What is copyright for software, music, and movies? How to calculate copyright contractor tax, how to calculate contractor tax based on net – gross price? There are detailed examples.
I. What is copyright?
Copyright is a general concept of authorship (copyright) for products and works created by oneself. Copyright mainly protects images, movies, music, software and other culturally valuable works of art, thereby bringing the best benefits to the owner and creator of the work.
When an author creates a work, of course the author has copyright over his work. However, in this competitive era, the work should be registered with a third party related to ownership. Then the author’s right to prove his work will be legally guaranteed.
>> See more: Copyright registration procedures.
II. What is copyright for software, music, and movies?
Currently, there are many types of copyrighted works, the most common of which are the following 3 types:
- Software and game copyright is the affirmation of the right to create software created by programmers or manufacturers;
- Music and sound copyright is the assertion of copyright over musical works that one has composed;
- Copyright of movies, images, logos, videos is the affirmation of copyright for the film and image works that you create.
>> Learn more: Should a logo be copyrighted or trademarked?
III. Tax on copyright of software, music, movies
When a business incurs costs for purchasing software from foreign contractors specializing in providing copyrights for software, movies or music, it needs to deduct foreign contractor tax including value added tax (VAT) and corporate income tax (CIT). This means that foreign businesses are having “copyright income” in Vietnam.
1. What is copyright income?
Copyright income is income in any form paid for the right to use, transfer technology and transfer intellectual property rights or software copyrights under the Law on Intellectual Property.
2. How to determine contractor tax on copyright of software, audio, video
When purchasing copyrights for software, movies or music, you must comply with the provisions of copyright law, Intellectual Property Law, and copyright purchase contracts.
When Vietnamese companies incur costs for purchasing software from foreign companies, they will easily misunderstand that they are purchasing the copyright of the foreign contractor’s service. However, in reality, the company is only purchasing the “right to use” that software, usually expressed through the contractor granting access rights, the right to use the program, and not the right to transfer the copyright (ownership) of that software.
➤ About VAT:
- In case the copyright provided by foreign contractors is determined to be software, music, or film services according to regulations, it is not subject to VAT;
- In case services cannot be identified as software services according to regulations, they are subject to VAT on revenue, the tax rate is 5%.
➤ About corporate income tax:
In case the foreign contractor’s income is received from the activity of providing copyright for companies in Vietnam to use applications and services on it, the corporate income tax rate is 10%.
>> See more: Subjects subject to 5% VAT.
IV. How to calculate contractor tax on copyright of software, audio, video
1. How to calculate contractor tax based on gross price
Contractor tax at gross price is the contract value between Vietnamese enterprise and foreign contractor including tax.
Formula for calculating foreign contractor tax based on gross price:
| VAT payable = Sales contract value x VAT rate % of revenue |
| Corporate income tax payable = (Sales contract value – VAT) x Corporate income tax rate |
Note:
When calculating contractor tax based on gross price, VAT must be calculated first, then corporate income tax.
2. How to calculate contractor tax based on net price
Contractor tax based on net price is the contract value between Vietnamese enterprises and foreign contractors excluding tax.
Formula for calculating foreign contractor tax based on net price:
➤ Calculate corporate income tax for contractors based on net price
| Revenue subject to corporate income tax | = | Revenue excluding corporate income tax
(1 – Corporate income tax rate calculated on taxable revenue) |
| Corporate income tax payable = Taxable revenue x Corporate income tax rate calculated on taxable revenue |
➤ Calculate VAT for contractors based on net price
| VAT taxable revenue | = | Revenue excluding VAT
(1 – VAT rate on revenue) |
| VAT payable = VAT taxable revenue x VAT tax rate on revenue |
Note:
When calculating contractor tax based on net price, corporate income tax must be calculated first, then VAT.
3. How to account for contractor tax on software, audio, and video copyrights
➤ Entry 1: Accounting for accounts payable to foreign contractors
Debit account 15x, 21x, 64x;
There is account 331 (foreign contractor details).
➤ Entry 2: Accounting for VAT and corporate income tax payable on behalf of foreign contractors
Debit accounts 15x, 21x, 64x (Corporate income tax is included in corporate income tax calculation expenses);
There is account 3388;
Debit account 15x, 21x, 64x (VAT is included in deductible VAT);
Have account 3388.
➤ Entry 3: Accounting for taxes payable by contractors
Debit account 3388;
There are accounts 111, 112.
See also:
>> How to account for foreign contractor tax based on net – gross price;
>> Instructions on how to declare contractor tax online.
V. Example of declaring contractor tax on copyright of software, music, movies
fdiinvietnam.com Company signed contract 01/2023/YOOSE/fdiinvietnam.com on November 29, 2023 to register to use YOOSE Pte. Ltd’s camera management software, helping the company to monitor and access remotely. The payment amount according to the net price is 1,000,000 VND (net price is the value that YOOSE company actually receives). Payment date is November 29, 2023.
YOOSE Company is identified as a foreign contractor with income from copyright in Vietnam. Therefore, the VAT rate when paid on behalf of a foreign contractor is not taxable and the CIT rate when paid on behalf of a foreign contractor is 10%.
According to the agreement, fdiinvietnam.com will pay taxes on behalf of foreign contractors. The steps to declare contractor tax on software copyright are as follows:
➤ Step 1: Go to the General Department of Taxation website and log in with the contractor tax code issued by the tax authority;
➤ Step 2: Go to “Declaration” select “Contractor tax”, then select “Foreign contractor tax declaration (01/NTNN) (TT80/2021)”;
➤ Step 3: Choose the appropriate tax period (declare monthly or declare each time it occurs);
➤ Step 4: Fill in all foreign contractor information including:
- (1a): Information on foreign contractor name;
- (1b): Industry or service used by foreign contractors;
- (2): Tax code of foreign contractor performing contractor contract;
- (3): Number of contracts with foreign contractors;
- (4): Day/month/year is the performance time stated in the sales contract with the foreign contractor;
- (5): Revenue does not include VAT;
- (6): Date/month/year the company paid the foreign contractor;
- (7), (8), (9): VAT: Because the company determines that it is a software service, according to regulations, it is not subject to VAT and will not have to pay VAT;
- (10), (11), (12): Corporate income tax.
Because the company determines that the corporate income tax payable is 10%, the formula for calculating corporate income tax for contractors based on net price will be applied as follows:
- Revenue subject to corporate income tax = 1,000,000 / (1 – 10%) = 1,111,111 VND;
- Corporate income tax payable on behalf of foreign contractors = 1,111,111 x 10% = 111,111 VND.
➤ Step 5: Record and export contractor tax declaration as XML file for online submission.
VI. Questions related to contractor tax on copyright of software, movies…
1. What is copyright and how is it different from a trademark?
Copyright is a form of intellectual property. Copyright and trademarks have in common that they are intangible assets, but the purpose of copyright is different from that of trademarks.
- Purpose of copyright: To encourage authors to create works for the benefit of the public, to protect original works such as movies, music and software…;
- Purpose of brand, trademark: Help people recognize products through the brand on the logo, prevent harm to consumers, thereby helping to identify the origin of goods and services.
>> Learn more: Should logos be trademarked or copyrighted?
2. When to declare contractor tax on income from royalties?
There are 2 times to declare copyright contractor tax as follows:
➤ Declare by occurrence:
- Declaration is made according to the occurrence of payment to foreign contractors and final settlement declaration upon termination of the contractor contract;
- The deadline for declaration for each occurrence is the 10th day from the date the tax liability arises.
➤ Monthly declaration:
- As a multiple monthly declaration, taxpayers can register to declare tax monthly instead of declaring each time a payment is made to a foreign contractor;
- The deadline for monthly declaration is the 20th day of the month following the month in which the tax liability arises.
3. In case of signing a contract with a foreign contractor to provide products with copyright services for using the products in the Vietnamese market, how is contractor tax applied?
- If the sales contract does not separate the value of goods and the value of copyright, the VAT and CIT rates for the business line with the highest VAT and CIT rates shall be applied to the entire contract value;
- If the sales contract separates the value of goods and the value of copyright, the copyright contractor tax shall be applied as follows:
- Value of goods subject to VAT at import stage;
- Copyright value is not subject to VAT and is subject to corporate income tax at a rate of 10% on revenue.
>> See more: How to account for foreign contractor tax.
4. When Vietnamese enterprises have transactions on software services with foreign contractors, how can we distinguish whether the enterprise is using “software services” or the foreign contractor is having “income from copyright” to determine the correct tax rate?
- Software services are activities that directly support and serve the production, installation, use, upgrade, warranty, maintenance of software and other similar activities related to software. The tax rate for software services is as follows:
- VAT: The applicable rate is 5%;
- Corporate Income Tax: The applicable rate is 5%.
- Copyright income is income paid for granting the right to use, transferring intellectual property rights and transferring technology for software copyright. The rate for calculating software copyright contractor tax is as follows:
- VAT: If determined according to the provisions of Decree No. 71/2007/ND-CP dated July 3, 2007 of the Government, it is not subject to tax. If not determined according to the provisions, it is subject to VAT on service revenue at 5%;
- Corporate Income Tax: The applicable rate is 10%.
>> See more: How to calculate foreign contractor tax.