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Local knowledge helps foreign processing firms

Update: May, 21/2014 - 08:15
Notably,  tax policies in Viet Nam have quite an impact on processing outsourcing carried out by foreign investors.— Photo vtown

Processing is no longer deemed a novel economic activity in Viet Nam. In this article, PLF covers several issues for foreign investors when outsourcing processing.

During our work with foreign investors outsourcing processing in Viet Nam, we have become aware that one of the top concerns is intellectual property rights concerning trade secrets, trademarks, industrial designs and trade names.

Inevitably, investors must provide the processing party with such confidential information throughout the course of their collaboration. Therefore, it is essential for foreign investors to have certain knowledge about the processing party they are outsourcing to before submitting any information or designs on their classified products.

At the same time, for a processing contract to be deemed legally binding, regulations on obligations of both parties need to be stated in detail and explicitly. Notably, tax policies in Viet Nam have quite an impact on processing outsourcing carried out by foreign investors.

For instance, Circular No. 60/2012/TT-BTC stipulates detailed tax obligations applicable to foreign investors earning income in Viet Nam. Having knowledge of this and Vietnamese laws and regulations in general will help foreign investors do things legally and smoothly.

Furthermore, foreign firms should seek ways of handling excess materials and machinery after a processing contract – in which the investors supply the processing party with materials, raw materials and machinery – terminates.

Different solutions will consequently lead to different investor obligations. Therefore, it is important for foreign investors to select the most practical solution to minimise the level of obligations.

Another matter that might relate to processing outsourcing is on-spot export. Briefly, on-spot export is when foreign investors outsource to Vietnamese processing parties, but do not directly receive the finished products; instead, they request such products be delivered to a third party also in Viet Nam.

As a result, tax-related issues and other obligations of foreign investors in this case are not the same as when they receive the processed products themselves.

In addition, labour issues should be considered if foreign investors plan to hire workers when outsourcing in Viet Nam, whether it is sending supervisors to monitor processing activity or establishing a representative office/branch in Viet Nam for convenient processing outsourcing.—  PLF law firm

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