Are all components of outward processing products exempt from export duty in Vietnam?

Are all components of outward processing products exempt from export duty in Vietnam?

Based on Clause 6, Article 16 of the Law on Export and Import Duties 2016, the cases of export and import duty exemption are stipulated as follows:

Exemption from duties

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6. Imported raw materials, supplies, and parts for processing export products; complete products imported to attach to processed products; and outward processing products.

outward processing products made from domestic raw materials and supplies subject to export duty are not exempt from tax for the value of domestic raw materials and supplies corresponding to the components in the export product.

Goods exported for processing and then imported back are exempt from export and import duties based on the value of the exported raw materials constituting the processed product. For goods exported for processing and then imported back that consist of natural resources, minerals, or products with a total value of natural resources, minerals, plus energy costs accounting for 51% or more of the product cost, no exemption applies.

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Thus, not all components of outward processing products are exempt from export duty. Products processed for export from domestic raw materials and supplies subject to export duty are not exempt for the value of domestic raw materials and supplies constituting such products.

Are all components of outward processing products exempt from export duty in Vietnam? (Image from the Internet)

What is the basis for determining tax-exempt for outward processing products in Vietnam?

According to Clause 2, Article 10 of Decree 134/2016/ND-CP, amended by Clause 4, Article 1 of Decree 18/2021/ND-CP, the basis for determining tax-exempt goods for outward processing products is as follows:

- The taxpayer has a processing contract in accordance with Decree 69/2018/ND-CP.

- The taxpayer or organization, individual commissioned to re-process for the taxpayer owns or has the right to use the processing facility and machinery and equipment at that facility within the territory of Vietnam and must notify the customs authority about the processing facility, re-processing; processing contract, re-processing contract, annex to the processing contract, annex to the re-processing contract according to customs regulations.

- Taxpayers (having a processing contract) who delegate a portion or all of the imported goods or semi-finished products processed from imported goods as regulated at Clause 1, Article 10 of Decree 134/2016/ND-CP to another organization or individual for re-processing, meeting the requirements at this subsection b, to process some or all stages of the product, subsequently receiving back the semi-finished products for further processing or receiving the finished products for export, are exempt from import duties for goods handed over for re-processing.

- Taxpayers (having processing contracts) who delegate a portion or all of the imported goods or semi-finished products processed entirely from imported goods to another organization or individual for re-processing in a non-tax area or overseas, the imported goods, semi-finished products are handed over for re-processing.

- The quantity of imported goods used for processing products exported abroad, exported to a bonded area is exempt from import duties, representing the actual quantity of imported goods used for processing exported products.

- Imported goods used for processing, waste, and by-products generated during the export processing can be returned to the foreign party commissioning the processing and are exempt from export and import duties.

- Imported goods for processing, processed products, waste, and by-products generated during processing that are eligible for destruction and have indeed been destroyed as per customs law are exempt from import duties.

- Imported goods used for processing products exported on the spot are exempt from import duties provided that the goods actually used for processing the product have been exported on the spot if the exporter on the spot informs the customs authority of the customs declaration of the goods imported on the spot that have completed the import formalities within 15 days from the date of clearance of the goods exported on the spot according to Form No. 22 Appendix 7, issued with Decree 134/2016/ND-CP.

- Products imported on the spot registered with the customs declaration under the processing type are exempt from import duties if the on-site importer complies with the provisions at points a, b of Clause 2, Article 10 of Decree 134/2016/ND-CP.

What is the procedure for implementing export duty exemption in Vietnam?

Based on Clause 3, Article 31 of Decree 134/2016/ND-CP, as amended and supplemented by Clause 14, Article 1 of Decree 18/2021/ND-CP, the procedures for tax exemption are as follows:

Documentation and procedure for tax exemption when carrying out customs procedures

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3. Tax exemption procedures:

a) Taxpayers independently determine, declare goods and the tax amount exempted (except for declaring the tax amount payable for exported or imported goods for processing as provided by the processing party) on the customs declaration during customs procedures, taking legal responsibility for the declared contents.

b) The customs authority processing customs procedures bases tax exemption dossiers, comparing them with current regulations to implement the tax exemption as prescribed. If identifying that imported goods do not belong to the tax-exempt category as declared, they will collect tax and penalize violations (if any) as prescribed.

c) The electronic data processing system automatically deducts the number of exported, imported goods corresponding to the quantity of goods in the Tax Exemption List.

If paper notices of the Tax Exemption List are issued, the customs authority updates and deducts the quantity of exported, imported goods corresponding to the quantity of goods in the Tax Exemption List.

For imported goods exempt from tax per combination, assembly line, the taxpayer must carry out customs procedures at the customs authority where the machinery and equipment are installed. At the time of registering the customs declaration, the taxpayer declares details of the goods on the customs declaration. In cases where detailed declarations cannot be made on the customs declaration, the taxpayer prepares detailed lists of imported goods according to the information criteria provided in Form No. 04 Appendix VIIa issued with this Decree via the Electronic Data Processing System or in Form No. 15 Appendix VII issued with this Decree and attaches the customs declaration. Within 15 days from the date of completion of the final import batch of each combination, assembly line, the taxpayer is responsible for notifying the customs authority of the place notifying the Tax Exemption List according to the information criteria provided in Form No. 05 Appendix VIIa issued with this Decree via the Electronic Data Processing System or in Form No. 16 Appendix VII issued with this Decree.

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Thus, the procedure for implementing tax exemption is conducted in the following sequence:

- Step 1: Taxpayers determine, declare goods and the amount of tax exempted (except for declaring the amount of tax payable for exported or imported goods for processing as provided by the processing party) on the customs declaration during customs procedures, and are responsible before the law for the declared contents.

- Step 2: The customs authority processing customs procedures bases tax exemption dossiers on current regulations to implement tax exemption as prescribed. If imported goods are identified not to belong to the tax-exempt category as declared, duties are collected, and penalties for violations (if any) are imposed as regulated.

- Step 3: The electronic data processing system automatically deducts the quantity of exported, imported goods corresponding to the amount in the Tax Exemption List.