Do foreign enterprises with royalty income in Vietnam need to declare and pay corporate income tax and value-added tax?
Are foreign enterprises liable to corporate income tax on income from royalties?
According to Clause 3, Article 7 of Circular 103/2014/TT-BTChttps://thuvienphapluat.vn/van-ban/Thuong-mai/Thong-tu-103-2014-TT-BTC-huong-dan-thuc-hien-nghia-vu-thue-to-chuc-ca-nhan-nuoc-ngoai-kinh-doanh-Viet-Nam-243595.aspx?anchor=dieu_7 on taxable income from income arising in Vietnam of enterprises and foreign contractors as follows:
Taxable Corporate Income
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3. Income arising in Vietnam of a foreign contractor or foreign subcontractor includes all forms of income received under the contractor contract or subcontractor contract (except for the cases specified in Article 2, Chapter I), regardless of the location of their business activities. In particular cases, taxable income for foreign contractors and foreign subcontractors includes the following:
- Income from the transfer of ownership, usage rights of assets, or the transfer of rights to participate in economic contracts/projects in Vietnam, and the transfer of property rights in Vietnam.
- Income from royalties is any form of income paid for the right to use, transfer of intellectual property rights, and technology transfer, including software copyrights (comprising payments for the right to use and transfer of copyright and ownership rights; transfer of industrial property rights; technology transfer, and software copyrights).
“Copyright and ownership rights,” “Industrial property rights,” "Technology Transfer" are defined by the Civil Code, the Intellectual Property Law, the Technology Transfer Law, and guiding documents.
Therefore, in cases where enterprises or foreign contractors have income arising from royalties in Vietnam, they are subject to corporate income tax according to the provisions of Vietnamese corporate income tax law.
The corporate income tax rate that foreign enterprises must bear on royalty income is stipulated at Point a, Clause 2, Article 13 of Circular 103/2014/TT-BTC at 10%.
Additionally, Official Dispatch 51874/CTHN-TTHT in 2022 provides guidance on the application of tax policy to the case of trademark usage as follows:
Regarding CIT:
In cases where a foreign enterprise has income paid for the use of a trademark in accordance with the legal provisions on intellectual property, this income is subject to CIT, with the CIT rate on taxable revenue being 10%.
Should a foreign enterprise with royalty income in Vietnam declare and pay corporate income tax and value-added tax?
What is the VAT rate for the activity of trademark usage transfer by foreign enterprises?
According to Article 11 of Circular 219/2013/TT-BTC on the application of VAT rates to the transfer of trademark usage by foreign enterprises, the following applies:
Value-Added Tax Rate of 10%
The VAT rate of 10% applies to goods and services not specified in Articles 4, 9, and 10 of this Circular.
The transfer of trademark usage does not fall under the VAT rate of 0% according to Article 9 of Circular 219/2013/TT-BTC and the 5% rate according to Article 10 of Circular 219/2013/TT-BTC.
According to Official Dispatch 51874/CTHN-TTHT in 2022, the application of VAT to the transfer of trademark usage is as follows:
Regarding VAT:
According to the provisions of Circular 219/2013/TT-BTC dated December 31, 2013, of the Ministry of Finance guiding the implementation of the VAT Law, Decree 209/2013/ND-CP dated December 18, 2013, of the Government detailing the implementation of a number of articles of the VAT Law, and Circular 103/2014/TT-BTC, in case a foreign enterprise receives money from the transfer of trademark usage that complies with intellectual property laws, it shall be subject to VAT at a rate of 10% (if applying the deduction method) or a rate of 5% (if applying the direct method).
Is the payment for trademark fees deductible when determining taxable income?
According to Article 6 of Circular 78/2014/TT-BTC (amended by Article 4 of Circular 96/2015/TT-BTC) on deductible and non-deductible expenses when determining taxable income as follows:
Deductible and Non-Deductible Expenses when Determining Taxable Income
1. Except for non-deductible expenses specified in Clause 2 of this Article, enterprises may deduct any expense if it meets the following conditions:
a) The actual expense arises in connection with the production and business activities of the enterprise.
b) The expense must have sufficient legal invoices and documents as prescribed by law.
c) For expenses where the invoice value of purchased goods or services in each instance is VND 20 million or more (VAT included), payment must be made by non-cash payment means.
Non-cash payment documents are to be implemented according to the provisions of VAT law.
Therefore, if the enterprise qualifies under these provisions, it can account the expense as deductible when determining taxable income.
However, if the enterprise pays tax on behalf of the foreign contractor, the tax declaration and deduction must comply with the following regulations:
According to Clause 2.37, Article 4 of Circular 96/2015/TT-BTC regarding CIT paid on behalf of foreign contractors:
Deductible and Non-Deductible Expenses when Determining Taxable Income
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2.37. Input VAT that has been credited or refunded; input VAT of fixed assets which are passenger cars with 9 seats or less exceeding the deductible limit as stipulated in VAT legislation; corporate income tax, except when the enterprise pays CIT on behalf of the foreign contractor, as per the agreement in the contractor or subcontractor contract, whereby the revenue received by the contractor or subcontractor does not include CIT; personal income tax, except when the enterprise signs labor contracts specifying that salaries and wages payable to employees do not include personal income tax.
According to Clause 1, Article 14 of Circular 219/2013/TT-BTC and Clause 1, Article 15 of Circular 219/2013/TT-BTC (amended by Clause 10, Article 1 of Circular 26/2015/TT-BTC) on paying VAT on behalf of foreign contractors as follows:
Principles of VAT input credit deduction
1. Input VAT on goods and services used for the production and trading of VAT-liable goods and services shall be fully deducted, even if the input VAT is not compensated for VAT-liable goods damaged.
Conditions for VAT input credit deduction
1. There must be legal VAT invoices for purchased goods and services or valid documents of VAT payment at the import stage, or documents of VAT payment on behalf of a foreign entity as guided by the Ministry of Finance, applied to foreign organizations without Vietnamese legal status and foreign individuals doing business or having income arising in Vietnam.
Additionally, Official Dispatch 51874/CTHN-TTHT in 2022 provides guidance on deductible taxes for tax payments made on behalf of foreign enterprises having income arising in Vietnam as follows:
- Regarding the payment for trademark fees: The company can account for it as a deductible expense if it meets the conditions prescribed in Article 4 of Circular 96/2015/TT-BTC.
- Regarding the CIT payable on behalf of the foreign contractor: The company follows the provisions of Clause 2.37, Article 4 of Circular 96/2015/TT-BTC.
- Regarding the VAT payable on behalf of the foreign contractor: The company follows the provisions of Article 14 and Article 15 of Circular 219/2013/TT-BTC.
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