Joint Circular No. 176/1998/TTLT/BTC-BCN-TCHQ guides the implementation of tax policies based on the level of domestic production for products and parts in the mechanical-electrical-electronic industry.

JOINT CIRCULAR

JOINT CIRCULAR NO. 176/1998/TTLT/BTC-BCN-TCHQ OF DECEMBER 25, 1998 ISSUED BY THE MINISTRY OF FINANCE - MINISTRY OF INDUSTRY - GENERAL DEPARTMENT OF CUSTOMS GUIDING THE IMPLEMENTATION OF TAX POLICIES AT DOMESTIC CONTENT RATES FOR PRODUCTS AND PARTS IN THE MECHANICAL - ELECTRICAL - ELECTRONICS SECTORS

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 of the Government, and No. 2687/VPCP-KTTH dated July 15, 1998 of the Office of the Government regarding tax policies at domestic content rates for products;
The Ministry of Finance, the Ministry of Industry, and the General Department of Customs hereby jointly guide the implementation as follows:

1. Applicability:

The import tariff rate based on the domestic content ratio shall be applied to Vietnamese enterprises, enterprises with foreign investment capital (hereinafter referred to as enterprises) operating in the following fields:

- Production and assembly of complete products in the mechanical - electrical - electronics industries (with import tariffs of 30% or higher).

- Production and assembly of parts for the aforementioned complete products (with import tariffs of 30% or higher).

2. Definitions:

2.1 Domestic content: refers to the process of producing and assembling domestically to replace imports.

2.2 Component: refers to an element that has not undergone assembly processes (or an element that cannot be disassembled or divided further).

2.3 Component set: refers to a collection of multiple components assembled together.

2.4 Part: refers to a collection of multiple components, component sets assembled together to perform a specific function of a complete product.

2.5 Parts: refers collectively to the components, component sets, and parts mentioned above.

2.6 Semi-finished product: refers to a component that has not completed all production stages according to design.

2.7 Product: refers collectively to machinery, equipment, tools, utensils, transportation means...

3. Conditions for applying the import tariff based on the domestic content ratio:

To apply the import tariff rate based on the domestic content ratio, enterprises must meet the following conditions:

3.1 Possess a production and assembly technology chain (meeting technical requirements, consistent with investment and business operation permits), inspected and confirmed by the Ministry of Industry.

3.2 Products and parts produced must have a quality registration certificate issued by the standardization, measurement, and quality control agency.

3.3 Register a domestic production localization plan for products.

4. Domestic Content Rate:

The domestic content ratio is determined using the following formula:

Z - I I

N = x 100% = ( 1 - ) x 100%

Z Z

* In which:

- N (%): the domestic content ratio of a product or part.

- Z: the value of imported goods (CIF) of the complete product or part that the enterprise produces and assembles (unit of measurement: USD).

- I: the value of imported semi-finished products, components, component sets, and parts directly imported, entrusted to import, or purchased from other enterprises (unit of measurement: USD).

* For products and parts designed and manufactured by Vietnamese enterprises, Z is the sales price on the invoice of the product or part, minus non-production costs such as advertising, promotional activities, purchase incentives, agent commissions, and indirect taxes payable according to regulations.

* For products or parts with N ≤ 0, the imported semi-finished products, components, component sets, and parts used to produce or assemble those products or parts must pay import duties at the prescribed rates in the Import Tariff Schedule.

5. Import tariff rate based on the domestic content ratio:

5.1 Imported semi-finished products, components, component sets, and parts for the production of products or parts shall be subject to the import tariff rate based on the domestic content ratio as specified by the Ministry of Finance.

5.2 For raw materials imported for the production of products or parts, units may choose to apply one of the two tariff rates below:

- The import tariff rate based on the domestic content ratio of the product or part. (In this case, all raw materials must be subject to a uniform tariff rate based on the domestic content ratio of the product or part).

- The import tariff rate for each type of raw material as stipulated in the Import Tariff Schedule. (In this case, all imported raw materials must be subject to the prescribed tariff rate in the Import Tariff Schedule for each type, including cases where the tariff rate for raw materials is higher than the domestic content ratio tariff rate).

6. Priority Index:

In cases where enterprises producing and assembling products or parts need priority, the import tariff rate based on the domestic content ratio shall be calculated as reduced as follows:

Tk = Ts x (1- k)

Wherein:

- Tk: preferential import tariff rate

- Ts: actual import tariff rate based on the domestic content ratio achieved

- k: adjustment factor (k ≥ 0.5, meaning the tax reduction cannot exceed 50% compared to the amount of tax due).

The Ministry of Industry is the authority responsible for reviewing and announcing priority products and parts and the adjustment factor.

7- Implementation Organization:

7.1 Registration of Documents

Enterprises producing and assembling products and parts must submit to the customs authority (where import procedures are handled) a registration dossier to enjoy the import tariff rate based on the domestic content ratio for the year, including:

- A registration form for the domestic content ratio implemented for each product and part, and confirmation from the Ministry of Industry that the enterprise meets the conditions to implement domestic production localization for products and parts at the registered ratio.

- A list and quota of quantities of semi-finished products, components, component sets, and parts constituting a product or part. Among them, there should be a list of imported semi-finished products, components, component sets, and parts along with their import prices (CIF) and a list of domestically produced semi-finished products, components, component sets, and parts (for parts purchased from domestic production and assembly units, the name of the supplying unit must be clearly stated).

If an enterprise registers to apply the import tariff rate for raw materials based on the domestic content ratio, it must provide a list and quota of quantities of raw materials imported for the production of products and parts.

The above documents are only registered once with the customs authority and are valid for one year.

7.2- Monitoring and Settlement of Imported Goods:

7.2.1- Monitoring imported goods: when importing, enterprises are responsible for declaring in full the quantities of each raw material, semi-finished product, component, subassembly, part, and their import prices, while maintaining a record of imported goods according to the guidance of the Customs authority. The General Department of Customs guides local Customs authorities in monitoring imported goods to facilitate units and prevent abuse of imports for production and assembly to evade import taxes.

7.2.2- Settling accounts for imported goods: no later than March 31 of the following year, enterprises must compile and report on the settlement of importation situations; production and assembly of the previous year; specifically:

- A calculation table of the actual domestic content ratio achieved.

- The quantity imported, the amount used for production and assembly; the quantity of products and spare parts produced; the amount carried over to the next year; the amount sold or not used for the purpose of producing products and spare parts.

All data in the report must be confirmed by the auditing agency and sent to the Ministry of Industry; the Customs authority where the enterprise handles import procedures.

Based on the enterprise's report, the Customs authority proceeds with settling accounts for the enterprise. Any cases of non-compliance discovered during settlement will be subject to tax collection for evaded import taxes at the applicable tariff rates specified in the Import Tariff Schedule and current regulations.

By March 31 of the following year, if an enterprise has not reported for settlement (without a valid explanation), the Customs authority temporarily suspends the application of the tax rate based on the domestic content ratio stipulated in this Decision for subsequent consignments.

8- Other provisions:

8.1- For products and spare parts with an import tariff below 30% (thirty percent) that have been domestically produced but do not yet meet the conditions to increase the tariff to the minimum level of 30% (thirty percent) to benefit from the tax policy based on the domestic content ratio, the Ministry of Industry will consider each specific case requiring protection, coordinating with the Ministry of Finance to handle each case.

8.2- This Circular takes effect from January 1, 1999.

During implementation, if there are any difficulties, units are requested to promptly reflect them for the Inter-Ministerial Committee to study and resolve.