What is a free trade zone? Are goods from the free trade zone imported into the domestic market eligible for preferential import tax rates in Vietnam?

What is a free trade zone in Vietnam?

According to Clause 1, Article 4 of the Law on Export and import duties, 2016 stipulates as follows:

Terminology Explanation

In this Law, the following terms are construed as follows:

1. A free trade zone is an economic area within the territory of Vietnam, established in accordance with the law, with defined geographical boundaries, separated from outside areas by a solid fence, ensuring conditions for inspection, supervision, and control activities by customs authorities and related agencies over exported, imported goods and vehicles, and passengers exiting and entering; the trade relationship between the free trade zone and the outside is considered an export-import relationship.

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A free trade zone is an economic area within the territory of Vietnam.

The free trade zone is established in accordance with the law, with defined geographical boundaries, separated from the outside by a solid fence, ensuring conditions for inspection, supervision, and control activities by customs authorities and related agencies over exported, imported goods and vehicles, and passengers exiting and entering.

The trade relationship between the free trade zone and the outside is considered an export-import relationship.

What is a free trade zone? Are goods from the free trade zone imported into the domestic market eligible for preferential import tax rates in Vietnam? (Image from the Internet)

Are goods imported from the free trade zone into the domestic market subject to export-import duties in Vietnam?

According to Article 2 of the Law on Export and import duties, 2016 stipulates the taxable objects as follows:

Taxable Objects

1. Goods exported, imported through Vietnamese border gates and borders.

2. Goods exported from the domestic market into the free trade zone, goods imported from the free trade zone into the domestic market.

3. Locally exported, imported goods; and goods exported, imported by enterprises exercising the right to export, import, and distribute.

4. Export-import tax is not applicable in the following cases:

a) Goods in transit, transshipped, or transited;

b) Humanitarian aid goods, non-refundable aid goods;

c) Goods exported from the free trade zone to abroad; goods imported from abroad into the free trade zone and only used within the free trade zone; goods transferred from one free trade zone to another free trade zone;

d) Crude oil used to pay royalties to the State when exported.

5. The Government of Vietnam prescribes the details for this Article.

Thus, goods imported from the free trade zone into the domestic market are subject to export-import duties; therefore, goods imported from the free trade zone into the domestic market must bear export-import duties.

Are goods from the free trade zone imported into the domestic market eligible for preferential import tax rates in Vietnam?

According to Article 5 of the Law on Export and import duties, 2016 stipulates as follows:

Bases for calculating export, import duties for goods applying tax calculation by percentage method

1. The amount of export, import tax is determined based on the taxable value and the tax rate by percentage (%) for each item at the time of tax calculation.

2. The tax rate for exported goods is specifically provided for each item in the export tax schedule.

In case goods are exported to countries, groups of countries or territories having preferential treatment agreements on export taxes with Vietnam, such agreements shall apply.

3. The import tax rate includes preferential tax rates, special preferential tax rates, ordinary tax rates, and applies as follows:

a) The preferential tax rate applies to imported goods originating from countries, groups of countries or territories implementing the Most-Favored-Nation (MFN) treatment in trade relations with Vietnam; goods imported from the free trade zone into the domestic market meeting the origin conditions from countries, groups of countries or territories implementing the MFN treatment in trade relations with Vietnam;

b) The special preferential tax rate applies to imported goods originating from countries, groups of countries or territories having special preferential agreements on import duties in trade relations with Vietnam; goods imported from the free trade zone into the domestic market meeting the origin conditions from countries, groups of countries or territories having special preferential agreements on import duties in trade relations with Vietnam;

c) The ordinary tax rate applies to imported goods not falling under the cases stipulated at point a and point b of this clause. The ordinary tax rate is set at 150% of the preferential tax rate for the corresponding item. In case the preferential tax rate is 0%, the Prime Minister of the Government of Vietnam prescribes the application of the ordinary tax rate in accordance with Article 10 of this Law.

Therefore, goods imported from the free trade zone into the domestic market are eligible for preferential import tax rates. To be specific:

- For goods from the free trade zone imported into the domestic market meeting the origin conditions from countries, groups of countries, or territories implementing the MFN treatment in trade relations with Vietnam, the preferential import tax rate shall apply.

- For goods from the free trade zone imported into the domestic market meeting the origin conditions from countries, groups of countries, or territories having special preferential agreements on import duties in trade relations with Vietnam, the special preferential import tax rate shall apply.