Export Processing Enterprises (EPEs) are a major part of foreign direct investment in Vietnam’s manufacturing sector. The tax regime governing an EPE is defined by two primary legislative frameworks:
- Non-tariff zone status: Established under Decree No. 35/2022/ND-CP and specialized customs supervision regulations in Decree No. 18/2021/ND-CP (requiring solid perimeter fencing and 24/7 customs-connected surveillance cameras).
- Value-added tax treatment: Governed by Law on VAT No. 48/2024/QH15 (effective July 1, 2025, amended by Law 90/2025/QH15 and Law 149/2025/QH15) and Decree 181/2025/ND-CP. The VAT Law maintains a 0% VAT rate for qualifying goods and services supplied into non-tariff zones directly serving export production. For broader guidance, review our overview on VAT for enterprises in Vietnam.
Tax authorities check where services are consumed and what they are for. Procuring excluded services such as worker commuting, hotel lodging, or office and warehouse leasing under an erroneous 0% rate exposes both suppliers and EPEs to retroactive tax clawbacks and administrative penalties.
1. Legal Status of Export Processing Enterprises in Vietnam VAT and Customs Framework
An EPE is not an independent corporate form under the Law on Enterprises. It is a regulatory status tied to a specific geographical footprint and dedicated to export manufacturing. Investors must differentiate between non-tariff customs classification and VAT obligations.
Non-Tariff Zone Conditions and Customs Oversight under Decree 35/2022/ND-CP
An EPE is a company specialized in producing goods for export inside an industrial park or economic zone. On top of that status, Decree 134/2016/ND-CP (added by Decree 18/2021/ND-CP) and Decree 35 set three customs control conditions:
- Solid physical perimeter fencing: Factory premises and storage warehouses must be enclosed by solid walls or fences, with controlled entry and exit gates separating the site completely from domestic territory.
- Customs surveillance camera network: Operating 24/7 security cameras at entry gates, exit checkpoints, and warehouse storage locations, maintaining an uninterrupted live data feed directly to supervising customs authorities, with footage kept for at least 12 months.
- Inventory management software: A system that tracks duty-free imported goods so customs can reconcile what enters, is used in production and leaves the zone.
Supervising customs authorities conduct physical inspections and issue a formal confirmation document before manufacturing operations commence.
Risk of losing non-tariff status: If customs finds that the supervision conditions are not met, the EPE has up to one year from customs’ first confirmation to complete them; after that, the non-tariff zone tax policy no longer applies and import duty, late-payment interest and penalties are payable on goods imported under that policy (Decree 134/2016/ND-CP, Article 28a, added by Decree 18/2021/ND-CP).
Non-Taxable VAT Classification and Customs Tax Administration
Because an EPE operates inside a recognized non-tariff zone, its core manufacturing operations fall into specialized VAT categories:
- Imported goods from overseas: Raw materials, production machinery, and manufacturing components imported into an EPE warehouse belong to the non-taxable VAT category at customs clearance.
- Finished goods exported overseas: Finished products exported directly to foreign markets do not trigger domestic VAT in Vietnam.
- Transactions between EPEs: Sales, raw material transfers, and technical services rendered between two EPEs located within non-tariff zones remain outside the scope of Vietnamese VAT.
Holding EPE status does not grant a blanket VAT exemption for every service or commodity procured from domestic suppliers.
2. Conditions for Applying 0% VAT to Domestic Goods and Services Supplied to an EPE
Transactions between domestic Vietnamese vendors and an EPE represent the primary focus of tax audits:
- Goods sold into an EPE: Treated as on-spot exports. Domestic suppliers apply 0% VAT provided they hold the contract, non-cash payment records, and the customs declaration required by Decree 181.
- Services provided to an EPE: Must be performed and consumed entirely inside the non-tariff perimeter, directly serving the EPE’s manufacturing activities, supported by a contract and non-cash payment records; retaining factory acceptance minutes is good practice. For international transactions, review our analysis on export services VAT.
Services Supplied to an EPE and the Applicable VAT Rate
The VAT Law sets 0% VAT for goods and services sold to organizations in a non-tariff zone and consumed there (Article 9). Decree 181 excludes from 0% the rental of housing, halls, offices, hotels, and warehouses, worker commuter transportation, and catering services (other than industrial meals and catering inside the non-tariff zone):
| Service Category | Performance Location | Service Objective | Applicable VAT Rate | Regulatory Rationale |
|---|---|---|---|---|
| Factory machinery maintenance | Inside EPE premises | Export production | 0% | Consumed inside non-tariff zone |
| Worker commuter transportation | Domestic public roads | Employee personal transit | 10% | Excluded service |
| Industrial meal supply for workers | Factory canteen or kitchen | Employee shift meals | 0% if conditions are met | Industrial meals are not excluded |
| Expat hotel accommodations | Domestic hotels | Personal lodging | 10% | Excluded service |
| Auxiliary domestic warehouse lease | Outside industrial park | Temporary storage | 10% | Excluded service |
The exclusions above come from Decree 181. Services excluded from the 0% rate carry the standard rate: 10%, or 8% through December 31, 2026 where the reduction under Resolution 204/2025/QH15 applies. Fuel purchased domestically and sold to businesses in the non-tariff zone, and cars sold to organizations or individuals in the zone, are also excluded from 0%.
Issuing a 0% invoice for an excluded service category triggers a retroactive VAT assessment at the standard rate, a 20% penalty for under-declaration (from July 1, 2026 under Law on Tax Administration No. 108/2025/QH15; before that date under Decree No. 125/2020/ND-CP), and late payment interest of 0.03% per day. EPE accounting teams must ensure domestic contractors issue invoices at the correct rate for excluded services to prevent commercial invoice disputes.
3. VAT Administration in Toll Manufacturing and Domestic Trading Between EPEs and Local Entities
Trade between an EPE and domestic companies depends on correct customs declarations and tax accounting.
On-Spot Import-Export Customs Procedures and VAT Filings
When an EPE purchases production materials from a domestic supplier, both entities execute on-spot customs procedures under current customs procedure regulations:
- Domestic vendor: Opens an on-spot export declaration, issues a 0% VAT invoice, and receives settlement through international or domestic commercial banking channels.
- Purchasing EPE: Opens a corresponding on-spot import customs declaration. Goods remain exempt from import VAT at customs clearance.
If an EPE purchases incidental office supplies or daily consumables, the EPE may opt out of customs declarations. In such cases, the domestic vendor must issue an invoice at the standard domestic VAT rate (8% or 10%).
Domestic Subcontracting Toll Manufacturing and VAT Treatment
An EPE may subcontract manufacturing stages to domestic enterprises:
- Material delivery: Raw materials sent to a domestic contractor for processing do not trigger output VAT because there is no sale; confirm the customs treatment (import duty and procedures) with your customs broker before dispatch. The EPE issues internal stock transfer notes accompanied by domestic transport orders and files a processing facility notification with customs.
- Processing fee: The treatment of the toll-manufacturing fee charged by the domestic contractor depends on whether the service counts as consumed inside the non-tariff zone (Decree 181, Article 17.2.b and 17.5); do not assume 0% without written confirmation from the tax authority.
- Reverse toll manufacturing: When an EPE undertakes processing for a domestic client, the processing fee is exempt from VAT. Upon re-importing the finished goods, the domestic customer pays import duty and import VAT on the added processing value.
When an EPE liquidates surplus machinery or sells production scrap into the domestic market, it must register a change of purpose with customs. The domestic buyer opens an on-spot import declaration and remits import duties and import VAT. For refund mechanisms, read our guide on VAT refund procedures for FDI; if your input VAT builds up after liquidation or export, our VAT refund service can prepare the dossier.
4. Ring-Fencing VAT Obligations When an EPE Exercises Trading and Import-Export Rights
Decree 35 permits an EPE to conduct commercial trading and distribution. This non-manufacturing activity requires strict operational segregation.
Under Article 26 of Decree 35, an EPE that trades outside its export production must meet three conditions. Commercial inventory must be stored in an area physically separated from export manufacturing inventory. The enterprise must keep separate accounting for trading revenues and expenses. It also may not use tax-incentivized assets or machinery for the trading activity; if it does, it must repay the incentives.
Commercial wholesale and retail activities do not benefit from non-tariff privileges:
- Customs import stage: When importing goods for domestic resale, the EPE registers a commercial import declaration and pays customs import duties along with import VAT upon customs clearance.
- Domestic sales stage: When distributing goods domestically, the EPE issues electronic VAT invoices at the standard 10% rate (or temporary 8% rate).
- Periodic VAT returns: Filed using Form 01/GTGT with the supervising local tax department. Input VAT incurred on commercial merchandise is creditable against output VAT liabilities.
- Non-cash payment compliance: Applies non-cash payment documentation for purchases of VND 5 million or higher (VAT inclusive) under the VAT Law and Decree 181. See our analysis on non-cash payment rules from 5 million VND.
Enterprises must not commingle commercial goods with export-processing inventory. Diverting duty-free materials into domestic distribution channels can lead to back-assessment and penalties, and criminal liability for tax evasion where the legal threshold is met.
5. Common VAT Audit Exposures and Penalty Matrix for Tax Violations
During post-clearance audits and tax inspections, EPEs encounter recurring exposures across customs and tax interfaces:
| Audit Finding and Non-Compliance | Financial Penalty | Legal Authority |
|---|---|---|
| Misapplying 0% VAT to excluded services | Retroactive VAT assessment at the standard rate, 20% under-declaration penalty, 0.03%/day late interest | Article 44, Tax Administration Law (from July 1, 2026); Article 16, Decree 125 (before that date) |
| Missing on-spot customs declarations for domestic goods | Disallowance of 0% rate, reclassification to standard domestic rate | Law on VAT & current customs procedure regulations |
| Commingling commercial trading goods with EPE inventory | Possible back-assessment of tax; if treated as tax evasion, a penalty of 1x to 3x of the evaded tax | Articles 44 and 45, Tax Administration Law (from July 1, 2026); Article 17, Decree 125 (before that date) |
| Failure of customs supervision criteria (fences, cameras, software) | Loss of non-tariff status if not met within one year of customs’ first confirmation; tax, late-payment interest and penalties on goods imported duty-free | Decree 134 Article 28a (added by Decree 18) & Decree 35 |
6. Compliance Governance Recommendations for FDI Manufacturing Plants
The EPE VAT regime helps cash flow, but only while Decree 35 and the VAT Law are followed.
To mitigate tax audit exposure, EPE management should establish three internal controls:
- Conduct quarterly audits of physical fences and customs camera links, confirming the camera feed to customs stays live and footage is stored for at least 12 months.
- Direct domestic contractors to issue 0% invoices for manufacturing support and invoices at the standard rate for excluded services.
- Maintain physical warehouse separation and independent accounting ledgers between export manufacturing materials and commercial trading merchandise.
Contact our Certified CPAs and tax compliance team for customs compliance and tax health checks through our corporate tax compliance services or audit support services delivered by Indochina Link Vietnam’s team of certified professionals.
