(In principle, technology transfer activities are not subject to VAT, licensing of intellectual property objects is not subject to VAT.

In the process of researching and applying the VAT Law and guiding documents, VN CONSULT Law Partnership Law Firm has difficulty in identifying non-VAT subjects in some specific situations as follows:

Clause 21, Article 4 of Circular No. 219/2013 / TT-BTC guiding the implementation of the Law on VAT and Decree No. 209/2013 / ND-CP stipulates:

“Article 4. Who are not subject to VAT

21. Technology transfers according to the Law on Technology transfers; intellectual property right transfers according to the Law on Intellectual property. If a contract of technology transfer or intellectual property right transfer is associated with a transfer of machinery/equipment, only the value of transferred technology or intellectual property right is not subject to VAT. If such value cannot be separated, VAT shall be imposed on the total value of the transferred technology or intellectual property right and machinery/equipment.”.

In practice, when signing a technology transfer contract, they often choose one of the methods for paying technology transfer fees as follows:

- Case 1: The transferee pays the package technology transfer fee, calculated according to a certain percentage (3-5%) of the annual net revenue. With this package charge method, the technology transfer contract does not separate the technology transfer fee; training technical support fee; fees for licensing of intellectual property objects (trademarks, copyrights of other intellectual property objects) which are aggregated into one lump sum paid according to net revenue (payable on a quarterly basis).

Example 1: Technology transfer contract provides for technology transfer fee as follows: "The transferee must pay the technology transfer party a technology transfer fee of 3% of net revenue. Calculated from the time the revenue is generated until the contract is terminated. The payment is made every 3 months ”.

- Case 2: Technology transfer fee is divided into separate fees such as: Technology transfer fee; technical support and training fees; fees for licensing of intellectual property objects (trademarks, copyrights of other intellectual property objects).

Example 2: A technology transfer contract provides for the technology transfer fee as follows: "The transferee must pay the transferor the following fees:

(a) Technology transfer fee is 3% of net revenue, payable every 3 months since the revenue is generated;

(b) Technical support and training fee: USD 10,000, paid once immediately after signing the contract.

(c) Fee for licensing of trademarks, and other intellectual property rights: 1% of net revenue, payable once every 3 months since revenue is generated.

As the company understands, all fees payable by the transferee to the technology transfer party, whether included in a payment as in case 1 above or separated into separate fees as is the case. The above 2 are considered technology transfer fees under the Law on Technology Transfer and are not subject to VAT.

Through the receiving and responding system to enterprises’ recommendations, the Company would like to ask, if all of the fees that the transferee has to pay the technology transferor in the two above cases is determined as the transfer fee. The technology transfer in accordance with the Law on Technology Transfer and not subject to VAT as prescribed in Clause 21, Article 4 of Circular No. 219/2013 / TT-BTC?

Regarding this issue, the General Department of Taxation –the Ministry of Finance has the following opinions:

Under the provisions of Clause 10, Article 3 of Decree No. 209/2013 / ND-CP dated December 18, 2013 detailing and guiding the implementation of a number of articles of the Law on VAT regarding subjects that are not belong to VAT:

“10. In case of transfer of technologies or intellectual property rights specified in Clause 21, Article 5 of the Law on Value-Added Tax which is accompanied by machinery or equipment transfer, the value of transferred technologies or intellectual property rights is not subject to value-added tax. If this value cannot be separately determined, value-added tax shall be imposed on the total value of transferred technologies or intellectual property rights and accompanied machinery and equipment”.

Under the provisions of Clause 21, Article 4 of Circular No. 219/2013 / TT-BTC dated December 31, 2013 of the Ministry of Finance guiding the subjects not subject to VAT:

21. Technology transfers according to the Law on Technology transfers; intellectual property right transfers according to the Law on Intellectual property. If a contract of technology transfer or intellectual property right transfer is associated with a transfer of machinery/equipment, only the value of transferred technology or intellectual property right is not subject to VAT. If such value cannot be separated, VAT shall be imposed on the total value of the transferred technology or intellectual property right and machinery/equipment”.

Pursuant to the above provisions and guidance, in principle technology transfer activities are not subject to VAT, transfer of the right to use intellectual property objects is not subject to VAT.

The unit is requested to present in detail with relevant documents and contact the tax administration agency for specific instructions according to regulations.