Circular No. 40/2000/TT-BTC guides the implementation of Decision No. 176/99/QD-TTg dated August 26, 1999 of the Prime Minister on the exemption of import tax for raw materials.

Pursuant to Decree No. 10/1998/NĐ-CP dated January 23, 1998 of the Government on certain measures to encourage and ensure foreign direct investment activities in Vietnam;

Pursuant to Decision No. 29/1998/QĐ-TTg dated February 9, 1998 of the Prime Minister on solutions to support the development of certain fields within the mechanical industry;

Pursuant to Decision No. 53/1999/QĐ-TTg dated March 26, 1999 of the Prime Minister on certain measures to encourage foreign direct investment;

Pursuant to Decision No. 176/1999/QĐ-TTg dated August 26, 1999 of the Prime Minister on exemption from import tax for raw materials;

After exchanging opinions with the Ministry of Trade, the Ministry of Industry, the Ministry of Planning and Investment, and the General Department of Customs, the Ministry of Finance guides the implementation of the exemption regime for import tax on raw materials and semi-finished products imported for production as follows:

Projects included in the list of specially encouraged investment projects; projects investing in mountainous, remote, and distant areas shall be exempted from import tax on raw materials and semi-finished products that are not produced domestically or do not meet quality standards to serve the production of such projects for a period of 5 (five) years (calculated according to the Gregorian calendar) from the start of production, and this applies uniformly to foreign-invested enterprises and domestic enterprises, specifically:

1. Projects invested in the List of Specially Encouraged Investment Projects and projects investing in mountainous, remote, and distant areas as stipulated in Appendix I attached to Decree No. 10/1998/NĐ-CP dated January 23, 1998 of the Government on certain measures to encourage and ensure foreign direct investment activities in Vietnam and Article 11 of Decision No. 53/1999/QĐ-TTg dated March 26, 1999 of the Prime Minister on certain measures to encourage foreign direct investment in Vietnam; Investment encouragement projects under Category A and areas with particularly difficult socio-economic conditions as stipulated in Category C issued together with Decree No. 51/1999/NĐ-CP dated July 8, 1999 of the Government detailing the implementation of the Law on Incentives for Domestic Investment (amended) No. 03/1998/QH10;

2. Production projects for high-value-added mechanical and electronic components and parts using many domestic raw materials and supplies;

3. Projects to upgrade equipment and technology to produce bicycles, electric fans, small power units of 6-15 CV, and shipbuilding as stipulated in Article 3 of Decision No. 29/1998/QĐ-TTg dated February 9, 1998 of the Prime Minister on solutions to support the development of certain fields within the mechanical industry.

In cases where a project falls under two or three of the above tax exemption objects, the enterprise has the right to choose to enjoy the tax exemption benefit for only one of the three tax exemption objects.

Regarding the duration of tax exemption.

For projects that have been put into production before September 9, 1999 (prior to the effective date of Decision No. 176/1999/QĐ-TTg mentioned above), more than five years from the start of production, will not be eligible for the aforementioned tax exemption benefits.

For projects that have been put into production before September 9, 1999, less than five years from the start of production, or projects currently operating that have already been granted tax exemption benefits but have not yet completed five years from the start of production, will be considered by the competent authority for tax exemption benefits for the remaining time (to complete the five-year period) calculated according to the Gregorian calendar.

For projects with a start date of production from September 10, 1999 onwards, the tax exemption period will be five (five) years calculated according to the Gregorian calendar from the start of production.

1. The tax exemption objects specified in Point 1, Section I and Point 2, Section I of this Circular shall be implemented as follows:

A letter requesting exemption from import tax on raw materials and semi-finished products for production purposes sent to the Ministry of Trade, clearly stating the tax exemption object, the list of exempted goods, and the commitment to use them for their intended purpose.

An import plan and consumption quota of materials, raw materials, and semi-finished products for production in the year, prepared by the enterprise and confirmed by the superior management agency for state-owned enterprises or confirmed by the specialized economic and technical management department for non-state-owned enterprises (import plan for materials, raw materials, and semi-finished products; production capacity; designed capacity).

Investment permit or Business Registration Certificate issued by the competent authority.

Investment incentive certificate issued by the competent authority, clearly stating the tax exemption object for imported raw materials and semi-finished products that are not produced domestically or do not meet quality standards; the tax exemption period.

2. The tax exemption objects specified in Point 3, Section I of this Circular shall be implemented as follows:

A letter from the enterprise to the Ministry of Trade requesting exemption from import tax on materials and equipment for the project to upgrade equipment and technology to produce bicycles, electric fans, small power units of 6-15 CV, and shipbuilding, specifying the quantity and value of imported materials and equipment, and committing to use them for their intended purpose.

Investment project or business plan (hereinafter referred to as the investment project) to produce bicycles, electric fans, small power units of 6-15 CV, and shipbuilding using national investment support funds. For projects that must be approved by the competent authority for investment decision-making according to the Management Regulations for Investment and Construction (issued together with Decree No. 52/1999/NĐ-CP dated July 8, 1999 of the Government), a copy of the valid investment decision should be submitted.

Investment permit or Business Registration Certificate issued by the competent authority.

Investment incentive certificate issued by the competent authority, clearly stating the tax exemption object for imported raw materials and semi-finished products that are not produced domestically or do not meet quality standards; the tax exemption period.

Confirmation of the use of national investment support fund loans.

The import plan for materials, raw materials, semi-finished products, and the consumption quotas for materials and equipment to produce products directly serving production in the year shall be established by the enterprise and confirmed by the superior management agency for state-owned enterprises or confirmed by the specialized economic and technical management department for non-state-owned enterprises (the import plan for materials and raw materials must be consistent with the production capacity and design capacity).

3. Based on the provisions of point 1 and point 2 of Section II above and in comparison with the current list of domestically produced materials and raw materials issued by the Ministry of Planning and Investment, the Ministry of Trade will review and approve the list of imported goods eligible for tax exemption (specifying the items, quantities, and value) serving production for each project.

On the basis of the list of imported goods eligible for tax exemption issued by the Ministry of Trade for each specific project, the Customs Office of the province or city where the unit registers to handle the import procedures will follow up and process tax exemptions for each specific shipment. Quarterly, the Customs Offices must compile and report the total value of imported goods and the quantity of major exempted imported goods from enterprises to the General Department of Customs, Ministry of Finance, and Ministry of Trade.

Imported materials and semi-finished products that are exempt from import duties must be used for the purpose for which they were exempted. If used for a different purpose, the full amount of the exempted import duty must be paid back. The declaration period for paying back the tax is 2 (two) days from the date of change in the purpose of use recorded in relevant documents, invoices, and bills. In cases where there are no documents to determine the date of change in the purpose of use, the date for declaring and paying back the tax is the date of registration of the Goods Declaration Form for Import and Export.

When goods are used for a purpose other than the one for which they were exempted from import duties, enterprises must declare this to the customs office where the goods were sold or to the customs office where the enterprise registered the import declaration form. If enterprises fail to declare within the specified time, they will be penalized for evading taxes according to the Law on Export Duties and Import Duties and other current regulations.

Each year, no later than March 31, enterprises must report to the customs and tax authorities directly managing the enterprise on the quantity of imported materials and semi-finished products exempt from import duties, actual consumption quotas for materials, the quantity of materials and semi-finished products used for production, the quantity of products produced, the quantity of materials and semi-finished products used for other purposes in the previous year, and the quantity of materials and semi-finished products remaining for transfer to the following year. The Provincial Tax Departments are responsible for settling the use of imported materials and supplies exempt from import duties put into production by enterprises.

The amount of back-paid import duty is determined based on the tax calculation bases including the tariff rate, exchange rate, and taxable value at the time of changing the purpose of use of tax-exempt goods according to the Law on Export Duties and Import Duties. If the goods at the time of back-payment fall under goods subject to special consumption tax, in addition to paying back the import duty, they must also pay back the special consumption tax according to the Law on Special Consumption Tax.

By the fifth year (the final year of tax exemption), based on the consumption quotas for materials, and reports on the quantity of materials and semi-finished products carried over from the previous year transferred within 2 (two) days after the settlement of all excess imported materials and semi-finished products beyond production needs, these will be declared and the full import duty will be paid back.

During the process of tax collection from enterprises, the tax collection management authority of the enterprise has the responsibility to monitor the use of imported goods that have been exempted from tax. Upon discovering cases of selling goods or using them for purposes other than those exempted, in addition to collecting back the value-added tax according to the Law on Value-Added Tax, the Director of the Provincial Tax Department may issue a decision to collect back the import duty and impose penalties according to the current regulations of the Law on Export Duties and Import Duties.

This Circular takes effect 15 days after the date of signature and replaces the provisions at point 1.3, Section III, Part B of Circular No. 68/1998/TT-BTC dated May 18, 1998, and point 1.b, Section II, Part Two of Circular No. 89/1999/TT-BTC dated July 16, 1999, issued by the Ministry of Finance. All previous regulations contrary to this Circular are abolished.

During implementation, if there are any difficulties, units are requested to report to the Ministry of Finance for prompt resolution./.