Joint Circular No. 120/2000/TTLT-BTC-BCN-TCHQ on supplementing and amending tax policies according to the domestic production ratio for products and spare parts in the mechanical-electrical-electronic industry, guiding Circular No. 176/1998/TTLT-BTC-BCN-TCHQ dated December 25, 1998, issued by the Ministry of Finance, Ministry of Industry, and General Department of Customs.

JOINT CIRCULAR

JOINT CIRCULAR NO. 120/2000/TTLT-BTC-BCN-TCHQ OF THE MINISTRIES OF FINANCE AND INDUSTRY AND THE GENERAL DEPARTMENT OF CUSTOMS DATED DECEMBER 25, 2000 ON SUPPLEMENTING AND AMENDING TAX POLICIES AT DOMESTIC CONTENT RATES FOR PRODUCTS AND PARTS IN THE MECHANICAL-ELECTRICAL-ELECTRONICS SECTORS GUIDED BY JOINT CIRCULAR NO. 176/1998/TTLT-BTC-BCN-TCHQ DATED DECEMBER 25, 1998 OF THE MINISTRIES OF FINANCE AND INDUSTRY AND THE GENERAL DEPARTMENT OF CUSTOMS

Pursuant to the opinions of the Prime Minister in Circulars No. 4830/KTTH dated September 24, 1997, No. 1440/CP-KTTH dated November 7, 1998, No. 2687/VPCP-KTTH dated July 15, 1998, and No. 3300/VPCP-KTTH dated August 9, 2000 of the Government Office on tax policies at domestic content rates for products.

To promote the production and manufacturing of domestic components, parts, and products to replace imports and address issues arising during implementation while strengthening management and inspection measures to prevent revenue loss to the State budget, the Ministries of Finance and Industry and the General Department of Customs hereby jointly issue supplementary and amended guidelines for implementing tax policies at domestic content rates for products and parts in the mechanical-electrical-electronics sectors as guided by Joint Circular No. 176/1998/TTLT-BTC-BCN-TCHQ dated December 25, 1998 of the Ministries of Finance and Industry and the General Department of Customs, as follows:

I. Replace Point 3 (conditions for applying import tax at domestic content rates) with new Point 3, as follows: 3. Conditions for Applying Import Tax at Domestic Content Rates:

To apply the import tax rate at domestic content rates, enterprises must meet all of the following conditions:

3.1 - Possess technical qualifications and production technology capabilities in accordance with the guidance of the Ministry of Industry.

3.2 - A registration form for implementing domestic production of products and parts - confirmed by the Ministry of Industry.

3.3 - Documentation ensuring the legality of industrial property rights from the competent authority for the product registered under the domestic content tax policy.

3.4 - Directly importing components, sub-assemblies, parts, raw materials for production.

3.5 - Completing 100% payment for imported consignments through a bank.

3.6 - Paying VAT according to the input tax credit method.

II. Replace Point 4 (domestic content rate) with new Point 4, as follows:

4. Domestic Content Rate:

4.1: The domestic content rate is determined by the following formula:

Where:

- Z: Imported price or selling price of the product; Complete part that the enterprise produces or assembles.

+ Imported price: Purchase price at the port of entry - Vietnam (CIF price). The imported price is determined based on invoices and related import documents. In cases where the product or part has not been imported in complete form, enterprises shall base their declaration on the CIF price of similar products or parts in the regional market - The imported price applied for determining the domestic content rate in the first fiscal year of domestic production implementation.

* (Fiscal year is the calendar year starting January 1 and ending December 31 annually or a twelve-month period other than the calendar year approved by the Ministry of Finance for enterprises to apply).

+ Selling price of the product: Weighted average selling price excluding VAT and promotional allowances, purchase bonuses, and agent commissions. The selling price of the product is determined based on the enterprise's accounting records and sales invoices (as prescribed by the Ministry of Finance).

- I: Value of imported semi-finished goods, components, sub-assemblies, and parts directly imported by the enterprise.

4.2: Determining the domestic content rate for the next year:

At the end of the fiscal year, the enterprise must re-evaluate the actual domestic content rate achieved to determine the import tax rate for the product or part for the next fiscal year.

The domestic content rate for the product or part for the next fiscal year is determined based on the actual domestic content rate of the previous fiscal year. Here, indicator (Z) is the selling price of the product as guided in Point 4.1; Indicator (I) is the actual CIF import value.

Within sixty days (60 days) after the end of the fiscal year, the enterprise must submit a final report on the implementation of domestic production to the Ministry of Industry, the customs office handling import procedures, and the tax authority where the enterprise registers for tax payment: The final report (confirmed by an auditing agency) must clearly specify the actual domestic content rate of the registered product or part. The enterprise director is personally responsible under the law for the truthfulness and accuracy of the data in the final report.

The customs office handling import procedures, based on the actual domestic content rate achieved in the final report, will calculate and collect the corresponding import tax. This tax rate will be applied starting from the next fiscal year. If within sixty days (60 days) after the end of the fiscal year, the customs office has collected a different import tax than the rate the enterprise was entitled to, it will recalculate and collect the import tax for the enterprise according to the actual domestic content rate achieved as reported in the final report.

The Customs Authority where the enterprise processes the import procedures shall base on the actual domestic content ratio reported in the final settlement report to calculate and collect the corresponding import tax according to the actual domestic content ratio. This import tax rate shall be applied starting from the next fiscal year. In case, within sixty days (60 days) following the end of the fiscal year, the Customs Authority has collected an import tax different from the rate that the enterprise is entitled to, it shall calculate and collect the import tax for the enterprise in accordance with the correct import tax rate corresponding to the actual domestic content ratio achieved as reported in the final settlement report.

For product models and spare parts that enterprises register to implement localization but only produce and assemble within one year (without implementing localization in the following year), upon completion of production and assembly of these products and spare parts (no later than 30 days), enterprises must submit a final report in accordance with the guidelines and pay import tax based on the actual localization rate achieved. If the actual localization rate is higher than the registered localization rate, the enterprise will be refunded the paid import tax; if the recalculated localization rate is lower than the rate registered with the Ministry of Industry, the enterprise will have to pay additional taxes according to the corresponding tax rate based on the actual localization rate.

4.3- In cases where enterprises import components and spare parts solely for assembly without production or use of domestically produced components and spare parts, or use domestic products and components but only as secondary products and parts (packaging, promotional materials, user manuals), they shall only be subject to the import tax rate based on the lowest localization rate.

III- Replace Point 6 (Priority Index) with new Point 6, as follows:

6- Encouragement Index:

For enterprises producing and assembling products and spare parts that require encouragement, the import tax rate based on the localization rate will be reduced as follows:

Tk = Ts x (1 - k)

including:

- Tk: Encouragement import tax rate

- Ts: Actual import tax rate based on the localization rate achieved

- k: Encouragement coefficient (k ≤ 0.5 - the tax reduction does not exceed 50% compared to the tax payable). The encouragement coefficient is uniformly applied to each type of product and spare part listed in the investment encouragement product and spare part list. The application period of the encouragement coefficient shall not exceed five years and shall decrease annually.

List of products and spare parts requiring investment encouragement; Application period of the encouragement coefficient; Encouragement coefficient for products and spare parts shall be announced by the Ministry of Industry after obtaining the unified opinion of the Ministry of Finance and the Ministry of Science, Technology, and Environment.

IV- Replace Point 7 (Implementation Organization) with new Point 7, as follows:

7- Implementation Organization:

7.1- Registration Documents.

Enterprises producing and assembling products and spare parts must submit registration documents to the Customs Authority (where import procedures are handled) to apply for import tax rates based on the localization rate for the year, including:

7.1.1- Confirmation from the Ministry of Industry regarding technical conditions, technological capacity for production, and the localization rate of the enterprise's products and spare parts (for products and spare parts registered for localization in the first year).

7.1.2. List and quotas of semi-finished products, details, sub-assemblies, and components constituting a product or spare part. Among them, there should be a list of imported semi-finished products, details, sub-assemblies, and components together with their import prices (CIF) and a list of domestically produced semi-finished products, details, sub-assemblies, and components (for details, sub-assemblies, components, and spare parts produced by the enterprise itself or purchased from domestic producers and assemblers, the supplier's name must be clearly stated).

If an enterprise registers to apply the import tax rate on raw materials based on the localization rate, it must provide a list and quotas of imported raw materials for producing those products and spare parts.

7.1.3- Registration form for applying VAT deduction method - with the approval of the tax authority where the enterprise registers to pay taxes.

7.1.4- The registration documents are submitted once to the Customs Authority. Based on the localization rate determined by the Ministry of Industry, the Customs Authority will calculate and collect the import tax based on the localization rate and implement this for one year (based on the fiscal year) even if the enterprise replaces the registered supply source.

If the Customs Authority discovers that an enterprise imports goods but does not meet the conditions specified in Point 3, Section I of this Circular, it will prepare a Record and not apply the import tax rate based on the localization rate.

7.2- Monitoring and Settlement of Imported Goods:

7.2.1- Monitoring imported goods: when importing, enterprises are responsible for declaring the quantity and import price of each type of raw material, semi-finished products, details, sub-assemblies, and components, and maintaining records of imported goods according to the regulations of the Customs Authority. The General Department of Customs guides local Customs Authorities to monitor imported goods to facilitate enterprises and prevent tax evasion.

7.2.2- Settlement of imported goods: no later than 60 days from the end of the fiscal year, enterprises must compile a settlement report on the importation, production, and assembly situation of the previous year. Specifically:

- A table calculating the actual localization rate achieved in the year, determined according to the guidelines in Section II of this Circular.

- Quantity of imported semi-finished products, details, sub-assemblies, and components; Quantity of domestically produced details, sub-assemblies, components, and spare parts; Quantity used in production and assembly; Quantity of products and spare parts produced; Quantity carried over to the next year; Quantity sold or not used for production and assembly purposes.

- Business license suitable for the registered business activities (photocopy) of enterprises selling details, sub-assemblies, components, and spare parts produced domestically to enterprises registered for product and spare part localization.

Data in the settlement report must be confirmed by an independent auditing agency.

Based on the final settlement report of the enterprise, the Customs authority where the enterprise has registered to apply import tax rates according to the localization ratio shall calculate and collect the import tax for the products and spare parts of the enterprise at the actual localization rate achieved in accordance with the provisions of this Circular. In case of doubt, the local Tax authority shall take the lead in coordinating with the local Customs authority to inspect the importation, production, domestic procurement sources, etc., to determine the actual localization rate of the enterprise and report the inspection results (minutes) to the Ministry of Finance, the Ministry of Industry, and the General Department of Customs. The Customs authority shall recalculate the import tax rate corresponding to the localization rate determined in the inspection minutes. If the enterprise engages in fraud or tax evasion, it will be subject to penalties as prescribed by law.

V. Other Provisions:

This Circular takes effect from January 1, 2001. The provisions set forth in Circular No. 176/1998/TTLT-BTC-BCN-TCHQ dated December 25, 1998, issued jointly by the Ministry of Finance, the Ministry of Industry, and the General Department of Customs, which do not conflict with the provisions of this Circular, shall remain in force.

For enterprises that have registered to implement localization in the production of products and spare parts and have been recorded by the Ministry of Industry before January 1, 2001, if they do not need to re-register, they may continue to implement according to the provisions of this Circular. Enterprises that do not meet the conditions specified in Point 3 of Section I of this Circular shall only be allowed to apply the import tax rate corresponding to the localization rate recorded by the Ministry of Industry before January 1, 2000, but not later than March 1, 2001. For these cases, based on the enterprise's report, the Customs authority shall settle accounts for the enterprise. If it is found that the enterprise is not complying with the regulations, the import tax must be collected retroactively at the applicable rate stipulated in the Import Tariff and current regulations, while compiling and reflecting any unreasonable points to the General Department of Customs for consideration and resolution by the General Department of Customs together with the Ministry of Finance and the Ministry of Industry.

During implementation, if there are any difficulties, organizations and individuals are advised to promptly reflect them to the relevant ministries for appropriate handling.