“Processing is no longer deemed a novel economic activity in Vietnam. In the scope of this article, PLF would like to cover several noteworthy issues for foreign investors when outsourcing processing in this particular nation.“
During our cooperation with foreign investors outsourcing processing in Vietnam, we have become aware that one of their top concerns is intellectual property rights concerning trade secret, trademark, industrial design, trade name, etc. Inevitably, investors must provide the processing party with such confidential information throughout the course of their collaboration. Therefore, it is very essential for foreign investors to have certain knowledge about the processing party they are outsourcing to before submitting any of their classified products’ information or design. At the same time, in order for a processing contract to be deemed legally binding, regulations on obligations of both parties need to be stated detailedly and explicitly.
Notably, tax policies of Vietnam also have quite an impact on processing outsourcing carried out by foreign investors. For instance, Circular No. 60/2012/TT-BTC stipulates detailed tax obligations applicable to foreign investors earning income in Vietnam. Having knowledge of not only this particular Circulation but also Vietnamese laws and regulations in general will help foreign investors outsource processing legally and smoothly.
Furthermore, foreign investors should also consider seeking solutions to excess materials and provided machinery after a processing contract (in which the investors supply the processing party with materials, raw materials and machinery) terminates. Different solutions will consequently lead to different investor obligations. Therefore, it is important for foreign investors to select the most practical solution so as to minimise the level of obligations.
Another matter that might relate to processing outsourcing is on-spot export. Briefly, on-spot export means when foreign investors outsource to Vietnamese processing parties but do not directly receive the finished products; instead, they request such products to be delivered to a third party also in Vietnam. As a result, tax-related issues and other obligations of foreign investors in this case are very distinctive from when they receive the processed products themselves.
In addition, labor issues are necessary to put in consideration if foreign investors plan to employ when outsourcing in Vietnam, whether it is sending supervisors to monitor processing activity or establishing a representative office/branch in Vietnam for convenient processing outsourcing.