Numerous South Korean firms in Vietnam expressed concerns about losing their tax incentives due to surprise decisions from the authorities.

The midterm Vietnam Business Forum 2018 in Hanoi on July 4

This was stated by Kim Heung Soo, chairman of the Korea Chamber of Commerce in Vietnam (KoCham) at the midterm Vietnam Business Forum 2018 (VBF) in Hanoi on July 4.

The first issue is related to the tax exemption or refund for imports of outsourced materials for export production. According to Kim Heung Soo, the most common export strategy among Korean firms is to receive goods through outsourcing from their partner suppliers in Vietnam in order to manufacture finished-products and to export these products overseas.

Such administrative acts are a serious obstacle that hinders technology transfers and win-win joint ventures between the Vietnamese and foreign-invested firms and affects foreign investment attraction.

However, the General Department of Customs recently announced the official interpretation (4007/TXNK-CST) of relevant laws, stating that “a company that imports raw materials for export does not qualify for tax exemption if it manufactures finished products through full outsourcing or partly outsources such materials to other enterprises for processing.”

According to the existing regulations, when a finished product is produced by outsourcing either in whole or in part, the corresponding tax exemption or refund could then be obtained by certifying the demanded quantity of imported raw materials through the post-export liquidation procedure.

However, if the recent interpretation of the General Department of Customs comes into effect, it will have a devastating impact on numerous foreign firms operating in Vietnam.

This is because the majority of companies employ the method of outsourcing to substantially improve the efficiency of their production of finished goods. Especially in the case of high-tech industries, it is impossible for one company to carry out the entire range of complex processes involved.

“In order to avoid the negative impacts that this will have on export companies, we expect the government will specify that this does not affect tax exemption even if the products are manufactured through outsourcing,” Soo said.

In another case, Vina Pioneer in Hung Yen province was unilaterally notified that the investment incentives were to be terminated prior to the end of the period guaranteed by the Law on Investment. Although it was confirmed by the Ministry of Planning and Investment (MPI) that the company was in a legitimate position to benefit from the law, the General Department of Taxation notified Vina Pioneer that it was not eligible to receive incentives.

“These cases are not specific to a particular company. Numerous firms fear that their investment incentives may come at an unexpected and sudden end, and they are now seeking to reduce investment or arranging other measures,” Soo stated.

VIR