Update on the on-spot export and import issue - Government weighs Business proposals

Regulations governing XNKTC have significantly contributed to the formation and robust development of production-export chains in Vietnam. They have also spurred the emergence of a supporting industry ecosystem around key manufacturing sectors such as textiles, footwear, and electronics. This has created a tightly linked production ecosystem and minimized delivery times. Furthermore, the mechanism allows tax incentives for export production to be applied throughout the entire supply chain, thereby optimizing overall production costs and enhancing the competitiveness of Vietnamese exports, particularly in industries with low profit margins such as textiles, footwear, and electronics. This is a crucial advantage that helps Vietnam solidify its position in the global supply chain. 
 

2015 marked a significant step forward in refining the legal framework for the on-spot import-export activities when Decree 08/2015/ND-CP, guiding the implementation of the Customs Law, clearly defined three scenarios in which goods can be delivered and received through the onsite import-export procedure. These provisions are detailed in Article 35 of the Decree: 

• Goods processed in Vietnam that are ordered by foreign organizations or individuals to be sold to organizations or individuals in Vietnam; 
• Goods traded between domestic enterprises and processing enterprises, enterprises in non-tariff zones; 
• Goods traded between Vietnamese enterprises and foreign organizations or individuals without a presence in Vietnam, where the foreign trader designates another enterprise in Vietnam to deliver or receive the goods. 

In practice, Customs procedures for the on-spot import & export activities as designated by foreign traders have been flexibly applied by the Customs and the business community for many years. 

- On-spot import & export model - 

 However, from mid-2022, the Customs began tightening the implementation of this procedure due to concerns about inconsistencies between the actual customs procedures and current legal regulations. At the same time, state management agencies have highlighted that the content of regulations on on-spot export and import has not been specifically regulated at the Law level As a result, on-the-spot import-export procedures were virtually stalled in practice, even though the legal framework had not been officially adjusted. The main reason comes from the difficulty in determining whether foreign traders participating in the transaction chain had a commercial presence in Vietnam or not - a key factor determining the validity of on-spot export and import transactions under current regulations.

While awaiting a unified adjustment plan from the Government and relevant ministries and agencies, customs authorities temporarily instructed businesses to use bonded warehouses as an alternative solution. Accordingly, instead of being delivered directly within the country as before, goods must be transshipped through a bonded warehouse before reaching the recipient in Vietnam as designated by the foreign trader. 

This solution not only significantly increases logistics costs and prolongs delivery times, but also directly affects the competitiveness of Vietnamese exports, especially in low-margin industries such as textiles and footwear. 

At the end of 2024, based on several agencies’ opinions, the Ministry of Finance and the General Department of Customs proposed to completely abolish the regulations on XNKTC, based on the view that direct domestic delivery are essentially domestic sales transactions. However, this interpretation has created deep concerns because it goes against the common interests of the business community. Treating this transaction as a domestic one ignores the crucial coordinating role of foreign traders – the core element in forming the satellite supply chains we have witnessed in practice. 

If this problem is not resolved, the business community and manufacturing plants in Vietnam will face serious consequences, specifically:

• No longer being entitled to a 0% VAT rate on sales revenue and being unable to apply for VAT refunds.
• Being subject to retroactive application of regulations, leading to the retroactive collection of VAT deemed underpaid or over-refunded in the entire past 

In fact, the Tax Authority has expressed a clear view on applying this retroactive collection.

Even in the case of transiting goods through bonded warehouses as temporarily proposed by the Customs authority, the issue of determining and applying VAT rates also encounters difficulties. In response to the Official Dispatch No.1872/BTC-TCT responding to the People's Committee of Dong Nai Province, the General Department of Taxation has clearly stated its view that selling goods to foreign traders and delivering goods to a third party (Vietnamese enterprises) through bonded warehouses, does not meet the conditions of exported goods. These transactions do not qualify as goods sold to organizations and individuals abroad, nor as goods consumed outside Vietnam, or sold to organizations and individuals in non-tariff zones and consumed in those zones. Therefore, this transaction is not subject to the 0% VAT rate for export revenue and is not eligible for VAT refund incentives for exported goods. 

The domestic and foreign business community is extremely concerned about this issue. Abolishing a mechanism that has existed for 26 years and brought enormous benefits simply because this mechanism is not regulated at the law level is very difficult to understand and accept for the business community, especially for foreign-invested enterprises. 

- Former Deputy Minister of Industry and Trade, economic experts and leaders of VCCI, EuroCham, VITAS, LEFASO, VEIA were present at the Forvis Mazars office to discuss this topic - 

Therefore, the Business Associations have jointly proposed the following to the Government:

In the short term: The Associations propose to maintain the current regulations on the on-spot import and export model, while expanding the scope of application to: (1) all foreign traders, regardless of whether or not they have a presence in Vietnam; and (2) all types of transactions, not limited to buying and selling or processing (leasing, subleasing, onward processing, buying for processing, etc.). 

 In the long term: Amend the Law to officially incorporate the concept and definition of the on-spot export and import model, as well as cases where the goods are allowed to be delivered locally in Vietnam under on-spot export and import procedures. 

Or

Only replace the on-spot export and import mechanism when ensuring a new mechanism preserves the advantages and benefits of the current system 

And after much effort from the business community, as well as the understanding of the Prime Minister, Deputy Prime Ministers, and Ministries, along with Vietnam's high political determination in reforming the investment and business environment, the Ministry of Finance has included the content of on-the-spot import-export in the draft revised Customs Law, expected to be passed in May 2025 at the National Assembly. 

The current draft of the new Law is as follows:

Article 47a is supplemented as follows:

"Article 47a. Regulations on customs inspection and supervision of goods delivered and received through the on-spot procedures:

1. Goods delivered and received through the on-spot procedures are goods delivered or received in Vietnam as designated by foreign traders under purchase, sale, processing or lease-borrowing contracts between Vietnamese enterprises and foreign traders.

2. Customs procedure and supervision are required for goods delivered and received through the on-spot procedures .

3. The Government shall detail this Article. 

Thus, the draft has reflected all the recommendations of the business community on this issue. We will continue to monitor and update the latest information on this topic as soon as there are new developments. 

- Mr. Nguyen Hai Minh, Chairman of Forvis Mazars Vietnam and Vice Chairman of Eurocham, proposed at the seminar with Prime Minister Pham Minh Chinh - 

Mr. Nguyen Hai Minh, Deputy General Director of Forvis Mazars Vietnam represented Eurocham to meet with leaders of the Ministry of Industry and Trade, General Department of Customs, VCCI, VITAS, LEFASO, VEIA at the EuroCham conference