Is an export processing enterprise required to pay VAT when purchasing imported goods and equipment for installation in Vietnam?

Is an export processing enterprise required to pay VAT when purchasing imported goods and equipment for installation in Vietnam?

According to Clause 20, Article 5 of the Law on Value-Added Tax 2008, it is stipulated as follows:

Non-taxable objects

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20. Goods in transit through Vietnam; temporarily imported goods for re-export; temporarily exported goods for re-import; imported raw materials for the production and processing of export goods under production contracts; export processing contracts signed with foreign parties; goods and services traded between foreign countries with non-tariff zones and among non-tariff zones.

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Additionally, according to Clause 20, Article 4 of Circular 219/2013/TT-BTC, it is regulated as follows:

Objects not subject to VAT

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20. Goods in transit through Vietnam; temporarily imported goods for re-export; temporarily exported goods for re-import; imported materials and supplies for the production and processing of export goods under production contracts and export processing contracts signed with foreign parties.

Goods and services traded between foreign countries with non-tariff zones and among non-tariff zones.

Non-tariff zones include: export processing zones, export processing enterprises, bonded warehouses, tax-suspension zones, bonded areas, special economic-trade zones, commercial-industrial zones, and other economic zones established and benefiting from tax incentives similar to non-tariff zones according to the Prime Minister's Decision of the Government of Vietnam. Trade relationships between these zones and the outside are considered export-import relationships.

The dossiers and procedures for identifying and handling non-subject to VAT tax situations are executed according to the Ministry of Finance guidelines on customs procedures; customs inspection and supervision; export and import taxes and tax management concerning export and import goods.

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Pursuant to Official Dispatch 533/TCHQ-TXNK in 2024, the General Department of Customs responds as follows:

Based on the aforementioned regulations, if a contractor (located in a non-tariff zone) imports goods from abroad to build factories, office spaces, and install equipment for an export processing enterprise, then the imported goods are not subject to VAT. If a subcontractor (not located in a non-tariff zone) imports goods to fulfill a contract with the main contractor to install equipment for the export processing enterprise, the subcontractor must issue a 10% VAT invoice to the main contractor (not located in a non-tariff zone) as per regulations.

Therefore, according to the above regulations, in cases where a contractor located in a non-tariff zone imports goods from abroad to install equipment for an export processing enterprise, the imported goods are not subject to VAT.

However, in cases where a subcontractor not located in a non-tariff zone imports goods to fulfill a contract with the main contractor to install equipment for the export processing enterprise, the subcontractor must issue a 10% VAT invoice to the main contractor not located in a non-tariff zone as per regulations.

Is an export processing enterprise required to pay VAT when purchasing imported goods and equipment for installation in Vietnam? (Image from the Internet)

What conditions must an export processing enterprise meet to engage in other business activities in Vietnam?

According to Clause 6, Article 26 of Decree 35/2022/ND-CP, it is stipulated that export processing enterprises are allowed to engage in other business activities according to the laws on investment, the laws on enterprises, and other related legal provisions, provided that the following conditions are met:

- The storage area for goods serving export processing activities must be isolated from the storage area for other production and business activities;

- Separate accounting for revenues and expenses related to export processing activities and other business activities is required;

- Assets, machinery, and equipment enjoying tax incentives applicable to export processing enterprises must not be used for other production and business activities. If assets, machinery, and equipment enjoying tax incentives applicable to export processing enterprises are used for other business activities, the tax incentives that have been exempted or reduced must be reimbursed as per tax law regulations.

When do export processing enterprises enjoy investment incentives and tax policies for non-tariff zones in Vietnam?

According to Clause 3, Article 26 of Decree 35/2022/ND-CP, the stipulations regarding the timing for export processing enterprises to enjoy investment incentives and tax policies for non-tariff zones are as follows:

Special provisions applicable to export processing zones and enterprises

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3. Export processing enterprises enjoy investment incentives and tax policies for non-tariff zones starting from the point of investment objectives stated in the Investment Registration Certificate, adjusted Investment Registration Certificate, or the Export Processing Enterprise Registration Certificate issued by the competent investment registration authority. After the construction process is completed, the export processing enterprise must be confirmed by the competent customs authority as meeting the conditions for customs inspection and supervision as prescribed by tax law regarding export and import taxes before entering official operation. If an export processing enterprise is not confirmed as meeting the conditions for customs inspection and supervision, it will not be eligible for the tax policies applicable to non-tariff zones. The inspection, confirmation, and completion of conditions for customs inspection and supervision for export processing enterprises are conducted in accordance with the laws on export and import taxes.

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Thus, export processing enterprises enjoy investment incentives and tax policies applicable to non-tariff zones starting from the point that the investment objectives for establishing an export processing enterprise are recorded in the Investment Registration Certificate, adjusted Investment Registration Certificate, or the Export Processing Enterprise Registration Certificate issued by the competent investment registration authority.