Circular No. 5933/TC/TCHQ regarding exemption from import tax and non-collection of VAT for small spare parts and equipment belonging to a set of integrated machinery and equipment imported to form fixed assets of investment projects.

LETTER

ISSUED BY THE MINISTRY OF FINANCE NUMBER 5933 TC/TCHQ ON JUNE 1, 2004
REGARDING THE EXEMPTION FROM IMPORT TAX AND NON-COLLECTION OF VALUE ADDED TAX FOR SMALL COMPONENTS AND EQUIPMENT BELONGING TO ASSEMBLIES OF MACHINERY AND EQUIPMENT IMPORTED TO FORM FIXED ASSETS OF INVESTMENT PROJECTS

Dear: - Ministries, ministerial-level agencies, government agencies

- People's Committees of provinces and centrally governed cities TW

AND The Ministry of Finance has issued Circular No. 85/2003/TT-BTC dated August 29, 2003, guiding the classification of goods according to the export-import commodity list and the Preferential Import Tariff Schedule and Export Tariff Schedule. However, during the implementation of procedures for exempting import tax and non-collection of value added tax (VAT) for goods that are small components and equipment belonging to assemblies of machinery and equipment imported to form fixed assets (Tangible Fixed Assets) for investment projects enjoying investment incentives under the Law on Encouraging Domestic Investment and the Law on Foreign Investment in Vietnam, some difficulties have arisen.

Pursuant to Article 57 of Decree No. 24/2000/NĐ-CP dated July 31, 2000 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam; Article 26 of Decree No. 51/1999/NĐ-CP dated July 8, 1999 of the Government detailing the implementation of the Law on Encouraging Domestic Investment (amended) No. 03/1998/QH10; Decree No. 35/2002/NĐ-CP dated March 29, 2002 of the Government amending and supplementing List A, B, and C promulgated in the Appendix to Decree No. 51/1999/NĐ-CP dated July 8, 1999 of the Government; Circular No. 13/2001/TT-BTC dated March 8, 2001, Circular No. 98/2002/TT-BTC dated October 24, 2002, and Circular No. 120/2003/TT-BTC dated December 12, 2003 of the Ministry of Finance, to implement administrative reform, create favorable conditions to promote investment growth, the Ministry of Finance supplements the procedures for exempting import tax and non-collection of VAT for goods that are small components and equipment belonging to assemblies of machinery and equipment imported to form Tangible Fixed Assets for investment projects enjoying investment incentives as follows:

1. Objects Exempted from Import Tax and Non-Collection of VAT

- Enterprises falling within the scope of investment incentives under the Law on Encouraging Domestic Investment are exempted from import tax and non-collection of VAT for specialized equipment, machines, and transport vehicles (part of the production technology chain) that are not domestically produced and imported to form Tangible Fixed Assets.

Enterprises falling within the scope of investment incentives under the Law on Foreign Investment in Vietnam are exempted from import tax for specialized equipment, machines, and transport vehicles (part of the production technology chain) imported to form Tangible Fixed Assets; they are not subject to VAT for specialized equipment, machines, and transport vehicles (part of the production technology chain) that are not domestically produced and imported to form Tangible Fixed Assets.

In cases where the assembly of imported machinery and equipment includes not only complete machines and equipment but also small components (such as bolts, washers...) or materials (such as fireproof bricks and mortar used to build furnaces, welding rods, pipe fittings...) or equipment that must be disassembled for transportation and cannot be imported in the same shipment (such as prefabricated building components), these items will be exempted from import tax and non-collection of VAT if they meet the following conditions:

1.1. These small components and materials must be in quantities and types suitable for installation, connection, or control of machines and equipment to ensure normal system operation.

1.2. These small components and materials must be included in the list of imported goods exempted from tax approved by the competent authority (for domestic investment projects, this is the Ministry of Planning and Investment or the provincial People's Committee; for foreign investment projects, this is the Ministry of Trade or agencies authorized by the Ministry of Trade).

2. Procedures and Documents for Exemption from Import Tax and Non-Collection of VAT

2.1. Documents required to obtain exemption from import tax and non-collection of VAT for small components and materials imported as part of the assembly of machinery and equipment:

- For foreign investment projects: Must comply with the procedures and documents stipulated at point 1.b, Section III, Part II of Circular No. 13/2001/TT-BTC dated March 8, 2001 and point 4, Section II, Part A of Circular No. 120/2003/TT-BTC dated December 12, 2003 issued by the Ministry of Finance;

- For domestic investment projects: Must comply with the procedures and documents stipulated at point 2.2, Section I, Part C of Circular No. 98/2002/TT-BTC dated October 24, 2002 and point 4, Section II, Part A of Circular No. 120/2003/TT-BTC dated December 12, 2003 issued by the Ministry of Finance.

2.2. In addition to the procedures and documents mentioned in point 2.1 above, the Project Investor must commit to using these materials and small components for their intended purpose to install, connect, and operate the machinery and equipment in the assembly of the project, clearly stating the expected time for installing and completing the assembly of machinery and equipment.

3. Authority to Process Exemptions from Import Tax and Non-Collection of VAT

The customs office handling the import procedures shall base its decision on the results of the actual import inspection, compare with current regulations, the objects specified in point 1, and the procedures and documents specified in point 2 above. If they are consistent, it shall process the exemption from import tax and non-collection of VAT for goods that are small components and materials belonging to the assembly of machinery and equipment imported to form Tangible Fixed Assets for investment projects enjoying investment incentives in accordance with the relevant provisions.

For cases where small components and materials belonging to the assembly of machinery and equipment imported to form Tangible Fixed Assets for investment projects are processed for exemption from import tax and non-collection of VAT according to the guidance in this document but are not used for their intended purpose, the importer must declare to the customs office handling the import procedures within two working days from the date of change in usage and must pay back the exempted import tax and VAT and be subject to penalties as prescribed. If there is no declaration for payment of back taxes and it is discovered through inspection, in addition to paying back the exempted import tax and VAT, depending on the nature and degree of violation, a fine of one to five times the amount of tax fraud may be imposed.

AND The Ministry of Finance guides the Ministries, ministerial-level agencies, governmental agencies, People's Committees of provinces and cities to inform enterprises and implement accordingly. In the course of implementation, if there are any difficulties, they are requested to report promptly to the Ministry of Finance for appropriate handling.

For cases where materials and equipment imported individually as part of a set of machinery and equipment chains intended to form fixed assets for investment projects but the customs authority has calculated and collected taxes differently from the guidance in this Circular, such cases should be reported to the Ministry of Finance (General Department of Customs) for examination and resolution on a case-by-case basis. If the customs authority has calculated but not yet collected the tax, the customs authority shall recalculate according to this Circular.