Công văn 15888/BTC-CST

To: Tax departments of provinces or central-affiliated cities 

In response to requests submitted by enterprises and tax departments 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. 4220/BKHCN-SHTT dated October 12, 2016), the Ministry of Industry and Trade (at the Official Dispatch No. 10128/BCT-TC dated October 24, 2016) and the Ministry of Justice (at the Official Dispatch No. 3561/BTP-PLDSKT dated October 12, 2016), the Ministry of Finance gives the guidance as follows:

1. Guidance on licensing of trademarks

Pursuant to the Law on Intellectual Property, 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 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, if a foreign enterprise earns income from the licensing of trademark which is made in conformity with regulations of the Law on intellectual property, this income is considered CIT object. And in such case 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.

This is the Ministry of Finance’s guidance given to tax departments of provinces or central-affiliated cities for understanding and implementing. In case VAT and CIT on licensing of trademarks have been declared and paid before the date of promulgation of this Official Dispatch inconsistently with guidance herein, no adjustment is made. In case VAT and CIT on licensing of trademarks are not yet paid, declaration and/or payment of VAT and CIT must be made in accordance with guidance herein.

Difficulties that arise during the implementation of this Official Dispatch should be reported to the Ministry of Finance for consideration./.