Exporting from Vietnam to the USA: When You Need a Local Presence
Planning to export from Vietnam to the US? This article outlines how it works and when you should think about establishing a local presence.
Manufacturing in Vietnam is becoming increasingly popular among firms in the United States. This is in part because of increasing trade tensions with China but also because Vietnam has a relatively low-cost workforce, a range of incentives for foreign enterprises, and an export-orientated outlook that is seeing red tape reduced and export infrastructure improved.
“With companies looking to diversify their supply chains, trade between the US and Vietnam has grown dramatically in recent years. In the past few years, US imports of Vietnamese goods have grown faster than imports from any other nation. At the same time, the US has become the largest export market for Vietnam, with Vietnam exports to the US being double what it sends to its second-largest export market.”– Kyle Freeman, Head of the North American Client Services desk at Dezan Shira & Associates
That is not to say it is necessarily easy to export from Vietnam. There are a number of compliance requirements foreign firms should be aware of and several key decisions they need to make. In this article, we look at what those are and how best foreign firms can tackle these requirements.
How much on-site presence is necessary when exporting from Vietnam to the USA?
The initial consideration for firms exporting from Vietnam to USA revolves around the need for physical presence in the Southeast Asian market. The answer to this query primarily depends on your specific objectives. While some firms may opt for the straightforward route of procuring goods through a local trading company, this approach offers limited control and can potentially incur higher costs over the long run. Fortunately, there exist various alternatives to consider.
Building a facility is a time-consuming endeavor fraught with challenges, while opting for contract manufacturing can offer a swifter path to market, with readily available suppliers and partners.
For companies that require their own production facility, it often makes sense to collaborate with an established manufacturer. Prominent brands like Apple, Samsung, Adidas, and Nike have all engaged in some form of contract manufacturing in Vietnam.
For those firms wishing to circumvent the need for a physical presence entirely, a viable approach is to connect with a local manufacturer through a business matchmaking service. In this scenario, the local partner assumes responsibility for production and shipping from Vietnam, leaving the buyer to manage logistics at the receiving end.
Note, however, that this approach is not without its risks. As witnessed during the COVID-19 pandemic, several US companies entered into purchase agreements with contract manufacturers in Vietnam for personal protective equipment, made payments, but unfortunately did not receive their ordered goods.
Bearing this in mind, it is highly recommended to exercise caution and prudence by utilizing the services of a reputable business matchmaking service when engaging a contract manufacturer, especially if you do not plan to establish a local presence in Vietnam.
Establishing a trading company
US firms that want a little more control over their operations in Vietnam could consider establishing a trading company. This is a particularly good idea if a US firm wants to engage in both import and export activities as well as distribute goods within Vietnam.
A trading company is generally inexpensive to establish. It can also be an effective way to combine both sourcing and quality control activities with purchasing and export facilities. This provides a foreign firm with more control, and they can react faster to dynamic markets.
Note, however, that trading is a sensitive sector for foreign investors. As a result, the licensing process can vary from between four to six months from the date an application is lodged. That said, there are faster alternatives, for example, utilizing a Professional Employer Organization (PEO).
Using a Professional Employer Organization (PEO)
An increasingly popular alternative to establishing an entity is using the EOR (Employer of Record) model often provided by PEOs. This model allows a company in one country to hire employees in another country, without establishing a local company or representative office.
Effectively, a PEO provider puts a foreign company’s employees on their payroll, takes care of compliance with local labor laws, and can assist in sourcing and recruiting candidates as well.
PEO services are popular for firms that:
- Want to test a market before making a larger commitment; or
- To meet short-term project-based needs in a country.
This is essentially a low-cost solution to the risks associated with establishing a permanent operation.
In Vietnam, PEO services enable foreign investors to onboard, manage, and pay staff without the costs and risks associated with setting up a legal entity over the short term. This enables companies to place boots on the ground, without physically setting up a local office.
This is a good solution for firms looking to move quickly and/or export from Vietnam to the US on an ad-hoc basis.
A Representative Office (RO) presents an economical and popular entry option, especially for companies venturing into the Vietnamese market for the first time. Ros are particularly well-suited for businesses aiming to acquire a deeper understanding of the Vietnamese market while making a modest initial investment. They can serve as a stepping stone towards establishing a more substantial presence in the country in the years to come.
Limited Liability Company
A Limited Liability Company (LLC), or 100 percent foreign-owned enterprise, generally requires three to four months to establish in Vietnam.
For LLCs, while some sectors may require ‘Pre-Investment Approval’, usually firms can directly apply for an Investment Registration Certificate (IRC), which requires 15 working days. If the sector of intended operation is not governed by the WTO, it may take longer.
Establishing an LLC gives a firm full control over its operations in Vietnam; however, it must also complete all of its own tax and labor compliance requirements.
Import-export compliance requirements
Import and export licensing procedures
Vietnam does not require a company to have an import or export license to set up a trading company. However, to be able to conduct import or export business, a foreign investor must register with the Department of Planning and Investment (DPI).
According to Circular 34/2013/TT-BCT, there are certain goods that foreign-invested enterprises may not export from, or import into, Vietnam. Goods banned for export include petroleum oil. Goods banned from import into the country include cigars, tobacco, petroleum oils, newspapers and journals, and aircraft.
- Goods subject to export control in accordance with international treaties to which Vietnam is a contracting party;
- Goods exported within quotas set by foreign countries;
- Goods subject to import control in accordance with international treaties to which Vietnam is a contracting party; and
- Chemicals, explosive pre-substances, and industrial explosives.
All imports and exports must comply with the relevant government regulations on quarantine, food safety, and quality standards, and must be inspected by the relevant government agencies before clearing customs.
Importers are also required to submit a customs dossier, which includes a customs declaration as per Appendix II of Circular no 38/2015/TT-BTC. The customs declaration can be filed electronically here.
Duties applied to import and exports
Most goods imported or exported across the borders of Vietnam, or that pass between the domestic market and a non-tariff zone, are subject to import/export duties. Exceptions to this include goods in transit, goods exported abroad from a non-tariff zone, goods imported from foreign countries into non-tariff areas for use in non-tariff areas only, and goods passing from one non-tariff zone to another.
Most goods and services being exported are exempt from tax. Export duties (ranging from zero percent to 45 percent and computed on free-on-board (FOB) price) are only charged on a few items, mainly natural resources such as minerals, forest products, and scrap metal.
Consumer goods, especially luxury goods, are subject to high import duties, while machinery, equipment, materials, and supplies needed for production, especially those items that are not produced domestically, enjoy lower rates of import duties, or even a zero percent duty rate.
Duty rates for imported goods include preferential rates, special preferential rates, and standard rates depending on the origin of the goods.
Import/export duties declarations are required upon registration of customs declarations with the customs offices. Export duties must be paid within 30 days of registration of customs declarations. For imported goods, import duties must be paid before receipt of consumer goods.
Depending on the trade conditions, Vietnam imposes several different types of duties on the import and export of goods. Companies wishing to find in-depth information on a range of goods would be well advised to visit the Vietnam Customs website.
Taxes on exports
Only certain commodities are liable for export tax. Export taxes range from zero to 45 percent. Many goods are also subject to Value-added Tax (VAT). In addition, the Law on Special Excise Duty No. 27/2008/QH12, commonly referred to as the Special Consumption Tax (SCT) stipulates that exporters who purchase SCT tax-liable goods for export, but instead sell the products domestically, are liable for SCT.
The export tax rates applicable to exported goods are specified for each item in the Export Tariff. Whenever there is an update in the tax tariff, the Ministry of Finance will issue new Circulars which will either replace or supplement the previous ones. VAT on exported goods is zero percent.
In certain situations, imported and exported goods are exempt from tax. These include the following:
- Goods temporarily imported for re-export or temporarily exported for re-import;
- Goods imported for processing for foreign partners then exported or goods exported to foreign; countries for processing for Vietnam then re-imported under processing contracts;
- Goods imported to create fixed assets for projects entitled to investment incentives or investment projects funded with official development assistance (ODA) capital sources;
- Goods imported in service of petroleum activities; and
- Goods are imported for direct use in activities of scientific research and technological development.
The payable import/export tax amount is equal to the unit volume of each actually imported or exported goods item. These are inscribed in the customs declarations and are multiplied by the tax calculation price and the tax rate of each item, which is stated in the tariff at the time of tax calculation.
The tax calculation methods are specified below:
- Payable Tax = Unit volume of each actually imported/exported goods item x Tax calculation price x Tax rate of each item at the time of calculation
- For goods items subject to absolute tax:
Payable tax = Unit volume of each actually imported/exported goods item x Absolute tax rate provided for a goods unit at the time of tax calculation
While this article provides an overview of exporting from Vietnam, it’s important to acknowledge that navigating Vietnam’s intricate regulatory landscape can be a formidable task. To ensure a successful export venture, U.S. firms are strongly advised to engage local, boots-on-the-ground experts to ensure their export success. With the right advice and expert guidance, US firms stand poised to reap huge benefits from utilizing this fast-developing Southeast Asian economy for their manufacturing needs.
For comprehensive support in exporting from Vietnam to the US, we recommend reaching out to the business advisory professionals at Dezan Shira and Associates. They can provide tailored assistance to help you achieve your export objectives.
Vietnam Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Eurasia, including ASEAN, China, India, Indonesia, Russia & the Silk Road. For editorial matters please contact us here and for a complimentary subscription to our products, please click here.
Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Vietnam and the Asian region. We maintain offices in Hanoi and Ho Chi Minh City, as well as throughout China, South-East Asia, India, and Russia. For assistance with investments into Vietnam please contact us at email@example.com or visit us at www.dezshira.com
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