Are import taxes exempt for components which cannot be domestically manufactured and are imported serving the manufacturing in Vietnam?

Are import taxes exempt for components which cannot be domestically manufactured and are imported serving the manufacturing in Vietnam?

Based on Clause 13, Article 16 of the 2016 Law on Export Tax and Import Tax, the regulations on tax exemption are as follows:

Tax Exemption

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13. Raw materials, supplies, and components that are not yet produced domestically, imported for the production of investment projects on the list of industries and sectors with special investment incentives or areas with extremely difficult socio-economic conditions according to investment law provisions; high-tech enterprises, science and technology enterprises, and science and technology organizations are exempt from import taxes for a period of 05 years from the start of production.

The import tax exemption stipulated in this clause does not apply to investment projects exploiting mineral resources; projects producing products with the total value of natural resources, minerals plus energy costs accounting for 51% or more of the product cost price; or projects producing, trading goods, and services subject to special consumption tax.

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Therefore, components, raw materials, and supplies that are not yet produced domestically, imported for production of investment projects on the list of industries and sectors with special investment incentives will be exempt from import taxes for a period of 05 years from the start of production.

Note: The import tax exemption in this case does not apply to investment projects exploiting mineral resources; projects producing products with the total value of natural resources, minerals plus energy costs accounting for 51% or more of the product cost price; or projects producing, trading goods, and services subject to special consumption tax.

Are import taxes exempt for components which cannot be domestically manufactured and are imported serving the manufacturing in Vietnam? (Image from the Internet)

Vietnam: Are imported raw materials, supplies and components that were exempt from import duties but are not used on the list of industries and sectors with special investment incentives taxable?

Based on Article 15 of Decree 134/2016/ND-CP, amended by Clause 8, Article 1 of Decree 18/2021/ND-CP, the regulations are as follows:

Import tax exemption for raw materials, supplies, and components within 05 years

1. Raw materials, supplies, and components that are not yet produced domestically, imported for the production of investment projects stipulated in points a, b, and c of this clause are exempt from import taxes within 05 years from the start of production in accordance with Clause 13, Article 16 of the Law on Export Tax and Import Tax.

a) Investment projects on the list of industries and sectors with special investment incentives stipulated in Appendix I of Decree No. 118/2015/ND-CP and its amendments, supplements, or replacements (if any).

b) Investment projects on the list of areas with especially difficult socio-economic conditions stipulated in Appendix II of Decree No. 118/2015/ND-CP and its amendments, supplements, or replacements (if any), or investment projects stipulated in points a and c, Clause 2, Article 16 of Decree No. 118/2015/ND-CP and its amendments, supplements, or replacements (if any).

c) Investment projects of high-tech enterprises, science and technology enterprises, and science and technology organizations in accordance with laws on high technology and science and technology.

The production start time is the official production time, excluding trial production time. Taxpayers self-declare, take responsibility for the actual production commencement date, and notify the customs authority where the tax exemption notification file is submitted prior to customs clearance.

After the 05-year tax exemption period, taxpayers must declare and pay the required taxes for the unused imported raw materials, supplies, and components that were tax-free.

Therefore, imported raw materials, supplies and components that were exempt from import duties but are not used on the list of industries and sectors with special investment incentives, when the 05-year tax exemption period ends, must be declared and the required taxes paid by the taxpayer as per regulations.

What is the list of industries and sectors with special investment incentives in Vietnam?

The list of industries and sectors with special investment incentives is in Appendix 2 issued along with Decree 31/2021/ND-CP. Specifically:

A. HIGH TECHNOLOGY, INFORMATION TECHNOLOGY, SUPPORTING INDUSTRIES

(1). Application of high technology listed as a priority for investment development as decided by the Prime Minister of the Government of Vietnam.

(2). Production of products in the list of high-technology products encouraged for development as decided by the Prime Minister of the Government of Vietnam.

(3). Production of products in the list of supporting industry products prioritized for development under the regulations of the Government of Vietnam on supporting industry development.

(4). Incubation of high technology, incubation of high-tech enterprises; venture investment for high technology development; application, research and development of high technology according to the provisions of high technology law; production of biotechnology products; training of high-tech personnel; and provision of high-tech services.

(5). Production of software products, digital content products, key information technology products, and software services under the provisions of information technology law; production of network security products and provision of network security services that meet the conditions under the provisions of network security law; production of products derived from science and technology results in accordance with science and technology law.

(6). Production of renewable energy, clean energy, energy from waste destruction.

(7). Production of composite materials, types of lightweight materials, and rare materials.

(8). Production of products in the list of key mechanical products as decided by the Prime Minister of the Government of Vietnam.

B. AGRICULTURE

(1). Planting, caring, nurturing, protecting, and developing forests, developing production forests on barren or bare hills, planting large timber forests, and converting small timber forests to large timber forests; developing non-timber forest products, and restoring natural forests.

(2). Aquaculture, processing, preserving agricultural, forestry, and fishery products, and processing non-timber forest products.

(3). Production, propagation, and breeding of plant varieties, animal breeds, forestry seedlings, aquaculture breeds, and development of high-tech forestry plant varieties.

(4). Production, exploitation, and refining of salt.

(5). Offshore fishing combined with the application of advanced fishing tools; fisheries logistics services; construction of fishing vessel manufacturing facilities.

(6). Marine rescue services.

(7). Investment in research, and production of biotechnology products used for food.

(8). Production of wooden products; production of artificial boards, including plywood, blockboards, and MDF boards.

C. ENVIRONMENTAL PROTECTION, INFRASTRUCTURE CONSTRUCTION

(1). Collection, treatment, recycling, and reuse of concentrated waste.

(2). Construction and business of industrial park infrastructure, export processing zones, high-tech zones, and functional areas in economic zones.

(3). Investing in the development of water plants, power plants, water supply and drainage systems, roads, rail transport, airport infrastructure, seaports, inland water ports, airports, and other infrastructure works especially important as decided by the Prime Minister of the Government of Vietnam.

(4). Development of public passenger transport in urban areas.

(5). Investment in the construction and management of rural market business.

(6). Investing in developing, operating, and managing technical infrastructure works of industrial clusters.

D. CULTURE, SOCIETY, SPORTS, HEALTH

(1). Construction of social housing, resettlement housing.

(2). Investment in business establishments providing sanitation and disease prevention services.

(3). Scientific research on formulation technologies, biotechnology for new drug production, new veterinary drugs, vaccines, and veterinary biological products.

(4). Production of pharmaceutical ingredients and essential drugs, drugs for social diseases prevention, vaccines, medical biological products, herbal medicines, oriental medicines; drugs nearing patent expiration or other relevant rights; application of advanced technology, biotechnology for drug production meeting international GMP standards; and production of packaging directly in contact with drugs.

(5). Investing in Methadone production facilities.

(6). Business investment in high-performance sports training centers and centers for training and coaching sports for people with disabilities; construction of sports facilities with equipment for international competitions; and professional sports facilities.

(7). Business investment in geriatric, mental health centers, and treatment centers for Agent Orange victims; elderly care centers, disability centers, orphanages, and shelters for homeless children.

(8). Business investment in social protection centers; public rehab centers; HIV/AIDS treatment centers; public drug rehab centers; private drug rehab centers; and community drug addiction counseling and support points at the district level.

(9). Business investment in national museums, ethnic cultural centers; folk song and dance ensembles; theaters, studios, film production and processing facilities; visual arts and photography exhibition centers; production, crafting, and repair of ethnic musical instruments; restoration, and preservation of museums, ethnic cultural centers, and cultural art schools; handicraft villages for traditional occupations; business investment in folk performing arts; business investment in the Vietnam National Library, public libraries of provinces and centrally run cities, and libraries with an important role.

(10). Business investment in the operation of community-based gender-based violence prevention facilities for sex workers.