Circular No. 07/2004/TT-BTM on guiding detailed classification of production materials, supplies, and spare parts exempted from import tax for five years from the start of production for foreign-invested enterprises and joint venture parties under business cooperation contracts as stipulated in Clause 10, Article 1 of Decree No. 27/2003/NĐ-CP dated March 19, 2003 of the Government.

 CIRCULAR

Regarding guiding the classification for duty-free importation within

five years from the start of production for foreign-invested enterprises and joint ventures under business cooperation contracts as stipulated in Clause 10, Article 1 of the Decree

No. 27/2003/NĐ-CP dated March 19, 2003 of the Government

Based on Decree No. 24/2000/NĐ-CP dated July 31, 2000 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam;

Based on Decree No. 27/2003/NĐ-CP dated March 19, 2003 of the Government amending and supplementing some articles of Decree No. 24/2000/NĐ-CP dated July 31, 2000 detailing the implementation of the Law on Foreign Investment in Vietnam;
After reaching consensus with relevant Ministries and Departments, the Ministry of Trade guides the detailed classification of production materials, supplies, and components that are exempt from import duties for five years from the start of production for foreign-invested enterprises and joint ventures under business cooperation contracts as follows:
1.1. Joint ventures, wholly foreign-owned enterprises, and joint ventures under business cooperation contracts under the Law on Foreign Investment in Vietnam (hereinafter referred to collectively as enterprises) are granted investment permits for the following sectors and areas and are exempt from import duties on production materials, supplies, and components for five years from the start of production:

I. GENERAL PROVISIONS

1. Scope of Application and Regulatory Scope

- Investment projects falling under the "Special Encouraged Investment Fields List" prescribed in Part I of Appendix I attached to Decree No. 27/2003/NĐ-CP dated March 19, 2003 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam (hereinafter referred to collectively as Decree No. 27/2003/NĐ-CP).

- Investment projects falling under the "List of Areas with Particularly Difficult Economic and Social Conditions" prescribed in Section A, Part III of Appendix I attached to Decree No. 27/2003/NĐ-CP.

- Investment projects falling under the field of production of mechanical, electrical, and electronic components as prescribed in Clause 10, Article 1 of Decree No. 27/2003/NĐ-CP.

1.2. The exemption of import duties on production materials, supplies, and components for investment projects under the Build-Operate-Transfer (BOT), Build-Transfer-Operate (BTO), and Build-Transfer (BT) models shall be implemented according to the provisions of Decree No. 62/1998/NĐ-CP dated August 15, 1998 of the Government on the regulations for investment under Build-Operate-Transfer, Build-Transfer-Operate, and Build-Transfer contracts applicable to foreign investment in Vietnam.

1.3. This Circular does not apply to replacement parts, accessories, and consumable materials for the operation of machinery, equipment, transportation means, and factory buildings in investment projects.

2.1. "Production materials" refers to raw materials that must undergo processing, manufacturing, or direct transformation to form products as specified in the Investment Permit.

2. Explanation of terms

The terms used in this Circular shall be understood as follows:

2.2. "Supplies" refers to materials used in the production process to create products but do not directly constitute the product. Supplies do not include packaging and wrapping materials for completing the product.

2.3. "Components" refers to imported electronic, semiconductor, and mechanical parts used for assembling complete products.

3. Conditions for enjoying duty-free importation

3.1. The Investment Permit issued must specify one of the following three cases:

- Products fall under the "Special Encouraged Investment Fields List";

- Investment location falls under the "List of Areas with Particularly Difficult Economic and Social Conditions";

- Investment project falls under the field of production of mechanical, electrical, and electronic components.

3.2. Production materials, supplies, and components exempt from import duties must not belong to the "List of Domestic Raw Materials and Semi-finished Products" published annually by the Ministry of Planning and Investment.

3.3. For projects where the Investment Permit specifies an export ratio, if the enterprise fails to achieve the export ratio for two consecutive years, it will not be considered for duty-free importation but may be considered for tax refund on a yearly basis if the enterprise achieves the specified export ratio in that year. In the case where the enterprise exports products to export-processing zones, the tax refund will only be considered after the export-processing zone has exported the products.

3.4. For projects under the "List of Areas with Particularly Difficult Economic and Social Conditions" with multiple production facilities in different locations, they can only enjoy duty-free importation of production materials, supplies, and components based on the production capacity of the facility located in the area with particularly difficult economic and social conditions.

4. Time period for duty-free importation

It is the time when the investment project begins its production and business operations as confirmed by the issuing authority of the Investment Permit.

II- CLASSIFICATION OF PRODUCTION MATERIALS, SUPPLIES, AND COMPONENTS ELIGIBLE FOR DUTY-FREE IMPORTATION

1. Investment in special encouraged fields

1.1. Production and export of at least 80% of the products

- Production materials;

- Supplies;

- Components.

1.2. Processing agricultural, forestry, and aquatic products (excluding wood) from domestic raw materials and exporting at least 50% of the products.

- Food additives;

- Chemicals for processing products.

1.3. Producing new high-quality and economically efficient varieties

- Original seeds, eggs, and seeds of plants and animals;

- Feed for breeding animals;

- Veterinary drugs;

- Plant protection chemicals;

- Fertilizers;

- Chemicals for caring for plant and animal seeds;

- Substances for creating growing environments for plant and animal seeds.

1.4. Cultivation of agriculture, forestry, and aquaculture

- Seeds of plants and animals, eggs, and seeds;

- Animal feed;

- Chemicals for caring for crops and livestock;

- Plant protection chemicals;

- Fertilizers;

- Chemicals for caring for plant and animal seeds;

- Substances for creating growing environments for plants and animals.

1.5. Production of high-grade steel, alloys, non-ferrous metals, special metals, steel billets, spongy iron; smelting pig iron

- Steel billets and non-ferrous metal billets used for producing high-grade steel, alloys, non-ferrous metals, special metals, and spongy iron;

- Metal ores and iron ores used for smelting pig iron;

- Various supplies and fluxes used in metallurgy;

- Surface coatings;

- Rust inhibitors and fire retardants used in processing and production.

- Anti-rust agents and fire-retardant agents used in processing and production.

1.6. Production of machinery, equipment, and component parts in the fields of oil and gas extraction, mining, energy; production of large lifting equipment; production of metalworking machine tools and metallurgical equipment; production of medical equipment for analytical technology and extraction technology in medicine; production of food toxic substance testing equipment; production of waste treatment equipment.

- Metal in all forms of billets, sheets, bars, coils, pipes;

- Machine components, parts, and spare parts for assembly to produce products;

- Plating materials, various types of paint, thermal insulation coatings, electrical insulation coatings, welding materials;

- Polishing materials, mold release agents, fire retardants;

- Electronic components, electronic component assemblies used for assembling control units and other components to complete the product.

1.7. Application of new technology to produce information and telecommunications equipment; production of high-tech industrial information technology products.

- Metal in all forms of billets, sheets, bars, coils, pipes;

- Machine components, parts, and spare parts for assembly to produce products;

- Plating materials, various types of paint, thermal insulation coatings, electrical insulation coatings, welding materials;

- Semiconductors, printed circuit boards;

- Soldering materials, bonding materials, surface coating materials, additives;

- Product shells (metal or plastic granules...), conductive wires;

- Polishing materials, mold release agents, fire retardants;

- Electronic components, main circuit boards, printed circuit boards, capacitors, microprocessor chips (CPU), integrated circuits (IC), resistors, potentiometers, sensors, electrical cables, signal cables, optical fibers, display screens, and other components to complete the product.

1.8. Production of new materials, precious materials; application of new biotechnology.

- Raw materials for producing new materials, precious materials;

- Biological raw materials, enzymes;

- Raw materials for producing products using biotechnology;

- Chemicals involved in production;

- Culture medium preparation materials;

1.9. Pollution treatment and environmental protection, waste processing.

- Various types of chemicals for waste processing, pollution treatment, and environmental protection;

- Microbial raw materials for waste processing and pollution treatment.

1.10. Production of antibiotic raw materials.

- Inorganic and organic chemicals for producing antibiotic raw materials;

- Bacteria for culturing antibiotic substances;

- Culturing environment for bacteria;

- Extracts from the bacterial culturing environment.

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

Investment projects in areas with extremely difficult socio-economic conditions are exempted from import duties on production raw materials and supplies but not exempted from import duties on components.

3. Investment projects producing mechanical, electrical, and electronic components and spare parts.

3.1. Production of mechanical components and spare parts.

- Metal in all forms of billets, sheets, bars, coils, pipes;

- Plating materials, various types of paint, thermal insulation coatings, electrical insulation coatings, welding materials, chemicals;

- Components for assembling complete products as follows:

+ Motors, drive mechanisms, gearboxes of machinery, equipment, transportation means;

+ Components and spare parts of motors, drive mechanisms, gearboxes of machinery, equipment, transportation means;

+ Components and spare parts of precision mechanical products.

3.2. Production of electrical components and spare parts.

The production raw materials, supplies, and components exempted from import duties mentioned below only apply to the production of spare parts and components for power generation, transmission, and distribution equipment (including power generation units, distribution equipment, power transmission equipment in the electricity sector, substations).

- Metal in all forms of billets, sheets, bars, coils, pipes;

- Chemicals, plating materials, various types of paint, thermal insulation coatings, electrical insulation coatings, welding materials;

- Conductive metal wires;

- Polishing materials, mold release agents, fire retardants;

- Electronic components, electronic component assemblies, display screens used for assembling control units and operating the aforementioned electrical machinery and equipment.

3.3. Production of electronic components.

- Semiconductors, printed circuit boards;

- Soldering materials, bonding materials, surface coating materials, additives;

- Electronic components, main circuit boards, printed circuit boards, capacitors, microprocessor chips (CPU), integrated circuits (IC), resistors, potentiometers, sensors, semiconductors, electrical cables, signal cables, optical fibers.

III- IMPLEMENTATION

1. Adjustment, supplementation, and publication of the List.

Based on actual conditions or upon the proposal of relevant ministries, the Ministry of Commerce will announce the supplementation and adjustment of the List of production raw materials, supplies, and components exempted from import duties for each investment field specified in Part II of this Circular.

2. Procedures for confirming exemption from import duties.

2.1. The Ministry of Commerce is the authority responsible for annually confirming the exemption from import duties on production raw materials, supplies, and components for enterprises as stipulated in this Circular.

2.2. Documents for requesting confirmation of exemption from import duties.

- A letter from the enterprise accompanied by a list of production raw materials, supplies, and components requested for confirmation of exemption from import duties (according to Form 1);

- A copy of the Investment License (only submitted once);

- An excerpt from the Technical and Economic Justification for the production part (capacity, annual costs of production raw materials, supplies, components);

- Usage quotas for production raw materials, supplies, components;

- Confirmation document from the Investment License issuing agency regarding the project's start date of production activities (only submitted once);

- Report on the importation of production raw materials, supplies, components of the previous year (for projects operating from the second year onwards);

- For projects where the Investment License specifies an export ratio, in addition to the above documents, from the second year of production onwards, enterprises must also submit a confirmation from the local Tax Bureau regarding the total revenue and export value of the enterprise in the previous year.

2.3. For enterprises requesting exemption from import duties in the fifth year of production, in addition to the documents specified in Point 2.2 above, enterprises need to supplement a report on the inventory of production raw materials, supplies, and components exempted from import duties of the previous year.

2.4. For enterprises that have not been confirmed by the Ministry of Commerce for exemption from import duties on production raw materials, supplies, and components since the effective date of Decree 27/2003/NĐ-CP, in addition to the documents specified in Point 2.2 above, enterprises need to supplement a list of production raw materials, supplies, and components that the enterprise has imported (according to Form 2).

3. Time limit for responding to requests for confirmation of exemption from import duties.

Within 15 days from the date of receipt of complete documents, the Ministry of Commerce will issue a confirmation or non-confirmation document for exemption from import duties for the enterprise. If not confirmed, the Ministry of Commerce must clearly state the reasons for non-confirmation in the reply document.

IV- VIOLATION HANDLING AND EFFECTIVE IMPLEMENTATION.

1. Handling of violations.

An enterprise that violates the provisions set out in this Circular shall be subject to full recovery of previously exempted import tax and may be administratively sanctioned or criminally prosecuted depending on the severity of the violation, in accordance with the law.

2. Effective Date

2.1. This Circular shall take effect fifteen days from the date of publication in the Official Gazette.

2.2. This Circular replaces the provisions at Clause b, Section I, Part I of Circular No. 26/2001/TT-BTM dated December 4, 2001, issued by the Ministry of Trade to amend and supplement certain points of Circular No. 22/2000/TT-BTM dated December 15, 2000, issued by the Ministry of Trade guiding the implementation of Decree No. 24/2000/NĐ-CP dated July 31, 2000, promulgating detailed regulations for the implementation of the Law on Foreign Investment in Vietnam regarding import and export activities and other commercial activities of foreign-invested enterprises.

Model 1

1- Enterprise name

2- Investment License

(Record the number of the Investment License issued on... month... year... and the name of the issuing authority).

3- Date the project commenced business operations

(Record the date... month... year... when the enterprise began business operations according to the confirmation of the issuing authority).

Example: The project commenced business operations on January 1, 2003, as confirmed by Decision No. 10 of the Management Board of Dong Nai Industrial Zone).

4- Legal basis for exemption from import tax

(Record the investment project of the enterprise being exempted from import tax under which criteria of Decree No. 27/2003/NĐ-CP).

Example: The project is exempted from import tax due to its location in Dien Quan District, Dong Nai Province, which is an area with difficult economic and social conditions).5. List of production materials, spare parts, components requested to be confirmed for exemption from import tax for the year 200... (the nth year of production).

 

 

Note:

- For enterprises producing multiple products but only some products fall within the special encouragement investment sector, they should only list production materials, spare parts, components used to produce products within the special encouragement investment sector.

- For enterprises with facilities located in multiple areas, they should only list production materials, spare parts, components used to produce products in those areas.

- In cases where enterprises request exemption from import tax in the fifth year of production, this list should only include production materials, spare parts, components sufficient to produce until the end of the five-year period from the start of production.

 

Model 2

 

1. Enterprise name:

2. Investment License:

(Record the number of the Investment License issued on... month... year... and the name of the issuing authority).

3. Date the project commenced business operations

(Record the date... month... year... when the enterprise began business operations according to the confirmation of the issuing authority).

Example: The project commenced business operations on January 1, 2004, as confirmed by Decision No. 10 of the Management Board of Dong Nai Industrial Zone).

4. Legal basis for exemption from import tax

(Explain the investment project of the enterprise being exempted from import tax under which criteria of Decree No. 27/2003/NĐ-CP).

Example: The project is exempted from import tax due to its location in Dien Quan District, Dong Nai Province, which is an area with difficult economic and social conditions).

5. List of production materials, spare parts, components already imported requesting confirmation for exemption from import tax.

 

 

Note: The enterprise guarantees the actual use of imported production materials, spare parts, components in accordance with the purpose and location specified in the Investment License.