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What is an export processing zone? Some incentives for businesses in the export processing zone
Export processing zones play an important role in promoting Vietnam’s economic development. This is a concentrated industrial zone specializing in the production of export goods, providing services for production and export activities. Enterprises operating in export processing zones will enjoy certain incentives to encourage the development of production activities.
To better understand the concept of export processing zones and the incentives for businesses in export processing zones, please join Siglaw to learn about some regulations on this issue right below.
What is an export processing zone?
The concept of export processing zones is stipulated in Clause 15, Article 3 of the Investment Law 2020 and more specifically in Decree No. 35/2022/ND-CP dated May 28, 2022, regulating the management of industrial parks and economic zones. Accordingly, an export processing zone is an industrial park specializing in the production of export goods, providing services for the production of export goods and export activities. An export processing zone is separated from the outside area according to the regulations applicable to non-tariff zones stipulated in the law on export and import taxes.
Tax incentives for enterprises in export processing zones
According to Clauses 20 and 21, Article 2 of Decree No. 35/2022/ND-CP, an export processing enterprise is an enterprise that conducts export processing activities, including activities specializing in the production of export goods, providing services for the production of export goods, and export activities in export processing zones, industrial parks, and economic zones.
Pursuant to the provisions of Clause 2, Article 16 and Clause 1, Article 15 of the Investment Law 2020, enterprises operating in export processing zones will enjoy investment incentives and tax policies for non-tariff zones from the time the investment objective is to establish an export processing enterprise.
In addition, according to the provisions of Section 55 of Appendix III issued with Decree No. 31/2021/ND-CP (Appendix III issued with Decree No. 31/2021/ND-CP replaces the Appendix issued with Decree No. 218/2013/ND-CP), export processing zones are classified into the list of areas with difficult socio-economic conditions that are entitled to investment incentives.
Henceforth, enterprises operating in export processing zones will enjoy the following incentives:
Corporate income tax incentives
Enterprises operating in export processing zones will enjoy corporate income tax incentives according to Point a, Clause 4, Article 19 of Circular No. 78/2014/TT-BTC. Accordingly, a preferential tax rate of 20% will be applied for a period of 10 years.
Moreover, according to Clause b, Article 20 of Circular No. 78/2014/TT-BTC, enterprises operating in export processing zones are also exempted from corporate income tax for the first 4 years and enjoy a 50% reduction in tax payable for the next 9 years for income from implementing new investment projects.
Incentives on land use fees
According to Article 19 of Decree 46/2014/ND-CP (amended and supplemented by Clause 6, Article 3 of Decree No. 135/2016/ND-CP), enterprises operating in export processing zones will enjoy incentives on land use fees as follows:
- Firstly, exempted from land rent and water surface rent for the entire lease term for investment projects in building housing for workers for which the government leases land or subleases land from investors to build and operate infrastructure to implement the planning approved by competent state authorities. In this case, investors are not allowed to include land rent costs in the rental price (according to Point b, Clause 1, Article 19 of Decree No. 46/2014/ND-CP, amended by Clause 6, Article 3 of Decree No. 135/2016/ND-CP).
- Secondly, enterprises operating in export processing zones are exempted from land rent and water surface rent during the basic construction period according to projects approved by competent authorities, but not exceeding 03 years from the date of the decision on land rent and water surface rent (according to Clause 2, Article 19 of Decree No. 46/2014/ND-CP).
- Thirdly, enterprises operating in export processing zones are exempted from land rent and water surface rent after the period of exemption from land rent and water surface rent for the basic construction period with a term of 07 years (according to Point b, Clause 3, Article 19 of Decree No. 46/2014/ND-CP).
Incentives on export and import taxes
At Point c, Clause 4, Article 2 of the Law on Export and Import Tax 2016, it stipulates the types of goods that are not subject to tax, including:
- Business goods transferred from one non-tariff zone to another.
- Business goods imported from abroad into the non-tariff zone and used only for production and service in the non-tariff zone.
- Types of goods that businesses export from the non-tariff zone to foreign countries.
According to this regulation, because the export processing enterprise is located in the non-tariff zone, it is not subject to export and import tax on goods when carrying out export and import activities in the above cases.
Value Added Tax Incentives
According to Clause 20, Article 4 of Circular No. 219/2013/TT-BTC, goods in transit through the territory of Vietnam; goods temporarily imported and re-exported; goods temporarily exported and re-imported; raw materials and supplies imported for the production and processing of export goods under production and processing contracts signed with foreign parties are not subject to value added tax (VAT).
Therefore, in the case of export processing enterprises buying and selling, exchanging goods with each other, or exchanging goods outside the non-tariff zone, they will not be subject to value added tax (because the relationship of buying and selling goods between these zones and the outside is an export and import relationship).
In addition, export processing enterprises can enjoy a tax rate of 0% if they fall under the case prescribed in Clause 1, Article 9 of Circular No. 219/2013/TT-BTC:
“…
- 0% tax rate: applies to exported goods and services; construction and installation activities abroad and in duty-free zones; international transportation; goods and services not subject to VAT when exported, except for cases where the 0% tax rate is not applicable as guided in Clause 3 of this Article.
…”
Accordingly, enterprises selling goods to enterprises in export processing zones are subject to a tax rate of 0%. However, to be subject to a tax rate of 0%, enterprises selling goods to export processing zones must ensure certain other conditions as prescribed by law
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