What is the basis for the determination of eligibility for exemption of import and export duties on goods imposed for processing and processed exports in Vietnam?

Are raw materials, supplies, and components imported for processing and processed exports in Vietnam subject to import and export duty exemption?

Under Clause 6, Article 16 of the Export and Import Duty Law 2016, the regulation is as follows:

Tax Exemption

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6. Imported raw materials, supplies, components serving processing of exports; finished products imported to be fixed on processed products; outward processing products.

Regarding outward processing products derived from domestic raw materials that subject to export duties, the amount of domestic raw materials incorporated into the products shall be taxed.

Goods exported for processing and then imported are exempt from export duty and import duty on the value of exported raw materials incorporated into the processed products. Goods exported for processing and then imported that are natural resources, minerals, or products whose the total value of natural resources or minerals plus energy costs makes up at least 51% of the product price shall be taxed.

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Thus, raw materials, supplies, and components imported for processing and processed exports are exempt from import and export duties.

However, regarding outward processing products derived from domestic raw materials that subject to export duties, the amount of domestic raw materials incorporated into the products shall be taxed.

Goods exported for processing and then imported are exempt from export duty and import duty on the value of exported raw materials incorporated into the processed products.

Goods exported for processing and then imported that are natural resources, minerals, or products whose the total value of natural resources or minerals plus energy costs makes up at least 51% of the product price shall be taxed.

What is the basis for the determination of eligibility for exemption of import and export duties on goods imposed for processing and processed exports in Vietnam? (Image Source: Internet)

What is the basis for the determination of eligibility for exemption of import and export duties on goods imposed for processing and processed exports in Vietnam?

Under Clause 2, Article 10 of Decree 134/2016/ND-CP as amended by Clause 4, Article 1 of Decree 18/2021/ND-CP, the basis for the determination of eligibility for exemption of import and export duties on goods imposed for processing and processed exports in Vietnam is as follows:

- The taxpayer has a processing contract that is conformable with regulations of Decree No. 69/2018/ND-CPDecree 69/2018/ND-CP. The taxpayer shall specify the number of the processing contract and its appendices on the customs declaration.

- The taxpayer or processor hired by the taxpayer has the right to ownership or enjoyment of the processing facility in Vietnam and equipment in the facility and has submitted the facility notification, the processing contract, sub-processing contract and their appendices to the customs authority in accordance with customs law. In case these documents are not submitted on schedule, the taxpayer shall only incur administrative penalties for customs offences as per regulations.

- In case the taxpayer (that has a processing contract) assigns another organization or individual (hereinafter referred to as “third party”) that satisfies the requirements specified in Point b of Clause 2, Article 10 of Decree 134/2016/ND-CP to process some or all of the stages, then receive the semi-finished products for further processing or receive the finished products for export, the taxpayer will be exempt from import duty on the imports assigned to the sub-processor.

In case the taxpayer (that has a processing contract) assigns all or part of the imports or semi-finished products that are processed from imports to a third party in a free trade zone or a foreign country, the imports or semi-finished products are exempt from export duties. The products that are imported into Vietnam after being processed overseas are subject to import duties according to Point d Clause 1 Article 11 of Decree 134/2016/ND-CP. The products that are imported into the domestic market of Vietnam after being processed in the free trade zone are subject to import duties as prescribed in Clause 2 Article 22 of Decree 134/2016/ND-CP.

- The taxpayer (that has a processing contract) shall report the use of duty-free imports in accordance with customs laws.

- The quantity of imports used for processing the products that have been exported to a foreign country or a free trade zone that is exempt from import duties is the quantity of goods imported in for processing the exported products in reality.

Regulations of Point g and Point h of Clause 2, Article 10 of Decree 134/2016/ND-CP shall apply to goods imported for processing products that are exported to another domestically located organization or individual (outside of free trade zones), and in-country processed imports.

- Goods imported for further processing, scrap and refuses produced during processing that are returned to the foreign hirer are exempt from export and import duties.

 Goods imported for further processing, processed products, scrap and refuses produced during processing that are permitted to be destroyed and have been destroyed in reality are exempt from import duties.

In case goods are imported for manufacture of outward processing but processed products are not exported or redundant imports are not exported, the taxpayer shall register a new customs declaration, declare and pay tax to the customs authority according to the duty rates and dutiable values of imports at the time of registration of the customs declaration, except for gifts specified in Article 8 of Decree 134/2016/ND-CP.

- The quantity of imported goods that are used for processing in-country exports in reality will be exempt from import duties if the in-country exporter has sent the customs authority a notification (Form No. 22 in Appendix VII of Decree 134/2016/ND-CP) of the customs declaration of the in-country imports within 15 days from the day on which customs clearance is granted to the in-country exports.

If the in-country exporter fails to submit the notification to the customs authority by the deadline, the in-country exporter shall register a new customs declaration, declare and pay duties on the imports used for processing the in-country exports at the rates and dutiable values of the imports that are applicable when the new customs declaration is registered.

If the in-country exporter submits a notification of the customs declaration of the in-country imports to the customs authority after duties are paid, the paid duties shall be settled in accordance with regulations of law on settlement of overpaid tax.

- Goods that are imported in-country for processing according to the customs declaration shall be exempt from import duties if the importer satisfies the requirements specified in Point a and Point b of Clause 2, Article 10 of Decree 134/2016/ND-CP. If goods that are imported in-country for other purposes, the in-country importer shall declare and pay duties at the rates and dutiable values of the in-country imports that are applicable when the declaration is registered.

In case the in-country importer has paid import duties, used the in-country imports for manufacture of goods for export and exported the goods to a foreign country or a free trade zone in reality, paid import duties will be refunded in accordance with Article 36 of the Decree 134/2016/ND-CP.

Are supplies and components of which processing charges are paid by the foreign party subject to import duty in Vietnam?

According to Clause 3, Article 10 of Decree 134/2016/ND-CP:

Exemption of duties on goods imported for further processing and processed exports

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3. Import duties shall be charged upon machinery, equipment, raw materials, supplies, components and processed products on which processing charges are paid by the foreign party.

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Therefore, supplies and components of which processing charges are paid by the foreign party are subject to import duty in Vietnam in accordance with regulations.