According to the National Tax Service and other relevant authorities on the 19th, Vietnam's General Department of Taxation last month issued guidance to provincial and municipal tax departments nationwide directing them to apply the revised law on "domestic export-import" to past transactions as well.
Domestic export-import is a system that recognizes transactions between companies located in Vietnam as exports and imports when the goods are used to produce products for export. Because VAT paid during such transactions can be refunded, the system directly affects local manufacturers' cash management.
But in 2022, Vietnamese customs authorities restricted application of the system where a foreign trader maintained a local representative office, tying up funds at companies that had previously received VAT refunds. A survey by the Korean Chamber of Commerce in Vietnam found that delayed refunds and related penalty taxes reported by some responding companies totaled at least 40 billion won. Including firms that did not take part in the survey, the actual figure is estimated to be larger.
The latest measure is expected to sharply ease the liquidity burden borne by Korean manufacturers in Vietnam.
Following repeated requests from the Korean government, Vietnam codified the refund criteria into law in July last year. But the rules were not applied to past transactions, leaving the unrefunded amounts outstanding. President Lee Jae-myung raised the refund issue during his state visit to Vietnam in April this year, and former National Tax Service Commissioner Lim Kwang-hyun urged prompt refunds at a meeting of the Korean and Vietnamese tax chiefs. The Ministry of Trade, Industry and Energy also pressed for changes through high-level talks with Vietnam's Ministry of Finance.