Handbook | Taxes on Software Services

Software leasing is renting computer software licenses This is not a software service as defined by regulations, therefore this activity falls under the category of Subject to VAT at a rate of 10%.

Refer to document 10684/CT-TTHT 

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 – Tax Code: 0100244112)

In response to công văn (official letter) No. 33/CV-CMC dated March 8, 2018, from CMC Technology Group Joint Stock Company (hereinafter referred to as the Company) inquiring about tax policies, the Hanoi City Tax Department has the following opinion:

– Based on Government Decree 71/2007/ND-CP dated May 3, 2007, which details and guides the implementation of some articles of the Law on Information Technology concerning the information technology industry:

Article 3 stipulates the following:

“Article 3. Interpretation of terms

In this Decree, the following terms are understood as follows:

1. Software products are software and accompanying documentation that are produced and presented or stored in any tangible form, and can be bought, sold, or transferred to other parties for exploitation and use.

...

10. Software services are activities that directly support and facilitate the production, installation, exploitation, use, upgrading, warranty, maintenance of software, and other similar activities related to software.

… '

Article 9 specifies the types of software products and software services as follows:

2. Types of software products include:

a) System software;

b) Application software;

c) Utility software;

d) Tool software.

e) Other software.

3. Types of software services include:

a) Services for managing, guaranteeing, and maintaining the operation of software and information systems;

b) Software quality consulting, evaluation, and assessment services;

c) Software project consulting and development services;

d) Software valuation consulting services;

e) Software technology transfer services;

f) System integration services;

g) Services to ensure the safety and security of software products and information systems;

h) Software product distribution and supply services;

i) Other software services.”

– Based on Circular 219/2013/TT-BTC dated March 31, 2013 of the Ministry of Finance guiding the implementation of the Value Added Tax Law and Decree No. 209/2013/ND-CP dated December 18, 2013 of the Government detailing and guiding the implementation of a number of articles of the Value Added Tax Law:

+ Clause 21 of Article 4 stipulates the subjects not subject to tax, including:

"...

Computer software includes software products and software services as defined by law.

+ Article 11 stipulates the VAT rate of 10% as follows:

Article 11. Tax rate of 10%

A 10% tax rate applies to goods and services not specified in Articles 4, 9, and 10 of this Circular.

... "

Based on the above regulations, and since the unit has not provided specific documents, the Hanoi City Tax Department responds in principle as follows:

– In the case where the Company sells software products and software services as stipulated in Articles 3 and 9 of Government Decree 71/2007/ND-CP dated May 3, 2007, if the software products and software services are computer software as defined by law, they are exempt from Value Added Tax (VAT).

– In the case where a company leases computer software licenses, and this is not considered a software service as defined in Clause 3, Article 9 of Government Decree 71/2007/ND-CP dated May 3, 2007, then this activity is subject to Value Added Tax (VAT) at a rate of 10%.

The company is requested to base its actions on the actual situation at its unit, comparing it with the regulations in Government Decree 71/2007/ND-CP dated May 3, 2007, to ensure compliance with the law. If any further issues arise, the company is requested to contact Tax Inspection Department No. 4 – Hanoi City Tax Department for clarification.

The Hanoi City Tax Department has responded to the company for their information and action./.

Question:

(Chinhphu.vn) – Mr. Dong Van Hoan's company (Hanoi), a 100% state-owned enterprise, conducted a competitive online bidding process for a non-consulting software maintenance service package. When submitting the bid, the bidder set the value-added tax (VAT) at 10%, and the bid price was lower than the approved estimated cost of the package.
 
 Reply:

However, based on current tax regulations, software maintenance services are not subject to Value Added Tax (VAT). The expert panel, during its assessment, had two differing opinions as follows:

• The bidder meets the requirements of the E-HSMT and is invited to negotiate. During the negotiation process, the contracting authority will discuss with the bidder the implementation of current tax regulations, which stipulate a 0% VAT rate. The winning bid price will be reduced by the 10% VAT.
• Request the contractor to clarify the VAT included in the bid price; if the contractor confirms a 10% VAT rate, adjust the VAT from 10% to 0% for further evaluation.

Mr. Hoan asked whether the expert team's assessment in the two cases above was correct or incorrect.

The Ministry of Finance responded to this issue as follows:

Based on Government Decree No. 71/2007/ND-CP dated May 3, 2007, which details and guides the implementation of several articles of the Law on Information Technology concerning the information technology industry:

+ Clause 10 of Article 3 regarding the definition of terms:

“10. Software services are activities that directly support and facilitate the production, installation, exploitation, use, upgrading, warranty, maintenance of software, and other similar activities related to software.”

+ Clause 3 of Article 9 stipulates the activities of the software industry:

3. Types of software services include:

a) Services for managing, guaranteeing, and maintaining the operation of software and information systems;

b) Software quality consulting, evaluation, and assessment services;

c) Software project consulting and development services;

d) Software valuation consulting services;

e) Software technology transfer services;

f) System integration services;

g) Services to ensure the safety and security of software products and information systems;

h) Software product distribution and supply services;

i) Other software services.

Based on Circular No. 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance guiding the implementation of the Value Added Tax Law and Decree No. 209/2013/NĐ-CP dated December 18, 2013 of the Government detailing and guiding the implementation of a number of articles of the Value Added Tax Law:

+ Article 4 of the guidelines on subjects not subject to VAT states:

“21… Computer software includes software products and software services as defined by law.”

+ Article 9 provides guidance on the 0% tax rate.

+ Article 11 of the guidelines on the 10% tax rate states: "The 10% tax rate applies to goods and services not specified in Articles 4, 9, and 10 of this Circular."

Based on the above regulations, if Mr. Hoan's company provides software products and software services as stipulated in Articles 3 and 9 of Government Decree No. 71/2007/ND-CP dated May 3, 2007, then it is exempt from Value Added Tax (VAT) as stipulated in Article 4 of Circular No. 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance.

In cases where a company provides products or services not covered by Clause 3, Article 9 of Government Decree No. 71/2007/ND-CP dated May 3, 2007, it is subject to Value Added Tax (VAT) at a rate of 10% as stipulated in Article 11 of Circular No. 219/2013/TT-BTC dated December 31, 2013 of the Ministry of Finance.

Mr. Hoan is requested to base his actions on the actual situation and refer to relevant legal documents to ensure compliance with regulations. If any difficulties arise during implementation, please provide relevant documents and contact the directly supervising tax authority for specific guidance.

Original article: Are software maintenance services subject to VAT?

Software rental do The company manufactures or purchases. out If this activity is not a software service as defined in Clause 3, Article 9 of Government Decree 71/2007/ND-CP dated May 3, 2007, then it is subject to Value Added Tax (VAT) at a rate of 10%.

Original post: Is software produced by a company and then leased out subject to taxation?