Selling To Export Processing Zone – What You Need To Know

1. What is an Export Processing Zone (EPZ)?

a. Definition

An Export Processing Zone is an industrial zone specializing in the production of goods for export, providing services for export production, and engaging in export activities. It is separated from the outside area by regulations applicable to non-tariff zones as stipulated by laws on export and import duties.

EPZs are areas where export-oriented businesses are concentrated, enjoying numerous tax incentives and simplified procedures, thereby creating favorable conditions for investment activities and exporting goods to the international market. (According to Article 2.2 of Decree 35/2022/ND-CP)

b. Role of Export Processing Zones in Production and Export Activities in Vietnam

In Vietnam, EPZs are established with the strategic objective of promoting economic development and international integration. Their prominent roles include:

• Contributing to increasing export turnover: EPZ enterprises focus on producing goods for export, contributing to increasing the national export value and expanding international markets.
• Balancing the balance of payments: Boosting exports and attracting foreign currency from foreign investment helps alleviate pressure from balance of payments deficits.
• Attracting domestic and foreign investment capital: Thanks to preferential policies and synchronized infrastructure, EPZs become attractive destinations for both domestic and foreign investors.
• Job creation and human resource development: EPZs create many job opportunities, especially for manual laborers, while also contributing to improving the skills and industrial discipline of workers.

>>>Related article: What Is an Export Processing Zone?

2. Why Do Domestic Businesses Want to Sell to Export Processing Zones?

• Opportunity to enjoy tax incentives: Goods and services sold to EPZ enterprises are considered exports if they meet certain conditions. This can allow for a 0% Value Added Tax (VAT) rate and exemption from export duties (except for some specific items).
• Large potential customer market: Most businesses located in EPZs are primarily Foreign Direct Investment (FDI) enterprises, operating on a large scale and constantly requiring raw materials, accessories, equipment, technical services, and consumer goods. Therefore, EPZs represent a potential customer market, offering opportunities for businesses to expand their consumer market and build long-term relationships with customers.

3. Customs Procedures for Businesses Selling to Export Processing Zones

“Do businesses selling goods to EPZs need to follow customs procedures?” is a question asked by many domestic enterprises. Here is the answer to this question:

a. Do sales to EPZs require customs procedures?

According to Article 74.1 of Circular 38/2015/TT-BTC, amended by Article 1.50 of Circular 39/2018/TT-BTC, goods sold to EPZs must undergo customs procedures as regulated and be used for the specified production purposes, with the exception of a few cases where businesses can choose whether or not to perform customs procedures:

Cases requiring customs procedures:

• Goods bought, sold, leased, or borrowed between EPZ enterprises.
• Goods that are construction materials, stationery, food, foodstuffs, and consumer goods purchased from the domestic market for construction, office operations, and the daily needs of staff and workers within the EPZ.
• Goods circulated internally within an EPZ enterprise, or circulated between EPZ enterprises within the same export processing zone.
• Goods of EPZ enterprises belonging to a group or system of companies in Vietnam with dependent accounting.
• Goods brought into or out of EPZs for warranty, repair, or to perform certain stages in production activities such as inspection, sorting, packaging, or repacking.
• Goods bought and sold between Vietnamese enterprises and foreign organizations or individuals not present in Vietnam, and designated by foreign traders for delivery or receipt of goods with other enterprises in Vietnam.

Cases not requiring customs procedures: EPZ enterprises must create and retain documents and detailed ledgers to track goods brought in and out, in accordance with the Ministry of Finance’s regulations on commodity trading, accounting, and auditing, clearly specifying the purpose and source of the goods. (According to Article 1.50 of Circular 39/2018/TT-BTC)

b. Customs declaration types for sales to EPZ enterprises

• Domestic enterprises: Open export declarations according to the corresponding types (B11, E52, E62, H21, B13).
• Export Processing Zone enterprises: Open import declarations according to type E15 (raw materials) or E13 (other goods used in EPZ enterprises).

c. Where to submit customs declarations?

Customs declarations can be submitted at:

• The Customs Branch where the enterprise is headquartered or has its production facility, or
• The Customs Branch where export goods are gathered, or
• The Customs Branch at the export border gate. (According to Article 19.1.a of Circular 38/2015/TT-BTC)

d. Deadline for customs procedures:

Within 15 working days from the date of customs clearance for exported goods.

4. Tax Policies When Selling to Export Processing Zones

“Non-tariff zones include: export processing zones, export processing enterprises, bonded warehouses, tax-free zones, foreign trade zones, special economic and commercial zones, industrial-commercial zones, and other established economic zones…” (According to Article 4.20 of Circular 219/2013/TT-BTC).

a. Value Added Tax (VAT)

Based on Circular 219/2013/TT-BTC, Article 9.1 stipulates the 0% tax rate as follows: “1. 0% tax rate: applied to exported goods and services; construction and installation activities abroad and in non-tariff zones; international transportation; goods and services exempt from VAT when exported, except for cases where the 0% tax rate does not apply as guided in Clause 3 of this Article. Exported goods and services are goods and services sold and supplied to organizations and individuals abroad and consumed outside Vietnam; sold and supplied to organizations and individuals in non-tariff zones; goods and services supplied to foreign customers according to legal regulations.”

Since export processing zones are considered part of a non-tariff zone, goods sold into an EPZ are treated as exported goods and are eligible for the 0% VAT rate, provided they do not fall under the exceptions specified in Article 9.3 of Circular 219/2013/TT-BTC, such as:

• Reinsurance, technology transfer, intellectual property rights transfer, capital transfer, credit extension, overseas securities investment, telecommunications and postal services abroad.
• Imported tobacco, alcohol, beer that are then exported.
• Gasoline and oil sold to vehicles of businesses in non-tariff zones purchased domestically.
• Automobiles sold to organizations and individuals in non-tariff zones.
• Services provided in non-tariff zones.
• Services supplied in Vietnam to foreign customers.

Conditions for applying the 0% tax rate:

• There must be a contract for the sale or processing of export goods; or an export entrustment contract.
• There must be payment documents for exported goods through a bank and other relevant documents as regulated.
• There must be a customs declaration according to Article 16.2 of Circular 219/2013/TT-BTC.

Special cases (delivery outside Vietnam): Businesses must have a set of documents proving overseas delivery, such as:

• Purchase-sale contract with the foreign party.
• Invoice, bill of lading, packing list, certificate of origin.
• Bank payment documents. (According to Article 9.3 and Article 16.2 of Circular 219/2013/TT-BTC)

b. Export Duty

According to Article 2.2 of the Law on Export and Import Duties 2016, it is stipulated: “Article 2. Taxable objects 2. Goods exported from the domestic market into a non-tariff zone, goods imported from a non-tariff zone into the domestic market.”

Accordingly, goods exported from the domestic market into an export processing zone are subject to export duty as stipulated by law.

References:

• Circular 38/2015/TT-BTC amended by Circular 39/2018/TT-BTC. Link
• Law on Export and Import Duties 2016. Link
• Law on Value Added Tax 2008. Link
• Circular 219/2013/TT-BTC. Link
• Decree 35/2022/ND-CP. Link

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