News

Vietnam's Businesses to Enjoy Tax Incentives from the Free Trade Agreement between Vietnam and Eurasian Economic Union (EAEU)

Summary

Vietnam's Businesses to Enjoy Tax Incentives from the Free Trade Agreement between Vietnam and Eurasian Economic Union (EAEU)

Updated on : 27-06-2017

On May 29, 2015, Vietnam and the Eurasian Economic Union (EAEU) comprising Russian Federation, Republic of Belarus, Republic of Kazakhstan, Republic of Armenia and Republic of Kyrgyzstan officially signed the Vietnam-EAEU FTA. This Agreement took effect from October 05, 2016.

 

On September 29, 2016, the Government issued Decree No. 137/2016/ND-CP on special preferential import tariff of Vietnam to implement the Free Trade Agreement between the State of Vietnam and the member-states of the Eurasian Economic Union for the period 2016-2018.

The Vietnam's special preferential import tariff is developed on the basis of the List of export and import goods of Vietnam, including 9,471 tariff lines of 8-digit HS code number (not including tariff lines of 87 CKD) with preferential import tariff rates prescribed in the agreement on import tariff incentives of Vietnam. According to the agreement, in 2016, the import tariff rate for 1,959 tariff lines (accounting for 52.4%) has been reduced to 0% from October 05, 2016.

The tariff lines with tariff rate reduced to 0% are mainly raw materials for manufacturing and production activities (raw materials for textile and leather production activities, and plastic materials, etc.) and groups of commodities in which Vietnam has advantages for exportation (such as footwear, clothes, seafoods, electronic components & products, tea, coffee, and vegetables); rubber products, milk, some types of steel and steel products, chemicals, machinery, equipment, etc.

The number of tariff lines with tariff rate of 0% will not change from 2016. By 2018, there will be an addition of 144 tariff lines with tariff rate reduced to 0%, an increase in the number of tariff lines with tariff rate of 0% to make a total number of 5103 tariff lines. The road-map for import tariff incentives in Vietnam-EAEU FTA is scheduled in 3 phases:

- From October 05, 2016 through December 31, 2016;

- From January 01, 2017 through December 31, 2017; and

- From January 01, 2018 through December 31, 2018. 

To be eligible for preferential tariff rates under this Agreement, the goods must satisfy the requirements in terms of rules of origin set forth in the Agreement. Specifically, an item of goods shall be considered as originated from either party (Vietnam or EAEU) if it is:

- Purely originated from or wholly produced in a party, or

- Wholly produced in either party, using raw materials originated from either party, or 

- Produced in a party, using raw materials not originated from both parties but meeting requirements in terms of rules of origin for specific items set forth in the Agreement.

In order to guide the implementation of the commitments set forth in the Agreement, the Ministry of Industry and Trade issued Circular No. 21/2016/TT-BCT dated September 20, 2016 guiding the implementation of the Rules of Origin in the Free Trade Agreement between Vietnam and the Eurasian Economic Union (link up to VTIP). Enclosed with the Circular are annexes on:

- Rules of origin;

- Rules applied to specific items;

- List of island states;

- C/O Forms and guidance for C/O declaration; and

- List of C/O certification granting organizations.

In general, the Rules of origin for specific items of goods set forth in the Vietnam-EAEU FTA are relatively accomodating. In normal conditions, an item of goods with added value content (VAC) ≥ 40% (for some items, VAC ≥ 50-60% may be required) or with a 2- 4-, or 6-digit HS code conversion shall be eligible for preferential tariff rates.

Understanding of substantive contents and effective application of regulations and commitments in the Vietnam-EAEU FTA, especially the Special preferential tariff and the Rules of origin, will bring about positive results for the community of Vietnam's businesses upon dealing with partners coming from the Eurasian Economic Union.