Establishment of a company in Vietnam obtaining import – export tax incentives

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Question: We are foreign investor and would like to establish the company in Vietnam obtaining import export tax incentives, please advise the details:

Answer: Pursuant to your above question in which we are required to support you in providing our legal opinion on the import duty exemption applicable to imported raw material for purpose of processing exported goods under Vietnam Law.

We, therefore, would like to present the Client our legal opinion as below:

1. Eligibility for exemption of import duty

According to sub-clause 6 Article 16 of the Law on Export and import duties, goods imported for processing and processed exports under processing contracts are exempted from export and import duties.

Hence, Enterprise shall not have obligation to pay import duty when importing materials, supplies, components in order to perform processing contracts; as well as export duty when exporting finished products.

In order to enjoy such exemption of import duty, Enterprise shall have to satisfy following conditions:

a. Availability of a processing contract;

b. The taxpayer or processor hired by the taxpayer has a facility in Vietnam where goods are processed or exports are manufactured and the customs authority is notified of such facility and the processing contract in accordance with customs laws;

Imported raw materials, supplies and components are used for processing or manufacture of the exported products.

On 8th December 2012, General Department of Custom also issued the Dispatch Letter 11567/TCHQ-TXNK further guiding on the conditions for exemption of import duties applicable to goods for purpose of processing activities.

Accordingly, it clearly confirmed that the Enterprise does not have factory or not conducting manufacturing work, such Enterprise shall not be entitled to enjoy import duty exemption for Imported raw materials, supplies and components are used for processing or manufacture of the exported products.

Hence, in case, Client set up a foreign invested company in Vietnam in order to carry out clothing processing work, not having manufacturing facility and it shall sub-contract processing work to other parties, the Company in Vietnam could not enjoy import duty exemption applicable to raw material imported for purpose of processing work.

2. Export Processing Enterprises

According to the Sub-clause 1, Article 30, Decree No. 82, Export Processing Enterprise which manufacture exported goods shall enjoy regulations applicable to separate customs areas and non-tariff zones. Then, Export Processing Enterprise shall always enjoy import duty free.

Goods purchasing/selling transactions between Export Processing Enterprise and domestic companies shall be subject to requirement for custom clearance.

Then, when an Export Processing Enteprise subcontract processing work to a domestic company, such domestic company shall enjoy import duty exemption applicable for raw materials imported for processing products exported to Export Processing Enterprise if such domestic company satisfy conditions as described in a, b and c, Sub-clause 1 of this Clause C.

3. Conditions for establishment of Export Processing Enterprise

According to Subclause 10, Article 2 of the Decree 82, an Export Processing Enterprises is defined company which is established and operated within an export processing zone, or an enterprise specializing in manufacturing exported products within an industrial park or economic zone.

Then, in order to setup an Exort Processing Enteprise, Client shall have to setup its subsidiary in

(i) Export Processing Zone or

(ii) Industrial Park or

(iii) Economic Zone.