“Tax regulations are one of the many issues foreign investors concern about when investing or outsourcing in Viet Nam. Therefore, it can be said that tax policies greatly affect the decision of investors.“
In the scope of this article, PLF will only cover tax policies in outsourcing activity of foreign enterprises in Viet Nam. Currently, the Ministry of Finance has issued Circular No. 60/2012/TT-BTC stipulating tax obligations applied to foreign organizations and individuals engaging in business activities in Viet Nam or earning income in Viet Nam.
According to this Circular, foreign enterprises carrying out business in Viet Nam (with or without permanent establishments) or having income in Viet Nam on the basis of contracts and agreements must fulfill their obligations on Value Added Tax (VAT) and Corporate Income Tax (CIT). However, in case foreign enterprises only hire manufacturers in Viet Nam, which means they just pay and receive the finished products once the processing contract terminates, they would not be subject to the abovementioned taxes due to the fact that there is no income generated within the territory of Viet Nam. On the contrary, foreign enterprises applying the method of on-spot import/export to their processed products and earning income in Vietnam must comply with tax obligations to the State of Viet Nam.
Materials, raw materials, auxiliary materials, or even machines and equipment provided to the manufacturer by foreign enterprises during product processing are called temporarily imported goods for re-export (which are temporarily imported as raw materials and re-exported as finished products); such goods are exempt from taxes.
After the manufacturing process, if the provided raw materials, auxiliary materials and supplies have been used up, the foreign investors shall not incur any obligations. Otherwise, depending on certain situation, the foreign investors have the right to receive back, conduct on-spot export, or give away the surplus raw materials, auxiliary materials, and supplies in accordance with Vietnamese laws. If any income arises in Vietnam from these activities, foreign enterprises are responsible for fulfilling their tax obligations as regulated.
Similarly, foreign enterprises may receive back or conduct on-spot export for the machines and equipment used during the manufacturing process that they have leased or lent to the manufacturer. In case there is any income arising in Vietnam, they must comply with their tax obligations.
Foreign enterprises should pay attention to the abovementioned contents to guarantee their benefits when conducting outsourcing processing in Vietnam.