A bonded warehouse, renowned for its secure storage, allows for the deferment of customs duty payment until the goods reach their destination. Large distributors often seek this secure environment as their distribution center. While the usage principles may be similar, each country’s unique management regulations and incentives create comparative advantages to be considered in the decision-making process.
This helps to avoid potential unintended consequences regarding FTA eligibility, providing a sense of reassurance to the business owners, logistics managers, and import/export professionals.
In Vietnam, bonded warehouses are for the storage of goods in two circumstances:
(1) Goods from Vietnam have completed customs export procedures and are awaiting export
(2) Goods from overseas awaiting to be imported into the Vietnam market or re-exported to 3rd country.
In practice, Vietnam allows goods from Vietnam to be exported to bonded warehouses and sub-subsequently imported back into Vietnam.
Why a Bonded Warehouse?
Customs duty deferment
A bonded warehouse is considered a non-tariff zone in Vietnam. Imported goods stored at a bonded warehouse are not subject to customs duties, including import duty and import Value Added Tax (VAT), until they are removed from the bonded warehouse for domestic consumption. If the goods stored in the bonded warehouse are later exported to other countries, no customs duties and import VAT are payable.
Preferential origin maintenance
A bonded warehouse is a storage place where activities carried out on the goods must be under customs supervision, aligning with the direct consignment rules of relevant Free Trade Agreements. Therefore, when goods are transited through a third country on the way from the country of origin to the country of destination, a bonded warehouse will be used as a transit point to maintain the preferential origin certification at the country of origin.
The eligibility of the importer for preferential tariff rates depends on whether the third country is a member of the Free Trade Agreement between the country of origin and the destination country. Relevant documents may need to be submitted in the transit country and presented to the destination country. Vietnam can issue a Certificate of non-manipulation or a back-to-back Certificate of Origin/Movement Certificate for each applicable case.
What Do You Need to Know when Utilizing a Bonded Warehouse?
Goods allowed/prohibited to be stored in a bonded warehouse
Goods prohibited from being imported into/exported out of Vietnam, and specific goods, including alcohol and tobacco, are not allowed to be stored in a bonded warehouse. One scenario triggering questions on feasibility is the return of goods for several reasons, including wrong delivery, warranty, repairing services, etc. In this case, businesses must assess whether such goods are used to determine whether they can be stored in the bonded warehouse and whether any license is required.
Activities allowed in the bonded warehouse
In Vietnam, the bonded warehouse is considered a customs-controlled area in which goods in/out movement into/out of the bonded warehouse is considered import/export. Goods imported into/exported out of a bonded warehouse need to be declared in relevant customs declarations, and activities carried out in the bonded warehouse must be notified and approved by Customs.
Generally, the activities supporting storage and transportation, including packaging reinforcement, splitting and packing, freight classification, and maintenance, are allowed. Activities that are not explicitly categorized should be aligned with Customs in advance. This will also impact the maintenance of preferential origin.
Tax implications
Foreign contractor tax (FCT) is a tax levied on revenue earned in Vietnam by foreign companies. For the supply of goods through a bonded warehouse in Vietnam, FCT will depend on factors such as the role of the bonded warehouse in the transaction and the point of transferring ownership of goods.
When the goods from Vietnam are exported to a bonded warehouse and later returned to Vietnam, VAT incurred in the first leg transaction should be considered in the price structure, as it may not be recoverable for the foreign trader owning the goods in the bonded warehouse.
Businesses must be fully aware of potential tax implications on themselves and their partners. This understanding is key to setting out rights and obligations in the tax clauses and price structures in the sales and purchase agreements, ensuring they are well-informed and prepared.
How Tradewin Can Help
With our extensive expertise in bonded warehouse regulations and diverse experience in working with customs authorities at all levels, Tradewin Vietnam has successfully assisted numerous clients in making informed decisions and handling practical customs issues in implementing distribution via bonded warehouses.
If you are unsure how we can help, let us know your issue by clicking here, and we would be pleased to discuss a solutions-based approach, instilling confidence in our ability to assist you.
