Circular No. 07/2004/TT-BTM dated August 26, 2004 of the Ministry of Trade guiding the detailed classification of production raw materials, supplies and components, which are exempt from import tax for 05 years after commencement of production, applicable to foreign-invested enterprises and parties to business cooperation contracts as specified in Clause 10, Article 1 of the Government’s Decree No. 27/2003/ND-CP dated March 19, 2003

CIRCULAR

GUIDING THE DETAILED CLASSIFICATION OF PRODUCTION RAW MATERIALS, SUPPLIES AND COMPONENTS, WHICH ARE EXEMPT FROM IMPORT TAX FOR 05 YEARS AFTER COMMENCEMENT OF PRODUCTION, APPLICABLE TO FOREIGN-INVESTED ENTERPRISES AND PARTIES TO BUSINESS COOPERATION CONTRACTS AS SPECIFIED IN CLAUSE 10, ARTICLE 1 OF THE GOVERNMENT'S DECREE NO. 27/2003/ND-CP OF MARCH 19, 2003

Pursuant to the Government's Decree No. 24/2000/ND-CP of July 31, 2000 detailing the implementation of the Law on Foreign Investment in Vietnam;

Pursuant to the Government's Decree No. 27/2003/ND-CP of March 19, 2003 amending and supplementing a number of articles of Decree No. 24/2000/ND-CP of July 31, 2000 detailing the implementation of the Law on Foreign Investment in Vietnam;

After reaching agreements with the concerned ministries and branches, the Ministry of Trade hereby guides the detailed classification of production raw materials, supplies and components, which are exempt from import tax for 05 years after the commencement of production, applicable to foreign-invested enterprises and parties to business cooperation contracts, as follows:

I. GENERAL PROVISIONS

1. Application subjects and regulation scope

1.1. Joint-venture enterprises, enterprises with 100% foreign capital and parties to business cooperation contracts under the Law on Foreign Investment in Vietnam (hereinafter referred collectively to as enterprises), which have been licensed for investment in the following fields or geographical areas, shall be exempt from import tax on production raw materials, supplies and components for 05 years after the commencement of production:

- Investment projects in the fields on the list of fields where investment is particularly encouraged under the provisions of Part I of Appendix I to the Government's Decree No. 27/2003/ND-CP of March 19, 2003 detailing the implementation of the Law on Foreign Investment in Vietnam (hereinafter called Decree No. 27/2003/ND-CP).

- Investment projects in geographical areas on the list of geographical areas with particularly difficult socio-economic conditions as prescribed in Section A, Part III of Appendix I to Decree No. 27/2003/ND-CP.

- Investment projects in the fields of producing mechanical, electrical and electronic components and spare parts, prescribed in Clause 10, Article 1 of Decree No. 27/2003/ND-CP.

1.2. The exemption of import tax on production raw materials, supplies and components for investment projects in the forms of BOT, BTO or BT contracts shall comply with the Government's Decree No. 62/1998/ND-CP of August 15, 1998 promulgating the Regulation on investment in the forms of build-operate-transfer contract, build-transfer-operate contract and build-transfer contract, applicable to foreign investment in Vietnam.

1.3. This Circular shall not apply to components, spare parts and consumptive supplies for operation of machines, equipment, transport means and workshops in investment projects.

2. Interpretation of terms

In this Circular, the following terms are construed as follows:

2.1. "Production raw materials" mean raw materials to be processed and/or manufactured, which directly constitute products prescribed in investment licenses.

2.1. "Supplies" mean materials to be used in the process of producing products, which, however, do not directly constitute the products. Supplies do not include wrapping materials and packings for completion of products.

2.3. "Components" mean electronic, semi-conducted and mechanical details imported for complete assembly of products.

3. Conditions for enjoying import tax exemption

3.1. Belonging to one of the following cases as prescribed in the granted investment licenses:

- Having products belonging to the list of fields where investment is particularly encouraged;

- Investing in geographical areas on the list of geographical areas with particularly difficult socio-economic conditions;

- Having investment projects in the fields of producing mechanical, electrical and electronic components and spare parts.

3.2. Production raw materials, supplies and components to be exempt from import tax must not be those on the list of raw materials and semi-finished products which can be produced at home, issued annually by the Ministry of Planning and Investment.

3.3. For projects with export percentage prescribed in the investment licenses, if enterprises have failed to reach the export percentage for 2 consecutive years, they shall not be considered for import tax exemption but be considered for reimbursement of import tax on a yearly basis, provided that in that year, enterprises reach the prescribed export percentage. In cases where enterprises export products to export-processing enterprises, they shall be considered for import tax reimbursement only after the export-processing enterprises export such products.

3.4. In cases where investment projects in geographical areas on the list of geographical areas with particularly difficult socio-economic conditions have many production establishments in different geographical areas, they shall only be exempt from import tax on production raw materials, supplies and components according to production capacity of the establishments located in geographical areas with particularly difficult socio-economic conditions.

4. The time for calculation of import tax exemption shall be the time when investment projects commence their production and business activities according to certification of the investment-licensing agencies.

II. CLASSIFICATION OF PRODUCTION RAW MATERIALS, SUPPLIES AND COMPONENTS, WHICH SHALL BE EXEMPT FROM IMPORT TAX

1. Investment projects in the fields where investment is particularly encouraged

1.1. Production and processing of 80% or more of the products for export

- Production raw materials;

- Supplies;

- Components.

1.2. Processing of agricultural products, forest products (except timber) and aquatic products from domestic raw materials, with 50% or more of the products for export

- Foodstuff additives;

- Chemicals for processing products.

1.3. Production of new varieties and breeds with high quality and economic efficiency

- Prototype strains of plants and animals, hatching eggs, sowing seeds;

- Feeds for breeding animals;

- Veterinary drugs;

- Plant protection drugs;

- Fertilizers;

- Chemicals for tending seedlings and breeding animals;

- Substances for creating environment for nurturing seedlings and breeding animals.

1.4. Agricultural farming, afforestation and aquaculture

- Plant varieties and animal breeds, hatching eggs, sowing seeds;

- Feeds for breeding animals;

- Veterinary drugs;

- Plant protection drugs;

- Fertilizers;

- Chemicals for tending plants and animals;

- Substances for creating environment for plant growing and animal rearing.

1.5. Manufacture of high-class steels, alloys, non-ferrous metals, special metals, steel casts, porous iron; metallurgy of pig iron

- Steel casts and non-ferrous metal casts used for manufacturing high-class steels, alloys, non-ferrous metals, special metals and porous iron;

- Metal ores, iron ores used for metallurgy of pig iron;

- Assorted supplies and fluxes used for metallurgy;

- Surface coatings;

- Antirusting agents and fire-proof agents used in processing and production.

1.6. Manufacture of machines, equipment, detail assemblies in the fields of oil and gas exploitation, mining, energy; manufacture of large-size lifting and lowering equipment; manufacture of machine tools for metal working and metallurgical equipment; manufacture of medical instruments for use in analytical technology and extracting technology; manufacture of equipment for testing toxins in foodstuffs; manufacture of waste-treating equipment

- Metals manufactured in forms of cast, plate, bar, roll, tube;

- Machines' components, parts and spare parts for assembly of products;

- Plating agents, assorted paints, heat-resistant and electric-insulated coatings, solders;

- Assorted brighteners, parting agents, fire-proof agents;

- Electronic components and detail assemblies for assembling controllers and other components for completion of products.

1.7. Application of new technologies to the manufacture of communication and telecommunication equipment; production of hi-tech industrial information technology products

- Metals manufactured in forms of cast, plate, bar, roll, tube;

- Machines' components, parts and spare parts for assembly of products;

- Plating agents, assorted paints, heat-resistant and electric-insulated coatings, solders;

- Semi-conductors, boards used as integrated circuits;

- Solders, gluing agents, surface coatings, additives;

- Matters used for manufacture of products' cases (metals or granular plastics…), conductors;

- Brighteners, parting agents, fire-proof agents;

- Electronic components, mainboards, integrated circuit boards, capacitors, micro-processing chips (CPU), electronic chips (IC), resistors, potentiometers, sensors, electronic cables, signal cables, optical fibers, monitors and other components for completion of products.

1.8. Production of new materials, rare and precious materials; application of new bio-technologies

- Initial raw materials for production of new materials; rare and precious materials;

- Biological raw materials, yeasts;

- Raw materials for manufacturing products with bio-technologies;

- Chemicals for use in production;

- Substances for creating culturing environment.

1.9. Pollution treatment and environmental protection, waste treatment

- Assorted chemicals for waste treatment, pollution treatment and environmental protection;

- Microbiological raw materials for waste treatment and pollution treatment.

1.10. Production of antibiotics raw materials

- Inorganic and organic chemicals for production of antibiotics raw materials;

- Bacterium culture for creation of antibiosis;

- Bacterium-culture environment;

- Extracts from bacterium-culture environment.

2. Investment projects in geographical areas with particularly difficult socio-economic conditions

Investment projects in geographical areas with particularly difficult socio-economic conditions shall be exempt from import tax on production raw materials and supplies, but not be exempt from import tax on components.

3. Projects on investment in manufacture of mechanical, electrical and electronic components and spare parts

3.1. Manufacture of mechanical components and spare parts

- Metals manufactured in forms of cast, plate, bar, roll and tube;

- Plating agents, assorted paints, heat-resistant and electric-insulated coatings, solders, and chemicals

- Components for complete assembly of the following products:

+ Engine, transmission parts and gearbox of machines, equipment and transport means;

+ Components, accessories of engine, transmission parts and gearbox of machines, equipment and transport means;

+ Components and accessories of precision mechanical products.

3.2. Manufacture of electrical components and accessories

The import tax-free production raw materials, supplies and components mentioned below shall apply only to the manufacture of accessories and components of electricity-generating,
-transmitting, and -distributing equipment (including electricity generator units, electricity-distributing equipment, transmission equipment of electricity industry and transformer stations):

- Metals manufactured in forms of cast, plate, bar, roll and tube;

- Chemicals, plating agents, assorted paints, heat-resistant and electric-insulated coatings, solders;

- Metal conductors;

- Brighteners, parting agents, fire-proof agents;

- Electronic components, electronic detail assemblies, monitors used for assembly of controllers and for operation of the above-stated electrical machines and equipment.

3.3. Manufacture of electronic components

- Semi-conductors, boards used as integrated circuits;

- Solders, gluing agents, surface coatings and additives;

- Electronic components, mainboards, integrated-circuit boards, capacitors, micro-processing chips (CPU), electronic chips (IC), resistors, potentiometers, sensors, semi-conductors, electric cables, signal cables, optical fibers.

III. IMPLEMENTATION ORGANIZATION

1. Adjustment, supplementation and announcement of the list

The Ministry of Trade shall, basing itself on practical conditions or proposals of specialized managing ministries, announce the supplemen-tation and/or adjustment of the list of production raw materials, supplies and components, which are exempt from import tax for each investment field prescribed in Part II of this Circular.

2. Procedures for certification of import tax exemption

2.1. The Ministry of Trade shall be the agency certifying the exemption of import tax on production raw materials, supplies and components in each year for enterprises as prescribed in this Circular.

2.2. Dossiers of application for certification of import tax exemption

- The enterprise's official dispatch, enclosed with the list of production raw materials, supplies and components proposed for certification of import tax exemption (made according to a set form);

- A copy of investment license (to be submitted for the first time only);

- The extract of techno-economic explanation on production process (capacity and annual costs for production raw materials, supplies and components);

- The norms of using production raw materials, supplies and components;

- The investment-licensing agency's written certification of the time of commencement of production (to be submitted for the first time only).

- The report on the import of production raw materials, supplies and components in the preceding year (for projects operating from the second year on);

- For projects with export percentages prescribed in investment licenses, apart from the above-stated documents, as from the second year on, the enterprises shall have to submit the local Tax Department's certification of their total turnovers and export turnovers earned in the preceding year.

2.3. For cases where enterprises request the import tax exemption in the fifth production year, apart from the dossier prescribed at Point 2.2 above, they should submit the report on the preceding year's production raw materials, supplies and components exempt from import tax, which are left in stock.

2.4. For cases where enterprises have not yet obtained the Trade Ministry's certification of exemption of import tax on production raw materials, supplies and components since the effective time of Decree No. 27/2003/ND-CP, apart from the dossiers prescribed at Point 2.2 above, they should submit the list of production raw materials, supplies and components they have imported (made according to set form).

3. Time-limit for replying the requests for certification of import tax exemption

Within 15 days after receiving full dossiers, the Ministry of Trade shall issue documents certifying or not certifying the import tax exemption for enterprises. In case of refusal to make certification, the Ministry of Trade must clearly state the reasons therefor in the written replies to the enterprises.

IV. HANDLING OF VIOLATIONS AND IMPLEMENTATION EFFECT

1. Handling of violations

Enterprises that commit acts of violating the provisions of this Circular shall be subject to the retrospective collection of the whole import tax amounts already exempted and, depending on the seriousness of their violations, be administratively handled or examined for penal liability according to law provisions.

2. Implementation effect

2.1. This Circular takes effect 15 days after its publication in the Official Gazette.

2.2. This Circular replaces the provisions of Clause b, Section 1, Part I of Circular No. 26/2001/TT-BTM of December 4, 2001 of the Ministry of Trade amending and supplementing a number of points of Circular No. 22/2000/TT-BTM of December 15, 2000 which guides the implementation of the Government's Decree No. 24/2000/ND-CP of July 31, 2000 detailing the implementation of the Law on Foreign Investment in Vietnam regarding import, export and other commercial activities of foreign-invested enterprises.