We explore below the value-added tax refund scheme for software production in Vietnam, discuss eligibility criteria, and outline the process and tax risks involved in claiming the refund to maximize the amount received.
Eligibility for Refund Scheme
A Vietnamese VAT refund scheme allows eligible software producers to claim a refund of the VAT they’ve paid on their inputs, equipment, and services used for software production, as long as the producers meet certain conditions.
First, VAT refund eligibility for software production in Vietnam is limited to enterprises exporting software products overseas. To qualify, software production companies must demonstrate that their products are intended for export. This involves establishing a documented link between production activities and export sales, providing evidence such as export contracts, invoices, and supporting documents, to prove delivery to overseas clients. These documents validate export transactions and support their claim for VAT refund.
Second, software producers must maintain proper accounting records and documentation to support VAT refund claims. These records should accurately reflect VAT paid on eligible inputs, equipment, and services used in software production. It is important to retain valid VAT invoices, receipts/debit notes, contracts, and other relevant supporting documents for goods and services related to software production.
The VAT refund scheme for software production in Vietnam operates on a refund basis, requiring producers to initially pay VAT on inputs and then claim a refund. Efficient accounting systems and accurate refund claims are vital to track VAT payments and associated documents during the company’s operations.
In our experience with local tax auditors, Vietnamese enterprises engaged in software production must prepare a detailed production procedure to be eligible for VAT refund. This procedure follows Circular 13/2020/TT-BTTTT that outlines the activities involved in software production. These activities include design, development, coding, testing, and documentation of software products. It is crucial to have a well-defined process that outlines the specific steps for building and delivering software to overseas clients.
By referring to Circular 13, software production enterprises can gain clarity on the activities that are considered eligible for VAT refund. This includes understanding the criteria for determining the production process, such as the use of programming languages, software development methodologies, quality control measures, and the incorporation of customer requirements into the software.
Circular 13 also guides enterprises on maintaining necessary documentation and records to demonstrate compliance with the software production process. This includes project plans, technical specifications, coding guidelines, testing protocols, and other relevant documents that show a systematic approach.
Transparency and traceability in software production are emphasized, so enterprises should document project progress, resource allocation, collaboration with overseas clients, and achieved milestones. These records serve as evidence of adherence to the process, and aid in verifying VAT refund claims.
Software production enterprises should align their processes with the guidelines in Circular 13 to accurately document activities and meet the criteria for claiming VAT refunds. Additionally, following the guidance in Official Letter 5018/TCT-KK, payment vouchers for export revenue must indicate the buyer’s bank account, matching the information in the sales contract/agreement. Vietnamese enterprises should prepare suitable payment terms in the contract and coordinate with their banks to ensure accurate bank account information is included on the vouchers.
Tax Audit Procedures for Refund
For VAT refund eligibility in software production for foreign customers, Vietnamese enterprises must submit a VAT refund application. According to the current regulations, companies submitting a VAT refund application for the first time undergo a “tax audit first and refund later” process.
In this process, the tax authorities conduct a tax audit, review accounting books, records, and supporting documents to assess the eligible accumulated input VAT refund. Tax audits for VAT refund may include additional internal processes to verify VAT invoices for legitimacy. The duration of the tax audit procedures for VAT refund may vary depending on transaction complexity and the number of input VAT invoices.
During the audit, tax auditors evaluate potential adjustments to the accumulated input VAT based on key findings. They compare reported figures with audit results to identify any discrepancies in the refund application. Taxpayers can discuss and resolve differences or disputes with auditors to obtain the final decision on VAT refund and reach an agreement on the tax audit results.
Some Planning Points
The VAT refund procedure in Vietnam can be complex and time-consuming, particularly for enterprises subject to “tax audit first and refund later.” We provide below some planning points for software production enterprises.
- Eligibility criteria. Software production enterprises must meet the eligibility criteria for VAT refund, including preparing supporting documents for exporting software products to overseas clients. They should review Circular 13 requirements and align their activities with the defined software production process.
- Documentation. Eligible Vietnamese enterprises should maintain accurate and organized documentation to support their VAT refund claims for software production. This includes invoices, contracts, and relevant documents that validate inputs, equipment, and services used in software production. Proper documentation is essential to substantiate eligibility and validity of VAT refund claims during tax audits.
- Cooperation with tax authorities. Software production enterprises should cooperate proactively with tax authorities during the VAT refund procedure. Promptly responding to queries, providing necessary clarifications, and maintaining open communication, can expedite the refund process.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Source: Bloomberg Tax