Vietnam: Tax policy guidelines for export processing enterprises to lease or borrow machinery

Vietnam: Tax policy guidelines for export processing enterprises to lease or borrow machinery (Internet image)

The General Department of Customs of Vietnam issued Official Dispatch 300/TCHQ-GSQL dated January 17, 2023 on export processing enterprises that lease or borrow machinery, equipment, and molds from domestic enterprises.

Specifically, the tax policy for export processing enterprises that lease or borrow machinery is guided as follows:

*In case the EPE leases or lends machinery, equipment, and molds to a domestic enterprise to serve the export processing activities of the EPE in accordance with the objectives stated in the Investment Registration Certificate or a written certification of the competent investment registration agency (in case the issuance of an Investment Registration Certificate is not required):

1. Guidance on customs procedures for export processing enterprises that lease or borrow machinery

EPEs carry out procedures for temporary export, and domestic enterprises carry out procedures for temporary import; After the lease or loan contract is terminated, the domestic enterprise shall carry out re-export procedures, and the export processing enterprise shall carry out procedures for re-importing the leased or borrowed goods.

2. Guidance on the tax policies of export processing enterprises that lease or borrow machinery

2.1. Import Tax

Domestic enterprises must declare and pay import tax when carrying out temporary import procedures and are not entitled to a refund of paid import tax when carrying out re-export procedures. Import tax calculation values for leased or borrowed goods comply with Clause 9 of Article 1 of Circular 60/2019/TT-BTC.

In case a domestic enterprise imports machinery and equipment as agreed in the processing contract to perform the processing contract, the domestic enterprise is exempt from import tax as prescribed at Point c, Clause 1, Article 10 of Decree No. 134/2016/ND-CP dated September 1, 2016 of the Government of Vietnam.

2.2. VAT

Domestic enterprises that hire or borrow someone to register customs declarations in the form of temporary imports for re-export are not required to pay VAT because goods temporarily imported for re-export are not subject to VAT.

In cases where the lease or loan term has expired but the domestic enterprise continues to use it and does not re-export, domestic enterprises must carry out procedures for changing the purpose of use and declare and pay VAT together with import tax on the new customs declaration according to the provisions of Clause 12, Article 1 of Decree 59/2018/ND-CP.

When using leased or borrowed goods that have been damaged and cannot be re-exported but must be destroyed, and the destruction procedures have been carried out in accordance with the law, then:

Domestic enterprises are not required to declare and pay VAT on these leased or borrowed goods.

*In the event that an EPE leases or lends machinery and equipment to a domestic enterprise to carry out other business activities, not to serve the export processing activities of the EPE:

EPEs must carry out procedures for changing the purpose of use, declare a new customs declaration, and pay tax in full for the number of non-taxable goods before leasing or borrowing them.

More details can be found in Vietnam's Official Dispatch 300/TCHQ-GSQL dated 17/01/2023

Vo Ngoc Nhi

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