Understanding Export Processing Enterprises (EPEs) in Vietnam

Export Processing Enterprises (EPEs) have captured the interest of many investors eyeing Vietnam as a burgeoning manufacturing hub. EPEs allow for the export of 100% of products produced and come with significant tax exemptions, making them an attractive choice for manufacturers. Yet, establishing an EPE can be a challenging process. Let’s break down what EPEs are, their eligibility criteria, and the available alternatives.

What is an EPE?

EPEs are businesses operating within dedicated zones designed for export activities. These can be located in Export Processing Zones (EPZs), industrial parks (IPs), or economic zones focused on manufacturing goods for export. By Vietnamese law, EPEs must adhere to specific facility requirements, like being properly fenced, equipped with ports, and fulfilling customs requirements. This means that while EPEs enjoy tax exemptions, they also face stringent regulations and controls that can complicate the establishment process.

The Landscape of EPEs in Vietnam

Vietnam boasts five operational EPZs, of which two are fully occupied. The regulatory environment surrounding EPEs is intensifying, especially with ground-level licensing varying across provinces. Companies may find ideal solutions only to discover they cannot qualify for EPE status due to insufficient facility certifications. This evolving landscape places a premium on research and planning for potential investors.

The Role of Decree No. 10/2024

The enactment of Decree No. 10/2024 has added layers to the operational framework for EPEs, especially those engaging in high-tech manufacturing. This decree supports Vietnam’s bid to develop high-tech industries while ensuring EPEs meet stringent operational and technical conditions.

Under this decree, establishing an EPE in high-tech zones is encouraged, provided the projects align with regulations for non-tariff zones. It requires compliance with environmental standards, technological benchmarks, and financial viability that ensures sustainability.

Eligibility Criteria for EPEs

To qualify as an EPE, businesses must meet specific criteria:

• They must be dedicated to producing goods for export.
• They need to adhere to distinct zoning and facility requirements that segregate them from non-export operations.
• They must follow environmental regulations and maintain records as per Vietnam’s operational guidelines.

Additionally, businesses have to prove financial capacity to engage in sustainable operations.

Setting Up an EPE: The Process

The establishment of an EPE involves several detailed steps, which include:

1. Investment Registration Certificate (IRC): The initial step is filing for an IRC with local authorities.
2. Enterprise Registration Certificate (ERC): Once the IRC is approved, an ERC must be obtained.
3. Certification of Eligibility: This certification from the customs authority includes inspections to ensure compliance with EPE regulations.
4. Environment License: If the factory has potential emissions, a license for environmental compliance is needed.
5. Product-specific permits: Any additional certifications required by specific product types must also be acquired.

It’s important that companies being formed as EPEs qualify within 12 months of receiving their IRC. Failure to do so results in a reclassification as a non-EPE.

Investment Procedures in High-Tech Zones

EPEs looking to establish in high-tech zones need to follow certain investment procedures outlined in Decree 10/2024:

• Registering the investment: This is rooted in broader investment laws alongside specific decrees supporting high-tech operations.
• Dossier Preparation: Required documents must be compiled, showcasing compliance with customs inspection along with project objectives.
• Investment Objectives: Goals must be clearly outlined in the investment approval documentation.

Navigating these procedures carefully is crucial, as firms may face delays or additional scrutiny during inspections.

Differences Between EPEs and Non-EPEs

For firms considering the EPE route, it’s crucial to understand the differences between EPEs and non-EPE manufacturing companies. While non-EPEs allow for greater flexibility in location selection and fewer site-specific requirements, they do not enjoy the same level of tax exemptions.

EPEs stand out with benefits such as:

• Exemption from customs duties on imports and exports.
• VAT exemptions, in contrast with non-EPEs that face standard VAT rates.

However, non-EPEs can apply for VAT refunds on certain conditions, making the financial landscape more complex and nuanced.

Updated Invoicing Practices

New regulations, such as Decree No. 70/2025, affect EPE invoicing. Businesses now need to issue invoices corresponding to their VAT declaration methods, which can change depending on additional business activities outside their primary operations.

Key Takeaways

Understanding the intricacies involved in establishing and operating an EPE in Vietnam is essential for any potential investor. The capital investment, regulatory compliance, and logistical requirements can be daunting, yet Vietnam’s vibrant economic landscape presents significant opportunities. Partnering with local consultants and understanding the nuances of Vietnam’s compliance landscape is critical for success.

In instances where a company cannot qualify as an EPE but seeks to export all its products, establishing a manufacturing enterprise specifically for export can be a feasible alternative. Through strategic planning, businesses can navigate the complexities of the Vietnamese market and leverage the available financial incentives.