Customs procedure for Export Processing Enterprises (EPEs) selling products for domestic enterprises

I.Answering questions of Enterprises

1.Can EPEs sell export processing product to domestic market? Is there any regulation on maximum percentage of quality in term of production that sell to domestic market?

– EPES is allowed to sell export processing product to domestic market  ( condition for selling to domestic market regulated  at decree 09/2018/ND-CP dated 15 Jan 2018 on  guidelines for the Law on Commerce and the Law on Foreign Trade Management regarding sale of goods and other activities directly related to sale of goods of foreign investors and foreign-invested business entities in Vietnam)

Presently, there is no regulation on maximum percentage (%) of quality in term of production that sell to domestic market. However, according to interpretation “Export processing enterprise means a 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.” So, in time of issuing investment certification, determination of type of operation, Enterprise had must report detail for verification to competence agency including production purpose, consumption market … in order to apply management policy for EPEs.

2.In case of selling to domestic market, what is document procedure for EPEs and domestic enterprises?

  • In case EPEs meet conditions of non tariff area according to clause 1 article 4 of law on import and export tax no.107/2016/QH13, importing material from oversea for manufacturing product (it is subject to import exemption), then EPEs sell the product to domestic enterprise, customs procedure shall implement as on spot import and export. Domestic Enterprise must pay import tax for product purchased from EPEs according to clause 2, article 22, decree no.134/2016/ND-CP.
  •  
  • In case of EPEs can not meet conditions of non tariff area according to clause 1 article 4 of law on import and export tax no.107/2016/QH13, import material for manufacturing export product (declaration registered as type of manufacture for export) exempt from import tax. Then, the company does not export product. The company sell such product to domestic company. This is case of changing purpose that exempted import tax. The EPEs must pat tax as regulation at clause 5 article 25 of decree no.08/2015/ND-CP, clause 2 article 9 of Law on import and export no.107/2016/QH13.

II.Legal basis

1.Interpretation of Export Processing Enterprises (EPEs)

-According to clause 10 of article 2 on Decree no.82/2018/ND-CP dated 22/05/2018  on management of industrial parks and economic zones.

 Export processing enterprise means a 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.

Export processing enterprise which is not located in export processing zones shall be separated from the outside area as per the regulations on non-tariff areas laid down in the import and export tax law.

-Clause article 4 of law on import and export tax no.107/2016/QH13 specifies:

 Free trade zone means an economic zone located within Vietnam’s territory, established in accordance with law, having a definite geographic boundary, and separated from the outer area by hard fences in order to facilitate customs inspection and customs control by the customs authority and relevant agencies with regard to exports and imports, inbound and outbound vehicles and passengers; the trading relationship between the free trade zone and the outside area is consider exportation and importation.

2.Trade relation between EPEs and Domestic Enterprises

Clause 1,2 article 28  in commercial law no.36/2005/QH11 dated 14 June 2005 regulating import and export of goods:

1. Export of goods means the bringing of goods out of the territory of the Socialist Republic of Vietnam or into special zones in the Vietnamese territory, which are regarded as exclusive customs zones according to the provisions of law.

2. Import of goods means the bringing of goods into the territory of the Socialist Republic of Vietnam from foreign countries or special zones in the Vietnamese territory, which are regarded as exclusive customs zones according to the provisions of law.

-Clause 4 article 3 Law on trade foreign management  no. 05/2017/QH14 dated 12/06/2017 :

“customs-controlled area” means a geological area in the territory of Vietnam that is established in accordance with regulations of Vietnam law and international treaties to which the Socialist Republic of Vietnam is a signatory and the exchange of products between this area and the remaining territory of Vietnam or foreign countries are considered as import and export activities.

-Clause 5 article 30 in decree no.82/2018/ND-CP:

Exchange of goods between export processing zones or export processing enterprises and other areas within the territory of Vietnam, except for non-tariff zones, shall be defined as an export or import relationship, unless otherwise stipulated in clause 3 of this Article and except in the cases where customs procedures are not required under regulations adopted by the Ministry of Finance.

Export processing enterprises may sell into the domestic market their liquidated assets and goods under the provisions of law on investment and trade. At the time of selling or disposing of goods in the domestic market, export or import management policies shall not apply, except to the extent that the goods are subject to management in conformity with conditions or standards ,and specialized inspection have not yet been implemented when import; The goods must be approved in writing by the import permit-issuing agency

3.Customs procedures

-Customs procedure for EPEs implement according to regulation at decreeno.08/2015/ND-CP amended and supplemented at decree no.59/2018/ND-CP and Circular no.38-2015-TT-BTC amended and supplemented at Circular 39/2018/TT-BTC, in which:

Exporting to foreign party, delivering to Vietnam as designation:

According to article 35 of decree no.08/2015/ND-CP dated 21/01/2015 : Those traded under the sale or purchase contract between Vietnamese enterprises and overseas organizations or individuals that have no representative in Vietnam, and delivered or received under the designation arrangement between foreign merchants with other enterprises in Vietnam” shall implement form of indirect import and export.

Procedure of indirect import and export shall implement according to article 86 of 38/2015/TT-BTC dated 25 Mar 2015 amended and supplemented at clause 58 article 1 of Circular no.39/2018/TT-BTC date 20 April 2018.

  • Directly selling to Domestic enterprise:

+ Pursuant to clause 5 of article 25 at Decree no.08-2015-ND-CP dated 21 Jan 2015 of Government amended and supplemented at clause 12 article 1 in Decree 59/2018/ND-CP dated 20 April 2018 specifies” imports are raw materials used for processing or manufacturing exports and temporarily imported—re-exported products that have been released or cleared but then their use purpose has changed for domestic consumption, new customs declarations shall be submitted instead”.

The declaration is implemented before putting in to use at domestic market (clause 1, clause 2 article 21 in circular no. 38/2015TT-BTC 25/03/2015 amended and supplemented at clause 10, article 1 in circular no.39/2018/TT-BTC dated 20 April 2018). When the product is sold to domestic market excluding VAT; if domestic enterprise declare and make final payment with tax agency, adjustment of amount of VAT of related parties shall not implemented.

+ Clause 2, article 75 in circular no.38/2015/TT-BTC amended and supplemented at 51 article 1 of 39/2018/TT-BTC dated 20/04/2018: 2. Regarding goods traded between an EPE and a domestic enterprise: The EPC and the domestic enterprise shall follow corresponding customs procedures for indirect export prescribed in Article 86 of this Circular.

+Article 86, circular 38/2015/TT-BTC dated 25/03/2015 amended and supplemented at clause 58 article 1 circular 39/2018/TT-BTC dated 20/4/2018: Goods traded between an inland enterprise and an EPE or an enterprise in a free trade zone is subject to open indirect import and export declaration.

+ Clause 5, article 30 of decree no.82/2018/ND-CP: Export processing enterprises may sell into the domestic market their liquidated assets and goods under the provisions of law on investment and trade. At the time of selling or disposing of goods in the domestic market, export or import management policies shall not apply, except to the extent that the goods are subject to management in conformity with conditions or standards ,and specialized inspection have not yet been implemented when import; The goods must be approved in writing by the import permit-issuing agency.

-Place for customs procedures ( Article 58 in circular no.38/2015/TT-BTC):

1.Customs places for import:

b) With regard to EPEs:

b.1) Imports of EPEs; machinery and equipment temporarily imported to serve manufacturing, construction of workshops (even if they are directly imported by the contractor); goods under warranty or repair shall follow customs procedures at the supervisory Sub-departments of Customs of the EPEs;

b.2) In case an EPE exercises its rights to import goods as prescribed in Decree No. 23/2007/ND-CP and other regulations of the Ministry of Industry and Trade, the customs declaration shall be registered at the location prescribed in Article 22 of the Law on Customs, Article 4 of Decree No. 08/2015/ND-CP , and Clause 1 Article 19 of this Circular.

2. Customs places for export:

b) With regard to EPEs:

b.1) Exports of EPEs; machinery and equipment re-exported after being temporarily imported to serve manufacturing, construction of workshops (even if they are directly imported by the contractor) shall follow customs procedures at the moist convenient Sub-department of Customs of the EPEs;

b.2) In case an EPE exercises its rights to export goods as prescribed in Decree No. 23/2007/ND-CP and other regulations of the Ministry of Industry and Trade, the customs declaration shall be registered at the location prescribed in Article 22 of the Law on Customs, Article 4 of Decree No. 08/2015/ND-CP , and Clause 1 Article 19 of this Circular.

(Note: Decree no.23/2007-ND-CP is replaced by decree no.09/2018/ND-CP dated 15 Jan 2018).

– Code of export manner shall follow letter no.2765/TCHQ-GSQL dated 01/01/2015 .

4.Policy of tax for EPEs

(1)Import and export tax

-Clause 2, article 2 law on export and import tax no.,107/2016/QH13: Goods exported from the domestic market into free trade zones; goods imported from free trade zones into the domestic market is taxed goods.

-Clause 2 article 2 Decree no.134/2016/ND-CP dated 05 October 2018 of Government: 2. Goods exported from the domestic market into export processing enterprises, export processing zones, tax-suspension warehouses, bonded warehouses and other free trade zones defined in Clause 1 Article 4 of the Law on Export and import duties; goods imported from export processing enterprises, export processing zones, tax-suspension warehouses, bonded warehouses and other free trade zones defined in Clause 1 Article 4 of the Law on Export and import duties into the domestic market.

-Point c clause 4 article 2 law on import and export tax no.107/2016/QH13 :  Goods exported from a free trade zone to abroad; goods imported from abroad to a free trade zone and used within such free trade zone; goods transported from one free trade zone to another is not taxed goods.

2.VAT Tax

-Article 3 of Law on VAT no.13/2008/QH12: Goods and services used for production, trading or consumption in Vietnam are subject to value-added tax, except those specified in Article 5 of this Law.

-Pursuant to clause 20 article 5 of Law on VAT no.13/2008/QH12: Goods transferred out of border gate or transited via the Vietnamese territory; goods temporarily imported for re-export; goods temporarily exported for re-import; raw materials imported for the production or processing of goods for export under contracts signed with foreign parties; goods and services traded between foreign countries and non-tariff areas and between non-tariff areas are not subject to VAT.

Other tax

-Special consumption tax: commodity subject to consumption tax regulated at article 2 of law no.27/2008/Qh12, clause 1, article 1 of law no.70/2014/QH13; commodity not subject to consumption tax regulated at article 3 of law no.27/2008/QH12, article 1 of law no.70/2014/Qh13;

-Environment protection tax: commodity subject to environment protection tax regulated article 3 in law no.57/2010/QH12; commodity not subject to environment protection tax regulated article 4 of law no.57/2010/QH12.

-Pursuant to clause 3, article 10 of law no.57/2010/QH12, environment tax shall pay one time for goods for production or import goods.

(Source: Hon Gai port Customs Branch)

Leave a Reply

avatar
  Subscribe  
Notify of