Basis for calculating PIT on incomes from franchising in Vietnam

Basis for calculating PIT on incomes from franchising in Vietnam (Internet image)

Regarding this issue, LawNet would like to answer as follows:

1. Basis for calculating PIT on incomes from franchising for residents in Vietnam

According to Article 14 of Circular 111/2013/TT-BTC, the basis for calculating tax on incomes from franchising is the assessable income and tax rate as follows:

- Assessable income

The assessable income from franchising is the excess over 10 million VND of income according to the transfer contract, regardless of the number of payments the taxpayer receives.

If the franchise for the same subject is made into multiple contract, the assessable income is the excess over 10 million VND of all franchise contracts.

- Tax rate

The rate of personal income tax on the income from franchising is 5% according to the whole income tax table.

- Time to calculate the assessable income

The assessable income from franchising shall be calculated when the payment for franchise is made between the franchiser and franchisee.

- Tax calculation

2. Bases for calculating PIT on incomes from franchising for non-residents in Vietnam

According to Clause 2, Article 22 of Circular 111/2013/TT-BTC, incomes from franchising:

- The tax on incomes from franchising earned by a non-resident equals the excess over 10 million VND of income from each franchise contract in Vietnam multiplied by 5% tax.

The determination of incomes from franchising is guided in Point 1 Clause 1, Article 13 of Circular 111/2013/TT-BTC..

- The assessable income from franchising shall be calculated when the payment for franchise is made between the franchiser and franchisee.

3. What is commercial franchise?

According to Article 284 of the Commercial Law 2005, 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.

4. Acts of law violation in franchising in Vietnam

Acts of law violation in franchising activities according to Article 24 of Decree 35/2006/ND-CP are as follows:

- Traders involved in franchising that commit the following acts of violation shall, depending on the nature and seriousness of their violations, be administratively sanctioned according to the provisions of law on handling of administrative violations:

+ Conducting franchising business without having fully satisfied the specified conditions;

+ Granting franchisings for goods or services banned from business;

+ Breaching the obligation to supply information in franchising specified in Decree 35/2006/ND-CP;

+ Including in written introductions of franchising untruthful information;

+ Violating regulations on registration of franchising;

+ Violating regulations on notification in franchising;

+ Failing to pay tax(es) according to the provisions of law, but not seriously enough for penal liability examination;

+ Failing to abide by requests of competent state agencies conducting examinations or inspections;

+ Violating other provisions of Decree 35/2006/ND-CP.

- Where traders conducting business by mode of franchising commit acts of violation, causing material damage to involved organizations and/or individuals, they must pay compensations therefore according to the provisions of law.

>> CLICK HERE TO READ THIS ARTICLE IN VIETNAMESE