Are foreign enterprises with income from royalties subject to corporate income tax in Vietnam?

Are foreign enterprises with income from royalties subject to corporate income tax in Vietnam?

Based on Clause 3 Article 7 of Circular 103/2014/TT-BTC regarding taxable income from income generated in Vietnam for enterprises and foreign contractors as follows:

Taxable Corporate Income

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3. Income generated in Vietnam by foreign contractors and subcontractors is income received in any form based on the contractor or subcontractor agreements (except for cases stipulated in Article 2, Chapter I), regardless of the location where the business activities of the foreign contractor or subcontractor take place. Taxable income for foreign contractors and subcontractors in specific cases includes:

- Income from the transfer of ownership rights, usage rights of assets; transfer of rights to participate in economic contracts/projects in Vietnam, transfer of property rights in Vietnam.

- Income from royalties is income received in any form paid for the right to use, transfer intellectual property rights, and technology transfer, software copyright (including: payments for the right to use, transfer of copyright and ownership rights of works; transfer of industrial property rights; technology transfer, software copyright).

“Copyright and ownership rights of works”, “Industrial property rights”, "Technology transfer" are defined by the Civil Code, Intellectual Property Law, Technology Transfer Law, and the guiding documents.

- Income from the transfer and liquidation of assets.

- Income from loan interest: is the income of the Lender from any form of loans whether or not secured by mortgages; whether or not enjoying the borrower's dividends; income from deposit interest (excluding deposit interest of foreign individuals and deposit interest generated from deposit accounts to maintain activities in Vietnam of diplomatic representative agencies or offices of international organizations, non-governmental organizations in Vietnam), including any bonuses associated with deposit interest (if any); income from late interest according to contract provisions; income from bond interest, bond discount (excluding tax-exempt bonds), treasury bills; income from certificate of deposit interest.

Loan interest includes fees that the Vietnamese Party must pay as stipulated in the contract.

- Income from the transfer of securities.

- Penalties, compensation received from the counterparties for contract violations.

- Other incomes as prescribed by law.

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Accordingly, foreign enterprises with income from royalties in Vietnam are subject to corporate income tax under the Vietnamese corporate income tax law.

Are foreign enterprises with income from royalties subject to corporate income tax in Vietnam? (Image from Internet)

What is the corporate income tax rate for foreign enterprises with Income from royalties in Vietnam?

Based on Point a, Clause 2, Article 13 of Circular 103/2014/TT-BTC which prescribes business sector tax rates as follows:

- Trade sector: distribution, supply of goods, materials, machinery, equipment; distribution, supply of goods, materials, machinery, equipment associated with services in Vietnam (including supply of goods in the form of on-spot export and import (excluding processing products for foreign organizations or individuals); supply of goods under Incoterms delivery conditions: tax rate 1%

- Services, machinery and equipment rental, insurance, rig rental: 5%

- Restaurant, hotel, casino management services: 10%

- Financial derivative services: 2%

- Lease of aircraft, aircraft engines, aircraft parts, ships: 2%

- Construction, installation with or without materials, machinery, equipment

- Other business activities, transportation (including shipping, air transport): 2%

- Transfer of securities, certificates of deposit, reinsurance to overseas, reinsurance commission: 0.1%

- Loan interest: 5%

- Royalty income: 10%

Thus, foreign enterprises with income from royalties are subject to a corporate income tax rate of 10%.

What taxes are applicable to foreign entities doing business in Vietnam or earning income in Vietnam?

Based on Article 5 of Circular 103/2014/TT-BTC, specific required taxes are regulated as follows:

Applicable Taxes

1. Foreign contractors and foreign subcontractors that are business organizations must comply with value-added tax (VAT) and corporate income tax (CIT) obligations as guided in this Circular.

2. Foreign contractors and foreign subcontractors that are foreign individual businesses must comply with VAT obligations as guided in this Circular, and personal income tax (PIT) obligations according to the law on PIT.

3. For other taxes, fees, and charges, foreign contractors and subcontractors shall comply with relevant existing legal documents on taxes, fees, and charges.

Accordingly, applicable taxes for organizations and individuals from abroad doing business in Vietnam or earning income in Vietnam include:

- Foreign contractors, foreign subcontractors that are business organizations must comply with value-added tax (VAT) and corporate income tax (CIT) obligations as guided in Circular 103/2014/TT-BTC.

- Foreign contractors, foreign subcontractors that are foreign individual businesses must comply with VAT obligations as guided in Circular 103/2014/TT-BTC, and personal income tax (PIT) under the law on PIT.