CIRCULAR

GUIDING FINANCIAL REGIMES APPLICABLE TO CHU LAI OPEN ECONOMIC ZONE

Pursuant the December 16, 2002 State Budget Law; the May 20, 1998 Law on Domestic Investment Promotion (amended); the November 12, 1996 Law on Foreign Investment; the June 9, 2000 Law on Foreign Investment (amended), and the June 17, 2003 Laws on Enterprise Income Tax, Value Added Tax, and Special Consumption Tax;
Pursuant to the Prime Ministers Decision No. 108/2003/QD-TTg of June 5, 2003 promulgating the Operation Regulation of Chu Lai Open Economic Zone,
The Ministry of Finance hereby guides the financial regimes applicable to Chu Lai Open Economic Zone as follows:

I. GENERAL PROVISIONS

1. Scope of application:

Financial regimes prescribed in this Circular apply to Chu Lai Open Economic Zone (hereinafter abbreviated to Chu Lai OEZ), including Nui Thanh district township and the communes of Tam Nghia (excluding Chu Lai airport and a number of locations determined by the Peoples Committee of Quang Nam province), Tam Quang, Tam Hai, Tam Giang, Tam Hoa, Tam Hiep, Tam Anh, Tam Tien and Tam Xuan 1 of Nui Thanh district; and the communes of Tam Thanh, Tam Phu and Tam Thang, and An Phu ward, of Tam Ky provincial capital, Quang Nam province.

2. Subjects of application:

Subjects of application of financial preference policies prescribed in this Circular are Vietnamese as well as foreign organizations and individuals conducting production and/or business activities in Chu Lai OEZ, including:

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b/ Foreign organizations and individuals, including foreign-invested enterprises, foreign investors participating in business cooperation contracts, overseas Vietnamese operating under forms prescribed in the Law on Foreign Investment in Vietnam, and foreign investors doing business not under the Law on Foreign Investment in Vietnam.

Only business activities carried out in Chu Lai OEZ shall be entitled to the preferences prescribed in this Circular. In cases where organizations and individuals conduct business activities both in Chu Lai OEZ and Vietnams inland, the business activities in Chu Lai OEZ must be separately accounted for use as basis for determination of preferential regimes.

For enterprises which had been granted operation licenses before June 5, 2003 but have not yet fully enjoyed the preferences, they must request the agencies which have granted the investment licenses, investment preference certificates or business registration certificates to make additional inscription for use as basis for enjoyment of preferential policies as prescribed in this Circular.

3. Organizations and individuals investing in Chu Lai OEZ shall be entitled to the maximum preferences reserved for investment projects in geographical areas meeting with exceptional socio-economic difficulties under the provisions of the November 12, 1996 Law on Foreign Investment in Vietnam; the June 9, 2000 Law Amending and Supplementing a Number of Articles of the Law on Foreign Investment in Vietnam; the May 20, 1998 Law on Domestic Investment Promotion (amended); the Enterprise Income Tax Law and the Value Added Tax Law as well as preferences under the international treaties or bilateral and multilateral trade contracts, which Vietnam has signed or acceded to.

4. If legal documents prescribe different preferences for the same case, the highest preference shall apply.

5. The tariff area, the non-tariff area and Vietnams inland mentioned in this Circular are construed as follows:

- The non-tariff area means an area isolated from other areas in Chu Lai OEZ, where customs stations are set up to supervise and inspect goods in and out, and which are entitled to special preferences on special consumption tax, value added tax as well as import tax and export tax prescribed in this Circular.

- The tariff area means Chu Lai OEZ without the non-tariff area.

Vietnams inland means the Vietnamese territory outside Chu Lai OEZ.

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A. INVESTMENT PREFERENCE REGIMES FOR ENTERPRISES OPERATING IN CHU LAI OEZ

1. Tax, charge and fee preferences:

1.1. Enterprise income tax:

- Investment projects in Chu Lai OEZ shall be exempt from enterprise income tax for a duration of 4 years after taxable incomes are generated; enjoy 50% reduction of the payable enterprise income tax amounts for 9 subsequent years; and apply the enterprise income tax rate of 10% for 15 years as from the time the investment projects commence their business activities.

Units shall have to submit to their directly managing tax offices the investment licenses, investment preference certificates or business registration certificates granted by competent agencies, which clearly state the tax exemption or reduction duration, for enjoying the preferences.

- Investment projects on building new production chains, expanding production scales, renewing technologies, improving the ecological environment or raising the production capacity shall be exempt from enterprise income tax for 4 years at most for the additional incomes brought about by investment, and enjoy 50% reduction of the payable tax amounts for 7 subsequent years at most.

- Organizations and individuals producing and/or trading in goods and/or services as well as foreign-invested enterprises and foreign parties to business cooperation contracts, that conduct business activities in Chu Lai OEZ and suffer from losses after making settlement with the tax offices, may carry forward such losses to the subsequent years for deduction from their taxable incomes. The duration for carrying forward losses shall not exceed 5 years.

- Incomes from the transfer of land-use right and transfer of right to lease land affixed with infrastructure or architectural objects shall be liable to income tax according to the provisions in Section C of Circular No. 128/2003/TT-BTC of December 22, 2003 guiding the implementation of the Governments Decree No. 164/2003/ND-CP of December 22, 2003 which details the implementation of the Enterprise Income Tax Law.

1.2. Export tax and import tax:

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Vietnams inland, and goods imported from foreign countries into the non-tariff area shall be exempt from import tax;

Vietnams inland shall comply with the following regulations:

- For goods originating from foreign countries, import tax shall be paid according to the current regulations.

- For goods manufactured, processed, recycled or assembled in the non-tariff area, with the value of the goods of ASEAN origin accounting for 40% or higher as evidenced by certificates of ASEAN origin Form D, the CEPT preferential import tax rates shall apply when they are imported into the tariff area and Vietnams inland.

- For goods manufactured, processed, recycled or assembled in the non-tariff area, if imported raw materials or components are not used, they shall not be liable to import tax when being imported into the tariff area and Vietnams inland.

- For goods manufactured, processed, recycled or assembled in the non-tariff area, if imported raw materials or components are used, when being imported into

- Bases for determining the payable import tax on the volume of the imported raw materials or components constituting the goods imported into Vietnams inland include:

+ The value of each type of imported raw material or component constituting each unit of goods (calculated as being the import price (CIF price) or the domestic market price of the raw material or component of the same type (in VND) multiplied by the consumption norm of each type of the imported raw material or component in each unit of goods, and the units shall set such consumption norm by themselves and bear responsibility before law for its truthfulness).

+ The volume of goods imported into Vietnams inland.

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- The procedures for registration and declaration of goods imported into the tariff area and Vietnams inland as well as for tax payment shall comply with the provisions in Section C of the Finance Ministrys Circular No. 172/1998/TT-BTC of December 22, 1998 guiding the implementation of the Governments Decree No. 54/CP of August 28, 1993 and Decree No. 94/1998/ND-CP of November 17, 1998 which detail the implementation of the Law on Export Tax and Import Tax and laws amending and supplementing a number of articles of the Law on Export Tax and Import Tax.

d/ For export tax-liable goods which are brought into the non-tariff area from Vietnams inland or from Chu Lai OEZs tariff area for export to foreign countries, export tax shall be paid according to the current regulations.

1.2.2. Foreign-invested enterprises investing in Chu Lai OEZ shall be exempt from import tax on raw materials, supplies and components imported for production for 5 years, counting from the time of production commencement.

1.3. Special consumption tax:

- Special consumption tax-liable goods and services manufactured and consumed in the non-tariff area shall not be liable to special consumption tax. They include special consumption tax-liable goods and services which are manufactured, supplied and consumed in the non-tariff area; imported from foreign countries into the non-tariff area; or manufactured in the inland or in the tariff area and then directly exported into the non-tariff area.

- Special consumption tax-liable goods and services, which are exported from the non-tariff area to foreign countries, shall not be liable to special consumption tax.

- Special consumption tax-liable goods and services, which are imported from the non-tariff area into the tariff area or Vietnams inland, shall be liable to special consumption tax like import goods according to the current regulations.

- Special consumption tax-liable goods, which are transited via the non-tariff area under the agreements already signed between two governments or branches, localities permitted by the Prime Minister for temporary import for re-export, shall not be liable to special consumption tax. In cases where regular goods are transited, such goods shall still be liable to special consumption tax according to the current regulations.

1.4. Value added tax:

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- Goods and services, which are imported from foreign countries into the non-tariff area, shall not be liable to value added tax.

- Goods and services which are exported from Vietnams inland or the tariff area into the non-tariff area shall enjoy the value added tax rate of 0%.

- Goods and services which are imported from the non-tariff area into the tariff area or Vietnams inland shall be liable to value added tax like import goods at the currently prescribed tax rates.

1.5. Other taxes as well as prices, charges and fees:

- The prices for use of infrastructures, public utilities and services in Chu Lai OEZ such as traffic roads, ports, technical infrastructure system, lighting electricity, electricity, water, communica-tions, shall be the prices agreed upon by the infrastructure-trading enterprises and the users.

- For international telecommunications services in exclusive service of Chu Lai OEZ under the international integration roadmap which Vietnam has committed to, international telecommunications charge rates shall be decided by investors within the framework of law provisions on international telecommunications service charges.

- Other taxes, charges and fees shall comply with the current regulations in tax laws; the Law on Domestic Investment Promotion (amended); the Law on Foreign Investment in Vietnam; the Ordinance on Charges and Fees; and other legal documents.

2. Land-lease price and land rent preference regimes

- Land-lease prices shall be decided by Chu Lai OEZs Management Board according to each project and in each period, suitable to the practical situation and encouraging investment on the basis of the price brackets set by the State.

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- Land-use right prices shall be determined through land use right auctions experimentally organized by Chu Lai OEZs Management Board. The auction must be conducted in strict compliance with law provisions.

- Land-use right prices in assigning or leasing land of projects in Chu Lai OEZ shall be determined through project bidding, experimentally organized by Chu Lai OEZs Management Board. The project bidding shall be conducted in strict compliance with law provisions.

- Land-use right transfer and land sub-lease prices shall be those agreed upon by the parties involved in the transfer.

3. Investment credit preference regime:

Domestic enterprises of various economic sectors, which invest in production and business activities in Chu Lai OEZ, shall be entitled to borrow the States credit capital according to current regulations.

B. REGIME OF REWARDS TO PERSONS WITH MERITORIOUS SERVICES IN INVESTMENT ACTIVITIES AS WELL AS MOBILIZATION AND ATTRACTION OF OFFICIAL DEVELOPMENT ASSISTANCE CAPITAL:

1. Basing him/herself on the budget capability, the President of the Peoples Committee of Quang Nam province shall decide to reward organizations and individuals that have rendered meritorious services in mobilizing official development assistance capital and attracting foreign-invested projects for Chu Lai OEZ. The specific rewarding levels shall comply with the Regulation promulgated by Chu Lai OEZs Management Board after the president of the Peoples Committee of Quang Nam province gives his/her opinions thereon and the Finance Ministry approves them in writing.

2. Funding for paying rewards to organizations and individuals that render meritorious services in mobilizing official development assistance capital and attracting foreign-invested projects for Chu Lai OEZ shall be deducted from the local budgets reward sources and accounted into the reward-expenditure item.

C. INFRASTRUCTURE DEVELOPMENT PREFERENCE REGIME

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1.1. Scope and objects of the State budget investment:

- The State budget shall only provide support for investment in the construction of common infrastructures of the entire Chu Lai OEZ, excluding infrastructures exclusively reserved for each specific area planned in Chu Lai OEZ.

- Chu Lai OEZs Management Board shall have to organize the execution of investment projects on the construction of infrastructures which are built with the State budget investment capital in Chu Lai OEZ.

1.2. Regarding the central budget investment in infrastructure construction:

1.2.1. Chu Lai OEZs Management Board shall act as the main body which is assigned annual plan norms, and as the investor directly managing projects financed with central budget capital in Chu Lai OEZ.

1.2.2. Chu Lai OEZs Management Board shall have to organize bidding to select units having financial capability, experiences and prestige for the execution of investment projects in infrastruc-ture construction with the State budget capital.

1.2.3. The central budget capital invested in the construction of Chu Lai OEZs infrastructures is a targeted central budget investment in Chu Lai OEZ. The level of State budget capital for investment in the construction of Chu Lai OEZs infrastructures shall be equal to the State budget estimate level compatible with the demands for Chu Lai OEZ infrastructure development investment strictly according to the plannings, programs and investment projects, approved by competent authorities.

1.2.4. Management and use of central budget capital for investment in the construction of Chu Lai OEZs infrastructures:

- Drawing up capital plans:

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+ Basing itself on the approved budget estimates and projects demands for investment capital and their implementation tempo, the Ministry of Finance shall determine the central budget capital estimate for investment in Chu Lai OEZ and notify it to Chu Lai OEZs Management Board and the Peoples Committee of Quang Nam province.

+ Basing itself on the central budget investment capital estimate for Chu Lai OEZ, Chu Lai OEZs Management Board shall draw up quarterly plans on investment capital use and send them to the Ministry of Finance.

- Capital use:

+ Chu Lai OEZs Management Board shall have to use the central budget investment capital exclusively reserved for Chu Lai OEZs infrastructures for the right purposes and with efficiency. The capital management and use must strictly comply with the States regulations on management of capital construction investment capital.

+ In cases where the central budget investment capital amount for Chu Lai OEZ fail to meet the demands for investment in the construction of the OEZs infrastructures, Chu Lai OEZs Management Board shall coordinate with the Peoples Committee of Quang Nam province in apportioning capital from the provinces annual budget plan for the construction of the OEZs infrastructures.

+ Annually, at the time of budget estimation, the Ministry of Finance shall assume the prime responsibility for, and coordinate with the Ministry of Planning and Investment and Chu Lai OEZs Management Board in, considering and re-determining the capital disbursement tempo and demands for the central budget investment capital. The central budget investment shall terminate when Chu Lai OEZ basically completes the infrastructure construction as planned.

- Allocation order, procedures and modes as well as capital reporting and settlement regime:

+ The annual central budget investment capital for Chu Lai OEZ shall be allocated quarterly on the basis of the annual central budget investment capital estimates already approved and notified to Chu Lai OEZs Management Board; the quarterly investment capital use plans drawn up by Chu Lai OEZs Management Board and sent to the Ministry of Finance; and the tempo of execution of projects invested with the central budget capital.

Quarterly, on the basis of quarterly investment capital use plans drawn up by Chu Lai OEZs Management Board and sent to the Ministry of Finance, project execution tempo and proposal of Chu Lai OEZs Management Board, the Ministry of Finance shall consider and allocate capital directly to Chu Lai OEZs Management Board for execution of projects according to plans.

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2. Regime of using land fund for creation of infrastructure development capital:

- Chu Lai OEZs Management Board shall act as the main body which is assigned annual plan norms and as the investor directly managing projects using capital from Chu Lai OEZs land fund.

- Chu Lai OEZs Management Board shall organize bidding to select units which have financial capability, experiences and prestige for the execution of infrastructure projects invested with capital from Chu Lai OEZs land fund.

- Chu Lai OEZs Management Board shall make the list of projects on construction of infrastructures of the entire Chu Lai OEZ, which are entitled to use the land fund for capital creation, for the Peoples Committee of Quang Nam province to submit them to the Prime Minister for approval. The list of projects on construction of infrastructures of the whole Chu Lai OEZ includes investment projects on construction of infrastructure for the whole Chu Lai OEZ and expense for ground clearance for Chu Lai OEZ development investment.

- The use of land fund for creation of Chu Lai OEZs infrastructure construction capital shall comply with the Finance Ministers Decision No. 22/2003/QD-BTC of February 18, 2003 on financial mechanisms in the use of land funds for creation of infrastructure construction capital.

3. Capital mobilization by issuing project bonds for Chu Lai OEZs infrastructure development investment:

- Chu Lai OEZs Management Board may issue domestic project bonds in order to mobilize investment capital beyond the mobilization control level for Quang Nam province.

- The issuance of project bonds by Chu Lai OEZs Management Board shall comply with the provisions of the Governments Decree No. 141/2003/ND-CP of November 20, 2003 regarding the Regulation on issuance of Government bonds, Government-underwritten bonds and local administrations bonds, and be made in other mobilization forms according to law provisions.

D. FINANCIAL REGIMES APPLICABLE TO CHU LAI OEZS MANAGEMENT BOARD

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2. Chu Lai OEZs Management Board may collect assorted charges and fees according to the tasks authorized by State management agencies under the current regulations. When being authorized by competent State agencies to perform the tasks, Chu Lai OEZs Management Board shall have to notify and register with the tax office of the locality where the Management Board is headquartered of the collection of assorted charges and fees in performing its authorized tasks.

3. Apart from charges and fees which are collected from the performance of its authorized tasks, Chu Lai OEZs Management Board may also collect other charges and fees according to the regulations applicable to the provincial-level Industrial Parks Management Boards and border-gate economic zones Management Boards.

III. IMPLEMENTATION PROVISIONS

This Circular takes implementation effect 15 days after its publication in the Official Gazette. The preferences for enterprises operating in Chu Lai OEZ prescribed in this Circular also apply to enterprises which had been permitted to operate in Chu Lai OEZ before the effective date of this Circular; other regulations on financial regimes apply as from the 2004 budget year. All problems arising in the course of implementation should be reported to the Ministry of Finance for study and solution.

FOR THE FINANCE MINISTER
VICE MINISTER




Tran Van Ta