Borrowed Machinery Imported into an Export Processing Enterprise Damaged During Borrowing: How Is It Handled?

Where borrowed machinery imported into an export processing enterprise is damaged during the borrowing period, how is it handled?

Where borrowed machinery imported into an export processing enterprise is damaged during the borrowing period, point a, Clause 9, Article 16 of the Law on Export Tax and Import Tax 2016 provides as follows:

Tax exemption

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9. Goods temporarily imported for re-export or temporarily exported for re-import within a certain time limit, including:

a) Goods temporarily imported for re-export or temporarily exported for re-import to organize or participate in fairs, exhibitions, product introductions, sports, cultural or artistic events or other events; machinery and equipment temporarily imported for re-export for testing and product research and development; machinery, equipment and professional tools temporarily imported for re-export or temporarily exported for re-import to serve work within a certain time limit or to serve processing for foreign traders, except for machinery, equipment, tools and means of transport of organizations and individuals permitted to be temporarily imported for re-export to implement investment projects, construction, project installation and to serve production;

And under Clause 1, Article 21 of Circular 38/2015/TT-BTC, as amended by Clause 10, Article 1 of Circular 39/2018/TT-BTC, as follows:

Declaration of change of use purpose, conversion to domestic consumption

1. Implementation principles

a) Exported or imported goods converted to domestic consumption or changing use purpose shall be implemented in accordance with Clause 5, Article 25 of Decree No. 08/2015/ND-CP as amended and supplemented in Clause 12, Article 1 of Decree No. 59/2018/ND-CP;

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d) For goods changing use purpose or converted to domestic consumption, the taxpayer must declare and fully pay taxes and fines (if any) as prescribed.

Accordingly, this case also depends on the enterprise’s handling direction.

If machinery is temporarily imported to serve work within a certain time limit or to serve processing for foreign traders, it is only exempt from tax when the enterprise re-exports the machinery. Here, if the machinery is damaged and is still re-exported (repaired or not), it remains exempt from tax.

If the machinery is damaged, is handled in Vietnam and is no longer re-exported, the import type must be changed and taxes must be fully paid (if any).

May an export processing enterprise establish a branch?

Whether an export processing enterprise may establish a branch is based on Clause 7, Article 26 of Decree 35/2022/ND-CP as follows:

Specific regulations applicable to export processing zones and export processing enterprises

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7. Export processing enterprises may establish branches under investment law and enterprise law to carry out export processing activities. Branches of export processing enterprises shall enjoy the mechanism applicable to export processing enterprises prescribed in this Article if they carry out export processing activities in export processing zones, industrial parks or economic zones and satisfy the conditions in Clause 2 of this Article.

8. Within industrial parks and economic zones there are export processing enterprises enjoying the mechanism applicable to export processing enterprises if they satisfy the conditions prescribed in Clause 2 of this Article.

9. Within export processing zones there are enterprises specialized in producing and supplying services for industrial production.

Accordingly, export processing enterprises may establish branches under investment law and enterprise law to carry out export processing activities.

Where there is insufficient space to arrange warehouses for storing goods serving the export processing activities of an export processing enterprise in an export processing zone, may such enterprise lease space outside?

Under Clause 10, Article 26 of Decree 35/2022/ND-CP:

Where there is insufficient space to arrange warehouses for storing goods serving the export processing activities of an export processing enterprise in an export processing zone, industrial park or economic zone, the export processing enterprise may lease space outside the industrial park or economic zone to store goods; such space must be separated from the external territory by a wall system with gates and entrances/exits, ensuring conditions for inspection, supervision and control by customs authorities and relevant competent agencies under the regulations applicable to non-tariff zones prescribed in export tax and import tax law.

Goods storage warehouses outside industrial parks and economic zones may be put into use from the date the competent customs authority confirms that they satisfy customs inspection and supervision conditions under tax law and customs law.

Within 05 working days from the date the competent customs authority permits use, the export processing enterprise must notify the investment registration authority of the arrangement of warehouses outside the export processing zone, industrial park or economic zone for goods storage and carry out investment project adjustment (if any) under investment law.