Vietnam Guidance on Import of Used Goods – Relaxation of Import Duties

for Finance Leasing Companies

DIFFICULTIES AS TO THE IMPORT OF USED GOODS AND RELAXATION ON IMPORT DUTY FOR

FINANCE LEASING COMPANIES IN VIETNAM –

OUTLOOK ON THE EUROPEAN UNION - VIETNAM FREE TRADE AGREEMENT (EVFTA)

Circular No. 23/2015/TT-BKHCN on promulgating the import of used machinery, equipment

and manufacture lines, issued by the Minister of Science and Technology on November 13 2015

(Circular 23) sets up conditions on the import of Used Equipment. As the conditions of

machinery under 10 years of age and in compliance with standards of safety, energy saving and

environment protection, were too strict for foreign projects, a list of exemptions approved by

competent authorities has been established. Circular 23 needs to be clarified concerning the

criteria – of exemption, of compliance with the National Technical Regulations and National

Standards – which Used Equipment imported in Vietnam must satisfy.

Three recommendations can be articulated: if the Used Equipment is imported for new or

expanded investment projects, the Circular should define precisely the competent authority to

issue the certification list and guide the import procedure. Moreover, the Ministry of Science and

Technology should promulgate more detailed provisions on safety and energy saving and

environment protection. Finally, officials in charge of examination of standards should be

dispatched prior to the shipment.

Part 1 of Official Letter 504/TXNK-CST issued by the Import-Export Department of Customs

General Department on March 22 2016 (Letter 504) stated that Decree 39/2014/ND-CP of the

Government dated 7 may 2014 was not applicable to goods imported by a finance leasing

company to an export processing enterprise (EPE). This means that a declaration and the

payment of the import duties in compliance with the laws are needed. Nevertheless, Letter 504

points out that the procedure is different from the one to create fixed assets for the EPE. The EPE

bears the duty to declare and pay for the import in order to use the finance leasing assets, even

though it is already included in the leasing contract and that it should be exempted of it.

An exemption of import duty for the leased equipment imported by an EPE is necessary, as it

was stated in the previous Letter 16587/BTC-CTCHQ of the General Customs Department on

November 29 2013. Official Letter 4463/BTC-TCHQ issued on April 4 2016 recognizes the

effectiveness of Letter 16587 in part, in spite of Letter 504, but its coverage is limited.

In case of agreements to purchase the machinery at the end of the finance leasing, the equipment

becomes a fixed asset of the lessee. It is easier to raise the import duty on goods imported to

create fixed assets to the EPE. If the procedure to import leasing goods is carried by an EPE, it

should be exempted through a Letter amending Letter 504.

The taxes on assets imported for leasing should be equal to those paid when carried by the EPE

itself. The applicable Decree 39/2014/ND-CP does not have specific regulations for finance

leasing assets contrary to the previous Decree 16/2001/ND-CP. It should be reintroduced so a

more practical regulation on import of goods under finance leasing contract prevails.

Another issue deals with the payment of the taxes related to Incoterms’ conditions on import of

goods into Vietnam’s territory. Under Circular 103/2014/TT-BTC guiding the tax liability of

foreign entity doing business in Vietnam, a Foreign Contractor Tax (FCT) including Value

Added Tax (VAT) on input and output and Corporate Income Tax (CIT) must be applied.

Pursuant to the circular, if a foreign entity sells goods under Incoterms rules, it is responsible for

any risk relating to goods delivery in Vietnam. Nonetheless, the transportation and delivery of

goods is mostly carried out by transportation agencies. The foreign entities do not benefit from

transportation but must pay the CIT from the goods and services receivable by the buyer.

Moreover, in case of import with a delivery duty paid (DDP) condition, the buyer will pay the

VAT output when it should be at the expense of the seller. There may be some difficulties for the

buyer to be refunded.

The calculation of the FCT should be reviewed to ensure the true purpose of the FCT : the

responsibility of the seller at any risk until the goods are delivered. Besides, regulations for the

deduction of VAT import for the seller under DDP conditions should be considered.

One of the concern deals with the restriction on import of used equipment. The provisions of

Circular 23 are explicit: machinery over 10 years cannot be imported, unless it constitutes an

exemption listed by a competent authority. Through this regulation, importers must provide

certificate of the age and manufacturing standard of Used Equipment, facing bigger costs and

complications since pieces of Used Equipment can be of different ages.

Besides, this regulation prevents enterprises from repairing their machinery and is not realistic

regarding external factors such as: quality of the equipment, time of use, maintenance, repairing

conditions etc. A newer but lower quality equipment would be preferred leading to bigger costs

of repair, energy and finally to a higher impact on the environment.

Two cases of exemption are stipulated in Circular 23 to import Used Machinery over 10 years of

age. The first one is the equipment belonging to an investment project with a decision of the

competent authority on investment policies plus an investment registration certificate issued in

accordance with the Law on Investment. The second one occurs when an enterprise has to import

a piece of machinery older than 10 years, to sustain its manufacturing or business operation. It

needs then the cooperation of the Ministry of Science and Technology to consider the firm’s

proposal and document. More details to implement these procedures should be given.

Outlook on the EVFTA

The FTA is expected to enter into force on January 2018. This agreement will eliminate almost

all tariff lines (99%) however, a few steps should be planned in advance for its implementation.

For the first six years, 65% of the import duties on EU exports will be liberalized, the remaining

duties being eliminated over the next ten years. For a few sensitive products, EU duties will be

eliminated over a seven-year period.

These provisions prove the Vietnam’s tendency to open to new markets with deeper integration.

Thus Vietnam will attract more quality investment from the EU and this will probably impact its

legislation and regulations, such as the regulation on import of Used Equipment for instance.

Indeed, the cooperation and the proximity with the EU will probably bring closer the Vietnamese

and the European Laws.

Most important issues

- With the regulation on Used Equipment, investors may hesitate to invest because of the

higher costs induced.

- The taxation deriving from this regulation remains unclear and not quite appropriate.

- The relevant regulations must be amended as the EVFTA will enter into force.

***

Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you

have any questions or want to know more details on the above. Oliver Massmann is the General

Director of Duane Morris Vietnam LLC.

Thank you!