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Export Processing Enterprises (EPEs) are a popular investment vehicle for foreign investors in Vietnam. This is particularly true as Vietnam has emerged as a China plus one destination for foreign companies outsourcing operations to reduce costs and improve market share.
The recent novel coronavirus COVID-19 outbreak in China has accentuated this issue, impacting businesses not only in Vietnam but the rest of ASEAN as supply chains begin to feel the impact. With raw materials and inputs being sourced from China and travel restrictions still in place, businesses may need to look at alternate suppliers and production as a long-term strategy.
Once a business decides on an alternative, an EPE is an ideal investment for investors looking to manufacture and export to different destinations.
EPEs, as defined by Decree No 82/2018/ND-CP, are enterprises that are established and operate in an Export Processing Zones (EPZ) OR that specialize on a manufacturing product for import and operate in an industrial or economic zone. EPEs are also required to be separated by fence systems, have ports, entrance and exit doors and fulfill requirements by customs authorities related to non-tariff areas and rules on import and export duty.
Export Processing Zones (EPZs) offer tariff-free trade, and low-cost labor making them an ideal location for EPEs. EPZs are often located within industrial or economic zones and focus on manufacturing goods for export. They also provide tax incentives, lower land rentals and are exempt from export taxes when exporting their products and materials.
EPEs also typically connected to seaports, and airports making export more efficient. Due to their location within EPZs, these businesses benefit from unique tax treatment which we will discuss below.
EPEs set up in EPZs are allowed to sell goods to the local market; however, import duties will be payable by the recipient. Conversely, EPEs set up in industrial zones other than EPZs are prohibited to sell to domestic enterprises in the Vietnamese market.