Destroyed goods in bonded warehouses not required to declare for tax payment

During performing professional activities, Binh Duong Customs Department encountered problems related to tax settlement for goods deposited in bonded warehouses that had to be destroyed.

Regarding to this issue, according to the provisions of Clause 4, Article 2 of the Law on Import and Export Duties: “The goods that do not incur export and import duties, are goods exported from a free trade zone to abroad; goods imported from abroad to a free trade zone and used within such free trade zone; goods transported from one free trade zone to another”.

Customs officer of Binh Duong Port Border Gate Customs Branch guides procedures for enterprises. Photo: T.D

Also in Clause 1, Article 4 of the Law on Import and Export Duties stipulates that “Free trade zone means an economic zone located within Vietnam’s territory, established following law, having a definite geographic boundary, and separated from the outer area by hard fences to facilitate customs inspection and customs control by the customs authority and relevant agencies about exports and imports, inbound and outbound vehicles and passengers; the trading relationship between the free trade zone and the outside area is considered exportation and importation”.

In addition, according to Clause 4, Article 3 of the Law on Foreign Trade Management: “customs-controlled area” means a geological area in the territory of Vietnam that is established following regulations of Vietnam law and international treaties to which the Socialist Republic of Vietnam is a signatory and the exchange of products between this area and the remaining territory of Vietnam or foreign countries are considered as import and export activities”.

Furthermore, Clause 20, Article 4 of Circular 219/2013/TT-BTC of the Ministry of Finance stipulates goods and services that are not subject to VAT: “The goods and services traded between a foreign party and a free trade zone, or among free trade zones. Free trade zones include export-processing zones, export-processing companies, tax-suspension warehouses, bonded warehouses, special economic zones, commercial-industrial zones, and other economic zones established and provided with similar tax incentives as free trade zones according to the Decisions of the Prime Minister. Therefore, the transactions between a free trade zone and an external party are considered export/import.”

According to the General Department of Vietnam Customs, compared with current regulations, the case where bonded warehouse satisfied the definition of a free trade zone as prescribed in Clause 1, Article 4 of the Law on Import and Export Duties, is a separate customs area as stipulated in the provisions of Clause 4, Article 3 of the Law on Foreign Trade Management, goods sent from abroad and deposited into bonded warehouses are not subject to import tax and VAT.

Accordingly, goods are deposited into bonded warehouses and preserved that enterprises destroy in bonded warehouses and ensure destruction conditions as prescribed by law; they are not required to declare and pay import tax and VAT.