Tax treatment for goods rented or borrowed from export processing enterprises is guided by the General Department of Customs

1. Customs procedures

In case an export processing enterprise (“EPE”) leases or borrows goods to a domestic enterprise to serve the production of products for the EPE itself, the EPE shall open a temporary export declaration, and the domestic enterprise shall open a temporary import declaration; after the lease or borrow contract is terminated, the domestic enterprise shall carry out re-export procedures, and the EPE shall carry out procedures for re-importing the leased or borrowed goods for the production of these exported goods.

2. Import tax on rented and borrowed good

If a domestic enterprise hires or borrows goods from an EPE under a lease or borrow contract to serve production, the domestic enterprise is not exempt from import tax as prescribed at point a, Clause 9, Article 16 of the Law on Export Tax, import tax No.107/2016/QH12, domestic enterprises must declare and pay import tax upon temporary import and are not eligible for refund of paid import tax upon re-export according to the provisions of point đ, Clause 1 of this Article.19 Law on Import Tax and Export Tax No.107/2016/QH13 because it is a case of renting or borrowing. Import tax calculation value for rented or borrowed goods complies with the provisions of Clause 9 Article 1 of Circular 60/2019/TT-BTC of the Ministry of Finance.

3. VAT on rented and borrowed goods in the form of temporary import for re-export

For goods rented or borrowed by domestic enterprises from EPE, domestic enterprises that have registered declarations under the form of temporary import are not subject to VAT. In case the lease or borrow term has expired, but the domestic enterprise continues to use it and does not re-export, immediately after the expiration of the lease or borrow term, the domestic enterprise must declare and pay VAT together with the import tax on it. New customs declaration according to the provisions of Clause 12, Article 1 of Decree No. 59/2018/ND-CP dated April 20, 2018 of the government.

If, during the use of leased or borrowed goods, they are damaged, cannot be re-exported, must be destroyed, and have been destroyed according to the provisions of law, domestic enterprises are not required to declare and pay VAT. For these leased or borrowed goods.

4. Tax treatment in case of failure to re-export imported goods in the form of temporary import for re-export

In case the domestic enterprises don’t re-export the leased or borrowed goods, immediately after the end of the lease or borrow term, a new customs declaration must be registered and full payment of taxes and fines (if any) in accordance with regulations. In case of failure to declare and pay all taxes at the end of the lease or loan term, the customs authority shall impose tax according to the provisions of Clause 4, Article 17 of Decree No. 126/2020/ND-CP dated 19 October 2020 of the government.