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Industrial Real Estate - What is export-processing zone?

Export-processing zone has an important role in promoting Vietnam's export activities. Therefore, through this article, ATIM LAW FIRM provides readers with some basic and useful information about the export processing zone model in accordance with Vietnamese law.

Established in 1991, located in Tan Thuan Dong Ward (District 7), with an area of ​​more than 300 hectares, Tan Thuan Export Processing Zone is the first export processing zone in Vietnam. Tan Thuan Export Processing Zone holds an important position in the economy of Ho Chi Minh City. By the end of 2021, the export processing zone attracted 233 investment projects from 25 countries, with a total investment capital of about 2.1 billion USD, creating jobs for more than 60,000 workers. This is also a premise to establish more export processing and industrial zones later all over the country.

It can be seen that export processing zones play an important role in promoting Vietnam’s export activities. Therefore, through this article, ATIM LAW FIRM provides readers with some basic and useful information about the export processing zone model in accordance with Vietnamese law.

The notion of an export processing zone was first specified in the Regulation on Export Processing Zones in Vietnam enclosed with Decree No. 322-HDBT of the Council of Ministers dated October 18, 1991. In this Regulation, an export processing zone is defined as a concentrated industrial park specializing in the production of export goods and the provision of export and export production services established and operating under the Regulation.

Until 1997, the Goverment issued Decree No-36/CP dated April 24, 1997, on the Regulation of Industrial Parks, Export Processing Zones, and High-Tech Parks. Accordingly, an export processing zone is an industrial zone that gathers export processing enterprises specializing in the production of export goods,  provision of services for the production of export goods and export activities, with definite geographical boundaries, no inhabitants; decided to be established by the Government or the Prime Minister. Compared with Decree No. 322-HDBT, in Decree No. 36 emerging an additional object which is export processing enterprise, and an export processing zone is a place where export processing enterprises are concentrated, concurrently adding a condition that there are no inhabitants.

Eleven years following the issuance of Decree No. 36-CP, the Government issued Decree No. 29/2008/ND-CP dated March 14, 2008. In this document, the definition of an export processing zone is as follows: “An export processing zone is an industrial park specializing in the production of export goods, providing services for the production of export goods and export activities, with geographical boundaries. determined, established according to the conditions, order, and procedures applicable to industrial parks specified in this Decree.” From this Decree until now, although the legal documents on industrial parks and export processing zones experience many changes, the concept of export processing zones has remained unchanged.

Up to now, issues relating to export processing zones are governed by Decree 35/2022/ND-CP, accordingly, an export processing zone is an industrial zone with the following characteristics:

• Specializing in manufacturing export goods, providing services for export production and export activities;
• Being separated from the outside area according to the regulations applicable to the non-tariff zone.

From the way the definition of an export processing zone was built from the beginning, it can be seen that in principle, an export processing zone is also one of the industrial park models. The difference between an export processing zone and other types of industrial parks is that the export processing zone's goal is to serve export activities.

With an important position, enterprises developing infrastructure of export processing zone are always encouraged to improve and receive many incentives from the State. According to the current Law on Investment, investment projects on construction and business of infrastructure of export processing zones are on the list of businesses with special investment incentives and benefit from the following incentives:

(i) Regarding the guarantee to implement projects: Reduced 50% of the guarantee to implement when investing the projects[1];

(ii) Regarding tax incentives:

• Being exempt from import tax for goods imported to create fixed assets[2];
• Being benefited from corporate income tax at the preferential tax rate of 10% for 15 years from the first year the project has revenue[3];
• Being exempt from tax for 4 years and being reduced 50% of tax for the next 9 years[4];
• Being exempt from non-agricultural land use tax;
• Since the export processing zone is considered a non-tariff zone, it is entitled to the following additional incentives[5]:
  • Not subjecting to import or export tax for goods exported from export processing zones to foreign countries; goods imported from abroad into export processing zones and used only in export processing; goods brought from one export processing zone to another[6];
  • Being benefited from the VAT rate of 0% for goods sold to organizations and individuals in export processing zones and consumed in export processing zones[7].

In addition to the above advantages, the export processing zone also has a convenient location near the seaport and airport, so the import and export of goods become much easier and more convenient.

Over the years, enterprises developing infrastructure of export processing zone have demonstrated strong growth with an average revenue growth rate of 14% per year. According to the statistics of HEPZA about “Revenue and contribution proportion of companies developing infrastructure of EPZs and IZs in Ho Chi Minh City for the period 2016-2019” in 2020, Tan Thuan EPZ's revenue in 2018 increased by 79.23% compared to 2017. In terms of land use efficiency, Linh Trung EPZ achieved the best performance in terms of land use efficiency calculated on revenue targets with an average rate of 3.07 billion VND/ha/year[8].

Thus, export processing zones in Vietnam are greatly contributing to promoting economic integration in our country. At the same time, preferential tax policies will help businesses have many favorable conditions to develop and expand their business and bring the Vietnamese economy closer to the world economy.

Currently, in Ho Chi Minh City, the following export processing zones are operating in a stable and developing way:

Tan Thuan Export Processing Zone:

This is the first export processing zone in Vietnam and is considered the most successful export processing zone in Vietnam up to now. Tan Thuan Export Processing Zone is located in an extremely convenient location, southeast of the center of Ho Chi Minh City, so there are many conditions for development.

Linh Trung I Export Processing Zone (HCMC)

Linh Trung I Export Processing Zone with business activities mainly leasing industrial land and factories, which are mainly light industrial activities, product processing as well as machinery.

Linh Trung II Export Processing Zone

This is an export processing zone that receives a lot of investment from foreign enterprises, from many countries such as Japan, Taiwan, USA,... This place is located in a location with a convenient traffic axis, so the movement of goods becomes much more convenient.

Linh Trung III Export Processing Zone

Linh Trung III Export Processing Zone is also located in Linh Trung Export Processing Zone, which is a joint venture project between Vietnam and China. It mainly leases industrial land and factories or warehouses.