Establishing a Foreign IT Company in Vietnam

1. Overview of Vietnam's IT Industry

Information Technology (IT) involves using computers and software to store, transform, process, protect, transmit, and gather information. According to the American ACM standards, IT is divided into five main specialties: software technology, computer technology, IT applications, information systems, and computer science. The IT industry has been rapidly expanding in Vietnam in recent years. According to statistics, the IT industry's revenue in 2019 was 120 billion USD, 400 times that of 2000, with an average annual growth rate of 37% over 19 years. Labor productivity is 7.6 times the national average, with around 1,030,000 people employed in the IT sector, 20 times the number in 2000, accounting for 1.88% of the total workforce in Vietnam. The sector contributes 14.3% to Vietnam's GDP, 28 times that of 2000 (0.5% GDP). Exports value at 89.2 billion USD, accounting for 33.7% of Vietnam's exports. The export value generated per worker per year is 18 times the national average. These figures show that Vietnam's IT industry is growing tremendously and is poised for further development in the future.

2. Legal Framework for Foreign Investors in Vietnam's IT Sector

Laws and Regulations on Foreign Investment

Foreign investment in Vietnam must comply with the regulations of the Investment Law, Enterprise Law, WTO commitments, international treaties that Vietnam is a part of, and related legal documents.

Types of Business Entities Available to Foreign Investors in Vietnam's IT Sector

• Limited Liability Company (LLC): A common type of business, which can be established by one or more members contributing capital.
• Joint Stock Company (JSC): A business entity with at least three shareholders, with no maximum limit.
• Branch Office: A branch of a foreign parent company, permitted to conduct business activities similar to the parent company.
• Representative Office: A non-commercial entity that can engage in trade promotion activities.

For detailed procedures on establishing a foreign-owned business in Vietnam, refer to: Procedures for Establishing a 100% Foreign-Owned Business.

3. Tax Exemptions for Software Development Activities of Foreign Enterprises in Vietnam

VAT Policy for Software Business Enterprises

To implement policies encouraging IT development and application, software businesses (whether in production or business) are exempt from value-added tax (VAT) and import tax.

Based on Article 4 of the guidance on non-VAT subjects in Circular No. 219/2013/TT-BTC dated December 31, 2013, of the Ministry of Finance, guiding the implementation of the VAT Law and Decree No. 209/2013/ND-CP dated December 18, 2013, of the Government stipulating details and guidance for implementing certain articles of the VAT Law, computer software products and services are not subject to VAT.

Corporate Income Tax Policy for Foreign Software Production Enterprises in Vietnam

Software production enterprises enjoy corporate income tax incentives from their establishment as follows:
From year 1 to year 4: Exempt from corporate income tax.
From year 5 to year 13 (next 9 years): 50% reduction in corporate income tax at a 10% tax rate (paying 5%).
From year 14 to year 15 (10% tax rate for 15 years): 10% tax rate.
From year 16 onwards: Normal corporate income tax.
Note: Software trading businesses are not eligible for the above-mentioned corporate income tax incentives.
Application Process for Tax Exemption for Foreign Software Production Enterprises in Vietnam

• Required Documents: Includes business license, documents proving software development activities, and financial reports.
• Steps to Submit a Tax Exemption Application: Submit the application to the local tax authority along with the required documents.
• Working with Tax Authorities: Monitor the processing of the application and work with the tax authorities to ensure approval.

Benefits and Compliance

• Financial Benefits of Tax Exemption: Tax exemptions help reduce costs, increase competitiveness, and enable reinvestment in the company.
• Compliance and Monitoring Requirements: Companies need to comply with financial reporting, auditing, and monitoring requirements from tax authorities.

Additional Incentives for IT Companies

• Support for R&D: The government provides tax incentives and funding for R&D projects.
• Support for Startups and Innovation: Programs from the government and international organizations aim to promote startups and innovation.

4. Challenges and Considerations for Foreign Enterprises in Vietnam's IT Sector

• Legal Procedures: Complex and constantly changing legal procedures can be challenging for foreign companies.
• Language Barriers: Language differences can pose difficulties in communication and working with authorities.
• Business Culture: Differences in business culture and customs can be challenging.

Advice for Foreign Investors to Navigate Regulatory and Cultural Differences

• Understand Legal and Cultural Regulations: Thoroughly understand Vietnam's legal regulations and business culture.
• Use Professional Advisory Services: Utilize consulting services from reputable law firms and investment consultants to ensure compliance and optimize the business establishment process.

Overall, establishing a foreign IT company in Vietnam brings many benefits but also comes with challenges. Thorough research, adequate preparation, and choosing reputable support services will help investors optimize the establishment process and ensure their business's success.