CIRCULAR

GUIDING THE DETERMINATION AND RECOGNITION OF HIGH-TECH ENTERPRISES OPERATING UNDER THE LAW ON FOREIGN INVESTMENT IN VIETNAM

Pursuant to Decree No.22-CP of May 22, 1993 of the Government on the tasks, powers and organizational structure of the Ministry of Science, Technology and Environment;
Pursuant to Decree No.36-CP of April 24, 1997 of the Government, promulgating the Regulation on Industrial Parks, Export Processing Zones and High-Tech Parks;
Pursuant to Decree No.10/1998/ND-CP of January 23, 1998 of the Government on a number of measures to promote and secure the foreign direct investment activities in Vietnam;
In order to promote and create favorable conditions for the attraction of foreign high-tech investment capital, this Circular guides the determination and recognition of high-tech enterprises in the industrial parks, export processing zones and high-tech parks.

I. GENERAL PROVISIONS

1. Objects of application:

Subject to this Circular shall be foreign-invested industrial enterprises and business cooperation enterprises contracted under the Law on Foreign Investment in Vietnam (hereafter called for short as contractual business cooperation enterprises), which produce high-tech products on the lists of projects with special encouragement for investment specified in Appendix I of Decree No.10/1998/ND-CP of January 23, 1998 of the Government on a number of measures to promote and secure foreign direct investment in Vietnam ( hereafter referred to as Decree No.10/1998).

Those industrial enterprises recognized as high-tech industrial enterprises (hereafter abbreviated as HTIE) must be industrial enterprises in industrial parks, export processing zones or high-tech parks, which have already been licensed to produce and trade in high-tech products (electronic, micro-electronic, informatic, telecommunications, automation, precision engineering, biological, new materials, nuclear) and have their turnover from the production and sale of high-tech products (as defined in Point g, Item 3, Part I of this Circular) accounting for at least 70 per cent of their respective total turnover, and have operated for at least one year.

The foreign-invested industrial enterprises and contractual business cooperation enterprises in the industrial parks, export processing zones and high-tech parks shall base themselves on the guidance in this Circular to make self-assessment at any time after at least one year of operation and may make written registration for recognition as HTIEs if they deem that they have met the prescribed conditions and criteria.

...

...

...

The enterprises recognized as HTIEs shall be entitled to fully enjoy the preferences under the provisions of laws, as prescribed in Chapter VII of Decree No.12-CP of February 18, 1997 (hereafter referred to for short as Decree No.12-CP) and Chapter III of Decree No.10/1998. Following are some specific preferences:

a/ Being exempt from import tax on production materials for 5 years after commencing their production;

b/ Enjoying preferential tax rates prescribed in Clause 3, Article 54, Decree No.12-CP;

c/ Being exempt from profit tax (the enterprise income tax as from 01/01/1999) for 4 years after the expiry of the tax exemption period prescribed in Clause 3, Article 56 of Decree No.12-CP or enjoying the total profit tax exemption period of 8 years if the enterprises have not yet enjoyed the full 4-year tax exemption period;

d/ Enjoying the 50 per cent income tax reduction for 4 subsequent years after the expiry of the period of profit tax exemption for enterprises recognized as high-tech industrial enterprises;

e/ Enjoying the preferential tax rates throughout the project duration;

f/ Regardless of the time an industrial enterprise is recognized as a high-tech industrial enterprise, the total length of time for profit tax exemption enjoyed by such enterprise amounts to 8 years (according to Article 17.2.c of the Enterprise Income Tax Law), including the tax exemption period enjoyed under Clause 3, Article 56 of Decree No.12-CP.

3. Interpretation of terms

In this Circular, the following terms shall be construed as follows:

...

...

...

b/ Turnover is the total of all revenues calculated according to the invoices on the sale of finished products and/or high-tech components and parts turned out by the enterprise, and/or from high-tech services, excluding revenues from the sale of products, components and parts purchased from any sources, or from ordinary service activities and other revenues.

c/ High-tech components and parts:

- In electronics, they are circuits panels, condensers, capacitors, resistance, relays, wire pools, electronic ray guns, picture tubes of various types, ICs, electronic chips... used in electronic products.

- In the fields of automation, engineering, machine building, they are details and parts with precision of grade 2 or higher, regulatory vans, hydraulic regulators, air compressors, cam structures, direction- finding rotators, precision tools, measurement devices, comparison watches, precision watches.

- In the fields of new-materials, chemicals, pharmaceuticals, biology, foodstuffs.., they are micro-chemicals, refined chemicals, catalysts, stimulants, premix, enzyme.

Computer software used in control systems of automation equipment, information equipment, technology and business control systems are also considered high-tech parts.

d/ High-tech services are services that require that the performers must have the professional high-tech qualifications and must use high-tech means.

e/ Common service activities are service activities that do not require that the performers have the professional high-tech qualifications and shall not have to use high-tech means.

f/ The payroll for calculating norms prescribed in this Circular is the total number of laborers (Vietnamese and foreigners) working in the year, excluding those who work for less than 3 months.

...

...

...

h/ Force majeure causes are those deriving from unexpected incidents such as natural calamities, unexpected accidents, embargoes, changes of Governments policies relating to the implementation of projects...

II. CRITERIA OF HIGH-TECH INDUSTRIAL ENTERPRISES

The enterprises defined in Item 1, Part I of this Circular which fully satisfy the following criteria shall be recognized as high-tech industrial enterprises:

1. Their technological lines must be advanced, their products can be exported or the products for domestic consumption must have the quality equivalent to that of the import products of the same types. The enterprises’ product quality control systems must be granted the certificate of ISO 9000 standards.

2. The average per-head value of technological equipment is US$ 40,000 or more.

Enterprises specialized in producing computer software are considered as meeting the criteria prescribed in Item 2, Part II of this Circular.

3. The proportion of high-tech components and parts produced by the enterprise (localization percentage) must represent at least 2 per cent of its annual turnover or the total value of such parts produced by the enterprise and other industrial enterprises in Vietnam must represent at least 15 per cent of the enterprise's annual turnover.

4. The number of employees in the enterprise:

a/ At least 40 per cent of the total number of officials with college, university or higher degree of the enterprise must be given professional practices at research and development institutions and/or modern production establishments in foreign country(ies).

...

...

...

5. The expenditure on research and development, training and fostering accounts for no less than 2 per cent of the annual turnover.

If the research and development, training and fostering activities are carried out fully or partly free of charge, the charge exemption value is also included in the above-mentioned percentage.

For enterprises with the annual turnover of US$10,000,000 or more, the annual expenses for research and development and training shall not be lower than US$200,000.

If a technology transfer contract is approved by the Ministry of Science, Technology and Environment, the enterprise shall, for the first four years (after the technology transfer contract is approved), be considered having met the criteria prescribed in Item 5, Part II of this Circular.

6. The annual per-capita turnover must reach about US$70,000 or more.

For industrial enterprises having the legal capital of more than US$30,000 and a workforce of over 1,000 people each, the norms prescribed in this Item 6 (the annual per-capita turnover) are not required to be calculated.

7. Ensuring the environmental standards set by the Vietnamese State.

The norms mentioned in Part II of this Circular must be calculated from statistical data of the enterprise in the preceding operation year.

III. IMPLEMENTATION ORGANIZATION

...

...

...

a/ The application for being recognized as the high-tech industrial enterprise;

b/ The technical and economic justification of the project already considered by the investment licensing agency;

c/ The copy of the investment license;

d/ The enterprise's financial report for the preceding year, certified by the auditing agency;

e/ The written explanation of the enterprise's operation contents.

2. The Ministry of Science, Technology and Environment shall be the body which grants and withdraws the HTIE certificates. The Office for Technology and Environment Evaluation of investment projects under the Ministry of Science, Technology and Environment shall be the body that organizes the evaluation and reports to the Minister of Science, Technology and Environment for considering and deciding the granting or withdrawal of the HTIE certificates.

3. Within 45 days after fully receiving the valid dossiers, the Minister of Science, Technology and Environment shall issue decision on the recognition of HTIE.

In cases where the enterprise fails to meet the conditions and criteria for being recognized as HTIE, the Ministry of Science, Technology and Environment shall have to reply the enterprise in writing clearly stating the reason therefor.

4. In cases where the Ministry of Science, Technology and Environment requests the enterprise applying for the HTIE recognition to supplement the dossiers, such enterprise shall have to meet that request within 45 days after receiving the written request. Past the above-mentioned time-limit, if the above-mentioned request is not yet satisfied, the written application for the HTIE recognition is no longer valid.

...

...

...

6. Enterprises that have been recognized as HTIEs shall have to submit to the Ministry of Science, Technology and Environment the annual reports on their operation situation not later than January 15 of the subsequent year.

7. If during the course of operation an enterprise can no longer fully meet the criteria defined in Part II of this Circular, its HTIE recognition certificate shall be withdrawn.

8. The HTIES shall be entitled to complain about acts and/or decisions violating laws, relating to the HTIE recognition according to the complaints ands denunciation legislation.

IV. IMPLEMENTATION PROVISIONS

This Circular takes effect 15 days after its signing. In the course of implementation, if any problems arise, the concerned organizations and individuals are requested to report in time to the Ministry of Science, Technology and Environment for guidance on the settlement thereof.

MINISTER OF SCIENCE, TECHNOLOGY AND ENVIRONMENT




Chu Tuan Nha