In order to receive duty exemption for the imported capital goods, import notification has to be completed within three years from the day when the FDI notification was made.
An application for duty exemption has to be made to the director of customs office before import notification is accepted. It is not possible to apply duty exemption after import notification is accepted even though the capital goods are eligible for duty exemption.
If the importer is a foreign invested company that dose not receive an approval for duty exemption from the minister of the Ministry of Finance and Economy
If a domestic company that receives an order by means of Turn-key from a foreign invested company tries to capital goods to use in the designated business eligible for tax deduction, customs duty cannot be exempted because the person who is eligible for tax deduction is not keeping with the responsible person for tax payment.
Even though the raw material is imported in order to be used in the business eligible for tax deduction, if it is not considered as capital goods for investment in stock or investment, it can not be exempted from the duties.
According to the Foreign Investment Promotion Act, in order to receive duty exemption for imported capital goods, import notification has to be completed within three years from the day when the FDI notification was made. However, if the notification can not be made due to unavoidable reason, it has to be completed until the day when the minister of the Ministry of Finance and Economy approved.
In order to receive customs duty exemption for a foreign invested company that operates the designated business, imported capital goods have to be as a means of foreign or domestic payment from a foreign investor, or as investment in stock in order to purchase stock.
However, if the capital goods that are received customs duty exemption are used beside the initial purpose of business, or sold within three years from the day of FID notification, an additional charge for exempted customs duty will be made.
Therefore, if exempted capital goods are sold and leased to the other foreign investor, it is considered that the capital goods are used differently from the initial business purpose. Thus the effect of the customs duty exemption will be forfeited.
According to Foreign Investment Promotion Act, in case of capitals goods are imported as investment in kind, a confirmation of completion of investment in kind with quantity, standard and price of the items can be replaced with a report by inspector under the regulation of the non-litigation case adjective law. Thus, there is no additional procedure for the equipment.
Therefore, if a foreign invested company wants to import equipment as capital goods through capital increase, it receives a confirmation of completion of investment in kind from the Commissioner of Customs and uses it when the company registers the capital goods after import clearance.
If the capital goods are used machinery, the foreign investor and invested company in the country can calculate the price appropriately through an agreement on price.
However, if the value of used machinery is estimated too high, invested company has to pay excessively, and if the value is too low, there would be problems when it passes through the customs clearance.
Under present Customs Act, the principle of customs duty calculation is based on the adjusted price that adds transportation and insurance on the price actually paid or will be paid for the items that are sold in the country.
If a foreign investor is purchasing the capital goods to be used as investment in kind, then the price will be determined depending on the other factors concerning shipment and additional cost. For example, if the foreign investor has paid transportation cost and insurance fee until the goods arrive at the destination, then the cost for that will be included in calculating the final price. Thus, the final price will be accepted as the amount of foreign investment.
Process of Investment in Kind
In principle, the confirmation of completing investment in kind is issued when the import of the capital good is completed.
If the capital goods are imported in steps, then the confirmation is issued after the last customs clearance was processed for all capital goods.
However, if the introduced price of capital goods is relatively high, the confirmation can be issued exceptionally. (for example: first part of capital goods are imported in March, 2005 and the second part of the capital goods are imported in June, 2006)
In order to receive duty exemption for the capital goods introduced by a foreign invested company, they should be introduced as a means of foreign or domestic payment. Therefore, it is not considerable that when to be made Purchase order, but it is important that when the imported capital goods’ payment is made and by which fund.
If the payment is made by the increase capital that is increased after P/O issue, they are not introduced as a means of foreign or domestic payment under the Special Tax Treatment Control Act, so customs duties are not exempted.
Therefore, a foreign bank that issues confirmation of the declaration of capital goods import for application of customs duty exemption has to confirm the day when the payment for capital good is made and the day when the increase capital is paid, and an application for the confirmation of the declaration of capital goods import should be maid after increase capital is paid.