To:

- Office –Ministry of Finance;
- Legal Department
- Tax Policy Department
- International Cooperation Department
- General Department of Taxation

Pursuant to Deputy Prime Minister Le Minh Khai’s Notification No. 39/TB-VPCP dated 20/02/2023 issued by Office of the Government regarding in-country export and import, regulations of Article 35 of Decree No. 08/2015/ND-CP: “The Ministry of Finance shall take charge and cooperate with relevant agencies in reviewing and completing the draft Decree, assess the implementation of regulations on in-country exports and imports specified in Clause 1 Article 15 of Decree No. 08/2015/ND-CP, specifying legal basis, results, achievements and failures, impacts and proposed measures. On this basis report to the Standing Committee of the Government for consideration of promulgation of a Decree on amendments to Decree No. 08/2015/ND-CP and what to do with regulations in Clause 1 Article 35 of Decree No. 08/2015/ND-CP”, General Department of Customs has submitted a report on implementation of regulations on customs procedures for on in-country exports and imports in Clause 1 Article 35 of Decree No. 08/2015/ND-CP. In this report, General Department of Customs specified the legal basis in each period, reality, advantages and disadvantages of customs procedures and tax policies applied to in-country exports and imports, proposed amendments to Article 35 of Decree No. 08/2015/ND-CP towards:

1. Annulment of all regulations on in-country export and import in Article 35 of Decree No. 08/2015/ND-CP.

2. The cases specified in Point a and Point b Clause 1 Article 35 of Decree No. 08/2015/ND-CP are regulated by corresponding Articles of Circular No. 38/2015/TT-BTC (amended by Circular No. 39/2018/TT-BTC) on inward processing (to comply with regulations of law on commerce and foreign trade management), export and import of goods between export processing enterprises (EPEs), enterprises in free trade zones and the domestic market (to comply with Article 28 of the Law on Commerce, Clause 4 Article 3 of the Law on Foreign Trade Management, Clause 6 Article 4 of the Law on Customs, Clause 4 Article 26 of Decree No. 35/2022/ND-CP and Clause 1 Article 4 of the Law on Export and Import Duties).

However, in order to ensure uniformity of relevant laws and equality of policies on transaction of goods of the same nature, we hereby propose that competent authorities consider annulling regulations on in-country export and import of goods processed for foreign traders in the Law on Commerce, the Law on Foreign Trade Management and their guiding Decrees because the processed goods are owned by the hirer (the foreign party) and sold in Vietnam’s market under sale contracts. This activity is not different from regulations of Point c Clause 1 Article 35 of Decree No. 08/2015/ND-CP.

Therefore, annulling Article 35 of Decree No. 08/2015/ND-CP also means reviewing and annulling all relevant regulations of law on in-country export and import, such as: reviewing and amending the Law on Commerce and the Law on Foreign Trade Management to remove regulations on in-country export and import regarding goods processed for foreign traders; reviewing and amending the Law on Export and Import Duties, the Law on Value-added Tax regarding subjects of taxation, refund of tax on in-country exports and imports, foreign contractor withholding tax, corporate income tax, etc.

3. Proposed replacement of customs procedures for in-country exports and imports:

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(1) In case the goods processed for a foreign trader have not been sold by the foreign traders to organizations and individuals in Vietnam, the processor or the Vietnamese trader that buys the processed goods from the foreign trader and sells them to other traders in Vietnam shall conduct a trade transaction between two domestic enterprises; the processor shall repurpose the processed goods, pay import duties and other taxes similarly to imports.

(2) If the goods are manufactured from raw materials imported for manufacture of domestic exports on which import duties are have been exempted but delivered within Vietnam as assigned by the oversea organization or individual, it shall be considered transaction between two domestic enterprises; the enterprise that imported raw materials for manufacture of domestic exports shall repurpose the imported raw materials and fully pay the taxes thereon.

In the cases specified in (1) and (2), in order to collect corporate income tax on revenues from trade transactions in Vietnam, the foreign trader without commercial presence in Vietnam must pay tax by signing a contract with an agent in Vietnam.

(3) For purely commercial business: The foreign trader without commercial presence in Vietnam shall sign an agent contract or use VAT invoices that specify the names and TINs of the foreign trader and the enterprise Vietnam appointed to receive the goods in Vietnam.

(*) Strengths

- Goods traded in Vietnam are managed properly;

- Import duties can be collected on goods processed and domestic exports after repurposing.

(*) Weaknesses

- It is necessary to change the management method of tax authorities and banking authorities in international payment.

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- It is not clear how to refund tax if imported raw materials, supplies and components are traded domestically but then used for manufacture of goods that are exported in reality.

Enclosures:

(i) Report on implementation of customs procedures for in-country exports and imports prescribed in Clause 1 Article 35 of Decree No. 08/2015/ND-CP and proposed amendments;

(ii) Draft amendments to Article 35 of Decree No. 08/2015/ND-CP.

Units may send their comments and proposed solutions (if any) to General Department of Customs before 13/6/2023 for consolidation and reporting to the Ministry and the Government. Soft copies can be sent to anhptp@custom.gov.vn (Ms. Pham Thi Phuong Anh), phone number: 0917793233./.

PP GENERAL DIRECTOR
DEPUTY GENERAL DIRECTOR




Nguyen Van Tho

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Amendments to regulations on in-country export and import in Article 35 of Decree No. 08/2015/ND-CP

Pursuant to Deputy Prime Minister Le Minh Khai’s Notification No. 39/TB-VPCP dated 20/02/2023 issued by Office of the Government in response to opinions of the Government's members on the draft Decree on amendments to the Government’s Decree No. 08/2015/ND-CP elaborating the Law on Customs regarding customs inspection, supervision and control of in-country export and import, General Department of Customs has reviewed the implementation of regulations on in-country exports prescribed in Clause 1 Article 35 of Decree No. 08/2015/ND-CP and propose amendments as follows:

I. Legal basis

1. Regulations on in-country export and import since 1998

a) 1998

Paragraph 7 of “Specific provisions” of Joint Circular No. 23/1998/TTLT-BTM-TCHQ dated 31/12/1998 between the Ministry of Trade and General Department of Customs on procedures for export and import by foreign direct investment (FDI) enterprises:

“7. For the export to foreign customers of goods which are, however, not exported from Vietnam, the exporting enterprise is entitled to deliver such goods directly to another domestic establishment as nominated by the foreign purchaser:

a) Exports:

Goods exported by a FDI enterprise to a foreign company must be the products stipulated in the enterprise’s investment license and made by that enterprise itself, which are included in the ratified annual export plan (according to Decision No. 321/1998/QD-BTM dated 14/3/1998 and Decision No.625/1995/QD-BTM of dated 01/6/1998 of the Ministry of Trade).

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i. If the goods-receiving domestic enterprise is an FDI enterprise:

The goods must be the raw materials used for the Enterprise’s production and included in the ratified annual import plan.

ii. If the domestic goods-receiving enterprise is a Vietnamese enterprise:

The goods may be production raw materials or goods in service of the enterprise’s business, which must conform to the business lines stated in its business registration certificate, the import-export management policy as well as the tax policy applicable to import goods.”

b) 2000

The Ministry of Trade promulgated Circular No. 22/2000/TT-BTM on 15/12/2000, which replaces Circular No. 23/1998/TTLT-BTM-TCHQ and has regulations on in-country export and import:

(1) The foreign enterprise appoints an FDI enterprise to deliver goods to another enterprise in Vietnam (either an FDI enterprise or Vietnamese enterprise).

(2) The foreign main contractor appoints an FDI enterprise (subcontractor) to trade goods in Vietnam to execute a construction or installation work in Vietnam.

Scenario (2) is a new content of Circular No. 22/2000/TT-BTM.

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Pursuant to the Prime Minister’s directive in Official Dispatch No. 660/CP-KTTH dated 14/6/2002 regarding tax on in-country exports and imports, the Ministry of Finance promulgated Decision No. 153/2002/QD-BTC dated 17/12/2002 on customs procedures for in-country exports and imports and in-country export and import declaration forms. Clause 1 Section 1 of the Decision:

“In-country exports and imports are goods produced in Vietnam by enterprises (including FDI enterprises) and sold to foreign traders but delivered to other enterprises in Vietnam under the designation by such foreign traders”.

In addition, the Decision also prescribes conditions, documentation and customs procedures for in-country exports and imports.

d) 2005

- Law on Commerce No. 36/2005/QH11:

+ According to Article 181, hirers (processes) have the rights to “sell, destroy, donate or give as gifts processed products within the country, leased or lend machinery and equipments, raw materials, auxiliary materials, redundant supplies, faulty products and discarded materials according to agreements and provisions of law.”

+ According to Article 182, processors have the rights to “export the processed products, leased or borrowed machinery and equipment, raw materials, materials, redundant supplies, faulty products and discarded materials within the country under the authorization of the hirers (processes).”

- Article 15 of the Government’s Decree No. 154/2005/ND-CP dated 15/12/2005 elaborating some Articles of the Law on Customs on customs procedures, customs supervision and inspection: “In-country exports are considered exports and in-country imports are considered imports, thus they must comply with regulations of law on management of imports and exports and tax policies on imports and exports.”

The Decree also prescribes the basis for determination of in-country exports and imports and assigns the Ministry of Finance to provide specific guidelines for customs procedures applicable to in-country exports and imports.

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dd.1) Customs laws:

With an aim to inherit and replace regulations on in-country export and import of Decree No. 154/2005/ND-CP, Article 35 of Decree No. 08/2015/ND-CP has specific regulations on the cases of in-country export and import. On this basis, the Minister of Finance has established customs procedures for in-country exports and imports in Article 86 of Circular No. 38/2015/TT-BTC dated 25/3/2015, which is amended by Circular No. 39/2018/TT-BTC dated 20/4/2018.

dd.2) Tax laws:

- Article 2 of the 2016’s Law on Export and Import Duties prescribes that in-country exports and imports are subject to tax and assigns the Government to elaborate these regulations.

On this basis, the Government promulgated Decree No. 134/2016/ND-CP dated 01/9/2016 (amended by Decree No. 18/2021/ND-CP dated 11/3/2021), Clause 3 Article 2 of which specifies the rates of tax on in-country exports and imports.

- Regarding Decrees providing guidelines for implementation of tariff schedules under Free Trade Agreements (FTAs):

+ Under bilateral FTAs, imports are eligible for special preferential import duty rates if the conditions are fully satisfied, including the condition that the goods are directly transported from the exporting country into Vietnam.

+ Under multilateral FTAs, imports are eligible for special preferential import duty rates if the conditions are fully satisfied, including the condition that the goods are directly transported from the exporting country into Vietnam or from Vietnam but only applicable to goods imported from free trade zones into the domestic market.

dd.3) Foreign trade management laws

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+ Point e Clause 1 Article 42:

“The ordering party (the hirer) shall have the rights to carry out in-country export of processed products; leased or borrowed machinery and equipment; oversupplied materials; and scrap and waste according to agreements between involved parties, in accordance with regulations of law in force on management of export and import and fulfill tax liabilities and other financial obligations as per the law”.

- Point e Clause 2 Article 42 on rights and obligations of the ordering party: “Carry out procedures for in-country export of processed products, leased or borrowed machinery and equipment, oversupplied materials, waste and scrap as authorized by the ordering party”.

* Comments: In conclusion, only the 2005’s Law on Commerce permits domestic processors to carry out certain in-country export and import activities (such as selling, destroying, donating, exporting); the 2001’s Law on Customs and other Laws do not have regulations on in-country export and import. However, pursuant to the aforementioned Decrees and Circulars, in-country export and import have been regulated since 1998 and later documents are amended according to reality to facilitate trade in goods. Since 2015, regulations on in-country export and import have been more specific in the Government’s Decrees (such as Decree No. 08/2015/ND-CP, Decree No. 134/2016/ND-CP, Decree No. 209/2013/ND-CP, Decree No. 69/2018/ND-CP). Meanwhile, regulations of law on export and import duties specify that in-country export and import are taxable. When it comes to in-country export and import, there are discrepancies between trade laws and tariff laws.

2. Foreign laws on in-country export and import

Customs authorities of foreign countries such as Japan and Korea do not have regulations on in-country export and import. Kyoto and Istanbul Conventions do not have any clause about in-country export and import.

During the 24^th ASEAN’s meeting about customs procedures and trade facilitation, all member states agree that by nature they are not export and import since goods are not moved across the border or customs territory and are purely domestic transactions participated in by foreign traders as intermediaries (distributing, trading goods in the domestic market). Therefore, these transactions are subject to the jurisdiction of domestic tax authorities and do not have to follow customs procedures.

That means in other countries there are only ordinary export and import of goods (the exports and imports have to cross border checkpoints or customs territories). The concept of in-country export and import only exists in Vietnam.

3. Regulations on export and import of goods

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“1. Export of goods means the bringing of goods out of the territory of the Socialist Republic of Vietnam or into special zones in the Vietnamese territory, which are regarded as exclusive customs zones according to the provisions of law.”

2. Import of goods means the bringing of goods into the territory of the Socialist Republic of Vietnam from foreign countries or special zones in the Vietnamese territory, which are regarded as exclusive customs zones according to the provisions of law.”

b) Pursuant to Clause 4 Article 3 of the 2017’s Law on Foreign Trade Management: “Customs-controlled area means a geological area in the territory of Vietnam that is established in accordance with regulations of Vietnam law and international treaties to which the Socialist Republic of Vietnam is a signatory and the exchange of products between this area and the remaining territory of Vietnam or foreign countries are considered as import and export activities.”

d) Pursuant to Clause 4 Article 26 of the Government’s Decree No. 35/2022/ND-CP on management of industrial zones and export processing zones: “Any trade in goods between export processing enterprises and other areas within the territory of Vietnam, except free trade zones, shall be defined as an export and import relation, unless otherwise stipulated in point c of this clause, and except in the cases where completion of customs procedures prescribed in law on customs is not required”.

Customs areas are prescribed in the Government’s Decree No. 01/2015/ND-CP dated 02/01/2015, which is amended by Decree No. 12/2018/ND-CP dated 23/01/2018.

Pursuant to the aforementioned regulations, exports and imports must be brought from/into Vietnam’s territory or separate customs areas (export processing zones, export processing enterprises, free trade zones, bonded warehouses) or stored within customs areas (according to Decree No. 01/2015/ND-CP, which is amended by Decree No. 12/2018/ND-CP, including border-gate economic zones having enterprises manufacturing or selling customs-supervised goods such as processed goods and domestic exports. This means customs authorities only carry out customs procedures for exports and imports in the aforementioned cases, including goods processed in Vietnam under contracts and sold by foreign hirers to other organizations and individuals in Vietnam, and goods traded between domestic enterprises and enterprises in export processing zones or free trade zones (Point a and Point b Clause 1 Article 35 of Decree No. 08/2015/ND-CP). In case goods are traded between a Vietnamese enterprise and a foreign trader without commercial presence in Vietnam and is requested by the foreign trader to deliver or receive goods from another enterprise in Vietnam (Point c Clause 1 Article 35 of Decree No. 08/2015/ND-CP), they will not be considered exports or imports under the management of customs authorities.

4. Regarding tax policies on in-country export and import:

4.1. Before the effective date of Decree No. 08/2015/ND-CP:

The Law on Export and Import Duties No. 45/2005/QH11, the Government’s Decree No. 87/2010/ND-CP dated 13/8/20210 do not have regulations on tax policies on in-country export and import. Article 15 of the Decree No. 154/2005/ND-CP prescribes that in-country exports are considered exports and in-country imports are consider imports, thus subject to regulations of law on management of exports and imports and tax policies on exports and imports. This means tax policies on in-country exports and imports are the same as those on exports and imports. Export and import duties on in-country exports and imports shall be declared in accordance with regulations of law on export and import duties.

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a. Regulations of law on export and import duties:

Clause 2 and Clause 3 Article 2 of the Law on Export and Import Duties No. 107/2016/QH13:

“Article 2. Taxed goods

2. Goods exported from the domestic market into free trade zones; goods imported from free trade zones into the domestic market.

3. Goods indirectly exported-imported; goods exported and imported by enterprises exercising their right to export, import, or distribute.

Clause 2 and Clause 3 Article 2 of Decree No. 134/2016/ND-CP dated 01/9/2016:

“Article 2. Dutiable articles

3. Provisions of the Government's Decree No. 08/2015/ND-CP dated January 21, 2015 shall apply to the exports delivered to domestic processors specified in Clause 3 Article 2 of the Law on Export and Import Duties.”

Clause 3 Article 3 of the Government’s Decree No. 134/2016/ND-CP dated 01/9/2016, which is amended by Clause 1 Article 1 of Decree No. 18/2021/ND-CP:

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a) In-country exports shall apply the export duty rates specified in the Government’s Decree No. 122/2016/ND-CP , Decree No. 57/2020/ND-CP , Decree No. 125/2017/ND-CP , their amendments and replacements (if any).

b) In-country imports (except goods imported from free trade zones prescribed in Point c of this Clause) shall apply the preferential import tariff rates specified in Decree No. 125/2017/ND-CP , Decree No. 57/2020/ND-CP , their amendments and replacements (if any).

Point g Clause 1, Points dd, g, h Clause 2, Clause 5 Article 10 of the Government’s Decree No. 134/2016/ND-CP dated 01/9/2016, which is amended by Clause 4 Article 1 of Decree No. 18/2021/ND-CP:

“Article 10. Exemption of duties on goods imported for further processing and processed exports

1. Goods imported for further processing and processed exports under processing contracts that are exempt from export and import duties specified in Clause 6 Article 16 of the Law on Export and import duties include:

g) Processed products that are exported to a foreign country, a free trade zone or an organization or individual in Vietnam as requested by the hirer.

Processed exports are exempt from export duties as prescribed by this Point if they are entirely processed from imported goods. In case processed exports are made of dutiable domestic raw materials or supplies, export duties on the value of raw materials or supplies incorporated into the products at the duty rates applied to such raw materials or supplies shall be paid when the products are exported.

2. Basis for determination of eligibility for duty exemption:

dd) The quantity of imports used for processing the products that have been exported to a foreign country or a free trade zone that is exempt from import duties is the quantity of goods imported in for processing the exported products in reality.

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g) The quantity of imported goods that are used for processing in-country exports in reality will be exempt from import duties if the in-country exporter has sent the customs authority a notification (Form No. 22 in Appendix VII hereof) of the customs declaration of the in-country imports within 15 days from the day on which customs clearance is granted to the in-country exports.

If the in-country exporter fails to submit the notification to the customs authority by the deadline, the in-country exporter shall register a new customs declaration, declare and pay duties on the imports used for processing the in-country exports at the rates and dutiable values of the imports that are applicable when the new customs declaration is registered.

h) Goods that are imported in-country for processing according to the customs declaration shall be exempt from import duties if the importer satisfies the requirements specified in Point a and Point b of this Clause. If goods that are imported in-country for other purposes, the in-country importer shall declare and pay duties at the rates and dutiable values of the in-country imports that are applicable when the declaration is registered.

In case the in-country importer has paid import duties, used the in-country imports for manufacture of goods for export and exported the goods to a foreign country or a free trade zone in reality, paid import duties will be refunded in accordance with Article 36 of this Decree.

5. Procedures for granting duty exemption are specified in Article 31 of this Decree.

While following procedures for in-country export of the goods specified in this Article, in addition to the duty exemption application specified in Article 31 of this Decree, the in-country exporter shall also submit the document requesting delivery of goods in Vietnam of a foreign entity: 01 photocopy.”

Points dd, e, g, h Clause 2 and Clause 3 Article 12 of the Government’s Decree No. 134/2016/ND-CP dated 01/9/2016, which is amended by Clause 6 Article 1 of Decree No. 18/2021/ND-CP dated 11/3/2021:

“Article 12. Exemption of duties on goods imported for manufacture of domestic exports

2. Basis for determination of eligibility for duty exemption:

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Regulations of Points e, g, h of this Clause shall apply to the imports used for manufacture of products that are exported to another domestically located organization and individual (outside of free trade zones), in-country exports and in-country imports.

e) The quantity of imported goods that are used for manufacturing in-country exports in reality will be exempt from import duties if the in-country exporter has sent the customs authority a notification (Form No. 22 in Appendix VII hereof) of the customs declaration of the in-country imports within 15 days from the day on which customs clearance is granted to the in-country exports.

If the in-country exporter fails to submit the notification to the customs authority by the deadline, the in-country exporter shall register a new customs declaration, declare and pay duties on the imports used for manufacturing the in-country exports at the rates and dutiable values of the imports that are applicable when the new customs declaration is registered.

If the in-country exporter submits a notification of the customs declaration of the in-country imports to the customs authority after duties are paid, the paid duties shall be settled in accordance with regulations of law on settlement of overpaid tax.

g) In-country exports are not exempt from export duties. The in-country exporter shall register the in-country export declaration, declare and pay export duties at the rates and values of the in-country exports that are applicable when the declaration is registered.

h) Goods that are imported in-country for processing according to the customs declaration shall be exempt from import duties if the importer satisfies the requirements specified in Point a and Point b Clause 2 Article 10 of this Decree. If goods that are imported in-country for other purposes, the in-country importer shall declare and pay duties at the rates and dutiable values of the in-country imports that are applicable when the declaration is registered.

3. Procedures for granting duty exemption are specified in Article 31 of this Decree.

While following procedures for in-country export of the goods specified in this Article, in addition to the duty exemption application specified in Article 31 of this Decree, the in-country exporter shall also submit the document requesting delivery of goods in Vietnam of a foreign entity: 01 photocopy.”

Clause 4 Article 2 of the Government’s Decree No. 18/2021/ND-CP dated 11/3/2021:

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4. Transition clauses on in-country exports and imports:

The duty rates on in-country exports and imports prescribed in Clause 1 Article 1 of this Decree shall be applied from the effective date of the Law on Export and Import Duties No. 107/2016/QH13.”

b. Regulations of law on VAT:

Article 9 and Article 17 of Circular No. 219/2013/TT-BTC of the Ministry of Finance and the Government’s Decree No. 209/2013/ND-CP:

“Article 9. Tax rate of 0%

- It is considered export in the following cases:

+ Forwarded processed goods under trade laws on international goods trade and export processing.

+ In-country exports defined by law.

Article 17. Conditions for deduction and refund of input VAT in some cases where goods are considered exported

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a) a) A sale contract or a processing contract requiring goods to be delivered to a recipient in Vietnam;

b) A customs declaration of in-country export and import for which customs procedures have been completed;

c) A VAT invoice or export invoice specifying the buyer’s name, recipient, and delivery address in Vietnam.

d) The goods sold to foreign traders and delivered to a location in Vietnam must be paid with convertible foreign currencies by bank transfer. Wire transfer receipts must comply with this Clause 3 Article 16 of this Circular. If the appointed recipient is authorized by the foreign party to pay the exporter, the currency used for payment must comply with the laws on foreign currencies

dd) The in-country exports of a FDI enterprise must be conformable with the investment license.

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If any of the compulsory documents for forwarded processed goods and domestic exports is missing, VAT shall be paid as if they are sold domestically.

c. Regarding foreign contractor withholding tax:

Clause 1 and Clause 2 Article 1 of Circular No. 60/2012/TT-BTC and Clause 1 and Clause 2 Article 1 of Circular No. 103/2014/TT-BTC on regulated entities: “2. Foreign entities providing goods in Vietnam in the form of in-country export and earn income in Vietnam under contracts between them and Vietnamese enterprises (except for the cases in which goods are processed and then returned to foreign entities) or distribute goods in Vietnam or provide goods under DP, DAT, DAP clauses of Incoterms, In these cases, foreign organizations and individuals providing goods in the form of in-country export and import (except processing and re-exporting goods) are subject to foreign contractor withholding tax.

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II. Current situation of in-country export and import

1. Data about in-country export and import according to Clause 1 Article 35 of Decree No. 08/2015/ND-CP

Schedule 1: Export and import turnover and duty collection by year

Year

Total export turnover
(million USD)

Total import turnover
(million USD)

Total export duty

(billion VND)

Total import duty

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2018

243.480

236.690

8.577,8

54.759,05

2019

264.190

253.070

8.554,6

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2020

282.660

262.700

7.395,0

43.955,00

2021

336.310

332.230

8.379,7

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2022

371.330

358.900

10.425,1

64.601,00

Schedule 3: In-country export statistics

Year

Declaration quantity

(sheet)

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(million USD)

% of export turnover

Export duty receivable

(billion VND)

% of export duty

2018

1.152.589

37.232,01

15,29

...

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...

0,52

2019

1.305.790

43.092,01

16,31

50,8

0,59

2020

1.406.831

...

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16,08

69,1

0,93

2021

1.450.695

37.847,44

11,25

103,4

1,23

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1.670.023

65.257,17

17,58

127,15

1,22

Source: Information Technology and Customs Statistics Department

Schedule 4: In-country import statistics

Year

Declaration quantity

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% of export turnover

Import duty receivable (billion VND)

% of import duty

2018

1.218.211

29.911,7

12,64

659

10,12

...

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...

1.379.274

46.027,6

18,19

1.526

8,67

2020

1.514.737

49.719,3

18,93

...

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3,56

2021

1.569.520

40.008,2

12,04

4.433

2,82

2022

1.775.652

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20,12

6.537

1,2

Source: Information Technology and Customs Statistics Department

Statistics show that average in-country export and import turnover over 05 years is about 15,84% of total export and import turnover, where:

- 2018: In-country export and import turnover was approximately 67,14 billion VND out of a total turnover of 480,17 billion USD (13,98%); Total collected duties from in-country export and import was 703,61 billion VND, making up 1,11% of total collected export and import duties.

- 2019: In-country export and import turnover was approximately 89,12 billion VND out of a total turnover of 517,26 billion USD (17,23%); Total collected duties from in-country export and import was 1.576,4 billion VND, making up 2,52% of total collected export and import duties.

- 2020: In-country export and import turnover was approximately 95,16 billion VND out of a total turnover of 545,36 billion USD (17,45%); Total collected duties from in-country export and import was 1.634 billion VND, making up 3,18% of total collected export and import duties.

- 2021: In-country export and import turnover was approximately 77,861 billion VND out of a total turnover of 668,54 billion USD (11,65%). Turnover was lower than that of 2020 due to Covid-19. Total collected duties from in-country export and import was 4.536,1 billion VND, making up 7,62% of total collected export and import duties.

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However, in-country export and import turnover is not included in annual export and import turnover.

2. Customs procedures and statistics of specific scenarios:

Customs procedures for in-country exports and imports are carried out according to Article 35 of Decree No. 08/2015/ND-CP and Article 86 of Circular No. 38/2015/TT-BTC (amended by Circular No. 39/2018/TT-BTC), including 3 scenarios:

Scenario 1: Point a Clause 1 Article 35 of Decree No. 08/2015/ND-CP: Goods are processed in Vietnam under contract and sold by the hirer to other organizations and individuals in Vietnam.

According to this point, under processing contracts with the foreign trader, the products are owned by the overseas hirer. When a domestic enterprise wishes to buy the products, the hirer will request the processor to deliver them within Vietnam after the contract ends. The domestic enterprise shall pay the overseas hirer directly or via the processor. In this case, the goods do not cross Vietnam’s border. This is purely a trade activity and is conformable with Article 181 and Article 182 of the Law on Commerce, and Article 42 of Decree No. 69/2018/ND-CP.

Statistics on declarations and in-country export turnovers

Year

Declaration quantity (sheet)

Turnover (million USD)

...

...

...

Duty receivable (VND)

% of export duty

2018

213.249

7.747,96

3,18

284.112.268,4

0,003

2019

...

...

...

8.028,6

3,04

492.050.341,6

0,01

2020

260.114

8.184,8

2,9

37.319.756,5

...

...

...

2021

136.990

4.585,8

1,36

6.778.292,7

0,0001

2022

27.698

5.965,7

...

...

...

-

-

Source: Information Technology and Customs Statistics Department

Statistics on declarations and in-country import turnovers

Year

Declaration quantity

Turnover (million USD)

% of import turnover

Duty receivable (VND)

...

...

...

2018

205.004

5.512,40

2,33

48.159.198.325,4

0,09

2019

243.288

7.622,11

...

...

...

313.254.957.002,2

0,58

2020

256.988

7.852,85

2,99

151.954.964.179,3

0,35

2021

...

...

...

4.311,77

1,3

333.155.012.472,5

0,65

2022

22.951

4.075,67

1,14

1.613.421.762,4

...

...

...

Source: Information Technology and Customs Statistics Department

Scenario 2: Point b Clause 1 Article 35 of Decree No. 08/2015/ND-CP: Goods are traded between domestic enterprises and export processing enterprises or enterprises in free trade zones.

Statistics on declarations and in-country export turnovers

Year

Declaration quantity (sheet)

Turnover (million USD)

% of export turnover

Duty receivable (VND)

% of export duty

...

...

...

286.827

10.896,2

4,48

33.304.559.509,04

0,39

2019

334.191

14.794,1

5,6

...

...

...

0,44

2020

396.593

16.061,5

5,68

51.381.013.093,42

0,69

2021

564.052

...

...

...

4,61

89.596.399.767,01

1,07

2022

764.857

27.882,4

7,51

116.767.666.781,91

1,12

...

...

...

Statistics on declarations and in-country import turnovers

Year

Declaration quantity (sheet)

Turnover (million USD)

% of import turnover

Duty receivable (VND)

%

2018

146.334

...

...

...

0,24

131.419.662.390,179

2,79

2019

170.503

10.976,37

0,36

192.660.310.933,383

4,34

...

...

...

193.091

11.625,44

0,82

362.322.540.070,393

4,43

2021

202.905

9.382,66

2,21

...

...

...

2,82

2022

231.494

15.182,92

1,23

794.319.906.974,312

4,23

Source: Information Technology and Customs Statistics Department

Scenario 3: Point c Clause 1 Article 35 of Decree No. 08/2015/ND-CP: Goods are traded between Vietnamese enterprises and foreign organizations and individuals without commercial presence in Vietnam and appointed by foreign traders to deliver/receive goods to/from other enterprises in Vietnam.

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...

Moreover, pursuant to Point d Clause 2 Article 2 of the Law on Corporate Income Tax No. 14/2008/QH12: “Foreign enterprises without Vietnam-based permanent establishments shall pay tax on taxable incomes generated in Vietnam.”. Therefore, foreign enterprises without commercial presence in Vietnam shall pay corporate income tax and foreign contractor withholding tax when providing services, providing and distributing goods, etc.

Statistics on declarations and in-country export turnovers

Year

Declaration quantity (sheet)

Turnover (million USD)

% of export turnover

Duty receivable (VND)

% of export duty

2018

...

...

...

18.587,94

7,63

11.170.465.234,85

0,13

2019

722.479

20.269,36

7,67

12.810.332.313,33

...

...

...

2020

750.124

21.194,08

7,5

17.679.418.499,42

0,24

2021

749.653

17.750,91

...

...

...

13.769.238.027,15

0,16

2022

877.468

31.409,02

8,46

10.377.930.131,16

0,1

Source: Information Technology and Customs Statistics Department

...

...

...

Year

Declaration quantity (sheet)

Turnover (million USD)

% of import turnover

Duty receivable (VND)

%

2018

866.874

17.798,08

...

...

...

479.277.434.216,46

0,88

2019

965.483

27.429,13

10,84

1.019.680.355.790,45

1,89

2020

...

...

...

30.240,98

11,51

1.050.633.291.597,99

2,39

2021

1.236.038

26.313,73

7,92

2.971.609.495.509,31

...

...

...

2022

1.521.207

52.946,78

14,75

5.740.568.653.234,62

8,89

Source: Information Technology and Customs Statistics Department

The statistics reveal that collected export and import duties in the scenario specified in Point c Clause 1 Article 35 of Decree No. 08/2015/ND-CP have the highest proportion in the total duties on in-country export and import.

3. Assessment of regulations on in-country export and import procedures

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a.1) Advantages

- The application of procedures for in-country export and import of Vietnamese goods has created a supply chain in Vietnam; enterprises can utilize existing materials and shorten the time needed to put goods into production, minimize costs and transport time, better protect goods due to shorter transport distance, etc.

- Application of customs procedures for in-country export and import facilitate international payment by enterprises since their export and import declarations have been granted customs clearance by customs authority (unless payment is made before delivery).

a.2) Disadvantages:

- It does not reflect the nature of exports and imports according to regulations of law on commerce and foreign trade management, which require goods to cross the border of Vietnam. On the other hand, recorded turnover is not accurate because the goods are not exported or imported in reality. However, the same management policies (classification, inspection) also apply to in-country exports and imports as if they are ordinary exports and imports despite they are only domestically circulated.

- Enterprises can abuse this to commit trade fraud. Right to export and import prescribed by Decree No. 90/2007/ND-CP:

“1. After a foreign business entity without a presence in Vietnam is granted a certificate of registration, it must register a tax code number with the tax department of the province or city under central authority where such business entity was issued with its certificate.

2. When exercising the right to export [and/or] import, a foreign business entity without a presence in Vietnam must discharge obligations regarding tax, fees and charges, and other financial obligations or must implement security measures in compliance with the law of Vietnam before goods shall be granted customs clearance; and the foreign business entity shall be liable for exported [and/or] imported goods in accordance with the law of Vietnam.”

Point c Clause 1 Article 35 of Decree No. 08/2015/ND-CP allows foreign traders without commercial presence in Vietnam to complete procedures for in-country export and import so they can exercise their right to distribute goods in Vietnam. However, Decree No. 90/2007/ND-CP requires foreign traders without commercial presence in Vietnam to obtain the right to export, right to import and right to distribute, which are not required by Point c Clause 1 Article 35. This leads to failure to collect corporate income tax on transactions that generate revenue in Vietnam.

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- The quantity of suspended in-country import declarations is high due to various reasons, including incorrect information provided by enterprises or in-country importers’ failure to open import declarations.

b) Regarding tax policies on in-country export and import

b.1) Advantages

- Goods do not cross the border but still have to follow in-country export and import procedures as if they are ordinary exports and imports. The processed goods that are exported within the country are eligible for tax exemption and the goods and the goods imported for manufacture of domestic exports are eligible for tax refund if the in-country imports continue to be used for manufacture and export. Thus the application of customs procedures to in-country export and import enables enterprises to process tax and take advantage of incentives in terms of export and import duties and VAT.

- VAT: Exporters are eligible for 0% VAT and have input VAT (if any) deducted or refunded.

b.2) Disadvantages:

- Import duties might not be collected if enterprises do not complete in-country import procedures.

- Risk of transfer pricing: It is possible that some FDI enterprises will abuse Vietnam’s incentive policies to inflate values and duties payable of goods while following in-country import procedures, thereby reducing duties payable overseas and maximizing profits of the entire conglomerate, multi-national company or group of related companies.

- VAT: According to applicable regulations, in-country exports are eligible for 0% VAT. This is unreasonable since the goods are not exported from Vietnam’s territory in reality and thus should not be considered foreign trade.

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III. Proposals

Below are proposals of General Department of Customs:

Pursuant to Clause 1 Article 35 of Decree No. 08/2015/ND-CP, the scenarios described in Points a and b are already prescribed in separate Laws while the scenario described in Point c Clause 1 Article 35 of the Decree is only regulated by the Government’s Decrees instead of Laws.

In order to ensure uniformity of state management of customs, in consideration of the nature of goods trade, General Department of Customs hereby proposes the following amendments to Article 35 of Decree No. 08/2015/ND-CP:

1. Annulment of the entire Article 35 of Decree No. 08/2015/ND-CP.

The purpose is to annul Point c Clause 1 of Article 35: The cases of in-country export and import described in Point a and Point b Clause 1 Article 35 of Decree No. 08/2015/ND-CP have been regulated by the Law on Commerce and the Law on Foreign Trade Management, and corresponding customs procedures are specified in Circular No. 38/2015/TT-BTC (amended by 39/2018/TT-BTC) regarding processing goods for foreign traders (to comply with regulations of law on commerce and foreign trade management), export and import between export processing enterprises, enterprises in free trade zones and the domestic market (to comply with Article 28 of the Law on Commerce, Clause 4 Article 3 of the Law on Foreign Trade Management, Clause 6 Article 4 of the Law on Customs, Clause 4 Article 26 of Decree No. 35/2022/ND-CP, and Clause 1 Article 4 of the Law on Export and Import Duties)

- In order to ensure uniformity of relevant laws and equality of policies on transaction of goods of the same nature, it is proposed that competent authorities consider annulling regulations on in-country export and import of goods processed for foreign traders in the Law on Commerce, the Law on Foreign Trade Management and their guiding Decrees because the processed goods are owned by the hirer (the foreign party) and sold in Vietnam’s market under sale contracts. This activity is not different from regulations of Point c Clause 1 Article 35 of Decree No. 08/2015/ND-CP.

The annulment of Article 35 of Decree No. 08/2015/ND-CP also means reviewing and annulling all relevant regulations of law on in-country export and import, such as: reviewing and amending the Law on Commerce and the Law on Foreign Trade Management to remove regulations on in-country export and import regarding goods processed under contracts with foreign traders; reviewing and amending the Law on Export and Import Duties, the Law on Value-added Tax regarding subjects of taxation, refund of tax on in-country exports and imports.

2. Proposed replacement of customs procedures for in-country exports and imports:

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(1) In case the goods processed for a foreign trader have not been sold by the foreign traders to organizations and individuals in Vietnam, the processor or the Vietnamese trader that buys the processed goods from the foreign trader and sells them to other traders in Vietnam shall conduct a trade transaction between two domestic enterprises; the processor shall repurpose the processed goods, pay import duties and other taxes similarly to imports.

(2) If the goods are manufactured from raw materials imported for manufacture of domestic exports on which import duties are have been exempted but delivered within Vietnam as assigned by the oversea organization or individual, it shall be considered transaction between two domestic enterprises; the enterprise that imported raw materials for manufacture of domestic exports shall repurpose the imported raw materials and fully pay the taxes thereon.

In the cases specified in (1) and (2), in order to collect corporate income tax on revenues from trade transactions in Vietnam, the foreign trader that is not present in Vietnam must pay tax by signing a contract with an agent in Vietnam.

(3) For purely commercial business: If the foreign trader that is not present in Vietnam shall sign an agent contract or use VAT invoices that specify the names and TINs of the foreign trader and the enterprise Vietnam appointed to receive the goods in Vietnam.

(*) Strengths

- Goods traded in Vietnam are managed properly;

- Import duties can be collected on goods processed and domestic exports after repurposing.

(*) Weaknesses

- It is necessary to change the management method of tax authorities and banking authorities in international payment.

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- It is not clear to refund tax if imported raw materials, supplies and components are exported in reality instead of consumption.

3. Proposed amendments to relevant laws:

The annulment of regulations on in-country export and import in Point Clause 1 Article 35 of Decree No. 08/2015/ND-CP also means reviewing and annulling all relevant regulations of law on in-country export and import, such as:

(2) Amending the Law on Commerce and the Law on Foreign Trade Management to remove regulations on in-country export and import of goods processed for foreign traders in order to ensure uniformity of law and equality of policies on transaction of goods of the same nature;

Amending the Law on Export and Import Duties to exclude in-country exports and imports from goods subject to export and import duties (Clause 3 Article 2);

(2) Proposed amendments to tax laws:

+ Regarding VAT: Annul regulations on VAT rates or VAT deduction/refund applicable to in-country exports and imports (Decree No. 209/2013/ND-CP prescribes that in-country exports are eligible to 0% VAT, VAT deduction, refund).

+ Regarding corporate income tax: Require foreign traders without commercial presence in Vietnam to pay foreign contractor withholding tax and corporate income tax via agents in Vietnam if they earn revenues in Vietnam.

+ Regarding personal income tax: Require foreign traders without commercial presence in Vietnam to pay personal income tax if they earn revenues in Vietnam.

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DRAFT AMENDMENTS TO ARTICLE 35 OF DECREE NO. 08/2015/ND-CP REGARDING IN-COUNTRY EXPORT AND IMPORT

Regulations of Article 35 of Decree No. 08/2015/ND-CP.

Proposed amendments

Reasons

Article 35. Customs procedures applied to in-country exports and imports

1. In-country exports and imports include:

a) Goods processed in Vietnam under contract manufacturing arrangements and sold by the foreign hirer to other organizations and individuals in Vietnam;

b) Goods traded between domestic enterprises and exporting and processing enterprises or enterprises in free trade zones;

c) Goods are traded between Vietnamese enterprises and foreign organizations and individuals without commercial presence in Vietnam and appointed by foreign traders to deliver/receive goods to/from other enterprises in Vietnam.

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1. Annulment of all regulations on in-country export and import in Article 35 of Decree No. 08/2015/ND-CP, meaning customs authorities will no longer carry out customs procedures for goods are traded between 02 Vietnamese traders appointed by foreign traders to deliver and receive goods within Vietnam.

Article 35. Customs procedures applied to in-country exports and imports

1. In-country exports and imports include:

a) Goods processed in Vietnam under contract manufacturing arrangements and sold by the foreign hirer to other organizations and individuals in Vietnam;

b) Goods traded between domestic enterprises and exporting and processing enterprises or enterprises in free trade zones;

c) Goods are traded between Vietnamese enterprises and foreign organizations and individuals without commercial presence in Vietnam and appointed by foreign traders to deliver/receive goods to/from other enterprises in Vietnam.

2. The Minister of Finance shall establish customs procedures applied to in-country exports and imports

2. The cases specified in Point a and Point b Clause 1 Article 35 of Decree No. 08/2015/ND-CP are regulated by corresponding Articles of Circular No. 38/2015/TT-BTC (amended by Circular No. 39/2018/TT-BTC) on inward processing (to comply with regulations of law on commerce and foreign trade management), export and import of goods between export processing enterprises, enterprises in free trade zones and the domestic market (to comply with Article 28 of the Law on Commerce, Clause 4 Article 3 of the Law on Foreign Trade Management, Clause 6 Article 4 of the Law on Customs, Clause 4 Article 26 of Decree No. 35/2022/ND-CP and Clause 1 Article 4 of the Law on Export and Import Duties).

3. Proposed replacement of customs procedures for in-country exports and imports:

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(1) In case the goods processed for a foreign trader have not been sold by the foreign traders to organizations and individuals in Vietnam, the processor or the Vietnamese trader that buys the processed goods from the foreign trader and sells them to other traders in Vietnam shall conduct a trade transaction between two domestic enterprises; the processor shall repurpose the processed goods, pay import duties and other taxes similarly to imports.

(2) If the goods are manufactured from raw materials imported for manufacture of domestic exports on which import duties are have been exempted but delivered within Vietnam as assigned by the oversea organization or individual, it shall be considered transaction between two domestic enterprises; the enterprise that imported raw materials for manufacture of domestic exports shall repurpose the imported raw materials and fully pay the taxes thereon.

In the cases specified in (1) and (2), in order to collect corporate income tax on revenues from trade transactions in Vietnam, the foreign trader that is not present in Vietnam must pay tax by signing a contract with an agent in Vietnam.

(3) For purely commercial business: If the foreign trader that is not present in Vietnam shall sign an agent contract or use VAT invoices that specify the names and TINs of the foreign trader and the enterprise Vietnam appointed to receive the goods in Vietnam.

(*) Strengths

- Goods traded in Vietnam are managed properly;

- Import duties can be collected on goods processed and domestic exports after repurposing.

(*) Weaknesses

- It is necessary to change the management method of tax authorities and banking authorities in international payment.

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- It is not clear to refund tax if imported raw materials, supplies and components are exported in reality instead of consumption.

- The 2005’s Law on Commerce only provides for in-country export and import of goods processed for foreign traders:

+ According to Article 181 of the Law on Commerce, hirers (processes) have the rights to “sell, destroy, donate or give as gifts processed products within the country, leased or lend machinery and equipments, raw materials, auxiliary materials, redundant supplies, faulty products and discarded materials according to agreements and provisions of law.”

+ According to Article 182 of the Law on Commerce, processors have the rights to “export the processed products, leased or borrowed machinery and equipment, raw materials, materials, redundant supplies, faulty products and discarded materials within the country under the authorization of the hirers (processes).”

- The 2018’s Law on Foreign Trade Management does not contain regulations on in-country export and import. Decree No. 69/2018/ND-CP elaborating the Law on Foreign Trade Management has regulations on in-country export and import applicable to goods processed for foreign traders. To be specific:

+ Point e Clause 1 Article 42: “The ordering party shall have rights to carry out in-country export of processed products; leased or borrowed machinery and equipment; oversupplied materials ; and scrap and waste according to agreements between involved parties, in accordance with regulations of law in force on management of export and import and fulfill tax liabilities and other financial obligations as per the law”.

+ Point e Clause 2 Article 42 on rights and obligations of the ordering party: “Carry out procedures for in-country export of processed products, leased or borrowed machinery and equipment, oversupplied materials, waste and scrap as authorized by the ordering party”.

In short, only the 2005’s the Law on Commerce and elaborating documents of the Law on Foreign Trade Management allow domestic processors to carry out certain in-country export and import activities (such as selling, destroying, donating, exporting); the 2001’s Law on Customs and other Laws do not have regulations on in-country export and import.

However, pursuant to the some Decrees and Circulars, in-country export and import have been regulated since 1998 and later documents are amended according to reality to facilitate trade in goods. Since 2015, regulations on in-country export and import have been more specific in the Government’s Decrees (such as Decree No. 08/2015/ND-CP, Decree No. 134/2016/ND-CP, Decree No. 209/2013/ND-CP, Decree No. 69/2018/ND-CP). Meanwhile, regulations of law on export and import duties specify that in-country export and import are taxable. When it comes to in-country export and import, there are discrepancies between trade laws and tariff laws.

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Those are the reasons for our proposal to annul Article 35 of Decree No. 08/2015/ND-CP.

However, the annulment of regulations on in-country export and import in Point Clause 1 Article 35 of Decree No. 08/2015/ND-CP also means reviewing and annulling all relevant regulations of law on in-country export and import, such as:

(1) Amending the Law on Commerce and the Law on Foreign Trade Management to remove regulations on in-country export and import of goods processed for foreign traders in order to ensure uniformity of law and equality of policies on transaction of goods of the same nature;

Amending the Law on Export and Import Duties to exclude in-country exports and imports from goods subject to export and import duties (Clause 3 Article 2);

(2) Proposed amendments to tax laws:

+ Regarding VAT: Annul regulations on VAT rates or VAT deduction/refund applicable to in-country exports and imports (Decree No. 209/2013/ND-CP prescribes that in-country exports are eligible to 0% VAT, VAT deduction, refund).

+ Regarding corporate income tax: Require foreign traders without commercial presence in Vietnam to pay foreign contractor withholding tax and corporate income tax via agents in Vietnam if they earn revenues in Vietnam.

+ Regarding personal income tax: Require foreign traders without commercial presence in Vietnam to pay personal income tax if they earn revenues in Vietnam.

(3) Regarding wire transfer: If wire transfer is made by using customs declarations, it should be replaced with payment via commercial contracts or sale invoices.

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We need your comments on:

- Relevant regulations that need amending (relevant units);

- How would tax policies change when the method for management of in-country exports and imports is changed as described above (General Department of Taxation, the Tax Policy Department, Export and Import Duty Department);

- [Tax-related contents in this case.