Advantages and Incentives in Software outsourcing in Vietnam

According to Global Market Estimates Research & Consultants, the global software development outsourcing market is expected to exhibit a CAGR of 11.5% from 2023 to 2028. Asia Pacific is expected to be the fastest growing region across the global software development outsourcing market. It offers a large and highly skilled talent pool at competitive costs, making it attractive for businesses seeking cost-effective solutions.

Not outside that flow, in Vietnam, software outsourcing industry has experienced significant growth for more than ten years. Many Japanese firms opt to delegate their IT tasks to Vietnam, and notable US tech giants like Intel, IBM, Cisco, and Microsoft are actively investing in the country as well.

Moreover, various tech companies from other developed nations such as Nortel Networks and Anheuser Bush have also established offices and hired software developers in Vietnam recently. This trend is gaining popularity, showcasing Vietnam's attractiveness as a destination for software outsourcing.

In this article, we will explore why Vietnam is a compelling option for software outsourcing and discuss the conditions and incentives available for companies engaged in outsourcing services in the country.

Why choose Vietnam for software outsourcing?

A large pool of IT talents

Vietnam has a large number of well-educated young IT professionals. There are over 550,000 developers in the IT industry, most of whom are from the Gen Z and Millennials generations. Each year, about 50,000 fresh graduates from over 100 IT institutions join this workforce. They have strong skills to innovate on projects and seek a good work-life balance. They also want to know more about the company, its products, and services, and are eager to contribute to its success and society.

Vietnamese young people are spreading worldwide, going to famous universities and schools, and sharing their knowledge to improve IT talent. The World Education News and Reviews found that Vietnam is the country with the third-largest student population in the U.S. But it doesn't stop there; many Vietnamese IT talents are hired by big Silicon Valley companies like Google, Apple, Facebook, etc. According to Glints in 2022, Vietnamese tech talent is highly sought after globally. This is because Vietnam has a strong base of tech talent skilled in modern areas like artificial intelligence, blockchain, data science, etc.

The workforce in Vietnam also has a lower turnover and more stability compared to many other countries doing outsourcing. Companies in Vietnam have an IT-related turnover rate of less than 5%, while in other countries like India, it can be 10% or higher. Ho Chi Minh is known for its low attrition rate and strong labor pool, which are two main reasons why it's considered one of the top 50 outsourcing cities in the world.

Competitive cost

Vietnam offers competitive costs for IT outsourcing. According to CIO magazine, businesses can save up to 90% compared to providers in the US, Australia, and Europe, and prices are 30%-50% lower than in India and China. According to Forbes, Vietnam has overtaken other popular BPO locations, primarily China, to become the next IT hotspot in Asia-Pacific. Particularly, compared to Chinese developers, who charge about $20 to $50 per hour, Vietnamese developers provide more affordable hourly rates ranging from $14 to $40. And according to Markets Insider, Vietnam is ranked 5th in the “Best countries to outsource to in the World in 2019” list. These figures are convincing enough to place Vietnam as the top future contender for offshore development projects.

Compelling tax incentives

0% VAT

According to the law of Vietnam, software products are subject to 0% VAT.

Attractive corporate income tax incentives

The enterprises doing software production shall receive the incentives of Corporate Income Tax (“CIT”) up to 15 years from the year the company has revenue, including the tax exemption and preferential tax rate. In case the first three years the company does not have revenue, the time shall be counted from the fourth year. Details as follow:

• From the first year to the fourth year: EIT Tax exemption;
• From the fifth year to the thirteen year: 50% Reduction of the tax payable, i.e. the company only pays EIT tax at 5%;
• The fourteenth year and fifteenth year: Pays EIT at 10%;
• From the sixteenth year afterwards: the company will pay the normal tax rate applicable 20% (Point a Clause 1 Article 20 Circular No 78/2014/TT-BTC dated 18June2014 guiding the implementation of the Law on Enterprise Income Tax in Vietnam)

Establish a software outsourcing company in Vietnam

To establish a software outsourcing company in Vietnam, foreign investors can form a 100% foreign-owned company. The process involves two main steps:

• Step 1: Apply for an Investment Registration Certificate (IRC).
• Step 2: Apply for an Enterprise Registration Certificate (ERC).

The IRC can be valid for up to 50 years, while there's no expiration term for the ERC. Once the ERC is issued, the company becomes legally recognized. This process enables foreign investors to set up and operate software outsourcing businesses in Vietnam.

Other important notes to keep in mind

Requirements for qualifying for the corporate income tax benefits

To qualify for the corporate income tax incentives mentioned in this article, the Vietnam company must meet specific conditions:

The software produced must align with the software products outlined in Appendix 01 of Circular No. 09/2013/TT-BTTTT.

The company in Vietnam needs to undertake at least one or two initial stages of the software manufacturing process. These stages include:

• Clarifying the requirements.
• Analyzing and designing software.

Subsequent stages of the software manufacturing process comprise:

• Programming and coding.
• Examining and experimenting.
• Completing and packaging.
• Installing, transferring, instructing, and maintaining.
• Publishing and distributing.

The VN Co is required to furnish supporting documents to demonstrate that its software-producing activities adhere to the prescribed software production process. Detailed instructions for the supporting documents are provided in Circular No. 13/2020/TT-BTTTT.

Reporting Duty

The company must provide information about its software products and production stages to the Ministry of Information and Communications (through the Agency of Information and Technology) for consolidation. Failing to do so may result in tax authorities questioning eligibility for tax incentives.

Financial books separate

Companies in Vietnam must keep their financial records separate. This means they need to distinguish between income from activities that qualify for tax incentives and those that do not. If they don't keep separate records, the income from qualifying activities will be determined based on the proportion of revenue from those activities compared to the total revenue of the company. So, if a VN Co is involved in various activities, including software production, it must maintain separate accounting for its software production.

Legal Representation Requirements of the Vietnam Company

The Vietnam company needs to have at least one legal representative, who can be a resident of Vietnam. If there's only one legal representative and they're not in Vietnam, they must authorize someone in Vietnam to act on their behalf. This person must strictly follow the law and carry out their duties as instructed. In summary, if the sole legal representative isn't a Vietnam resident, they need to appoint a legally authorized representative in Vietnam.

SCS Solutions as your trusted software partner

No matter what kind of custom software development outsourcing services you need, trust SCS Solutions to meet your specific requirements with excellence. We are a leading software outsourcing company located in Ho Chi Minh City, Vietnam, with extensive experience in the IT industry. Instead of following a one-size-fits-all approach, we ensure that each project is tailored to suit your needs and business goals.

What sets us apart from other outsourcing companies in Vietnam is our ability and experience to handle projects of any size from start to finish, within budget, on schedule, and with results that surpass expectations. We achieve this by:

Embracing our Agile Development Process, which prioritizes customer feedback and employs a Test-First-Driven Approach.

Cultivating a skilled and dedicated workforce source and managed by experienced project managers.

Having a diverse leadership team with years of experience working with global clients, enabling us to understand the needs and standards of international partners and multicultural projects.

SCS Solutions believes that the success of a software development project hinges on the talent of the people involved and their commitment to understanding and meeting the client's needs. By staying attuned to our clients' requirements, we deliver highly satisfactory software solutions that address their business needs effectively.

Have a project in mind? Connect with us today.