Foreign Direct Investment Enterprises (FDI Enterprises) and Export Processing Enterprises with Foreign Direct Invested Capital (FDI EPEs) are enterprises with relatively specific characteristics in terms of legal and commercial activities in relation to Vietnamese regulations. Most of these economic organizations were established in Vietnam with their main business activities related to the trade of goods in and out of Vietnamese territory.
In order to ensure compliance with legal procedures and mitigate tax risks as well as any relevant potential penalties that may affect its financial health and reputation of the organisation, these FDIs and FDI EPEs need to pay special attention and a good understanding of the relevant matters. Regulations when engaging in the sale of goods and undertaking other activities directly related to the sale of goods in Vietnam.
The right of foreign direct investment institutions to export, import and distribute
In accordance with the current regulations (Decree detailing the Commercial Law and the Foreign Trade Administration Law on the Purchase and Sale of Goods and Activities Directly Related to the Purchase and Sale of Goods by Foreign Investors, Investors and Economic Organizations with Foreign Investment in Vietnam, No. 09/2018 / NĐ-CP), the right of an investment enterprise is defined Foreign direct in export, import and distribution as follows:
- Export right means the right to purchase goods in Vietnam for export, including the right to be named in the export declaration to carry out and be responsible for export-related actions. The export regulations do not include the right to purchase goods from entities other than merchants for the purpose of export, unless otherwise provided by Vietnamese law or an international treaty to which Vietnam is a contracting party.
- Right of import means the right to import goods from abroad into Vietnam for sale to merchants who have the right to distribute such goods in Vietnam, including the right to be named in the declaration of imported goods for execution and responsible for import-related procedures. The right to import does not include the right to organize or participate in the goods distribution system in Vietnam, unless otherwise provided by Vietnamese law or an international treaty signed by Vietnam.
- Distribution means the activities of wholesale, retail, franchising and sale of merchandise by agents.
- The right to distribute means the right to directly carry out distribution activities.
Regarding the terms, FDI enterprises with (i) export rights, are allowed to export goods purchased in Vietnam, goods processed in Vietnam and goods legally imported in Vietnam to a foreign country or separate non-tariff area, or (ii) import rights, are allowed It may import goods from a foreign country or separate customs territory into Vietnam, provided that:
- They are goods not included in the List of Goods Prohibited from Export and Import, List of Goods Temporarily Excluded from Export and Import, and List of Goods Not Eligible for Export and Import as defined by international treaties to which Vietnam is a party. Location
- If the goods are included in the list of goods for export and import under a license, or under certain conditions, the FDI has the relevant license or fulfills the conditions in accordance with the regulations, regardless of registration as stipulated in the Investment Law and the Companies Law.
In accordance with the regulations in the Schedule of Specific Commitments in Trade in Services for Vietnam of the World Trade Organization, market access restrictions in relation to FDI enterprises in business lines described as “wholesale, retail” have expired. Hence, FDI institutions are allowed to conduct such trade lines without restrictions.
Right of Foreign Direct Investment EPEs in Export/Import and Distribution
In terms of definition, an EPE is an enterprise that specializes in the production of goods that will then be exported, providing services related to the production of goods to be exported, and activities related to export, which is established and operated in accordance with government regulations on EPEs. The trading of goods between EPE companies and other companies in the Vietnamese market is an import-export relationship and must comply with the provisions of the Export-Import Law.
As for production activities for export, it is noteworthy that EPEs who sell self-produced goods are not subject to the regulations that apply to FDI enterprises. Accordingly, EPE companies are not required to carry out the procedure of applying for a business license or a license to set up a retail establishment, apart from registration as stipulated in the Investment Law and the Companies Law. In addition, FDI EPE is not subject to Value Added Tax (VAT) for export production activities in relation to goods produced themselves, so they do not have to declare VAT with the tax authorities in this regard.
For all other production activities (i.e. the right to export goods that they did not produce themselves, the right to import and the right to distribute), EPE companies must comply with the regulations applicable to FDI enterprises and with the following VAT obligations:
- The FDI EPE must register for the VAT return with the local tax authority and separately record the associated income and expenses arising from the sale of goods into the Vietnamese territory. FDI EPE is also required to arrange a separate area for storage of imported and exported goods in accordance with the right to export, the right to import and the right to distribute.
- Sale under these activities is subject to the issuance of a VAT invoice and a VAT return for the application of a discount or refund when the conditions of the relevant regulations are met.
In light of the above, FDI institutions should evaluate the application for a business registration license for business lines of right to export, right to import, right to distribute, apart from registration as stipulated in the Investment Law and the Companies Law, for full compliance And reduce any risks related to legislation, taxes and tariffs.
In the event that FDI EPE incurs VAT obligations under the Right to Export, Right to Import, and Right to Distribution business lines, they may be entitled to claim a VAT refund. They must ensure that they meet the requirements of the relevant regulations to claim these tax benefits.
Firms should update themselves regularly on any new regulations or any modifications required for their full implementation, or contact professional advisors when necessary for assistance.
This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. , the publisher of Bloomberg Le Bloomberg and Bloomberg Tax, or their respective owners.
Tran Nguyen Maung Van is the Tax Director of Grant Thornton Vietnam.
The author can be contacted at: [email protected]