To: Taxation Department of Bac Giang Province

In response to Official Letter No. 236/CT/QLDN dated June 23, 2004 of the Taxation Department of Bac Giang Province regarding to the tax provisions applicable to foreign contractors, the General Department of Taxation has opinions as follows:

Pursuant to Circular No. 41/2002/TT-BTC dated May 3, 2004, Circular No. 169/1998/TT-BTC dated December 22, 1998 of the Ministry of Finance and Official Letter No. 7711 BTC/TCT dated July 13, 2004 of the Ministry of Finance, in respect of the Project on “Construction and improvement of facilities of primary schools in the Northern mountainous areas, Phase II”, which is funded by grant ODA of the Japan government and the main contractor of which is the FUJITA Corporation, the FUJITA Contractor shall burden the following tax obligations if it does not apply the Vietnamese accounting system:

1. Tax declaration and payment:

Section 3.l and Section 6(d) of the Diplomatic Note exchanged by and between the Government of the Socialist Republic of Vietnam and the Japan Government provide that: Japanese citizens (including Japanese individuals and legal entity) are entitled to exemption from customs duties, domestic taxes and other payments for State budget imposed by Vietnam on the supply of products and services under the appraised contracts. Based upon these provisions, the Japanese Contractor FUJITA has carried out the contract signed with the owner of the Japanese grant ODA project, to which Vietnam government has granted a tax exemption in accordance with Diplomatic Note No. 2162BKH/KTDN dated April 13, 2004 of the Ministry of Planning and Investment addressed to the Embassy of Japan.

Japanese individuals working for the Contractor FUJITA in this project are exempted from personal income tax. Vietnamese individuals and other foreigners working for FUJITA Contractor are required to pay personal income tax in accordance with the Ordinance on Income Tax on High Income Earners and its implementing legal instruments.

2. Value-added tax refund:

Where the Project Management Board assigns the Japanese Contractor FUJITA to construct and install the construction works and supply goods and services to the Project with the prices exclusive of VAT, the Contractor JUFITA shall not add output VAT to its invoices issued to the project owner and be entitled to be refunded the amount of input VAT with respect to goods and services purchased for implementing the contract entered into with the project owner.

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Pursuant to Section IV.3.1 of Circular No. 41/2002/TT-BTC, where the Contractor FUJITA finished its preparation of the application files and was granted the tax identification number in accordance with Circular No. 68/2003/TT-BTC dated July 17, 2003 of the Ministry of Finance, the contractor may use the granted tax identification number to declare and apply for the VAT refund in term of the amount of input VAT of the goods and services purchased in service of the Project.

The General Department of Taxation replies to the Department of Taxation of Bac Giang Province for information and provision of guidelines for the Contractor for implementation.

FOR THE GENERAL DIRECTOR OF
THE GENERAL DEPARTMENT OF TAXATION
DEPUTY OF GENERAL DIRECTOR




Pham Van Huyen