An Introduction to Processing Contract in Vietnam

Posted 19.01. 2021 by Cekindo

Vietnam provides companies with numerous opportunities in the manufacturing sector because of the mix of a large workforce and low workforce costs. However, organisations that are new to Vietnam’s booming market often overlook the necessity of having an appropriate agreement when doing business in Vietnam.

For an emerging market like Vietnam, the laws are often complex and evolving, and that’s why having a fair contract in place from the get-go can save the company a lot of trouble and hardship in the future. If you are a business owner in need of manufacturing opportunities in Vietnam, don’t leave the contract drafting to the manufacturer who may not have sufficient knowledge of the local law. Get assistance from a specialist instead.

What is a Processing Contract?

In addition to getting help from a professional, it is crucial that you understand what a processing contract is and how it is different from a goods sales contract. Under the Law of Vietnam, a processing contract is defined as an agreement between the manufacturer/processor who produces the goods. The supplier/investor who requests the production and receives the final products pays a fee for the manufacturing process.

Foreigners or foreign companies utilise a processing contract in Vietnam to import raw materials to Vietnam for goods manufacturing and then export the final products to another country. In this case, the foreign companies shall also seek a suitable local entity to process their goods instead of setting up a Vietnam factory.

How is a Processing Contract Different from a Goods Sale Contract?

Therefore, a processing contract in Vietnam must detail information about the supplies, equipment and machinery, raw materials, and finance required before the production starts. The supplier/investor who requests the manufacturing of goods shall also supply all material following the agreed equipment used, quantity, documents, and methods.

As for a goods sale contract, or property sale contract, it is utilised when investors or buyers want to purchase products from local companies during their regular business activities.

Processing Contract

  • Involves the exchange of supplies, equipment, raw materials, and required funds before the commencement of the production
  • Focuses on manufacturing process more than final products
  • Involves suppliers and manufacturers
  • The supplier decides on the product quality and worth and can reject final products with undesired quality

Goods Sale Contract

  • Involves the final product’s price but not the early-stage production
  • Focuses more on final goods instead of processing
  • Involves sellers/manufacturers and buyers
  • Sellers ensure the product quality, and buyers are responsible for finding the defects

How to Prepare a Processing Contract in Vietnam

A processing contract in Vietnam has to be in written form and include the following details:

  • Contracting parties’ and the direct processor’s names and addresses
  • Price of processing
  • Processed products’ quantities and names
  • Time limit and mode of payment
  • Lists of materials and supplies used in the processing, along with the materials and supplies’ values and quantities
  • Inventories of rented, borrowed and donated equipment and machinery with their values
  • Time and location of goods delivery
  • Treatment and disposal measures for faulty goods, scraps, waste materials, machinery and equipment, raw materials, and other supplies upon the processing contract’s termination
  • The validity of the processing contract
  • Names of origin and trademarks of goods

How Cekindo can Assist

Cekindo adopts a pro-active and dynamic approach to assist our clients. We encourage our clients to prepare and review their processing contracts in Vietnam before signing anything.

Our experienced legal consultants at Cekindo have a perfect combination of expertise and knowledge to draft and review your processing contracts in Vietnam properly. We also help you with contract modification and enforcement so that you can get the most out of a deal.

We work with our individuals and companies across diverse industries and company sizes, both nationally and internationally.

Contact us via the form below.