Nov 19, 2012

Vietnam - Export processing businesses’ sales to domestic market to be restricted

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VietNamNet Bridge – Export processing enterprises would have to have no more than 10 percent of turnover from the sales of their products to the domestic market if the draft decree on industrial zone and export processing zone management is approved.

Following a prosperous business period, Samsung Electronics Vietnam (SEV) earlier this year officially asked for the permission to operate as an export processing company instead of a domestic enterprise as currently.

SEV wants to change its operation mode simply because as an export processing enterprise, it would not have to pay the import tax for equipments and materials and VAT, according to Dau tu.

SEV’s export turnover has been increasing rapidly, estimated to reach 10 billion dollars by the end of the year.

Nokia, one of the most redoubtable rivals of Samsung, has also registered its mobile phone factory in Bac Ninh province as an export processing company.

Nokia Bac Ninh province, like SEV, plans to export 90-95 percent of their products.

Not only Nokia and Samsung, but more and more other foreign invested enterprises now attempt to turn into export processing enterprises to be able to enjoy preferences.

The preferences would be not only the tax incentives, but also the favorable conditions in following customs procedures. Customs agencies have been set up right in industrial zones of export processing zones in order to help enterprises shorten their time needed for administrative formalities.

Especially, a lot of export processing companies can get the permission to trade and import products from the domestic market, or sell their products to the Vietnamese market with no limitation in terms of quantities.

The current valid Decree No. 29, dated in 2008, stipulates that export processing enterprises are “the enterprises established and operating in export processing zones, or the enterprises which export all of their products made in the industrial zones or economic zones.”

However, the Decree No. 108 dated in 2008 says export processing enterprises can sell the products they make to the domestic market.

This means that only the enterprises which export 100 percent of their products can be called “Export processing enterprises,” but the door to the domestic market still has been opened to them.

According to Nguyen Xuan Chinh, Head of the Hanoi Industrial Zone Management board, very few export processing companies export 100 percent of their products.

Meanwhile, Thoi bao Kinh te Saigon has quoted a report by the Ministry of Industry and Trade as saying that the sales by export processing companies to the domestic market have been increasing.

The report showed that the companies not only sell finished products, but also materials and accessories that serve the domestic production.

So, what will Vietnam gain in return for the licenses granted to export processing enterprises and offered attractive tax incentives?

The Ministry of Planning and Investment (MPI) is compiling a draft decree which would restrict the sales by export processing companies to the domestic market.

Under the draft decree, export processing enterprises would be able to sell the volumes of products worth no more than 10 percent of their total turnover to the domestic market.

Vu Dai Thang, a senior official of the Economic Zone Management Department under MPI, said that though the State still can collect export tax on the enterprises’ exports to the domestic market. However, Vietnam would have to spend big money to “serve” export processing companies, especially in the issues relating to customs procedures.

Compiled by C. V

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