Tax exemption will not apply if purchasing products of domestic enterprises under the type of in-country import

Pouchen Corporation stated that according to Clause 6, Article 1, Decree 18/2021/NĐ-CP, there is no equality between in-country importing goods for processing (exempt from import duty) and in-country importing goods for export production (subject to export duty and will receive a tax refund after exporting products to overseas, or exporting to a non-tariff zone).

Regarding this issue, according to the General Department of Vietnam Customs, Clause 1, Clause 2 of Article 28, Commercial Law No.36/2005/QH11 stipulates that exportation of goods means taking goods out of Vietnamese territory or taking them to a special area located in Vietnam’s territory which is considered a customs-controlled area as prescribed.

Importation of goods means taking goods into Vietnamese territory from overseas or importing from a special area located in Vietnam’s territory which is considered a customs-controlled area as prescribed.

manufacturing goods for export production. Photo: H.Nụ

Also, Clause 4, article 3 of Law on Foreign Trade No05/2017/QH14 stipulates that a “customs-control area” means a geological area in the territory of Vietnam that is established in accordance with regulations of Vietnam law and international treaties to which the Socialist Republic of Vietnam is a signatory and the exchange of products between this area and the remaining territory of Vietnam or foreign countries area considered import and export activities.

Point e, Clause 1, Article 42 of Decree No. 69/2018/ND-CP details a number of articles of the Law on Foreign Trade Management, the ordering party and processor "is allowed to carry out in-country export of processed products; leased or borrowed machinery and equipment; oversupplied materials; and scrap and waste according to agreements between involved parties, in accordance with regulations of law in force on the management of export and import and fulfill tax liabilities and other financial obligations as per the law”.

Also, in Point e, Clause 2, Article 42 of Decree 69/2018/ND-CP stipulates that the ordering party and processor are allowed to “carry out procedures for in-country export of processed products, leased or borrowed machinery and equipment, oversupplied materials, waste and scrap as authorized by the ordering party”.

In addition, Article 43 of Decree 69/2018/ND-CP stipulates that traders are entitled to conduct further processing of the processed products of a processing contract that will be used as materials for another processing contract in Vietnam; the processed products of the former processing contract shall be transferred to the trader according to the designation of the ordering party for the latter processing product.

Compared with current regulations and specific provisions in Clauses 4 and 6, Article 1 of Decree 18/2021/ND-CP: “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 this Clause. If goods 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 the 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 this Decree.”

However, Commercial Law No. 36/2005/QH11, Decree 82/2018/ND-CP does not provide for in-country import and export between two domestic enterprises for goods imported for export production. Accordingly, goods imported for processing and goods imported for export production are different.

Specifically, for the type of import for processing (including in-country import): With the processing activities for foreign countries, raw materials and supplies imported for processing are owned by the foreign party ordering the processing, Decree 69/2018/ND-CP stipulates that the ordering party may export processed products on the spot (point e, clause 1, Article 42), the processor may hire other traders to process (point b, clause 2 Article 42), traders are entitled to forward processed products of this processing contract to use as processing materials for other processing contracts in Vietnam and the processed products of the former processing contract shall be transferred to the trader according to the designation of the ordering party for the latter processing product. (Article 43).

Therefore, when formulating policies, in order to be consistent with Articles 42 and 43 of Decree 69/2018/ND-CP mentioned above, the drafting agency has developed Clause 4, Article 1 of Decree 18/2021/ND-CP stipulating tax exemption for products imported on the spot for processing.

As for goods imported for production and export, unlike processed goods, there is only one contract to receive raw materials, supplies, machinery and equipment from a foreign trader and to return the product to the foreign trader. In addition, imported goods that are easy to produce for export are wholly owned by Vietnamese enterprises and are imported under a sale and purchase contract between a Vietnamese enterprise and a foreign enterprise through two separate contracts (including one contract to import raw materials and supplies and one contract to export products).

Accordingly, export production enterprises have the right to be proactive in their source of goods (imported from abroad or imported from a non-tariff zone or in-country) as well as in choosing a sales plan (exporting and selling to overseas customers, or exporting to customers in non-tariff zones or publish to customers as designated by foreign traders in the form of in-country export or change of purposes for domestic use or consumption) to ensure the most efficient business operations.

In case an export-manufacturing enterprise imports raw materials and supplies from abroad or from a non-tariff zone, they shall be exempt from import tax as prescribed in Clause 1, Article 12 of Decree 134/2016/ND-CP as amended and supplemented in Clause 6, Article 1 of Decree 18/2021/ND-CP.

Therefore, Clauses 4 and 6, Article 1 of Decree 18/2021/ND-CP stipulate that domestic enterprises that buy products of other domestic enterprises in the form of in-country importation for export production are not exempt from import tax as in the case of imports from abroad, imports from non-tariff zones.

Domestic enterprises that carry out in-country importation for export production must declare and pay import tax on products imported on the spot; after the locally imported products brought in are manufactured and actually exported to a foreign country or a non-tariff zone, the enterprise shall be entitled to a refund of import tax corresponding to the quantity of locally imported raw materials and supplies constituting the exported product as prescribed in Article 36 of Decree No. Decree 134/2016/ND-CP.

Thus, the Customs authority believes that the provisions of Decree 18/2021/ND-CP still ensure the interests of domestic enterprises when temporarily paying import tax on raw materials imported on the spot for export production and then receiving a refund of import tax corresponding to the number of raw materials put into production, exported abroad or exported into a non-tariff zone.

The Customs authority proposed that Pouchen Group implement the tax policy for in-country goods between two domestic enterprises for export production as prescribed in the provisions of Clauses 4 and 6, Article 1 of Decree 18/2021/ND-CP.