The Prime Minister recently published a Draft Decision regarding Pilot Regulations on the Import/Export of Software Products and Services (Draft Decision). The Draft Decision is currently available for public comment. Once adopted, the Pilot Regulations under the Draft Decision are to be in force until 31 December 2020.
Key points of the Draft Decision include the following:
- Registration requirements for electronic import/export of software/software services
- Additional declaration requirements for physical import/export of software/software services through customs border gates;
- Rules to determine the customs value of imported software/software services; and
- Basis to determine the taxable revenue applicable to foreign suppliers of imported software / software services.
We elaborate on these points below.
- Key concepts
The Draft Decision defines software as data, programs or instructions presented in the form of commands, codes, diagrams or any other form which, when loaded into a data processing device, enables such device to perform a task or achieve a certain result. Audio, movie, or image products are not considered to be ‘software’ for the purposes of this Draft Decision.
Software services is separately defined as the activities of directly supporting the development, installation, deployment, usage, upgrading, repair or maintenance of software and similar services relating to software.
The Draft Decision addresses both physical and electronic import and export of software and software services:
The Draft Decision covers the physical import or export (i.e. through customs gates) of software in the following forms:
- Software stored, installed or integrated in a physical device solely for storage or transport purposes (e.g., floppy disk, CD, DVD, tape, magnetic card, or external hard disk drive) (Intermediate device). Intermediate Device does not include data integrated circuits, nano-circuits, semiconductors or any other similar devices/parts attached to a circuit board.
- Software embedded, installed or integrated in an imported good that is not an Intermediate Device.
Though not entirely clear in the Draft Decision, electronic import/export of software may be understood to concern (i) software made available for download by an offshore software provider and downloaded by a user in Vietnam; and (ii) software made available for download by a software provider in Vietnam and downloaded by a user outside of Vietnam.
- Electronic import/export of software/software services – MIC Registration Required
Those who electronically import software or software services must file a prescribed registration form and supporting documentation concerning the imported software or software services to the Ministry of Information and Communication ("MIC"). If the software is a type of cyber information security product the import of which requires an import permit, then the supporting documents must include the import permit. Certain documents from the offshore software provider (if applicable) must also be submitted.
Similarly, those who electronically export software or software services must undergo a registration procedure with the MIC.
Registration may be conducted online and it will take up to 5 working days from the date of receipt of a valid registration dossier for the MIC to issue a Confirmation of Registration.
The value of the imported / exported software or software services indicated in the Confirmation of Registration will determine the taxable income. The Confirmation of Registration may also determine if certain income tax incentives may apply to an importer or exporter.
The Draft Decision does not provide a penalty for non-compliance. However, it incentivizes MIC registration by making certain tax benefits available to entities that do so. Furthermore, the type of information required to be registered includes, inter alia, a business registration certificate of the applicant. These factors imply that the Draft Decision is targeting entities importing or exporting software / software services rather than individuals.
- Physical import / export of software / software services – additional declaration requirements
In addition to a standard customs declaration form, an importer or exporter of software in physical form must submit a supplementary declaration form (Supplemental Form).
The MIC will prescribe the Supplemental Form which will require the details of the imported / exported software and software services.
A number of supporting documents (including an MIC import permit regarding certain cyber information security (CIS) products if applicable) must also be submitted with the Supplemental Form. Please refer to our alert on MIC import permit requirements for CIS products here.
- Customs value of software / software services
The Draft Decision specifies rules to determine the customs value of imported software and software services. Valuation will differ dependent upon:
- whether the value of the Intermediate Device is separately indicated on the commercial invoice, and
- whether the software is stored in an imported good that is not an Intermediate Device.
- Tax implications
The Draft Decision sets out new rules to determine taxable revenue applicable to foreign suppliers of imported software and software services.
Under current regulations, royalties payable to an offshore entity for software copyright is subject to withholding of 10% corporate income tax (CIT) but they are exempt from value added tax (VAT).
The Draft Decision appears to introduce a new category of income generated from a software license concerning the right to localize or deploy imported software in Vietnam other than fees payable for software copyright, called income paid for software license.
The Draft Decision defines software license as an agreement between producer/developer and buyer in which the buyer is allowed to use software (such ‘use’ does not include a transfer of ownership or a technology transfer). It is unclear what software license entails in practice, and for example, if it would include SaaS.
In addition, audio, movie, and image works are not considered software for purposes of the Draft Decision. It remains to be seen whether this exclusion means that such items will be categorized separately for taxable purposes.
Should you have any questions on the above, please do not hesitate to contact us.