How to calculate personal income tax from franchise transfer in Vietnam?

Which incomes are subject to tax from franchise transfer in Vietnam?

Based on Clause 8, Article 2 of Circular 111/2013/TT-BTC, income from franchise transfer includes incomes received by individuals from franchise contracts, including the transfer of franchise rights in accordance with the law on franchising.

Article 284 of the Commercial Law 2005 specifically states:

Franchise is a commercial activity whereby the franchisor allows and requires the franchisee to conduct the purchase and sale of goods or provision of services under the following conditions:

- The purchase and sale of goods or provision of services are conducted according to the business organization method specified by the franchisor and associated with the franchisor's trademark, trade name, business secrets, business slogan, business symbols, or advertising.

- The franchisor has the right to control and assist the franchisee in operating the business.

How to calculate personal income tax from franchise transfer in Vietnam? (Image from the Internet)

How to calculate personal income tax from franchise transfer for non-resident individuals in Vietnam?

Based on Clause 2, Article 22 of Circular 111/2013/TT-BTC regarding personal income tax calculation from franchise transfer for resident and non-resident individuals:

Regarding income from royalties, franchise transfers

1. Tax on income from royalties

a) Tax on income from royalties of non-resident individuals is determined by the portion of income exceeding 10 million VND per contract of transfer or license of intellectual property rights or technology transfer in Vietnam multiplied by a tax rate of 5%.

Income from royalties is determined as guided in Clause 1, Article 13 of this Circular.

b) The point of time to determine the income from royalties is when the organization or individual pays royalties to the non-resident taxpayer.

2. Tax on income from franchise transfers

a) Tax on income from franchise transfers of non-resident individuals is determined by the portion of income exceeding 10 million VND per franchise contract in Vietnam multiplied by a tax rate of 5%.

Income from franchise transfers is determined as guided in Clause 1, Article 14 of this Circular.

b) The point of time to determine the taxable income from the franchise transfer is when the franchisee pays the franchise fee to the franchisor.

Therefore, personal income tax from franchise transfers for non-resident individuals is calculated as follows:

Personal income tax payable = Taxable income from franchise transfer x Tax rate of 5%.

In which:

- Taxable income from franchise transfer is the portion of income exceeding 10 million VND per franchise contract, regardless of the number of payments or the number of times the taxpayer receives money.

- The point of time to determine the taxable income from the franchise transfer is when the franchise fee payment is made between the franchisee and the franchisor.

How to calculate personal income tax from franchise transfer for resident individuals in Vietnam?

According to Article 14 of Circular 111/2013/TT-BTC regarding personal income tax for resident individuals:

Basis for tax calculation on income from franchise transfer

The basis for tax calculation on income from franchise transfer is taxable income and tax rate.

1. Taxable income

Taxable income from franchise transfer is the portion of income exceeding 10 million VND per franchise contract, regardless of the number of payments or the number of times the taxpayer receives money.

In case it is the same object of franchise rights but the transfer is executed by many contracts, the taxable income is the portion exceeding 10 million VND calculated on the total contracts for franchise transfer.

2. Tax rate

The personal income tax rate on income from franchise transfer is uniformly applied at 5%.

3. Point of time to determine taxable income

The point of time to determine taxable income from the franchise transfer is when the payment for franchise transfer is made between the franchisee and the franchisor.

4. Tax calculation method

Personal income tax payable = Taxable income x Tax rate of 5%.

Personal income tax from franchise transfers for resident individuals is calculated as follows:

Personal income tax payable = Taxable income from franchise transfer x Tax rate of 5%.

In which:

Taxable income from franchise transfer is the portion of income exceeding 10 million VND per franchise contract, regardless of the number of payments or the number of times the taxpayer receives money.

In case it is the same object of franchise rights but the transfer is executed by many contracts, the taxable income is the portion exceeding 10 million VND calculated on the total contracts for franchise transfer.