Vietnam taxes trademark licenses

A controversial tax issue on IP has arisen in Vietnam. Trademark licensees traditionally do not pay VAT on the licensee fees because this is seen as part of technology transfer, a way to attract investment. However several triggers have led to a change. Vietnam is looking at its IP system in light of the TPP and EU trade deals. Previously VAT was not charged and the position somewhat unclear. A number of companies had ongoing discussions or investigations with the tax authorities.

Now the Ministry of Finance has issued a letter to make it clear that VAT applies on trademark license fees. The logic is that assignment of a mark is a sale so does not attract VAT, but licensing is an income based transaction, so Vietnam will charge VAT. And trademarks are not necessarily technology so are not exempt.  

There is resistance from business. However ultimately the cost is likely to fall on domestic licensees and passed on to Vietnamese consumers.

Accountants are advising companies to review their contracts because the issue could be retroactive. If all taxes were declared by the deadline of November 7^th, then prior license fees are not affected, even if tax was not paid. But if taxes were not filed and paid at that date the letter now applies and could apply to all undeclared license fees.