What is an export processing zone? Are goods sold to an export processing zone subject to VAT in Vietnam?
What is an export processing zone in Vietnam?
Pursuant to Clause 2, Article 2 of Decree 35/2022/ND-CP, the definition of an export processing zone is as follows:
Terminology Explanation
In this Decree, the following terms are understood as:
1. An industrial zone is a delimited geographical area specialized in the production of industrial goods and the provision of services for industrial production.
2. An export processing zone is an industrial zone specialized in the production of export goods, the provision of services for the production of export goods, and export activities; it is separated from the outside area according to regulations applicable to non-tariff zones as stipulated by the law on export tax and import tax.
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Thus, according to the above provision, an export processing zone can be understood as an industrial zone specializing in the production of export goods, the provision of services for the production of export goods, and export activities.
What is an export processing zone? Are goods sold to an export processing zone subject to VAT in Vietnam? (Image from the Internet)
Are goods sold to an export processing zone subject to VAT in Vietnam?
Pursuant to Clause 20, Article 5 of the Law on Value Added Tax 2008, the regulation on non-taxable objects is as follows:
Non-taxable objects
20. Goods in transit, goods transshipped through Vietnamese territory; temporary imported goods for re-export; temporary exported goods for re-import; imported raw materials for the production and processing of export goods under production contracts; and export processing contracts signed with foreign parties;** goods and services bought and sold between foreign countries and non-tariff zones and between non-tariff zones.
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Additionally, at Clause 20, Article 4 of Circular 219/2013/TT-BTC, as supplemented by Clause 2, Article 1 of Circular 26/2015/TT-BTC, the provisions are as follows:
Non-taxable VAT objects
20. Goods in transit, goods transshipped through Vietnamese territory; temporary imported goods for re-export; temporary exported goods for re-import; imported raw 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 bought and sold between foreign countries and non-tariff zones and between non-tariff zones. Non-tariff zones include export processing zones, export processing enterprises, bonded warehouses, duty-free zones, special economic-commercial zones, industrial-commercial zones, and other economic zones established and enjoying tax preferences as non-tariff zones under the Prime Minister's decision. The trading relationship between these zones and the outside is an export-import relationship.
The dossier and procedures to determine and handle non-taxable VAT in these cases shall comply with the guidance of the Ministry of Finance on customs procedures; customs supervision and inspection; export tax, import tax, and tax administration for exported and imported goods.
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Thus, pursuant to the above provisions, goods traded between foreign countries and non-tariff zones, as well as between non-tariff zones, are not subject to VAT.
Additionally, the export processing zone is part of the non-tariff zone. Therefore, the sale of goods into the export processing zone will not be subject to VAT when the transaction originates from abroad into the export processing zone or between the export processing zone and other non-tariff zones.
Are export processing zones subject to import and export taxes in Vietnam?
Pursuant to Article 2 of the Law on Export and Import Taxes 2016, the provisions are as follows:
Taxable objects
1. Goods exported, imported through Vietnamese border gates and borders.
2. Goods exported from the domestic market to non-tariff zones, goods imported from non-tariff zones into the domestic market.
3. Goods exported on the spot, and goods exported and imported by an enterprise exercising the right of export, import, and distribution.
4. Taxable objects 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 non-tariff zones to foreign countries; goods imported from foreign countries into non-tariff zones and used only within non-tariff zones; goods transferred from one non-tariff zone to another;
d) Oil and gas used to pay natural resource tax to the State upon export.
5. The Government of Vietnam shall stipulate the details of this Article.
Thus, the export processing zone is not subject to the regulation and likewise is not subject to import-export taxes.
What are the investment activities in export processing zones in Vietnam?
Pursuant to Article 62 of Decree 31/2021/ND-CP, regarding investment projects in the export processing zones, investors are allowed to perform the following activities:
- Lease or purchase workshops, offices, and warehouses already built to serve production and business activities.
- Use paid infrastructure works, service constructions, including transportation systems, electricity supply, water supply, drainage, communications, wastewater treatment, waste management, and other public service and utility works (collectively referred to as infrastructure use fees).
- Transfer and receive the transfer of land use rights, lease land, sub-lease land on which technical infrastructure has been built to construct workshops, offices, and other production and business structures in accordance with the land laws and real estate business laws.
- Lease and sublease workshops, offices, warehouses, and other built structures to serve production and business activities in accordance with the land laws and real estate business laws.
- Other activities according to the Investment Law 2020, Decree 31/2021/ND-CP, regulations of the Government of Vietnam on industrial zones, export processing zones, high-tech zones, economic zones, and related laws.
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