Tax And Compulsory Fees Related To Franchising Activities In Vietnam
Oct 8, 2013
Foreign investors seeking to grant a franchise in Vietnam should be aware of its legal monetary obligations in connection to franchise registration. This article highlights in broad terms some of the taxes and compulsory fees payable by franchisors in Vietnam.
Foreign business entities seeking to grant a franchise (including both primary and secondary franchisors) are obliged to register their franchising activities with the competent State body. The competent body is the Ministry of Industry and Trade (“MOIT”).
Article 1 of Decision No. 106/2008/QD-BTC of the Ministry of Finance dated 17 November 2008, provides for the charging of statutory registration fees in relation to the registration of franchising activities. The fees for registration of franchising activities are as follows:
A foreign business entity granting a franchise in Vietnam:
- Issuance of a new notice: 16,500,000 VND
- Amendment or addition to the notice: 6,000,000 VND
- Re-issuance of the notice: 500,000 VND
Regarding tax obligations, pursuant to the Law on Corporate Income Tax (“CIT”), the general corporate income tax rate applied to both foreign owned enterprises and local enterprise is 25%.
A “foreign contractor withholding tax” (“FCWT”) also applies to foreign companies that do not establish a legal presence in Vietnam, but enter into contracts with Vietnamese entities (such as a franchise-related agreement). The relevant regulations set out a mechanism whereby the tax authorities collect CIT and value added tax (“VAT”) from foreign entities (generally referred to as “foreign contractors”) which carry out business/earn income in Vietnam on the basis of contracts entered into with Vietnamese entities or individuals.
FCWT consists of two elements, namely VAT and CIT. The VAT element will be available as an input VAT credit to the Vietnamese project owner if the Vietnamese project owner produces supplies subject to VAT. Importantly, earned income in the form of royalties paid for the use of the franchise or for the transfer of intellectual property/technology rights are taxable under the FCWT regulations.
Franchisors are advised to obtain legal and tax advice at the initial stages of considering franchising activities within Vietnam.