What should you keep in mind when processing goods for foreign traders?

Processing goods for foreign traders opens up opportunities to develop international markets for Vietnamese businesses. This activity helps businesses take advantage of human resources, improve production capacity and access advanced technology. We invite you to follow the following article. Long Phan will analyze in detail the important issues that arise when your business processes goods for foreign partners.

Regulations on processing goods for foreign traders

Pursuant to Article 178 of the Law on Commercial 2005, specific regulations on goods processing activities for foreign traders. Accordingly, commercial processing is an activity in which the processing party uses part or all of the raw materials and materials of the ordering party to perform one or more stages in the production process at the request of the party order processing to receive remuneration.

In addition, based on Article 38 of Decree 69/2018/ND-CP, when processing goods for foreign traders, Vietnamese traders need to meet the following conditions:

• Vietnamese traders are not allowed to process goods that are banned from export or import; goods temporarily suspended from export or import for foreign traders.
• For goods in the conditional business investment list, only traders that meet all conditions according to regulations on production and trading of that item can process for export to foreign countries.
• For imported goods in the form of designated traders under the management authority of the State Bank of Vietnam, the processing of goods shall comply with the regulations of the State Bank of Vietnam.
• For goods exported and imported under license, traders can only sign processing contracts for foreign traders after being granted a license by the Ministry of Industry and Trade.

Therefore, outsourcing businesses need to comply with regulations to help protect their interests and build sustainable cooperative relationships with foreign partners.

Rights and obligations of the processing party

The processing party has the main rights and obligations specified in Clause 2, Article 42 of Decree 69/2018/ND-CP. Accordingly, when processing goods for foreign traders, Vietnamese traders need to pay attention to the following rights and obligations:

Regarding benefits, the processing party:

• Exemption from export tax and import tax according to the provisions of tax law for temporarily imported goods according to norms and loss rates to perform processing contracts and for exported processed products.
• Hire other traders to process.
• Supply part or all of the raw materials, auxiliary materials, and supplies for processing as agreed in the processing contract; Must pay export tax according to the provisions of the Law on Export Tax and Import Tax on raw materials, auxiliary materials and supplies purchased domestically.
• Receive payment from the ordering party for processed products, except for products on the List of goods banned from import or temporarily suspended from import. For products on the List of goods imported under license and conditions, the regulations on licenses and conditions must be complied with.

Regarding obligations, the processing party must:

• Comply with the provisions of Vietnamese law on export, import, and domestic production of goods and the terms of the signed processing contract.
• Carry out on-site export procedures for processed products; rented or borrowed machinery and equipment; surplus raw materials, auxiliary materials, and supplies; waste products and scrap as authorized by the ordering party.

Rights and obligations of the ordering party

The outsourcing party also has the main rights and obligations specified in Clause 1, Article 42 of Decree 69/2018/ND-CP. And businesses need to clearly understand this regulation to properly carry out their responsibilities in the process of ordering and processing goods for partners in Vietnam.

Regarding benefits, the ordering party can:

• Send experts to Vietnam to guide production techniques and check the quality of processed products as agreed in the processing contract.
• Receive all processed products back; machinery and equipment rented or borrowed by the processing party; Raw materials, sub-materials, supplies, and scrap after liquidating the processing contract, except for cases where they are allowed to be exported on the spot, destroyed, donated, or donated according to the provisions of Decree 69/2018/ND-CP.
• On-site export of processed products; machinery and equipment for rent or loan; surplus raw materials, auxiliary materials, and supplies; waste products and scrap according to the written agreement of the relevant parties, in accordance with current regulations on management of export and import of goods.

Regarding obligations, the ordering party must:

• Deliver part or all of the raw materials and processing materials according to the processing contract or deliver money to buy materials according to the agreed quantity, quality and price.
• Responsible for the right to use trademarks and names of origin of goods.
• Responsible for the legality of intellectual property rights of processed goods, raw materials, materials, machinery and equipment used for processing transferred to the processing party.
• Fulfill tax obligations and other financial obligations according to the provisions of law on export and import management of goods.
• In addition, the ordering party is also responsible for paying fully and on time the processing remuneration and other reasonable expenses to the processing party.

Notes when processing goods for foreign traders

Enterprises need to pay attention to a number of important issues when processing goods for foreign partners. This helps ensure that processing activities take place effectively, comply with the law and bring benefits to all parties.

First, Enterprises need to establish clear and detailed processing contracts. The content of the processing contract must ensure all the minimum terms in Article 39 of Decree 69/2018/ND-CP Specifically, including:

• Names and addresses of the contracting parties and the direct processing party.
• Name and quantity of processed products.
• Processing price.
• Payment terms and payment method.
• List, quantity, value of imported raw materials, sub-materials and supplies and domestically produced raw materials, sub-materials and supplies (if any) for processing; norms for use of raw materials, auxiliary materials and supplies; norms of consumable materials and material loss rate in processing.
• List and value of machinery and equipment rented, loaned or donated for processing (if any).
• Measures to handle scrap, waste, and waste products and principles for handling rented or borrowed machinery and equipment, raw materials, auxiliary materials, and surplus supplies after the end of the processing contract.
• Delivery location and time.
• Trademarks and names of origin of goods.
• The validity period of the contract.

Second, Businesses need to focus on product quality and information security. Ensuring quality according to partners’ requirements helps build reputation and develop long-term cooperative relationships. Securing information about the outsourcing party’s technology and design is an important responsibility of the outsourcing enterprise.

In-depth goods processing consulting services for foreign traders at Long Phan

Long Phan provides in-depth consulting services on goods processing for foreign traders. Our team of experts with many years of experience will support you in every aspect of this activity.

Consulting and support services at Long Phan include:

• Consulting on drafting and reviewing processing contracts.
• Guidance on customs and tax procedures related to export processing.
• Consulting on resolving disputes arising during contract implementation.
• Support negotiations with foreign partners on contract terms.
• Consulting on compliance with legal regulations on labor and intellectual property in outsourcing.

Processing goods for foreign traders opens up great opportunities for Vietnamese businesses. With professional support from Long Phan, customers will implement this activity effectively, comply with the law and develop sustainably. Please contact Long Phan immediately via hotline 0906735386 for detailed advice and comprehensive support.