Joint Circular No. 120/2000/TTLT-BTC-TCHQ dated December 25, 2000 of the Ministry of Finance, the Ministry of Industry and the General Department of Customs amending and supplementing the tax policy based on the localization rates of products and spare parts of the engineering, electric and electronic industries as guided in Joint Circular No. 176/1998/TTLT-BTC-BCN-TCHQ dated December 25, 1998 of the Ministry of Finance, the Ministry of Industry and the General Department of Customs
THE MINISTRY OF FINANCE
THE MINISTRY OF INDUSTRY
THE GENERAL DEPARTMENT OF CUSTOMS
SOCIALIST REPUBLIC OF VIET NAM
Independence - Freedom - Happiness
Hanoi, December 25, 2000
AMENDING AND SUPPLEMENTING THE TAX POLICY BASED ON THE LOCALIZATION RATES OF PRODUCTS AND SPARE PARTS OF THE ENGINEERING, ELECTRIC AND ELECTRONIC INDUSTRIES AS GUIDED IN JOINT CIRCULAR No. 176/1998/TTLT-BTC-BCN-TCHQ OF DECEMBER 25, 1998 OF THE MINISTRY OF FINANCE, THE MINISTRY OF INDUSTRY AND THE GENERAL DEPARTMENT OF CUSTOMS
On the basis of the Prime Minister’s opinions in the Government’s Official Dispatches No.4830/KTTH of September 24, 1997, No. 1440/CP-KTTH of November 7, 1998 and the Government Office’s Official Dispatches No. 2687/VPCP-KTTH of July 15, 1998 and No. 3300/VPCP-KTTH of August 9, 2000 on the tax policy based on the localization rates of products;
In order to boost the local production and manufacture of components, spare parts and products as import substitutes and to settle problems arising in the implementation process and at the same time to enhance managerial and supervisory measures to reduce losses to the State budget, the Ministry of Finance, the Ministry of Industry and the General Department of Customs hereby jointly guide the supplement and amendment to the implementation of the tax policy based on the localization rate of products and spare parts of the engineering, electric and electronic industries in Joint Circular No. 176/1998/TTLT-BTC-BCN-TCHQ of December 25, 1998 as follows:
I. TO REPLACE POINT 3 (CONDITIONS FOR ENJOYING IMPORT TAX TARIFFS PAID ACCORDING TO THE LOCALIZATION RATES) WITH THE FOLLOWING NEW POINT 3:
3. Conditions for enjoying import tax paid according to the localization rates:
In order to enjoy import tax rate according to the localization rates, enterprises must meet all the following conditions:
3.1. Having all technical conditions and full technological capacity for production of products under the guidance of the Ministry of Industry.
3.2. Having a written registration for the localization of products and spare parts, certified by the Ministry of Industry.
3.3. Having competent bodies’ documents ensuring the legality of industrial property of products registered for implementation of tax policy based on the localization rates.
3.4. Directly importing details, detail groups, parts, accessories, materials and raw materials for production.
3.5. Paying 100% of the value of lots of imports via banks.
3.6. Paying value added tax by the deduction method.
II. TO REPLACE POINT 4 (LOCALIZATION RATE) WITH THE FOLLOWING NEW POINT 4:
4. Localization rates:
4.1. The localization rate is determined according to the following formula:
N = x 100% = (1- ) x 100%
- N (%): The localization rate of a kind of product or spare part.
- Z: The import price or selling price of the complete single product or spare part produced or assembled by the enterprise.
+ Import price means the buying price at an import border gate of Vietnam (CIF price), determined according to invoices and related import documents. For products or spare parts that are not allowed to be imported in complete units, enterprises shall base themselves on the import (CIF) prices of products or spare parts of the same kind on the regional market to make declaration. Import price shall be used to determine the localization rate in the first fiscal year of registration for implementation of localization.
* (The fiscal year means the calendar year starting from January 1 and ending on December 12 every year or a 12-month year different from the calendar year that the Ministry of Finance permits enterprises to apply).
+ The product-selling price means the weighted average selling price, exclusive of value-added tax and expenses for sale promotion, purchase rewards, agent commissions. The product-selling price shall be determined according to accounting books of enterprises, sale invoices (invoices set by the Ministry of Finance).
- I: The import value (CIF) of semi-finished products, details, detail groups, parts directly imported by enterprises.
4.2. Determination of the localization rate for the subsequent year:
At the end of the fiscal year, enterprises must re-determine the actually achieved localization rates, which shall serve as basis for determination of the import tax paid according to the localization rates of products, spare parts for the subsequent fiscal year.
The localization rates of products and spare parts for the subsequent fiscal year shall be determined according to the localization rates actually achieved in the preceding year. In which Z refers to the product-selling price as guided at Point 4.1 and I refers to the actual CIF import price.
Within 60 days after the end of the fiscal year, enterprises must submit their final settlement reports on the implementation of localization to the Ministry of Industry and the customs offices where they have carried out import procedures, the tax offices where they have registered for tax payment. In such a final settlement report (certified by an auditing organization), the actual localization rate of products and spare parts which are registered for localization must be specified. Directors of enterprises shall take responsibility before law for the truthfulness and accuracy of data in their final settlement reports.
The customs offices where enterprises have carried out the import procedures shall base themselves on the actually achieved localization rates recorded in final settlement reports to calculate and collect import tax based on the actual localization rates. Such import tax rates shall apply in the subsequent fiscal year. In cases where within 60 days after the end of the fiscal year the customs offices have collected import tax with amounts different from those the enterprises are eligible for, they shall calculate and collect import tax from the enterprises with amounts corresponding to the actually-achieved localization rates recorded in their final settlement reports.
For models of product and spare part the enterprises have registered for localization thereof but they only produce and assembly them in one year (do not implement localization in the subsequent year), after concluding the production and/or assembly of these products and spare parts (within 30 days at most) the enterprises must make final settlement reports as guided and pay import tax according to the localization rates they have actually achieved. Where the actually-achieved localization rates are higher than the registered ones, the enterprises shall be refunded the import tax amount already paid; if the localization rates already determined are lower than the ones registered with the Ministry of Industry, the enterprise must pay additional tax at the rates corresponding to the actual localization rates.
4.3. For cases where enterprises import components, spare parts merely for assembly but not for production and do not use home-made components, spare parts or do use home-made products and components which, however, are only auxiliary ones (packings, advertisement documents, use manuals), they shall enjoy only the import tax rates based on the lowest localization rate.
III. TO REPLACE POINT 6 (PRIORITY INDEX) WITH THE FOLLOWING NEW POINT 6:
6. Incentive index:
Where enterprises produce and/or assemble products and spare parts which need to be encouraged, the import tax rates based on the localization rates shall be reduced as follows:
Tk = Ts x (1 - k)
- Tk: The incentive import tax rate.
- Ts: The import tax rate based on the actually-achieved localization rate.
- k: The incentive co-efficient (k ≤0.5 means tax reduction shall not exceed 50% of the payable tax amount). The incentive co-efficient shall apply uniformly to each kind of product or spare part on the list of products and spare parts in which investment should be encouraged. The duration of application of the incentive co-efficient shall not exceed 5 years and adhere to the year-by-year gradual reduction principle.
The list of products and spare parts in which investment should be encouraged; the duration of application of the incentive co-efficient; the incentive co-efficient for products and spare parts shall publicized by the Ministry of Industry after consulting the Ministry of Finance and the Ministry of Science, Technology and Environment.
IV. TO REPLACE POINT 7 (ORGANIZATION OF IMPLEMENTATION) WITH THE NEW FOLLOWING POINT:
7. Organization of implementation:
7.1. Registration of dossiers:
Enterprises producing and assembling products and spare parts must submit to the customs offices (where they have carried out import procedures) registration dossiers in order to enjoy import tax paid according to the localization rates achieved in the year, comprising:
7.1.1. The Industry Ministry’s written certification of the technical conditions, production technology capacity and localization rates of products and spare parts of the enterprise (for products and spare parts which have been registered for localization in the first year).
7.1.2. The list and norms on quantity of semi-finished products, details, detail groups and components constituting a product or spare part. This list must be divided into a list of imported semi-finished products, details, detail groups and parts together with their import prices (CIF) and a list of home-made semi-finished products, details, detail groups and parts (for details, detail groups, parts, and spare parts made by the unit itself or purchased from domestic production and assembly units, it must be clearly inscribed that the unit makes them by itself or the supplier’s name).
If enterprises have registered for application of import tax rates for materials and raw materials based on the localization rates, they must supply the lists of and quantity norms for imported materials and raw materials for production of such products and/or spare parts.
7.1.3. The written registration for application of VAT calculation according to the tax deduction method, affixed with the approval opinion of the customs office where the enterprise has registered for tax payment.
7.1.4. The registration dossiers shall be supplied only once to the customs offices. Basing themselves on the localization rates determined by the Ministry of Industry, the customs offices shall determine, calculate and collect import tax according to the localization rates within one year (calculated according to the calendar year), including cases where the enterprises replace the already registered supplying sources.
Where the customs offices discover that importing enterprises fail to meet all the conditions guided at Point 3, Section I of this Circular, they shall make records thereof and disallow the enterprises to enjoy the import tax rates based on the localization rates.
7.2. Monitoring and making final settlement of imports:
7.2.1. Monitoring of imports: When importing goods, enterprises shall have to declare fully the quantity of each kind of raw material, semi-finished products, detail, detail set, part and its import price. At the same time they shall open books to monitor imports according to the customs offices’ regulations. The General Department of Customs shall guide local customs offices to monitor imports, ensuring convenience for enterprises, avoiding any abuse and import tax evasion.
7.2.2. Making final settlement of imports: Within 60 days after the end of the fiscal year, enterprises must sum up and report on the situation of importation, production and assembly in the previous year. Specifically:
- The written calculation of the localization rate actually achieved in the year, determined under the guidance in Section II of this Circular.
- The quantities of imported semi-finished products, details, detail sets, parts, accessories; the quantities of home-made details, detail groups, parts, accessories; the quantity thereof already used in production and assembly; the quantities of products and accessories turned out; the quantities to be carried forward to the subsequent year; the quantities already sold or not used for the purpose of production and/or assembly of products and spare parts.
- The production or business licenses compatible with the registered production and business lines (copies) of the enterprises that sell home-made details, detail groups, parts, spare parts to the enterprises that have registered for localization of their products, spare parts.
All data reported in final settlement reports must be certified by an independent auditing organization.
On the basis of the enterprises’ final settlement reports, the customs offices where the enterprises have registered for application of import tax rates based on the localization rates, shall calculate, collect import tax on the enterprises’ products and spare parts based on the actually- achieved localization rates in accordance with the provisions of this Circular. Where they have any doubt, the local tax offices shall assume the prime responsibility and coordinate with the local customs offices in inspecting the importation, production and local supplying source…, determining the actual localization rates achieved by the enterprises and report the inspection results (records) to the Ministry of Finance, the Ministry of Industry and the General Department of Customs. The customs offices shall re-calculate the import tax rates corresponding to the localization rates determined in the inspection records. Enterprises that commit acts of tax fraud or evasion shall be sanctioned according to law provisions.
V. OTHER PROVISIONS:
This Circular takes effect as from January 1, 2001. The points stipulated in Circular No. 176/1998/TTLT-BTC-BCN-TCHQ of December 25, 1998 of the Ministry of Finance, the Ministry of Industry and the General Department of Customs, which are not contrary to this Circular, shall continue to be effective.
Where enterprises have registered to localize the production of products and accessories, which has been recognized by the Ministry of Industry before January 1, 2001, if they have no need to make re-registration, they may continue to comply with the provisions of this Circular. Enterprises that fail to meet all conditions guided at Point 3, Section I of this Circular shall enjoy only the import tax rates corresponding to the localization rates already recognized by the Ministry of Industry before January 1, 2000, until March 1, 2001. For these cases, on the basis of the enterprises’ reports, the customs offices shall make final settlement for the enterprises; if they discover that enterprises fail to comply with the regulations, they shall collect import tax arrears at the rates set in the import tariffs table according to current regulations, and at the same time gather and reflect irrationalities to the General Department of Customs so that the latter shall together with the Ministry of Finance and the Ministry of Industry consider and solve them.
Any problems arising in the course of implementation should be promptly reported by organizations and individuals to the above-said ministries for proper handling.
FOR THE MINISTER OF INDUSTRY
Nguyen Xuan Chuan
FOR THE MINISTER OF FINANCE
Vu Van Ninh
FOR THE GENERAL DIRECTOR OF CUSTOMS
DEPUTY GENERAL DIRECTOR