Advantages of Setting Up a Software Company in Vietnam

Advantages of Setting Up a Software Company in Vietnam

The global demand for software services is soaring. Vietnam has emerged as a top choice for businesses seeking to develop software or outsource software projects. Let’s explore the advantages of establishing a software company in Vietnam.

1. High-quality IT workforce at reasonable costs

Abundant Workforce: Vietnam has a young, large IT workforce that can quickly adapt to new technologies.

Proper Training: Universities and colleges in Vietnam produce a significant number of IT graduates, meeting the human resource needs of businesses.

Competitive Labor Costs: Compared to other developed countries, IT labor costs in Vietnam are still quite low, helping businesses save on expenses.

Good Foreign Language Skills: Many Vietnamese IT employees are proficient in English and even other languages like French, German, and Japanese. This facilitates communication with international clients and participation in global projects. Especially, the younger generation in Vietnam increasingly learns foreign languages from an early age, improving the language skills of the young workforce.

Vietnam has a vibrant startup and IT community with many support programs from the government and international organizations, creating a favorable environment for IT startups.

Reference: ITViec.com

IT workforce Vietnam

2. Modern telecommunications infrastructure

Vietnam has a modern telecommunications system, which is being heavily invested in and developed, creating favorable conditions for IT companies to operate efficiently. Specifically:

  • Broadband internet has been widely deployed across the country, especially in major urban areas. The widespread 4G network and the ongoing rollout of 5G provide high-speed data transmission. This facilitates internet access, remote work, and connectivity to global server systems.
  • Vietnam has constructed numerous large-scale modern data centers to meet the data storage and processing demands of businesses. These data centers adhere to international standards, ensuring high security and resilience.

Vietnam internet

3. Attractive tax incentives

Vietnam offers very attractive tax incentives for IT companies, making it an appealing destination for foreign businesses, including:

3.1. Value-Added Tax exemption 

Computer software, including software products and software services as stipulated by law, is not subject to VAT throughout the entire operation period. Therefore, clients using software outsourcing and production services providing by Vietnamese IT companies do not have to pay additional VAT, reducing the cost of outsource services compared to other countries. 

3.2. Corporate Income Tax incentives 

Currently, the standard Corporate Income Tax (CIT) rate applied to most industries is 20%. 

IT companies generating income from software production activities that meet the stipulated conditions (#3.3 below) are entitled to the following CIT incentives: 

Year of operation 

(from the year of revenue generation)

CIT rate 
1st – 4th year Tax exemption 
5th – 13th year 5% 
14th – 15th year 10% 
16th year onwards 20% 

CIT incentives apply only to companies that adhere to accounting, invoicing, documentation, and file their CIT returns on a declaration basis. 

3.3. Conditions for enjoying CIT incentives 

IT companies must meet the following conditions to enjoy CIT incentives for software production revenues:

  • For domestic projects: must involve the establishment of a new entity with an investment capital of less than 15 billion VND.
  • For foreign-invested projects: must be granted an Investment Registration Certificate. 

The company must identify the specific product code for the type of their software product in this LIST.

According to Articles 3 and 4 of Circular 13/2020/TT-BTTTT, the 7 steps in the manufacturing process of software products include:

  • Step 1: Cilent’s requirement identification. 
  • Step 2: Analysis and design the software. 
  • Step 3: Software programming and coding. 
  • Step 4: Sofware testing and trial. 
  • Step 5: Software completion and packaging. 
  • Step 6: Software installation, transfer, user training, maintenance, and warranty. 
  • Step 7: Software release and distribution. 

To enjoy CIT incentives, software production companies must perform at least Step 1 and/or Step 2

Additionally, for each step completed, the company must have sufficient supporting documents proving that the step has been done.

In additon, annually, software production companies applying for tax incentives according to above regulations must submit a Software Production Activity Report to the Ministry of Information and Communications.

Tax incentives for IT company in Vietnam
Tax incentives for IT company in Vietnam

4. Conclusion 

Vietnam is rapidly becoming a prime location for establishing IT companies. With a skilled and affordable workforce, modern infrastructure, and attractive tax incentives, Vietnam offers a compelling environment for both domestic and foreign investors. This makes it an ideal choice for businesses seeking to optimize their software production and outsourcing operations.

Nova Law currently offers legal and tax services to IT clients to ensure their compliance with legal regulations and the accurate application of tax incentives, including but not limited to:

  • Company Registration: Setting up a foreign-owned IT company in Vietnam.
  • Tax Incentive Eligibility Check: Verifying whether the company’s activities meet the conditions to apply for CIT incentives and guiding on how to apply them.
  • Drafting Software Production Service Contracts: Creating detailed, customized, professional, and valid contracts between the IT company and clients, and suitable for CIT incentive applications.
  • Supporting Document Preparation Guidance: Assisting companies in preparing supporting documents and records for tax incentive applications.
  • HR Management: Managing labor contracts, social insurance, payrolls, employee benefits upon resignation, and labor dispute resolution.
  • Tax Declaration: Accurately applying the tax incentives the company is entitled to.

If you are interested in our services, please contact Nova Law for further details.

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