What is commercial franchise in Vietnam? Are incomes from franchising subject to personal income tax in Vietnam?
What is commercial franchise in Vietnam?
According to the provisions of Article 284 of the 2005 Commercial Law of Vietnam stipulating the commercial franchise as follows:
Commercial franchise means a commercial activity whereby franchisors permit and require franchisees to undertake by themselves to purchase or sell goods or provide services on the following conditions:
- The purchase or sale of goods or provision of services shall be conducted in accordance with methods of business organization prescribed by franchisors and associated with the franchisors’ trademarks, trade names, business knows-how, business slogans, business logos and advertisements.
- Franchisors shall be entitled to supervise and assist franchisees in conducting their business activities.
According to Article 286 of the 2005 Commercial Law of Vietnam, franchisors have the following rights:
Rights of franchisors
Unless otherwise agreed, franchisors shall have the following rights:
1. To receive franchise sums.
2. To organize advertising for the commercial franchise system and the commercial franchise network.
3. To conduct periodical or extraordinary inspections of activities of franchisees in order to ensure the uniformity of the commercial franchise system and the stability of quality of goods and services.
According to the provisions of Article 287 of the 2005 Commercial Law of Vietnam, franchisors must ensure the performance of the following obligations:
Obligations of franchisors
Unless otherwise agreed, franchisors shall have the following obligations:
1. To supply documents guiding the commercial franchise system to franchisees;
2. To provide initial training and regular technical assistance to franchisees for managing the latter’s activities in accordance with the commercial franchise system;
3. To design and arrange places of sale of goods or provision of services at the expenses of franchisees;
4. To guarantee the intellectual property rights over objects stated in franchise contracts;
5. To equally treat all franchisees in the commercial franchise system.
Thus, commercial franchise means a commercial activity whereby franchisors permit and require franchisees to undertake by themselves to purchase or sell goods or provide services through a franchising contract.
What is commercial franchise in Vietnam? Are incomes from franchising subject to personal income tax in Vietnam?
What are the contents of a franchising contract?
According to the provisions of Article 11 of Decree No. 35/2006/ND-CP, the contents of a franchising contract must include:
Contents of the franchising contract
Where the parties choose to apply Vietnamese law, a franchising contract may have the following principal contents:
1. Content of franchised commercial right.
2. Rights and obligations of the franchisor.
3. Rights and obligations of the franchisee.
4. Price, periodical franchise fee and mode of payment.
5. Valid term of the contract.
6. Renewal and termination of the contract, and settlement of disputes.
Thus, in addition to the contents agreed upon by the parties, the franchising contract must contain the following contents:
- Contents of franchised commercial right. In which, commercial rights as defined in Clause 6, Article 3 of Decree No. 35/2006/ND-CP include one or some of the following rights:
+ Right granted to the franchisee by the franchisor that also requests the franchisee to undertake by itself the business of supplying goods or providing services within a system set up by the franchisor and associated with the franchisor's trademark, trade name, business slogan, business and advertising logo;
+ Common commercial right granted by the franchisor to the primary franchisee.
+ Right sub-granted by the secondary franchisor to the secondary franchisee under the common franchising contract.
+ Commercial right granted by the franchisor to the franchisee under the commercial right development contract.
- Rights and obligations of the parties under the franchising contract.
- Price, periodical franchise fee and mode of payment.
- Valid term of the contract.
- Renewal and termination of the contract, and settlement of disputes.
Are incomes from franchising subject to personal income tax in Vietnam?
Pursuant to the provisions of Clause 8, Article 2 of Circular 111/2013/TT-BTC, the incomes subject to personal income tax are as follows:
Taxable incomes
…
8. Incomes from franchising
Franchise is a commercial operation in which the franchiser allows and requests the franchisee to sell goods and services under the conditions set out by the franchiser in the franchise contract.
Incomes from franchising are the incomes the person earned from the aforesaid franchise contracts, including re-franchise according to regulations of law on franchise.
Thus, according to the above provisions, incomes from franchising are subject to personal income tax.
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