments, investments, and expenditures related to software production.
    Tax Filing Documents: Copies of all filed tax returns, including CIT and VAT declarations.
• Why is Documentation Important?
  Maintaining accurate and up-to-date documentation is critical for ensuring the enterprise is prepared for any tax audits conducted by the authorities. These records serve as proof of the company’s eligibility for tax incentives, and in the event of an audit, they will help substantiate the company’s tax exemption and reduction claims.

Compliance and Considerations

To successfully operate a software development company in Vietnam, foreign investors must pay close attention to several important compliance obligations and regulatory developments. These include updates on international tax standards, local audit practices, and ongoing eligibility requirements. Below is a detailed explanation of the key considerations:

1. Global Minimum Tax – Impact on Tax Incentives

Starting from 2024, Vietnam has implemented the Global Minimum Tax regime under the OECD’s Pillar Two framework. This applies a minimum corporate tax rate of 15% for multinational enterprises (MNEs) with consolidated annual global revenue of at least EUR 750 million.

Impact: Certain preferential tax incentives previously available to qualifying software enterprises in Vietnam may no longer apply or may be limited for large multinational investors falling under this rule. Investors should carefully assess how this regulation affects their tax planning, especially if they intend to benefit from corporate income tax exemptions or reductions.

2. Regular Tax Audits by Vietnamese Authorities

The Vietnamese tax authorities regularly conduct tax inspections and audits to ensure full compliance with local tax laws and financial reporting standards. These audits may be scheduled or random, and companies are required to:

• Maintain transparent accounting books and records
• Keep detailed supporting documents for all transactions, especially those related to software service revenue and expenses
• Provide timely responses to audit queries

Recommendation: Companies should set up an internal tax compliance system or work with local accounting professionals to reduce audit risks and ensure smooth cooperation with tax authorities.

3. Continuous Compliance with Software Production Regulations

To maintain eligibility for operating as a software production enterprise and to benefit from related incentives, companies must strictly follow the guidelines set by Vietnamese authorities. These include:

• Adhering to the defined stages of software production (e.g., requirement analysis, design, coding, testing, deployment, maintenance)
• Keeping proper documentation for each stage of the production process
• Submitting periodic reports or declarations, as required by the Department of Planning and Investment or the Tax Department

Note: Failure to comply with these requirements can result in the revocation of tax incentives, or even penalties and business suspension.

How Green NRJ Can Support You

Navigating Vietnam’s regulatory landscape can be complex—especially when dealing with tax incentives, software classification, and investment licensing.

Green NRJ is a trusted local advisory firm specializing in supporting foreign and domestic investors in Vietnam’s IT sector. We offer comprehensive services to help your company:

• Determine your eligibility for IT tax incentives
• Draft and submit Investment Registration Certificate (IRC) applications
• Prepare required documentation for tax authority registration
• Ensure ongoing compliance through professional tax and legal consultancy
• Support audits with clear, accurate record-keeping

Whether you’re starting a new project or expanding your current IT business in Vietnam, Green NRJ is here to provide expert guidance every step of the way.

📞 Contact us today to maximize your IT company’s tax savings in Vietnam.

Frequently Asked Questions (FAQs)

Q1. Can foreign-owned IT companies qualify for CIT and VAT incentives in Vietnam?
Yes. As long as the company registers a qualifying investment project and complies with Circular 13/2020/TT-BTTTT and Circular 20/2021/TT-BTTTT, foreign-owned companies are eligible.

Q2. When does the tax exemption period begin?
It starts from the year your company first generates taxable income.

Q3. What if my IT company only offers cloud storage and not software development?
Cloud storage services are not VAT-exempt and are taxed at the standard 10% VAT rate. You may not qualify for CIT incentives either if your activities don’t meet software production requirements.

Q4. Can existing IT companies apply for incentives retroactively?
Typically, tax incentives apply to new investment projects only. Existing companies may need to launch a new qualifying project to access benefits.

Q5. What documentation is essential during tax audits?
Maintain all contracts, invoices, software development records, and tax filings. These documents prove your company’s compliance and eligibility.