Information Technology & Communications Vietnam Client Alert February 2017 www.bakermckenzie.com Baker & McKenzie (Vietnam) Ltd. 12th Floor, Saigon Tower 29 Le Duan Blvd District 1 Ho Chi Minh City Socialist Republic of Vietnam Tel: +84 8 3829 5585 Fax: +84 8 3829 5618 Baker & McKenzie (Vietnam) Ltd. Hanoi Branch Office Unit 1001, 10th Floor Indochina Plaza Hanoi 241 Xuan Thuy Street Cau Giay District, Hanoi Socialist Republic of Vietnam Tel: +84 4 3825 1428 Fax: +84 4 3825 1432 Vietnam’s Potential New Controls on Physical and Electronic Import and Export of Software and Software Services 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: (i) Registration requirements for electronic import / export of software / software services; (ii) Additional declaration requirements for physical import / export of software / software services through customs border gates; (iii) Rules to determine the customs value of imported software / software services; and (iv) Basis to determine the taxable revenue applicable to foreign suppliers of imported software / software services. We elaborate on these points below. 1. 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 2 Baker McKenzie February 2017 Vietnam; and (ii) software made available for download by a software provider in Vietnam and downloaded by a user outside of Vietnam. 2. 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. 3. 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. 4. 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 3 Baker McKenzie February 2017 whether the software is stored in an imported good that is not an Intermediate Device. 5. 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. Should you wish to obtain further information or want to discuss any issues raised in this alert with us, please contact: Seck Yee Chung (Ho Chi Minh City) +84 8 3520 2633 firstname.lastname@example.org Dang Thanh Son (Hanoi) +84 4 3936 9607 email@example.com Nguyen Thuy (Singapore) +65 6434 2255 firstname.lastname@example.org This client alert provided by Baker & McKenzie (Vietnam) Ltd. is intended to provide our clients, and other interested parties, with an overview of the recent legal changes in the relevant area for information purposes only. The information contained in this client alert does not constitute legal advice or legal opinion, and should not be regarded as a substitute for detailed advice in individual cases. The information, as referred to in this client alert, is based on the laws, regulations, notifications, practice and policy at the time of its production. The laws, regulations, notifications, practice and policy may change from time-to-time and, therefore, the use of this client alert must be taken with due care. You are strongly advised that no use should be made of the information in this client alert without prior consultation with Baker & McKenzie (Vietnam) Ltd.. No portion hereof may be reproduced or transmitted, by any means, without the prior written permission from Baker & McKenzie (Vietnam) Ltd.. All rights reserved. Baker & McKenzie (Vietnam) Ltd. is a member of Baker & McKenzie International, a Swiss Verein with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a “partner” means a person who is a partner, or equivalent, in such a law firm. Similarly, reference to an “office” means an office of any such law firm. ©2017 Baker & McKenzie (Vietnam) Ltd. All rights reserved. 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