Vietnam to Begin Taxing Trademark Use

Vietnam to Begin Taxing Trademark Use

In November, Vietnam’s finance ministry released a letter saying Vietnam taxpayers who purchase rights to foreign trademarks owe a value-added tax. This has potentially serious ramifications for companies operating in Vietnam. Before this letter, Vietnam’s official policies were not clear or consistent, and “in many cases, no VAT was imposed on trademark licensing,” according to Tran Manh Hung of Baker & McKenzie. The letter is at least partly retroactive, as businesses that did not declare and pay their taxes on trademarks by November 7 will be affected.

The main question regarding this tax is the legal structure of the company. A Vietnamese party who has a trademark fully transferred to them will not have to pay taxes, but if they are only granted the right to use the mark, Vietnam will collect a tax of between five and ten percent. Apparently, Vietnam does not view a grant to use a mark as a transfer of technology or scientific services. Understandably, Vietnam has been getting a significant amount of pushback from corporations.

Prominent American companies that do business in Vietnam include Anheuser-Busch, Avon Products, Boeing, Coca-Cola, DuPont, FedEx, Hewlett Packard, Kids “R” Us, Nike, PepsiCo., and Wal-Mart. Almost all large companies have significant resources devoted to trademark protection, and this new policy will certainly affect how they do business. It is possible that Vietnamese parties will wind up paying this tax for foreign contractors if the contracts are not negotiated properly, because “Vietnamese parties are responsible for deducting, declaring and paying relevant taxes for an on behalf of foreign contractors.”

This new policy is part of Vietnam’s program to update its intellectual property protection on the heels of trade deals with European countries and countries that were party to the Trans Pacific Partnership. Although the U.S. has stated it will withdraw from the TPP, that does not necessarily mean it will not go forward. Regardless, this is a trend international companies certainly hope will not catch on.

Authored by Sam Gee on behalf of the Eldredge Law Firm.

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