Establishment of a wholly foreign invested export processing enterprise in Vietnam

If foreign investors enquire our supports for establishment of a wholly foreign invested Export Processing Enterprise in Vietnam for manufacturing goods, therefore, we (S&B Law) are grateful to set our legal services proposal for your review and consideration as follows:

1.       LAW ON EXPORT PROCESSING ENTERPRISES

It is our understanding that you are now considering possibilities of setting up a wholly foreign invested Export Processing Enterprise in Vietnam for manufacturing goods.

Export Processing Enterprises (EPE) under Vietnamese law, are enterprises that are established and operate in an export processing zone or exports all its products and operates in an industrial zone or economic zone. Hereinafter are our remarks on legal status of EPE under Vietnam Law:

 EPE shall enjoy regulations applied to non-tariff zone under Vietnam Law, i.e.(i) Goods from non-tariff zones to abroad and goods imported from abroad into nontariff zones and only used in non-tariff areas, goods transported from tariff areas to other non-tariff zones shall be subjected to export duties and import duties exemption and the inspection and supervision of the customs regulations Vietnam customs laws; (ii) Customs fees must be paid (if any); (iii) Goods and services from non-tariff zones exported to abroad, goods and services transacted between organizations and individuals in non-tariff areas (including goods and services by organizations , foreign individuals provided to the tariff areas) are not subject to VAT;

EPE’s territory is isolated from the outside by fence and door to ensure the conditions for the control of customs and the relative authorities Goods purchase and sale relations between export-processing enterprises and the domestic market are import and export relations.

Export-processing enterprises may directly carry out import and export procedures at customs offices but are not required to carry out procedures for approval of import plans at management boards of export-processing zones, industrial parks, hi-tech parks, economic zones or trade zones.

Goods which are purchased and sold between export-processing enterprises and the domestic market must not be on the list of goods banned from import or export.

Stationery or goods purchased from the domestic market for day-to-day activities of export-processing zones are not required to go through customs procedures but their purchase shall be registered with management boards of export-processing zones, industrial parks, hi-tech parks, economic zones or trade zones.

Goods imported by domestic enterprises for processing for EPE are exempt from import duty (including those allowed to be destroyed in Vietnam under law after liquidation of processing contracts) and processed products exported back to EPE are exempt from export duty.

Goods exported to EPE for processing for domestic are exempt from export duty and when processed products are re-imported, they are exempt from import duty on the value of goods exported to EPE for processing under contracts.

In line above information, in case foreign investors wish to setup 100% Foreign Invested EPE in Vietnam, they must consider two following options:

(i)     Setting up a 100% Foreign Invested EPE in Export Processing Zones in Vietnam. With this option, the 100% Foreign Invested EPE can sell products to domestic enterprises. However, goods sold by the 100% Foreign Invested EPEto the domestic market must not be on the list of goods banned from import or export and it shall be subjected to Imported Duty;

(ii)   Setting up a 100% Foreign Invested EPE in Industrial Zones in Vietnam and exports all its products. This option shall prohibit the 100% Foreign Invested EPE to sell products to domestic enterprises.

2.       SETTING UP FOREIGN INVESTED ENTERPRISE

The establishment of the Foreign Invested Enterprise including 100% Foreign Invested EPE requires an Investment Certificate from the licensing authority. Depending upon the location of the Foreign Invested Enterprise, the licensing authority may be the Provincial People’s Committee (for companies located outside industrial or export processing zones) or the provincial Industrial and Export Processing Zones Management Authority (for companies located in industrial or export processing zones).

We would like to clarify that the procedure for establishment of the Foreign Invested Enterprise in Vietnam generally takes a rather long time in comparison with other countries in the region. Our practical experiences show that although the total time for establishment of the Foreign Invested Enterprise as stipulated under Vietnam Investment Law 2005 is only 20 - 45 days, the actual process may take a longer time due to that the competent authority must consult other relevant offices to evaluate the investment project.

Under Vietnam Law on Investment, for incorporating the Foreign Invested Enterprise, you are required to propose an Investment Project initially to obtain Investment certificate. The relevant licensing authorities shall evaluate the legitimacy and the feasibility of such Investment Project to determine on granting of the Investment Certificate on the following basis:

a.     the legal framework including Vietnam’s WTO Commitments, Vietnam Investment Law, Vietnam Enterprise Law, Regulations applicable to specific industries as well as the master economic development plan of the city or province that the Foreign Invested Enterprise shall register its head-office.

b.     Your financial ability, investment capital to put in the Investment Project, facilities and human resources serving the implementation of such investment project in Vietnam.

c.     Operation of the Foreign Invested Enterprise should be in line with master plan of the City.

The roadmap for the incorporation of the Foreign Invested Enterprise for trading activities can be described in following steps as follows:

1.      Obtaining In-principle Approval:  Before involving with licensing procedures, you must work with appropriate competent authorities in Vietnam to obtain the In-principle Approval for your investment project. Accordingly, the Competent Authority shall in principle to lease a land lot to you for operation of the Foreign Invested Enterprises upon established. We shall assist you to work with the competent authorities in Vietnam in this matter. Timing for this phase shall very much depend on the proposed place for incorporation of the Foreign Invested Enterprise. If you wish to locate the Foreign Invested Enterprise in Industrial Zones or Export Processing Zones, it shall take about 0102 weeks to complete.

2.      Preparing the application dossier: We shall collect necessary information and documents from you. Upon receipt of necessary information and documents from you, we shall translate documents from English into Vietnamese and prepare the application dossier under the standard forms. The initial drafted application dossier shall be sent to you for your comments. Then, after updating the application dossier based on your comments, we shall obtain the preliminary comments from the competent authority and send the finalized application dossiers for you to sign and seal. We anticipate that this phase shall be completed within 05-07 working days.

3.      Submission of application dossier:Within 02 working days from receipt of duly signed and sealed application dossier, we shall submit the application dossier to the competent authority. It shall take about 45 workings days from submission of application dossier to the competent authority for the provincial licensing authority to grant the Investment Certificate. In some case the process can be longer as it takes time to consult relevant Ministries such as Ministry of Industry and Trade, Ministry of Planning and Investment, Ministry of Finance and Ministry of Transportation.

4.      Post licensing:Within 13 working days we shall complete the post licensing procedures such as publishing the Foreign Invested Enterprise in News Paper, obtaining seal and tax code registration.

3.     SCOPE OF WORKS