Tax policy regarding transfer of the right to use trademarks in Vietnam

Tax policy regarding transfer of the right to use trademarks in Vietnam (Image from the Internet)

City Tax Department. Hanoi has Official Dispatch 51874/CTHN-TTHT dated October 27, 2022 explaining tax policies related to the transfer of trademark use rights.

1. Regulations on tax policies related to the transfer of the right to use trademarks in Vietnam

1.1 Regarding CIT

Pursuant to Clause 3, Article 7, Point a, Clause 2, Article 13 of Circular 103/2014/TT-BTC:

-  Income from copyright means any income paid for the right to use, transfer of intellectual property rights and technology transfer, software copyright (including payments for the right to use, transfer of copyright, transfer of industrial property rights, transfer of technologies and software copyright).

- The CIT rates (%) applied to income from copyright is 10%.

* Non-deductible expenses for determining taxable income in Vietnam

Except expenses specified in Clause 2, Article 6 of Circular 78/2014/TT-BTC (amended by Circular 96/2015/TT-BTC), enterprises may deduct all expenses that fully satisfy the following conditions:

- Actual expenses arising in relation to production and business activities of enterprises;

- Expenses with adequate lawful invoices and documents as required by law;

- For expenses for purchase of goods or services with invoices valued at VND 20 million or more (VAT-inclusive prices) each, there must be non- cash payment documents;

(Clause 1, Article 6 of Circular 78/2014/TT-BTC (amended by Circular 96/2015/TT-BTC))

* Expenses that are not deductible when determining taxable income

Expenses that are not deductible when determining taxable income according to the provisions of Clause 2.37, Article 6 of Circular 78/2014/TT-BTC (amended by Circular 96/2015/TT-BTC) include:

- Input value-added tax which has been credited or refunded;

- Input value-added tax on fixed assets which are cars with 9 seats or under in excess of the credit level specified in legal documents on value-added tax;

- CIT, except the cases in which enterprises pay CIT for foreign contractors as agreed in the contracts with foreign contractors or foreign subcontractors that revenues received by foreign contractors or foreign subcontractors are exclusive of CIT;

- Personal income tax, except the case in which enterprises sign labor contracts which stipulate that salaries or wages payable to laborers are exclusive of personal income tax.

1.2 Regarding VAT

- Clause 1, Article 14 of Circular 219/2013/TT-BTC (amended by Circular 119/2014/TT-BTC, Circular 151/2014/TT-BTC, Circular 26/2015/TT-BTC) stipulates the input VAT deduction principle as follows:

Input VAT on goods and services serving the manufacture or sale of goods/services subject to VAT shall be deducted in full, including non-refundable input VAT on damaged goods.

- Conditions for input VAT deduction as prescribed in Clause 1, Article 15 of Circular 219/2013/TT-BTC (amended by Circular 119/2014/TT-BTC, Circular 151/2014/TT-BTC, Circular 26/2015/TT-BTC), which has the following conditions:

Legitimate VAT invoices for purchases or receipts for payment of VAT on imported goods, or receipts for payment of VAT on behalf of foreign organizations that do not have Vietnamese legal status and the organizations and individuals, and the foreigners that do business or earn income in Vietnam.

In addition, Official Dispatch 51874/CTHN-TTHT is also based on Official Dispatch 15888/BTC-CST dated November 7, 2016 of the Ministry of Finance of Vietnam on guidelines for contractor tax policy for trademark licensing activities.

2. Respones to problem regarding tax policies related to the transfer of the right to use trademarks in Vietnam

Pursuant to the above provisions, in case an enterprise pays a foreign enterprise to use its trademark in Vietnam (registered with the National Office of Intellectual Property of Vietnam), the tax policy related to the transfer of the right to use the following trademarks:

2.1 Tax policy for foreign contractors

* Regarding CIT

If the foreign enterprise generates income to be paid for the right to use the mark in accordance with the provisions of the law on intellectual property, this income is subject to CIT, and the rate (%) of CIT on taxable turnover is 10%.

* Regarding VAT

Pursuant to the provisions of Circular 219/2013/TT-BTC and Circular 103/2014/TT-BTC, in case a foreign enterprise receives money from the activity of transferring the right to use the mark in accordance with the provisions of law, intellectual property law, they are subject to VAT and the VAT rate is 10% (if applying the deduction method) or the rate (%) of VAT on taxable revenue is 5% (if direct method is applied).

2.2 Expenses used to pay trademark fees in Vietnam

If the company that receives the transfer of the right to use the mark from a foreign enterprise has declared, withheld, and paid contractor tax in accordance with regulations, then:

- For the amount used to pay the trademark fee:

The company is entitled to deductible expenses if it fully meets the conditions specified in Article 6 of Circular 78/2014/TT-BTC (as amended by Circular 96/2015/TT-BTC).

- For the amount of CIT paid on behalf of foreign contractors:

The Company complies with the provisions of Clause 2.37, Article 6 of Circular 78/2014/TT-BTC (as amended by Circular 96/2015/TT-BTC).

- For the amount of VAT paid on foreign contractors' behalf:

The company complies with the provisions of Articles 14 and 15 of Circular 219/2013/TT-BTC.

More details can be found in Official Dispatch 51874/CTHN-TTHT dated October 27, 2022.

Van Trong

>> CLICK HERE TO READ THIS ARTICLE IN VIETNAMESE