“Vietnamese market is considered quite attractive for foreign investors with many beneficial policies that the Government has set for investors. Among these, it is worth noting that the tax policy for export processing enterprises, has prompted more and more investors to choose to set up export processing enterprises as such enterprises enjoy exclusive incentives.”
According to the law, Enterprise Processing Export (EPE) is an enterprise established and operating in an export processing zone or an enterprise speacialized in producing products for export operations in industrial zones and economic zones.
In general, the order and customs as well as the conditions for establishing EPE enterprises are often more complex and more conditional than normal enterprises because they need to have the approval of the competent customs authorities on the ability to meet the requirements for customs inspection and supervision before obtaining investment registration certificates or written certification to investors. First of all, EPE must only operate business operations which are not prohibited in Vietnam in accordance with the law. In addition, EPEs are required to run production activities. If a business only does trading of normal goods without running any production activities, it is impossible to establish an EPE. Currently, most EPEs are foreign-invested enterprises but that does not mean that Vietnamese investors are not allowed to establish EPEs. An EPE can be owned by 100% foreign capital if they meet the required investment conditions or by 100% Vietnamese (domestic) capital.
When establishing an EPE, it is also necessary to prepare documents in accordance with regulations on business establishment and investment (if any), and papers and documents proving the requirements prescribed by the law. In case the investor is a foreign individual or foreign organization, the investor must provide additional documents proving the financial capacity, location and capacity of the investor.
In addition, EPEs should also pay more attention to customs procedures related to standards for production of normal goods and exports. Competent customs authorities can inspect the facilities which are processing and producing exported goods as well as their capacity for processing and producing. The inspection can be carried out at the address of the production and processing facility. It inlcudes inspection of factories, machinery and equipment. Upon inspection, the customs authorities will make a record of inspection of the processing and production facilities as well as the production capacity of EPEs.
In addition to the above-mentioned rules and conditions, EPEs will also enjoy special policies related to tax rates. They include:
Export and import tax: Goods of EPEs exported abroad and goods imported by EPEs are not subject to export and import tax.
Corporate income tax rate incentives: EPEs located in export processing zones which are considered as areas with difficult socio-economic conditions under the provisions of ‘Decree 118/2015/ND-CP’ which details the enforcement of several provisions of the ‘Law on Investment’. Accordingly, EPEs are entitled to a preferential tax rate of 17% for a period of 10 years as prescribed in ‘Circular 78/2014/TT-BTC’. In addition, EPEs are also allowed to pay tax for the first 02 years and reduce 50% of the payable tax amount in the next 04 years, except for EPEs located in the inner-city districts of special-class urban centers, centrally-run type I urban centers and provincial-level urban centers as prescribed in ‘Circular 151/2014/TT-BTC’.
Land use incentives: EPEs with investment projects will be exempted from land rents for 7 years as prescribed in ‘Decree 46/2014/ND-CP’.
Incentives in the course of operation: When choosing to establish this type of enterprise, EPEs may purchase construction materials, stationeries, food, and consumer goods from the domestic sellers in Vietnam for usage in administration of office and activities of officials and workers at the enterprises.
Incentives in import and export procedures: EPEs and sellers who sell to EPEs may choose whether or not to carry out export and import procedures for construction materials, food and consumer goods within Vietnam.
Thus, to enjoy the exclusive incentives, EPEs need to pay attention to the regulations and procedures while applying for licenses and operating businesses. In the course of operation, the investor must consider the scale of the project to determine if the project requires approval of investment policies. Investors should also meet documents proving the investor’s financial capacity as well as other conditions prescribed by law regarding this type of enterprise. After its establishment, EPEs that purchase and sell goods and take part in activities directly related to the purchase and sale of goods in Vietnam must open separate accounting books on revenues and expenses related to such purchases and sales in Vietnam. They must also arrange cargo storage areas separate from those for production and processing enterprises, or establish separate branches outside EPEs or export processing zones to carry out this operation.
This article is based on the current laws at the above recorded time and may no longer be relevant at the time readers access this article due to changes in applicable law and specific cases which the readers want to apply. Therefore, this article is for reference only.