Many FDI enterprises in Vietnam simultaneously operate two revenue streams of entirely different natures: franchise revenue — initial fees and periodic royalties collected from franchisees under franchise contracts — and goods revenue from online sales channels on platforms and websites. The two streams bear different tax mechanics, are invoiced by different natures and are inspected by tax authorities on different bases. When accounting merges them into one common revenue line, the enterprise almost certainly misdeclares at least one stream: either franchise fees are taxed as goods, or goods revenue is mixed into the royalty base payable to the foreign franchisor. This article sets out how to separate the two streams in contracts, books and filings, the tax differences between them, how to invoice each stream and the consequences of wrong separation.
How to separate franchise revenue from goods revenue
The separation principle follows the transaction’s nature, not the collection channel. Franchise revenue is amounts collected for allowing franchisees to use the business system, trademarks and know-how of the franchisor: the initial franchise fee on contract signing, periodic royalties (usually computed as a percentage of the franchised outlet’s revenue), and service fees attached to the rights such as training fees and common marketing fund fees where the contract provides. Goods revenue is amounts from selling goods owned by the enterprise — including goods sold to franchisees under accompanying supply contracts and retail goods sold through the enterprise’s own online channels. The same partner may be both a franchisee and a goods customer, and both streams may arise in the same period — the franchise contract and the goods supply contract must be two separate documents with separate pricing and payment terms.
At the books layer, the enterprise opens separate revenue accounts and subject codes per stream: franchise revenue per franchise contract, goods revenue per sales channel (platform, website, sales to franchisees). The most important technical point is the royalty computation base: royalties computed on the franchised outlet’s revenue must be defined clearly in the contract — which revenue enters the base (only revenue at the branded outlet, excluding non-branded online channel revenue, excluding output value added tax) — because an ambiguous definition here is the number one source of franchisor–franchisee disputes and the point tax authorities reconcile when inspecting the completeness of declared franchise revenue.
How franchise fees and platform goods revenue are taxed differently
The first difference sits with the foreign partner: where the FDI enterprise is the franchisee and pays franchise fees overseas, the periodic royalty bears the nature of income from intellectual property rights of the foreign franchisor and falls under contractor tax — with corporate income tax on royalty income applying the 10% rate under Clause 3, Article 12 of Decree 320/2025/ND-CP, withheld before remitting money overseas under the current contractor tax framework. By contrast, money paid for goods purchased from that same partner is a commercial goods payment bearing no contractor tax withholding on the goods price. Mixing the two in one payment line leaves the enterprise under-withholding contractor tax on the royalty part or over-withholding on the goods part — both are reassessed and sanctioned at inspection.
The second difference sits with the selling enterprise itself: goods revenue sold on platforms by an FDI enterprise is revenue of an organisation that self-declares value added tax and corporate income tax — it is not subject to platform withholding and remittance under Decree 117/2025/ND-CP because that mechanism applies only to sellers who are household businesses and individuals. Franchise revenue the enterprise collects from domestic franchisees is revenue from granting rights and services, declared by the nature of services with intellectual property use rights, evidenced by the franchise contract — franchising activity currently follows Decree 08/2018/ND-CP amending Decree 35/2006/ND-CP, in which registration of franchising from abroad into Vietnam has been abolished and replaced by a notification mechanism. The two revenue streams therefore pass through two different declaration logics within the same period’s return.
How to issue invoices for each revenue stream
Invoices must follow the nature of the separated stream. For goods revenue: goods sales invoices are issued to the buyer at the time of ownership transfer under invoice rules — for platform channels, invoices are issued to the end buyer or under the platform invoice mechanism the enterprise registers, matching order data and recorded revenue. For franchise revenue: the initial fee is invoiced when rights are granted and the fee is determined under the contract; periodic royalties are invoiced per fee period on the basis of the franchised outlet’s revenue reconciliation confirmed by both parties. The franchise stream’s invoice content must show the correct nature as franchise fees, trademark use fees or corresponding support services, and must not be merged with goods money in one invoice.
The most common invoice error in the combined model is issuing one total invoice for both goods money and franchise fees in the same payment period with a franchisee, or netting — offsetting franchise fees against goods money and invoicing only the difference. Both approaches destroy the declaration basis: invoice data no longer matches per-stream revenue in the books, and royalty amounts hidden in goods prices prevent tax authorities from determining contractor tax duties on the outbound side (if any) and service revenue on the inbound side. The correct operating rule is: no netting on invoices; two revenue streams, two invoice sets — payments may be offset at the money layer but documents must preserve each stream’s full value.
How wrong revenue separation is handled and reassessed
When the tax authority inspects and finds wrong separation, consequences are computed separately for each wrong stream. For outbound franchise fees hidden in goods prices or under-computed: the enterprise is reassessed for the under-withheld contractor tax, late payment amounts on the reassessment and incorrect-declaration sanctions under the current tax penalty framework. For inbound franchise revenue under-declared or declared as goods to enjoy a different tax computation: revenue is re-determined under the franchise contract and the franchised outlets’ revenue data the authority collects, leading to reassessment of value added tax and corporate income tax on the difference. For goods streams mixed with royalties: the royalty base payable to the foreign franchisor is re-determined, generating fee differences and corresponding contractor tax consequences.
Prevention must happen at the design layer rather than waiting for the finalisation period: the franchise contract defines the fee base and the boundary with the goods supply contract clearly; the accounting system separates revenue codes by nature right at recognition; a periodic reconciliation process between franchisee outlets’ self-reported revenue and revenue recorded for fee computation; and periodic review by the tax function of the two streams’ proportions against prior periods to detect anomalies. In a fast-growing franchising-plus-online model, one wrong separation in the first period replicates itself across every later period if not fixed at the books structure layer.
Frequently Asked Questions
How must an enterprise combining franchising with online sales separate franchise revenue from goods revenue?
Follow the transaction’s nature: franchise revenue comprises the initial fee, periodic royalties on the franchised outlet’s revenue and right-attached service fees; goods revenue is money from selling enterprise-owned goods, including goods sold to franchisees under a separate supply contract and online sales. Books open separate revenue codes per stream and the contract defines the royalty base clearly.
How are franchise fees and platform goods revenue taxed differently?
Franchise fees paid overseas bear the nature of the foreign franchisor’s royalty income, subject to contractor tax with 10% CIT under Clause 3, Article 12 of Decree 320/2025/ND-CP. Goods revenue sold on platforms by an FDI enterprise is self-declared by the enterprise for VAT and CIT and is not subject to platform withholding under Decree 117/2025/ND-CP.
How are invoices issued for each franchise and goods revenue stream?
Each stream is invoiced by its nature: goods invoices are issued at ownership transfer matching order data; the initial franchise fee is invoiced when rights are granted, periodic royalties per period on the confirmed outlet revenue reconciliation. Do not issue one invoice merging both streams and do not net fees against goods money on invoices.
How is wrong revenue separation handled and reassessed by the tax authority?
Consequences are computed per wrong stream: under-computed outbound royalties draw contractor tax reassessment, late payment and declaration sanctions; under-declared inbound franchise revenue is re-determined under the contract and outlet data with VAT and CIT reassessment; the royalty base is also re-determined where goods are mixed with royalties.
FLAT Law Firm supports separating franchise and online sales revenue
FLAT supports FDI franchising enterprises in designing the royalty-base revenue definition in contracts, separating franchise and goods revenue codes in the books and reviewing invoices and contractor tax duties per revenue stream.
This article has been quality-reviewed by the FLAW AI Legal Council