Vietnamese Company Pays Trademark Usage Fees To Foreign Entity – Tax Obligations To Consider

Background

ABC Vietnam Co., Ltd. (hereinafter referred to as “ABC Vietnam”) entered into an agreement with ABC Holding Limited (headquartered in Hong Kong) for trademark usage of the trademark “ABC GLOBAL” in Vietnam. This trademark has been duly registered with the Vietnam Intellectual Property Office (IP Vietnam).

The agreement stipulates that ABC Vietnam will make periodic payments to the foreign entity for trademark usage

Does this transaction trigger any tax obligations in Vietnam? If so, what types of taxes apply and at what rates?

Is This Transaction Considered A Franchising Activity?

According to the Law on Intellectual Property (2005, amended in 2009 and 2019), granting the right to use a trademark in exchange for a fee constitutes a license of industrial property rights, specifically the right to use a trademark.

This activity:

• Is not considered a commercial franchise under the Commercial Law 2005;
• Does not fall under the category of scientific and technological services as defined in the Law on Science and Technology 2013;
• Does not constitute a transfer of ownership of the trademark.

In summary: The act of ABC Holding authorizing ABC Vietnam to use the “ABC GLOBAL” trademark in Vietnam is a licensing transaction governed by intellectual property law and is not treated as a franchise or ownership transfer.

Does Foreign Contractor Tax (FCT) Apply To This Transaction?

Yes. Under Circular No. 103/2014/TT-BTC issued by the Ministry of Finance, income earned by a foreign entity from granting rights to use trademarks in Vietnam is classified as royalty income, which is subject to Foreign Contractor Tax.

Corporate Income Tax (CIT):

• Legal Basis: Clause 3, Article 7, Circular 103/2014/TT-BTC.
• Royalty payments received by ABC Holding from ABC Vietnam are subject to Corporate Income Tax at a rate of 10% on the taxable revenue.

Value-Added Tax (VAT):

• Legal Basis: Articles 3 and 13 of Circular 103/2014/TT-BTC; Articles 14 and 15 of Circular 219/2013/TT-BTC (as amended).
• The applicable VAT rate depends on the tax calculation method used:
  • 10% if the deduction method is applied;
  • 5% if the direct method is applied.

Are Trademark Licensing Fees Deductible Expenses?

If ABC Vietnam properly declares and pays Foreign Contractor Tax (FCT) on behalf of the foreign party, the following tax treatments apply:

Trademark Licensing Fees As Deductible Expenses

Under Article 4 of Circular 96/2015/TT-BTC, these payments are deductible for Corporate Income Tax purposes if they meet the following conditions:

• A valid contract and supporting documentation are in place;
• The expense is actually incurred and serves business purposes;
• For payments of VND 20 million or more (VAT inclusive), non-cash payment methods are used.

CIT paid on behalf of the foreign contractor

As stipulated in Clause 2.37, Article 4 of Circular 96/2015/TT-BTC, if the contract specifies that the foreign contractor’s income is net of taxes, and the Vietnamese entity is responsible for tax payment, the CIT paid on behalf may also be considered a deductible expense.

VAT paid on behalf of the foreign contractor

According to Articles 14 and 15 of Circular 219/2013/TT-BTC, VAT paid on behalf of the foreign entity is fully creditable provided that the service is used for VAT-taxable business activities and supported by appropriate documentation.

Conclusion & Recommendations

In the case where ABC Vietnam pays a licensing fee to ABC Holding Limited for the trademark usage of “ABC GLOBAL” in Vietnam.

Carefully review and analyze the agreement, particularly provisions related to gross vs. net income and tax responsibilities;
Ensure full compliance with Foreign Contractor Tax regulations, including 10% CIT and 5% or 10% VAT, depending on the tax method applied;
These payments may be deductible and VAT may be creditable, provided that the transaction is properly documented and tax obligations are fulfilled.

It is highly recommended that enterprises consult with experienced tax advisors to ensure proper structuring of cross-border IP transactions, avoid compliance risks, and optimize tax treatment.

References:

• Circular 103/2014/TT-BTC – Guidelines on Foreign Contractor Tax;

• Circular 219/2013/TT-BTC – Guidelines on VAT implementation;

• Circular 96/2015/TT-BTC – Guidelines on deductible and non-deductible expenses;
• Official Letter No. 51874/CTHN-TTHT – Tax guidance from Hanoi Tax Department.