Circular No. 91/1999/TT-BTC guides the application of value-added tax on goods processed for export.

CIRCULAR

Guidelines for applying value-added tax on exported processed goods

 exported

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Based on the provisions of the Law on Value Added Tax (VAT) and Decree No. 28/1998/NĐ-CP dated May 11, 1998 of the Government detailing the implementation of the Law on VAT; based on the provisions of Decree No. 57/1998/NĐ-CP dated July 31, 1998 of the Government detailing the implementation of the Law on Trade regarding export, import, processing, and agency sales of goods with foreign countries;

To implement policies encouraging the production of exported processed goods; to implement Resolution No. 08/1999/NQ-CP dated July 9, 1999 of the Government on measures to manage tasks for the last six months of 1999;

The Ministry of Finance supplements Circular No. 89/1998/TT-BTC dated June 27, 1998 of the Ministry of Finance guiding the implementation of Decree No. 28/1998/NĐ-CP dated May 11, 1998 of the Government detailing the implementation of the Law on VAT regarding the application of VAT on exported processed goods as follows:

I/ PROCESSED GOODS EXPORTED APPLYING A VAT RATE OF 0% INCLUDE:

1/ Goods directly processed and directly exported abroad according to contracts signed with foreign entities. In this case, the exporting processing entity must have complete documentation and certificates proving that the goods were actually exported in accordance with Point 1, Section II, Part B of Circular No. 89/1998/TT-BTC dated June 27, 1998 of the Ministry of Finance;

2/ Processed goods exported under transfer agreements as stipulated in Article 17 of Decree No. 57/1998/NĐ-CP dated July 31, 1998 of the Government detailing the implementation of the Law on Trade regarding export, import, processing, and agency sales of goods with foreign countries:

In this case, it applies to entities directly processing goods for export according to processing contracts signed with foreign entities, but instead of exporting the processed goods abroad, they are transferred to other domestic entities at the request of the foreign party for further processing into finished products according to the signed contracts, with the processing fees paid directly by the foreign party to the processing entity.

When transferring processed goods to other entities at the request of the foreign party, the transferring entity issues a VAT invoice with a zero percent tax rate. Processed goods exported in this case must have the following documents as the basis for determining and settling VAT:

- Export processing contracts and contract appendices (if any) signed with foreign entities, clearly stating the name and address of the entity receiving the processed products for further processing in Vietnam;

- VAT invoices clearly stating the processing fee and quantity of processed goods delivered to foreign entities (as specified in the contract signed with foreign entities) and the name of the entity designated by the foreign party;

- Transfer receipt for transferred processed goods, abbreviated as Transfer Receipt, which must be fully endorsed by the transferring entity, the receiving entity, and the Customs office managing the processing contract of the transferring entity, and the Customs office managing the processing contract of the receiving entity.

Procedures for transferring processed goods and Transfer Receipts shall be carried out in accordance with Circular No. 03/1998/TT-TCHQ dated August 29, 1998 of the General Department of Customs guiding the implementation of Chapter III of Decree No. 57/1998/NĐ-CP dated July 31, 1998 of the Government.

Example: Company A signs a processing contract with a foreign entity for 200,000 pairs of shoe soles for export. The processing fee is 800 million VND. The contract specifies delivering the shoe soles to Company B in Vietnam for the production of complete shoes.

In this case, Company A falls under the category of entities processing goods for export through transfer. When issuing invoices and documents for delivering shoe soles to Company B, Company A can record a zero percent tax rate, and the entire processing revenue of 800 million VND received will be subject to a zero percent VAT rate.

3/ Processed goods exported through agency contracts:

Entities directly processing goods for export to foreign entities according to contracts signed with foreign entities or through agency contracts where another entity represents them in signing contracts with foreign entities, whereby the agency entity handles the export procedures and only receives a commission on the processing fee.

When exporting processed goods to the agency entity for export, the agency entity for export issues a VAT invoice with a zero percent tax rate.

In this case, the agency processing entity must have the following documents as the basis for determining and settling VAT:

- Processing contracts signed with foreign entities by the entity directly signing the processing contract with foreign entities (copies);

- Agency export processing contracts or agency export contracts for processed goods (in cases where the processing entity directly signs processing contracts for exported goods with foreign entities but exports the goods through an agency entity);

- Export declaration forms of the agency entity for export, confirmed by Customs regarding the actual quantity and type of processed goods exported (copies). If the Customs declaration form lists multiple exporters' goods, the agency entity for export must send copies of the Customs declaration form along with a detailed list confirming the quantity and type of agency-exported processed goods. The agency entity must sign and stamp the detailed list and copies of the Customs declaration form and bear responsibility for the data on the list;

- Settlement documents for agency export processing contracts (if the contract has ended) or periodic reconciliation statements clearly stating the quantity of agency-exported processed goods delivered, the actual quantity exported, the processing fees due and paid.

All documents if copies must be certified as true copies, signed by the director and stamped by the enterprise holding the original documents.

Example: Company X signs a processing contract for clothing with a foreign entity to produce 100,000 sets of clothes with a processing fee of 200 million VND, but Company X signs this contract through an Import-Export Company Y to export the processed goods to the foreign entity with a commission of 5% on the processing fee.

In this case, Company X falls under the category of entities processing goods for export through agency. When issuing invoices for delivering goods to Company Y, Company X can record a zero percent tax rate, and the entire processing revenue of 200 million VND received will be subject to a zero percent VAT rate.

II/ This Circular takes effect from the date of issuance. Export processing cases carried out before the issuance of this Circular, if they fall under the cases specified in this Circular and meet all the file conditions as prescribed for export processing goods, shall be subject to VAT as stipulated in this Circular.

In the course of implementation, if there are any difficulties, units are requested to report to the Ministry of Finance for consideration and resolution.