What are the conditions for goods from free trade zones to be eligible for preferential tax rates in Vietnam?

What is the definition of free trade zone in Vietnam?

According to Clause 1 Article 4 of Law on Export and Import Duties 2016:

Definitions

For the purpose of this Law, the terms below are construed as follows:

1. 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. Mixed duty means the total amount of proportional tax and fixed tax.

3. Proportional duty means tax expressed as a percentage of the taxable value of exports and imports.

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Thus, 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 considered exportation and importation.

What are the conditions for goods from free trade zones to be eligible for preferential tax rates in Vietnam? (Image from the Internet)

What are the conditions for goods from free trade zones to be eligible for preferential tax rates in Vietnam?

According to Clause 3 Article 5 of Law on Export and Import Duties 2016:

Basis for calculation of proportional duties

1. The amount of export or import duty is determined according to the taxable value and duty rate (%) of each article at the time of tax calculation.

2. Export duty rate of each article is specified in the export duty schedule.

Where goods are exported to a country or group of countries or territories having an agreement on concessional export duties with Vietnam, such agreement shall apply.

3. Import duty rates include preferential rates, special preferential rates, and ordinary rates as follows:

a) Preferential rates apply to imports originated in any country or group of countries or territories that accord Vietnam most-favored nation treatment; goods that are imported from a free trade zone to the domestic market and originating in a country or group of countries or territories that accord Vietnam most-favored nation treatment;

b) Special preferential rates apply to imports originated in any country or group of countries or territories that have an agreement on special preferential import duties with Vietnam; goods that are imported from a free trade zone to the domestic market and originating in a country or group of countries or territories that have an agreement on special preferential import duties with Vietnam;

c) Ordinary rates apply to imports other than those mentioned in Point a and Point b of this Clause. The ordinary rate is 150% of the preferential rate applied to the corresponding article. In case preferential rate is 0%, the Prime Minister shall decide the application of ordinary rate pursuant to Article 10 of this Law.

Thus, goods that are imported from a free trade zone to the domestic market and originating in a country or group of countries or territories that accord Vietnam the most-favored nation treatment are eligible for preferential tax rates.

What are the conditions for goods manufactured or processed in free trade zones to be subject to import duty exemption in Vietnam?

According to Clause 8 Article 16 of Law on Export and Import Duties 2016:

Tax exemption

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7. Materials, supplies, components imported for manufacture of exports. products.

8. Goods manufactured, processed, recycled, assembled in a free trade zone without using imported raw materials or components when they are imported into the domestic market.

9. Goods temporarily imported for re-export or goods temporarily exported for re-import within a certain period of time, including:

a) Goods temporarily imported or exported to participate in fairs, exhibitions, product introduction, sports or art events, or other events; machinery and equipment temporarily imported for re-export for testing, research and development; machinery and equipment, tools temporarily imported or exported to be used for certain period of time or serve overseas processing, except for machinery, equipment, tools, vehicles permitted to be temporarily imported too serve investment projects, construction, installation, or manufacture;

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Thus, goods manufactured, processed, recycled, and assembled in a free trade zone without using imported raw materials or components when they are imported into the domestic market are exempt from import duties.