Vietnam has growing fast
due to the opening policy of the government, and has been signing a number of
free trade agreements with ASEAN, China, Korea, Japan, India, Australia, New
Zealand, Chile, Russia, Belarus… with effectiveness. The expecting Europe Vietnam
Free Trade Agreement has been signed but not yet effective at this
moment. Having said that, Vietnam has become a destination for foreign
investors to set up company and factory in Vietnam to undertake manufacturing
for export and enjoy tax preference because of Vietnam origin.
The applicant wishing to
be granted the Certificate of Origin (“C/O”) needs to register the trader
profile under Vietnam regulations before submitting the dossier applying for
C/O. There are steps to be followed at the State authorities to check the
trader profile, its legal registration in Vietnam, manufacturing facilities
that produce the goods which are subject of C/O. Further, additional
information and proof will be required for verification at Vietnam State
Authorities including the declaration of origin provided by manufacturer or
supplier of originating materials or locally produced originating goods if such
material is used in subsequent stage to produce another good, good
manufacturing process. Not only checking the documents, the authority
could undertake an inspection visit to the manufacturing facility of trader and
request the applicant to submit evidence of customs declaration of materials
imported and used in production of exported goods (if imported materials are
used in the production process); a sale contract or VAT invoice of locally
purchased materials (if locally purchased materials are used in the production
process) and other documents as deemed necessary. If the documents, the
process, and the conditions are met, the C/O will be issued.
In general, an
originating good is a good which is originating in a country, group of
countries, or territory where the last processing operation is performed and
substantially transforms such good. To qualify for non-preferential
goods, there will be required of:
1.“Change in tariff
classification” (hereinafter referred to as CTC): means a change in two-digit, four-digit, or
six-digit HS heading of a good as compared with the HS heading of
non-originating materials (including imported materials and materials of
undetermined origin) used for the production of such good.
2.“Local value content”
(hereinafter referred to as LVC)
The applicant for C/O
shall choose either direct formula or indirect formula at their own discretion
to calculate LVC and apply the chosen formula throughout such financial year.
The verification and identification of LVC criteria for exported goods of
Vietnam shall be based on the aforesaid formula.
In order to calculate
LVC according to the formula, value of materials and cost incurred in the
production process of goods shall be determined as follows:
1. a) “Value of materials originating in a country,
group of countries, or territory of production” is inclusive of CIF value of
materials acquired or locally produced that are originating in a country, group
of countries, or territory; direct labor cost, overhead cost, other costs and
profits.
2. b) “Value of materials originating in a country,
group of countries, or territory of production” is CIF value of materials
imported that are originating in a country, group of countries, or territory;
or the earliest ascertained price stated in the VAT invoices associated with
materials of unidentifiable origin used for the production, processing of
ultimate product.
3. c) “FOB” is the value stated in the export
contract which is calculated as follows: “FOB = Ex-workshop price + other
costs”.
– “Ex-workshop price” =
Production cost + profit;
– “Production cost” =
material cost + direct labor cost + overhead cost;
– “Material cost” covers
expenses associated with purchase of materials, their cost of freight and
insurance;
– “Direct labor cost”
covers wages, bonuses and other welfare amounts related to the production
process;
– “Overhead cost”
covers: Overhead cost relates to production process (insurance for buildings,
factory rents and hire-purchase cost, depreciation of buildings, repairs,
taxes, collateral interests); hire-purchase cost and interests of factories and
equipment; factory security; insurance (for factories and equipments used in
the production process); expenses for essentials for production process
(energy, electricity and other essentials to be used directly in the production
process); research, development, design and workmanship; pressing molds,
moulds, devices and amortization, maintenance and repairs of factories and
equipment; patent royalties (in respect of patented machines or use of patented
machines in production process or goods production licenses); testing of
materials and goods; storage in factories; waste treatment; cost factors in
calculating value of materials, such as port-related cost, good clearance and
import duties on taxable components;
– “Other costs” are the
costs incurred in placing the good in the ship or other means of transport for
export including, but not limited to, domestic transport costs, storage and warehousing,
port handling, brokerage fees, service charges and relevant costs incurred when
loading goods onboard ships for export.
If the goods that do not
qualify to be issued C/O in Vietnam, it can not be granted C/O. Any
violations of laws will be punished by the government.
It appears that many
manufacturers are in the process to relocate significant manufacturing process
to Vietnam to enjoy “Made-in-Vietnam”.
In the meantime,
alarmingly, there are equal number of other manufactures whom wish to only transfer
a small portion of manufacturing process to Vietnam i.e re-packaging,
re-labeling which does not meed to qualifications above.
It is important that
Vietnam authorities to alert and constantly monitor the C/O application process
to ensure all responsible departments, officers to follow the rule as set by
law to evaluate the C/O application documents, and proof given by trader,
manufacturer carefully.
By doing that, Vietnam
government will encourage the “real” transition of manufacturing from China to
Vietnam, therefore increasing FDI, boosting the economy through encouraging
manufacturing sectors.
By urging customs
authority to investigate and punish violators, the Vietnam government is
sending strong message to US that Vietnam is not standing to support unfair
trade, and in the meantime take advantage of the situation to attract quality
manufacturing projects into Vietnam. Therefore, more crackdowns are expected.
ANT Lawyers, as a lawfirm in international trade has been actively providing legal services through
advisory to manufacturers on the C/O matters and assisting a number of investor
to set up manufacturing company, review leasing contract at industrial zone as
part of the process to transition manufacturing into Vietnam to seriously
invest and do business taking advantage of origin, labour, opening policy of
Vietnam government.
