What is import tax?

Import tax What is it? This is a fundamental yet timeless question for any business involved in the global supply chain. In the context of Vietnam having signed a series of new-generation free trade agreements (FTAs), mastering tariff regulations not only helps businesses comply with the law but is also key to optimizing cash flow and increasing competitive advantage in the international arena.

Currently, Vietnam's tax legal system is undergoing significant transformation towards digitalization and deep integration. With over 30 years of direct consulting experience with thousands of businesses, I've observed that errors in HS code classification, tax valuation, or incorrect application of preferential tax rates are common risks leading to huge late payment penalties, directly impacting the survival of SMEs.

What is a summary of the key aspects of import and export taxes?

• Define: Import and export taxes are indirect taxes levied on goods moving across borders or between the domestic market and a free trade zone.
• Purpose: Controlling foreign trade activities, protecting domestic production, and generating revenue for the state budget.
• Applicable objects: Consignors, entrusted organizations, and individuals involved in import and export activities whose goods are subject to tax under the 2016 Law on Export and Import Taxes.
• The necessary time: This occurs immediately during customs clearance procedures for goods or when there is a change in the intended use from tax-exempt to taxable items.

A compilation of important legal documents on current import and export taxes.

Businesses need to update the following documents to ensure compliance with regulations:

• Law on Import and Export Taxes No. 107/2016/QH13: The original document provides the highest legal framework.
• Decree 134/2016/ND-CP: Regulations detailing the implementation measures of the Tax Law.
• Decree 18/2021/ND-CP: Important update regarding tax exemptions for goods manufactured for export.
• Circular 38/2015/TT-BTC and Circular 39/2018/TT-BTC: Detailed regulations on customs procedures and tax administration.
• Decree No. 26/2023/ND-CP: The latest preferential import and export tariff schedule and product catalog.

Businesses should regularly access the General Department of Customs' portal to stay updated on new guidance documents. These documents often address real-world situations that are not fully covered by general laws.

What are import and export taxes from a legal and economic perspective?

To understand what import and export taxes are, we need to approach them from two perspectives: legal and economic management. Legally, this is a type of tax regulated by the Export Tax Law., Import tax law No. 107/2016/QH13. This is an indirect tax, meaning the taxpayer is not the ultimate tax bearer; instead, this cost is typically incorporated into the selling price to consumers.

Economically, this type of tax acts as a "technical barrier" and a macroeconomic regulatory tool. Export taxes are typically levied on natural resources or raw materials that the government wants to restrict exports of in order to prioritize domestic processing. Conversely, import taxes help protect nascent domestic industries from the influx of cheap foreign goods.

In auditing practice, we define import and export taxes as an expense requiring rigorous risk management. Misunderstanding the nature of these taxes can lead to significantly inaccurate financial reporting, particularly regarding tax provisions and potential obligations to Customs authorities.

The role of import and export taxes in corporate financial management.

Import and export taxes are not simply a payment to the government; they are crucial variables in the break-even point calculation and product pricing. When a business understands what import and export taxes are and the tax refund mechanisms, they can develop an optimal purchasing strategy.

Firstly, it directly affects the cost of goods sold (COGS). A small error in applying the HS code can change the tax rate from 0% to 20%, resulting in a complete loss of profit margin. Secondly, it is a tool for optimizing cash flow through temporary import/re-export schemes or importing raw materials for the production of export goods.

In today's AI era, tax management also helps businesses build trust with financial institutions. A clean tax record and good compliance with customs regulations are the clearest evidence of a company's strong internal management, increasing its ability to access preferential loan sources.

What goods are subject to import and export taxes?

According to Article 2 of the 2016 Law on Export and Import Taxes, the following entities are required to declare and pay taxes:

• Goods passing through border crossings: This includes all goods transported by road, water, air, rail, and international postal services.
• Goods traded between the domestic market and the free trade zone: Businesses in export processing zones need to take note of this point. When bringing goods from the domestic market into the free trade zone (and vice versa), this process is considered an import/export activity.
• Goods imported and exported on-site: Transactions where goods do not leave Vietnamese territory but ownership is transferred between a domestic enterprise and a foreign trader.

However, the law also clearly stipulates cases that are exempt from tax, such as goods in transit, humanitarian aid, or oil and gas used to pay resource tax. Accurately determining whether goods are subject to tax is the first step in controlling tax risk.

Who is obligated to pay import and export taxes?

Identifying taxpayers is not limited to the owner of the goods. Under current regulations, this list includes:

• The owner of the goods must directly sign the customs declaration form at the customs branches.
• Organizations that act as import and export agents for other entities.
• Passengers entering or leaving the country carrying goods exceeding the permitted baggage allowance.
• Authorized or guarantor to pay taxes on behalf of the taxpayer (such as customs clearance agents, postal services, international express delivery companies).

Note for SMEs: When delegating to a third party, the ultimate legal responsibility for the accuracy of tax data usually remains with the shipper. Therefore, choosing a reputable logistics partner is a prerequisite to protecting the rights and reputation of the business before the law.

The basis for calculating import and export taxes is detailed according to regulations.

This is the core element that every chief accountant needs to master in order to file accurately. The general formula is defined as follows:

Tax amount = Taxable value x Tax rate

Customs Value

For exports, the taxable value is the selling price at the export port (FOB price, DAF price), excluding insurance and international freight costs. For imports, the value is usually the actual price paid up to the first port of entry (CIF price). Determining this value must strictly comply with the WTO Agreement on Customs Valuation (ACV).

Tax Rates

This part is complicated because there are many different tax rates applied to imported goods:

• Most Favored Nation (MFN) tax rate: This applies to goods from WTO member countries.
• Special preferential tax rates (FTA): This applies when there is a certificate of origin (C/O) from regions with trade agreements such as EVFTA and CPTPP.
• Standard tax rate: Usually, the preferential tax rate of 150% applies to all other cases.

In addition, goods may be subject to other taxes such as VAT, excise tax, environmental protection tax, or anti-dumping tax, depending on the specific category of goods.

Real-world case study: Lessons learned about applying the wrong HS code and its consequences.

Situation: Company A (SME in Ho Chi Minh City) imports "Integrated Touchscreen Control Panels" for assembling medical equipment. The accountant arbitrarily applied HS code 0% at tax rate, believing it to be a specialized medical component.

Expert analysis: Upon post-clearance inspection, the Customs authorities determined that this item belongs to the general group of electronic control equipment. The actual import duty rate is 10% and the VAT is 10%.

Damage figures for illustration:

• Value of the shipment: 5,000,000,000 VND.
• Import tax arrears to be collected: 500,000,000 VND.
• Additional import VAT: 50,000,000 VND.
• Late payment penalty (estimated): ~60,000,000 VND.
• Administrative penalty (20%): 110,000,000 VND.

Total damage: Over 720,000,000 VND. This error caused the business to be downgraded in priority ranking, leading to subsequent shipments being frequently subjected to Red Channel inspections, causing production disruptions.

Comparing common import tariff rates

Identifying the correct import tax rate helps businesses optimize costs and comply with legal regulations. Currently, there are three common types of tax rates: preferential (MFN), special preferential rates under FTA agreements, and normal rates. Each type applies to different groups of countries, with varying conditions regarding origin documentation and levels of preferential treatment. The table below will help you quickly and easily compare these tax rates.

Comparison table of common import tax rates

Tax rate type	Applicable objects	Necessary conditions	Level of preferential treatment
Most Favored Nation (MFN)	WTO member countries	Standard Certificate of Origin	Medium
Special offer	Regions with FTAs	Corresponding Certificate of Origin (EUR.1, D…)	Highest (usually 0%)
Normally	Countries that do not have MFN relations	No special conditions required.	Lowest (MFN + 50%)

Expert opinion: Risks and solutions for businesses

The biggest risk lies not in the tax rate, but in the inconsistency in the documentation. Customs now manages risk based on historical data. A small error can lead to the entire system being subjected to tight scrutiny.

Another serious issue is explaining the taxable value. Importing goods at low prices to reduce taxes will raise suspicions of fraud. My advice: Invest in staff training, utilize the "Pre-determination of Tariff Classification Code" option, and conduct regular internal tax audits to proactively correct errors.

Don't just look at the MFN tariff rate. Ask your supplier to send the correct type of Certificate of Origin (C/O) to benefit from the 0% rate. Many SMEs are wasting billions of dong each year because they don't know how to check the validity of certificates of origin.

Conclude

Understanding import and export taxes is a sharp financial management strategy for any business. Compliance with the law is the strongest shield in international business operations. Don't let errors in HS codes erode your profits and reputation in the marketplace.

If your business needs support with financial settlements or in-depth consulting, MAN – Master Accountant Network is always ready to assist. We are proud to be a trusted partner in the following areas: Auditing, Tax accounting, Tax settlement and Tax reporting Standards that help you develop a sustainable business.

Service contact information at MAN – Master Accountant Network

• Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
• Mobile/Zalo: 0903 963 163 – 0903 428 622
• Email: man@man.net.vn

Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.

What are some frequently asked questions about import and export taxes?

Are gifts from abroad subject to tax?

There is a certain tax-free limit (usually under 2 million VND). If the value exceeds this limit, you must pay tax on the difference as per regulations.

Are taxes refunded if imported goods are defective and returned?

Yes. Goods that have already paid import tax but are re-exported back to the foreign consignor will be considered for import tax refund and export tax exemption if all documentation is complete.

How can I find out the exact HS code of a product?

You can consult the catalog or submit a sample to the Customs Inspection Department to request a pre-determination document for the official tariff code.

Is a Certificate of Origin (C/O) mandatory for FTA tax rates?

Mandatory. Businesses must submit a valid self-certification document or Certificate of Origin (C/O) within the specified timeframe to qualify for preferential treatment.

Will I be heavily penalized if I discover I've made a tax return error?

If you proactively file an amended tax return before an audit is scheduled, you will usually only pay the outstanding tax and late payment penalties, avoiding heavy administrative fines.