Vietnam software outsourcing services have been booming for over a decade. Many Japanese companies are choosing to outsource most of their IT work to Vietnam. Similarly, prominent US tech companies such as Intel, IBM, Cisco, KDDI, and Microsoft, etc. also have been actively and continually investing in Vietnam.
In addition, many tech companies from other developed countries such as Nortel Networks, Anheuser Bush had already set up offices and hired software developers to work on their projects in Vietnam in the past few years. The trend is becoming more and more popular.
In this article, we will explore the compelling reasons why you should consider Vietnam for software outsourcing as well as conditions and incentives available for software outsourcing companies in Vietnam.
The current workforce of Vietnam IT industry stands at more than 550,000 developers and most of them belong to Gen Z (1997 – 2012) and Millennials generation (1981 – 1996). Each year around 50 thousand fresh graduates from 100+ IT institutions enter into this dynamic workforce, equipped with highly skilled abilities to drive innovation on any project. These generations desire a better balance, a healthy lifestyle, more information about the company, products, services, and want to be highly involved in the business process with an impacted contribution to their value, their company, and society.
CIO magazine suggests that Vietnam has emerged as a premier choice for cost-efficient IT outsourcing, presenting potential savings of up to 90% when compared to providers in the United States, Australia, other European countries and boasting prices 30%-50% lower than those in India and China. With its compelling cost advantages and dedication to high-quality processes, global enterprises are increasingly favoring Vietnam as a trusted destination for top-notch IT services at competitive rates.
According to the law of Vietnam, software products are subject to 0% VAT.
The enterprises doing software production shall receive the incentives of Corporate Income Tax (“CIT”) up to 15 years from the year the company has revenue, including the tax exemption and preferential tax rate. In case the first three years the company does not have revenue, the time shall be counted from the fourth year.
Tax rate: 10% up to 15 years from the year the company has revenue. In which, Tax exemption for 4 years, reduction of 50% of tax payable for a maximum period of 09 subsequent years.
Thus, the software producers, from the time of establishment, shall be entitled to apply the CIT rate from software production activities as follows:
| Year |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
8 |
9 |
10 |
11 |
12 |
13 |
14 |
15 |
16 |
… |
| Incentives of CIT |
CIT exemption |
CIT rate of 5% |
CIT rate of 10% |
No incentives |
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Vietnam allows foreign investors to incorporate 100% foreign-owned company in software outsourcing (software production).
In order to set up a foreign-owned company (i.e. 100% foreign-owned company or joint-venture company) (“VN Co”), the investors need to conduct the following steps:
The term of an IRC can be up to 50 years.
There is no term for the ERC.
The company is legally established on the date of the ERC.
In order to be entitled to CIT incentive as highlighted in this article, in addition to registering the software production activities in the company license, the company in Vietnam must satisfy the following requirements:
(1) The software produced should be subject to software products as prescribed in Appendix 01 of Circular No. 09/2013/TT-BTTTT;
(2) The Vietnam company performs at least one or two first stages of the software manufacturing process, namely the phase of clarifying the requirements and the phase of analyzing and designing software as stipulated in Circular No. 13/2020/TT-BTTTT dated July 03, 2020. The next stages of the software manufacturing process include:
The VN Co should prepare the supporting documents to prove that its software-producing activities in each step are performed in line with the prescribed software production process. The details of supporting documents are also instructed in Circular No. 13/2020/TT-BTTTT.
The VN Co must submit details about its software products and manufacturing stages that comply with procedures and qualify for tax deductions to the Ministry of Information and Communications (via the Agency of Information and Technology) for consolidation. Failure to do so could lead to challenges from tax authorities regarding eligibility for corporate income tax incentives.
Under Vietnamese law, enterprises are required to segregate income from production and business activities eligible for tax incentives from those that aren't. Failure to maintain separate accounts results in determining the income from preferential activities based on the ratio of revenue from eligible activities to the total revenue of the enterprise. Consequently, if a VN Co engages in multiple activities, including software production alongside others, it must maintain separate accounting for software production.
The VN Co shall have at least one and may have more Legal Representative(s). One of them must be a resident of Vietnam.
In case the VN Co has only one legal representative, during the time the only Legal Representative does not stay in Vietnam, they are required to grant an Authorization Letter to a person in Vietnam to take over their duties under their instruction and strictly comply with the law.
In short: if the only legal representative is not a Vietnam resident, a legally authorized representative in Vietnam is required.
The Capital Structure of the VN Co which needs to be registered in the application and eventually mentioned in the IRC, includes the Charter Capital and the Long-term Loan Capital.
Charter Capital is the capital that the Investors shall pay fully to the Capital Account opened at a licensed bank in Vietnam within 90 days as of the date of issuance of the ERC.
The Long-term Loan are those having a duration of more than 1 year and optional. If the Investors have plans to grant a Long-term Loan to the VN Co, it is required to include the Long Term Loan in the company incorporation application. Otherwise, no Long-term Loan is included.
Setting up a foreign software outsourcing company in Vietnam presents unique challenges and opportunities.
At Fidinam, our expertise lies in providing tailored solutions that adhere to local and international regulations, ensuring your business not only complies but also thrives in Vietnam’s vibrant market.
Our team is equipped with the knowledge and experience to address your specific needs. For expert assistance and to discover how we can support the growth of your software business in Vietnam, reach out to Fidinam today via the form below or email info@fidinam.com.vn.
All information provided is of a general nature and is not intended to be a full analysis of the points discussed. This article is also not intended to constitute, and should not be taken as, legal, tax or financial advice by us. If you are interested in investing in Vietnam or have any further questions, please reach out to us.