Tax Alert - Circular 13 on the definition of Software Production

On 03 July 2020, Ministry of Information and Communications issued Circular No.13/2020/TT-BTTTT ("Circular 13") providing new regulations on determination of software production activities to be eligible for Corporate Income Tax ("CIT") incentives. The Circular takes effect from 19 August 2020, replacing Circular No. 16/2014/TT-BTTTT (“Circular 16”) dated 18 November 2014. In comparison with the previous Circular, Circular 13 has some noteworthy points as below:

• The previous Circular requires Enterprises to carry out one of the three steps of Analysis and Design, Programming and Coding, Testing in order to be treated as software production, whereas under Circular 13, the enterprises must carry out at least one of the two steps of Requirement Identification, Analysis and Design. Therefore, carrying out the steps of Programming and Coding, Testing without the two steps as mentioned before shall not be considered as software production under Circular 13;
• Enterprises are required to prepare and maintain supporting documents as stipulated in this Circular for each step carried out;
• Enterprises are also required to submit information about the software products, the carried out software production steps and the tax incentive to Ministry of Information and Communications (Department of Information Technology);
• The investment project started before the effective date of Circular 13 can still apply the criterial as per the Circular 16 to determine whether the business activity is software production or not until the end of project life.

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