The General Department of Vietnam Customs has recently responded to information in the press about difficulties of enterprises in Binh Duong province related to tax arrears.

Binh Duong Customs Department’s officers instruct enterprises
to register customs declarations. Photo: T.D.

It is known that Chutex International Co., Ltd., PungKook Saigon II Co., Ltd (hereinafter referred to as enterprises) signed a processing contract with a foreign trader but hired an enterprise in the non-tariff area to process products (outsourcing service). In which, these enterprises provide all raw materials and components to the outsourcing enterprise in the non-tariff area for processing and then receive processed goods for export abroad.

The above enterprises petitioned against the tax arrears by the Customs for goodsprocessed by the outsourcing enterprise in the non-tariff area upon exporting to the domestic market.

Facing the problems of the enterprises, the General Department of Customs said that the current tax policy for goods manufactured, processed, recycled and assembled in the non-tariff area has been clearly specified in the Law on Export and Import Duties No. 107/2016 / QH13, Decree 134/2016 / ND-CP.

Specifically, in Clause 1, Article 4 of the Law on Export and Import Duties No. 107/2016 / QH13,the non-tariff area means an economic zone located within Vietnam’s territory, established in accordance with the law, having a definite geographic boundary, and separated from the outer area by hard fences in order to facilitate customs inspection and customs control by the customs authority and relevant agencies with regard to exports and imports, inbound and outbound vehicles and passengers; the trading relationship between the free trade zone and the outside area is considered exportation and importation.

Also, Clause 8, Article 16 of the Law on Export and Import No. 107/2016 / QH13 stipulates that if products produced, processed, recycled and assembled in the non-tariff area do not use imported raw materials and components, they will be exempt from import duty upon importing to the domestic market.

Article 22 of Decree No. 134/2016 / ND-CP of the Government detailing a number of articles and measures to implement the Law on Export and Import Duties stipulates: “1. Goods manufactured, processed, recycled and assembled in a non-tariff area without using imported raw materials and components importedare exempt from import duty when they are imported to the domestic market as prescribed in Clause 8, Article 16 of the Law on Export and Export Duties.

2. Where goods manufactured, processed, recycled or assembled in the non-tariff area use imported raw materials or components, they shall be dutiable when they are imported into the domestic market according to the duty rates and their dutiable values”.

According to the above regulations, in order to deal with problems of the enterprises, the General Department of Customs has issued an official dispatch No. 5864 / TCHQ-TXNK dated September 4, 2020 instructing the provincial and municipal customs departments to inspect the import and export dossiers, accounting books, payment documents and relevant documents for the case where the enterprises sign processing contracts with foreign traders but hire anotherenterprise in the non-tariff area to process (outsourcing) and to handle as follows:

If the outsourcing enterprises in the non-tariff area do not use raw materials and components imported from abroad (domestic enterprises provide all raw materials and components to the outsourcing enterprises in the non-tariff area), the processed goods will be exempt from import duty when they are imported to the domestic market according to the provisions of Clause 8, Article 16 of the Law on Export and Import Duties No. 107/2016 / QH13, Clause 1 of Article 22 of Decree No. 134/2016 / ND-CP and Official Dispatch No. 6519 / BTC-TCHQ dated May 19, 2017 by the Ministry of Finance.

If the outsourcing enterprises in the non-tariff area use raw materials and components imported from abroad, the processed goods, must declare and pay tax when they are imported into the domestic market, according to the provisions of Clause 2, Article 22 of Decree 134/2016 / ND-CP and Point 2 of Official Dispatch No. 3018 / TCHQ-TXNK dated May 11, 2020 by the General Department of Customs.

Thus, in the case where an enterprise signs a processing contract with a foreign trader but hires an enterprise in a non-tariff zone to process products (outsourcing) and that enterprise provides all raw materials and components to the enterprise in the non-tariff area for processing and then receives the processed goods for export abroad is exempt from import duty.

The General Department of Customs recommends enterprises to contact the customs office where import procedures are carried out to enjoy tax exemption according to the above guidance.