A Guide to Formal Imports in Vietnam: Process, Pros & Cons
1. What is Formal Import?
1.1. The Concept of Formal Trade
Formal trade is a method of international commerce conducted between businesses and companies. This mode of trade is not limited to large corporations; anyone can participate in formal trade, provided they meet the necessary financial and legal requirements.
Formal trade occurs between a buyer and a seller located in two different countries, which do not necessarily need to share a border. This is why it is considered a truly international form of commerce.
For Vietnam, formal trade is characterized by domestic companies signing commercial contracts with foreign partners. These contracts are based on treaties and agreements between nations—between Vietnam and the partner country, or between Vietnam and regional organizations, in accordance with international practices.
1.2. Defining Formal Import
Formal import/export is a method of trade based on foreign trade contracts between a domestic enterprise and a foreign partner. This trade complies with commercial agreements signed between countries, or between a country and specific economic regions or organizations.
Formal import is the official channel for international trade through designated border gates and typically involves large-volume shipments.
Goods imported through formal channels are strictly regulated and closely monitored against criteria such as quantity, quality, food safety, and proper licensing and documentation, as stipulated by specialized government agencies. This also explains why formal imports often take more time and incur higher costs than informal cross-border trade.
2. Advantages and Disadvantages of Formal Import
2.1. Advantages of Formal Import
- Large Value & Volume: Import values are typically large and generally not limited.
- Clear Origin & Documentation: Goods have a clear origin, with complete legal paperwork and invoices, minimizing the risk of seizure by authorities.
- High Stability: The rights and responsibilities of both parties are protected by a commercial contract, providing a legal basis to resolve disputes.
- Secure Transport: International shipping is safer and more reliable, suitable for high-value goods.
- Global Reach: Allows for trade with all countries that have a trade agreement with Vietnam, not just those with a shared border.
2.2. Disadvantages of Formal Import
- Complex Procedures: The official procedures are complex, and goods must be cleared by customs before release (unless special permission is granted for storage pending inspection).
- Higher Costs: Costs are often higher than informal channels due to official customs fees, import/export duties, and other associated charges.
- Strict Control: Goods are subject to rigorous inspection, offering less flexibility.
3. Types of Formal Import
There are two main methods for handling formal imports.
3.1. Direct Formal Import
In this method, the importing company's name appears directly on the customs declaration form as the importer. The company must also directly negotiate and purchase goods from the foreign supplier.
When using the direct import method, the client is responsible for preparing all import procedures. Therefore, they bear full responsibility for any risks related to customs clearance and taxes.
3.2. Entrusted Formal Import (via an Agent)
For entrusted imports, the client hires a third-party service provider (an import or logistics company) to handle the transaction and import process. This agent will act as the importer of record on the declaration and manage all customs procedures on the client's behalf. In return, the service provider charges an entrustment fee.
The client only needs to sign an entrustment contract with the agent, who will then handle customs clearance. In the end, the client receives a legal VAT invoice for the goods along with all relevant import documents. This method saves significant time and effort.
4. The Steps of the Formal Import Process
Step 1: Document Preparation For a formal import, a number of mandatory documents must be prepared. Both the buyer and seller must reach an agreement before proceeding. When you hire a third-party logistics provider like Real Logistics, our team will prepare these documents for you.
Key documents include:
- Sales Contract
- Commercial Invoice
- Packing List
- Bill of Lading (or Air Waybill)
- Customs Declaration
- Letter of Credit (LC) (if applicable)
- Proof of tax payment to the state budget
- Certificate of Origin (e.g., Form E)
- Freight Invoice
- Phytosanitary/Quarantine Certificate (if applicable)
- Other documents may be required depending on the specific commodity.
Step 2: Payment Payment for the invoice is made according to the terms specified in the sales contract. Typically, bank transfers are the most common payment method. The bank used for payment must be licensed for international transactions.
Step 3: Export Customs Clearance & Shipping This is a crucial step at the origin country. If you hire an import-export service, this step will be handled for you. The importer can choose the mode of transport, with the main options being sea, road, and air.
For first-time declarants in Vietnam, it is mandatory to purchase a digital signature (token) and register for a user code and password on the customs system. Declarations are then filed electronically. You can monitor the clearance status via the customs software. If you use an agent, they will manage this entire process.
The customs declaration can fall into one of three channels:
- Green Lane: Code 1, immediate clearance.
- Yellow Lane: Code 2, requires document inspection before clearance.
- Red Lane: Code 3, requires both document inspection and physical cargo inspection.
Step 4: Tax Payment and Cargo Release Order Upon declaration, the importer must pay the calculated duties and taxes. Afterward, a Delivery Order (D/O) is obtained, which requires:
- An introduction letter from the importing company.
- The Bill of Lading.
- Arrival Notice.
For containerized cargo, additional documents like an Equipment Interchange Receipt (EIR) and invoices for handling charges are needed.
Step 5: Cargo in Transit This is the phase where the imported goods are being transported. During this period, both the buyer and seller can track the shipment using a tracking number provided by the carrier. The transit time is an estimate and can be affected by external factors like weather and traffic conditions.
Step 6: Import Customs Clearance Once the goods arrive at the destination port/airport in Vietnam, the import customs procedures must be completed. A third-party service provider can handle all these procedures for you. This process involves re-submitting the documents from Step 1 for verification. For containerized cargo, the client must also arrange for the return of the empty container to reclaim any container deposit.
Thank you for taking the time to read our article. We hope it helps you better understand the formal import process. If you face any difficulties with import-export procedures, consider Real Logistics as your trusted partner. Our team is experienced, honest, and dedicated to every shipment, always putting the client's interests first. We are committed to monitoring and resolving issues to ensure your goods arrive safely, on time, and at the most reasonable cost. Contact us whenever you need to experience the best quality service.
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