Ho Chi Minh City, 4 March 2025
Part 2: Important Payables Considerations for Foreign Licensor in Trademark License Agreement
Continuing the previous part on “Overview on Trademark License Agreement under the Vietnam Intellectual Property Law & Regulations” (missed out on our first part, you can take a look here), in this next part, we will take a look into the payables and taxes in Trademark License Agreement (“TLA”). Let’s take a look!
Payables under Trademark License Agreement (“TLA”) between Related-Parties
Key Considerations:
- Practically, there are cases wherein TLAs are made between related parties, especially among member companies of a global group/ corporation. Under the prevailing IP Law and Regulations, parties are considered related if one directly or indirectly controls, contributes capital to, or manages the other, or if both are under common control.
- Regarding payables which may include license fee, royalty, advertising fee, etc. from the licensee to the licensor under TLA, the IP Law and Regulations do not impose any restrictions or cap rates, leaving the terms subject to mutual agreement between the parties. However, in the case of a TLA between related parties (i.e. a related-party transaction), unreasonably high payables from the local licensee to the foreign licensor may be scrutinized by tax authorities to prevent transfer pricing.
Notes:
Payables from the local licensee to foreign licensors in a TLA should comply with the arm’s length principle to mitigate the risk of scrutiny by tax authorities. If transfer pricing is determined to have occurred, prescribed penalties – such as administrative fines, tax reassessment, payment of tax deficiencies (if any), and interest in late tax payments – may be imposed on the local licensee.
Foreign Contractor Tax (FCT)
Remarkable issues:
Payables made by the local licensee to the foreign licensor under a TLA shall be subject to FCT in Vietnam. Under the prevailing laws of Vietnam, FCT comprises Corporate Income Tax (“CIT”) at a rate of 10% and Value Added Tax (“VAT”) at a rate of 10% (if declared under the credit method) or 5% (if declared under the direct method), and the local licensee shall withhold such FCT from the payables made to the foreign licensor, and declare and pay, on behalf of the foreign licensor, to the tax authorities in due course.
Notes:
- Parties should specify whether payables from the local licensee to the foreign licensor include FCT; and
- Parties should clarify that the local licensee is obligated to declare and pay FCT on behalf of the foreign licensor to the Vietnamese tax authorities in accordance with applicable laws and regulations. Additionally, upon the licensor’s request or as otherwise required, the local licensee must provide evidence of such tax payment.
A well-drafted and registered TLA for registered/ protected trademark in Vietnam will help the foreign licensor safeguard their trademark rights more effectively as well as help parties minimize risks during the implementation of such TLA. We hope this article provides valuable insights and serves as a helpful reference for our readers.
