Vietnam is emerging as a pivotal global manufacturing hub, attracting foreign investment due to its strategic location, dynamic economy, and supportive regulatory framework. One particularly appealing investment avenue for foreign companies is establishing an Export Processing Enterprise (EPE). This article provides a brief overview of the legal requirements, incentives, and compliance aspects of operating an EPE in Vietnam.
- What is an EPE?
- Sectoral Focus of EPEs
- Conditions for an EPE
- Procedures to establish an EPE
- Incentives for EPEs
- Potential Challenges for EPEs
What is an EPE?
Pursuant to Article 2.20 and 2.21 of Decree 35/2022/NĐ-CP stipulating about the management of industrial zones and economic zones, an EPE is a type of enterprise established within export processing zones (EPZs), industrial zones or economic zones in Vietnam. EPEs mainly produce goods for export and benefit from specific tax and customs incentives aimed at promoting global trade. EPEs are structurally distinct and often enjoy a range of preferential treatments regarding customs duties, import-export regulations, and tax incentives. EPEs in EPZs also benefit from their proximity to seaports and airports, enhancing export efficiency. The current legal framework has not prescribed for the cases to establish an EPE outside an EPZ, an industrial zone or an economic zone.
Sectoral Focus of EPEs
Vietnam’s economic development is significantly attributable to the country’s diverse and dynamic exporting industries. Below are some key Vietnamese exporting sectors:
- Fisheries: Vietnam is among the top countries globally in producing and exporting seafood like shrimp, catfish, Basa fish, and clams.
- Agricultural products: Vietnam exports agricultural goods such as coffee, pepper, rice, cocoa, and coconut to numerous countries worldwide.
- Electronics: Vietnam is increasingly recognized as a reliable partner in manufacturing and exporting electronic items such as smartphones and tablets.
- Textiles and Garment: Products from the textile and garment industry account for 12% of Vietnam’s export cargo volume. This sector has long been a staple of Vietnam’s exports.
- Footwear: This category represents 7% of the total export volume annually. It includes woven footwear, rubber footwear, waterproof footwear, and footwear components, etc.
Conditions for an EPE
An enterprise must satisfy the following conditions to be qualified as an EPE:
- Must be separated from the outside territory by a fence system, with gates and doors
- Must satisfy the conditions for customs inspection and supervision as prescribed Decree No. 18/2021/ND-CP (Decree 18), such as fences, survellient cameras 24/7 and import goods management software.
- Must focus on manufacturing goods primarily for export; service-oriented businesses may not qualify.
- Must follow Vietnam’s varying foreign investment regulations, labor laws, legal restrictions, environmental protection regulations and sustainability standards.
- If an EPE is established in an industrial zone, 100% of goods produced within an EPE must be designated for export. EPEs can only sell to the local market if they are established in EPZs.
Procedures to establish an EPE
Setting up an EPE in Vietnam involves a number of important steps:
- Step 1: To apply for an Investment Registration Certificate (“IRC”) as defined by S.11 of Art.3 (Law of Investment), or Investment Approval Decision or EPE Confirmation Certificate at the investment authority.
- Step 2: To apply for an Enterprise Registration Certificate (“ERC”) at enterprise registration authority with The Business Registration Office of the province where the enterprise is located. This can be done online via National Business Registration Portal.
- Step 3: To apply for Certification of Eligibility for Export Processing Enterprises from The Customs Authority.
- Step 4: To obtain an Environment License with a competent authority as specified in Art.41 of the Law on Environmental Protection 2020 if the factory emits or generates waste requiring treatment before release into the environment.
- Step 5: To apply for relevant product-specific permits as needed.
- Step 3: Before official operation, to apply for confirmation of the customs authority on the satisfaction of customs inspection and supervision conditions.
Companies receiving an IRC have one year to become an EPE company. If they don’t qualify within that timeframe, their status will automatically switch to non-EPE.
Incentives for EPEs
In order to incentivize foreign investment in export-oriented businesses, Vietnam offers a range of investment incentives for EPEs, including:
- Tax Incentives: EPEs often enjoy corporate income tax (CIT) exemptions or reductions, import duty exemptions on raw materials, and export tax incentives, Value added tax (VAT) exemptions.
- Customs Incentives: Simplified customs procedures, duty-free imports of machinery, equipment, and raw materials, Value added tax (VAT) exemptions, and export tax incentives.
- Land Use Benefits: Preferential land rental rates, exemptions, or reductions for specified periods.
- Regulatory Simplifications: Streamlined regulatory compliance processes for operational ease.
Potential Challenges for EPEs
EPEs might encounter various challenges while operating in the dynamic business environment of Vietnam and exporting nations. They include:
- Economic and political situation of exporting countries.
- Competition with domestic and international enterprises in the same industry.
- Market price fluctuations.
- Requirements for high technical standards and product quality from the market.
- Political instability and security issues in exporting countries.
- Shortage of high-quality and high-technical labor force.
These challenges require EPEs to continuously adapt and develop, thereby overcoming difficulties and guaranteeing sustainable growth in the internation market.
Vietnam offers immense potential for establishing an EPE, backed by a favorable regulatory environment and numerous incentives designed to promote foreign investment. By leveraging the benefits available to EPEs, investors can capitalize on Vietnam’s expanding role in global trade, driving business growth and success in the international market.
For additional support regarding the alterations and strategies to navigate the evolving realm of international taxation, do not hesitate to contact us.
