Công văn 10453/BTC-CST

In response to the Official Dispatch No. 581/CT-TTHT dated February 01, 2016 sent by the Tax Department of Vinh Phuc Province and the Official Dispatch No. 01/16/CBP-KT dated February 15, 2016 sent by Castrol BP Petco Co., Ltd. requesting for guidance on implementation of policies on withholding tax on income from licensing of trademarks between a foreign enterprise and a Vietnamese enterprise that must pay fees for use this trademark, and based on written opinions from the Ministry of Science and Technology (at the Official Dispatch No. 2949/BKHCN-SHTT dated July 06, 2016), the Ministry of Industry and Trade (at the Official Dispatch No. 4137/BCT-TC dated May 16, 2016) and the Ministry of Justice (at the Official Dispatch No. 1562/BTP-PLDSKT dated May 16, 2016), the Ministry of Finance gives the guidance as follows:

1. Guidance on licensing of trademarks

Pursuant to the Law on Intellectual Property and opinions given by the Ministry of Science and Technology at the Official Dispatch No. 2949/BKHCN-SHTT dated July 06, 2016, the fact that a foreign party permits a Vietnamese party to use the trademark in connection with specific products and receives a certain amount of money or royalty (e.g. Castrol BP Petco Co., Ltd. and Honda Vietnam Co., Ltd. is neither a franchise (under the governing scope of the Law on commerce) nor a provision of science and technology service relating intellectual property (under the governing scope of the Law on Science and Technology). This is the licensing of trademark as regulated in the Law on intellectual property but not the assignment of intellectual property rights.

2. Guidance on withholding tax policies

Guidance on corporate income tax (CIT)

- Clause 3 Article 7 of the Circular No. 103/2014/TT-BTC dated August 06, 2014 by the Ministry of Finance providing guidance on fulfillment of tax liability of foreign entities doing business in Vietnam or earning income in Vietnam (which comes into force from October 01, 2014) stipulates that: “Royalty income means payments made in any forms for the right to use, transfer of intellectual property rights and transfer or technology and software copyright (including payments for the right to use or transfer of copyright, transfer of industrial property rights, transfer of technologies and software copyright).”

- Point a Clause 2 Article 13 of the Circular No. 103/2014/TT-BTC stipulates that: The CIT rate (%) on taxable revenue from royalty income is 10%.Pursuant to these regulations, income earned by a foreign enterprise from the licensing of trademark which is made in conformity with regulations of the Law on intellectual property is considered CIT object and the CIT rate (%) on taxable revenue is 10%.  

Guidance on Value-added tax (VAT)

Pursuant to regulations of the Circular No. 219/2013/TT-BTC dated December 31, 2013 by the Ministry of Finance providing guidance on implementation of the Law on value-added tax and the Government’s Decree No. 209/2013/ND-CP dated December 18, 2013 elaborating and guiding the implementation of certain articles of the Law on value-added tax and the Circular No. 103/2014/TT-BTC income earned by a foreign enterprise from the licensing of trademark which is made in conformity with regulations of the Law on intellectual property is subject to VAT and the VAT rate is 10% (if calculated by adopting the deduction method) or 5% (if calculated by adopting the direct method) of taxable revenue.