An important development in the interpretation of
foreign contractor tax could affect your trademark royalty income
from Vietnam by 5 to 10%.
Income of companies outside of Vietnam who are receiving royalty
payments from Vietnam are subject to corporate income tax (CIT) at
a deemed rate of 10% to be withheld by the Vietnamese contracting
party. The general view was that such income was not subject to
value-added tax (VAT).
Recently, the Vietnamese Ministry of Finance has issued a series
of official letters requiring Vietnamese parties to withhold
5% VAT under the deemed method (10% under the
credit method) in addition to 10% CIT in case of a
transfer of the right to use a trademark. Official
Letters No. 10453/BTC-CST and No. 15888/BTC-CST. Note that Official
Letters are not binding law but contain influential guidance. For
more certainty, one has to apply to the competent tax
Double taxation agreements (DTA) which cap the tax rate
applicable to royalties at 10% (or lower) generally apply only to
the CIT component of foreign contractor taxes, not to VAT.
If the Vietnamese party has correctly declared VAT on behalf of
the foreign contractor, a VAT refund could be possible under
certain circumstances. However, if the party did not declare
sufficient VAT that refund may be forfeited.
The above official letters could evidently apply to
franchise and other agreements that contain
trademark licenses. However, it is conceivable
that some tax authorities could apply those principles to other
intellectual property rights, such as copyrights in software
We recommend that you consult with a licensed tax adviser on the
applicable tax rate in your specific case. We can assist you to
structure your contracts with Vietnamese parties to reduce the risk
of penalties and unexpectedly lower net payments from Vietnam.
Disclaimer:This Alert has been
prepared and published for informational purposes only and is not
offered, nor should be construed, as legal advice. For more
information, please see the firm's
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The Union Budget 2017, touted as the budget of many firsts, aims at long term growth and a fiscally prudent outlook. Rationalization of tax rates and reduction of tax controversies are the key focus points.
This Taxpayer Alert is likely to affect investors in numerous asset classes, including infrastructure and renewables.
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