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Royalty Payments to China: Contractor Tax and DTA Relief in Vietnam

5 min readFLAT LAW FIRM
Completed tax forms with a pen on a wooden desk — illustrating foreign contractor tax on royalties paid to China, no people

A Vietnamese company pays royalties to a partner or parent company in China — software licensing fees, franchise fees, patent use rights. Three tax questions always follow: how much tax is due, does the double taxation agreement reduce it, and what is the paperwork? This guide answers directly under the law in force as of October 2026 — and breaks a common false expectation: “treaty = tax cut”.

1. The new contractor tax regime from 01/7/2026: Circular 103/2014 is dead

First update: Circular 103/2014/TT-BTC was abolished on 01/7/2026 (Article 99 of Circular 89/2026/TT-BTC, issued 30/6/2026). The current foreign contractor tax framework is:

  • Declaration procedure: Circular 89/2026/TT-BTC (effective 01/7/2026) — Article 30 (contractor tax declaration), Article 78 (treaty-based exemption/reduction dossiers);
  • Tax calculation: Decree 320/2025/ND-CP (issued 15/12/2025) and Circular 20/2026/TT-BTC (effective 12/3/2026).

Any process still citing Circular 103/2014 is out of date — the most common error in legacy documents. Circular 80/2021/TT-BTC was abolished as well.

2. Specific rates: VAT not applicable, CIT 10%

VAT: not subject to VAT. Under Clause 21, Article 5 of the VAT Law 2024 (No. 48/2024/QH15, effective 01/7/2025), transfers of intellectual property rights under the IP Law are not subject to VAT. Use the correct term: “not subject to VAT” — not “exempt”, and certainly not “0% rate”.

CIT: 10% of total turnover. Royalties paid to the Chinese party are subject to foreign contractor CIT at 10% of total turnover (Clause 3, Article 12 of Decree 320/2025/ND-CP; calculation method in Article 7 of Circular 20/2026/TT-BTC). The Vietnamese payer must withhold, declare and pay this tax on behalf of the foreign party.

Worked example: a Vietnamese company pays VND 2 billion in software royalties to a Chinese partner. Contractor CIT = 2,000,000,000 x 10% = VND 200,000,000, withheld and paid by the Vietnamese side. The Chinese party actually receives VND 1.8 billion.

3. The Vietnam – China DTA: no actual tax reduction

Article 12(2) of the Vietnam – China Double Taxation Agreement (signed 17/5/1995) caps Vietnamese tax on royalties at 10% — exactly the domestic rate. The treaty therefore creates no actual tax reduction for royalties paid to China — readers should not expect “tax savings via the treaty”.

The value of the treaty lies in China: the Chinese parent may credit the tax paid in Vietnam when finalizing tax in China (Article 23), including tax sparing — taxes exempted or reduced in Vietnam are deemed paid at 10% (Clause 3, Article 23).

Also note: the treaty does not apply automatically. To claim relief, the taxpayer must file a notification dossier and satisfy conditions on residence and beneficial ownership. The tax authority may deny treaty application where abuse is suspected (Circular 95/2026/TT-BTC on treaty abuse, effective 1 July 2026, replacing Circular 205/2013/TT-BTC).

4. Treaty relief procedure step by step (Article 78, Circular 89/2026)

The foreign contractor or the Vietnamese payer submits to the directly managing tax authority a treaty-based tax exemption/reduction dossier together with the tax declaration of the first declaration. The dossier includes:

  1. Application form 01/HTQT (Appendix III of Circular 89/2026);
  2. Certificate of residence issued by the Chinese tax authority, duly consular-legalized — without legalization, the dossier will be returned;
  3. A copy of the contract certified by the taxpayer;
  4. Authorization document (if any).

Practical note: consular legalization of the residence certificate usually takes the longest, so start it as soon as the contract is signed.

5. The classification trap: not every outbound payment is a “royalty”

Correctly classifying the payment is the prerequisite. Not every payment abroad is a “royalty”:

  • Pure service fees (e.g. technical consulting fees from the Chinese parent) may be classified as services, with different rates and VAT treatment;
  • Equipment lease fees follow their own tax regime;
  • Technology transfer fees bundled with equipment can fall into the VAT trap when the technology value cannot be separated.

Wrong classification leads to the wrong rate and the wrong treaty procedure. Where a contract mixes elements, separate each component in the contract itself.

Special case: payments to the Chinese parent company (an associated relationship) are also subject to Decree 255/2026/ND-CP on transfer pricing — the arm’s length principle applies and related-party transactions must be declared.

6. Checklist

  1. Identify the true nature of the payment: royalty, service or lease;
  2. Apply the correct rates: VAT not applicable, 10% contractor CIT withheld and paid on behalf;
  3. Update processes to the new framework: Circular 89/2026 + Circular 20/2026 + Decree 320/2025 (no more Circular 103/2014);
  4. Prepare the treaty relief dossier from the first tax declaration, with the residence certificate consular-legalized;
  5. For payments to the parent company: add transfer pricing compliance under Decree 255/2026.

See also: Can transfer pricing manipulation lead to criminal prosecution in Vietnam?

Contact us

FLAT Law Firm advises Vietnamese companies on contractor tax for outbound payments: classifying payments, calculating tax correctly, filing declarations and preparing DTA relief dossiers. Contact: contact us.

This article is for general information only and does not constitute legal advice for your specific situation.

Transparency note: The legal content of this article was QA-reviewed by the FLAW AI Legal Council and approved by the site owner before publication. It is not the opinion of a licensed attorney who has reviewed your case.

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