Circular No. 11/2004/TT-BTC guiding financial regulations applicable to the Chu Lai Open Economic Zone

CIRCULAR

Guidelines on financial regulations applicable to the Chu Lai Open Economic Zone

- Based on the State Budget Law dated December 16, 2002, the Law on Encouragement of Domestic Investment (amended) dated May 20, 1998, the Foreign Investment Law dated November 12, 1996, the Amended Foreign Investment Law dated June 9, 2000, the Corporate Income Tax Law, the Value Added Tax Law, and the Special Consumption Tax Law dated June 17, 2003;

- Based on Decision No. 108/2003/QĐ-TTg dated June 5, 2003 of the Prime Minister promulgating the Operation Regulations of the Chu Lai Open Economic Zone,

The Ministry of Finance issues guidelines on financial regulations applicable to the Chu Lai Open Economic Zone as follows:

I. GENERAL PROVISIONS

Article 1. Scope of Application:

The financial regulations stipulated in this Circular shall apply within the territory of the Chu Lai Open Economic Zone (hereinafter referred to as the "Chu Lai Zone"), including: Nui Thanh Town and communes Tam Nghia (excluding Chu Lai Airport and certain locations determined by the People's Committee of Quang Nam Province), Tam Quang, Tam Hai, Tam Giang, Tam Hoa, Tam Hiep, Tam Anh, Tam Tien, Tam Xuan 1 in Nui Thanh District; communes Tam Thanh, Tam Phu, Tam Thang and An Phu Ward in Tam Ky City, Quang Nam Province.

第二条 组织和实施奖励工作的支出水平，如政府第152/2025/NĐ-CP号决定关于分级授权和奖励领域的分权规定

The subjects eligible for preferential policies on finance prescribed in this Circular are domestic and foreign organizations and individuals engaged in production and business activities in the Chu Lai Zone, including:

a. Domestic investors belonging to various economic sectors operating in accordance with the State Enterprise Law, the Enterprise Law, the Cooperative Law, individual households, and independent practitioners.

b. Foreign organizations and individuals including foreign-invested enterprises, foreign investors participating in joint venture contracts, overseas Vietnamese residing abroad operating under forms prescribed in the Foreign Investment Law in Vietnam, and foreign investors conducting business not under the Foreign Investment Law in Vietnam.

Only business activities conducted within the territory of the Chu Lai Zone shall be entitled to the benefits stipulated in this Circular. In cases where organizations and individuals have business operations both within the Chu Lai Zone and in the mainland of Vietnam, they must separately account for their business activities within the Chu Lai Zone as the basis for determining preferential treatment.

For enterprises granted licenses to operate before June 5, 2003 but have not fully enjoyed the benefits, the enterprise must request the investment license issuing authority, investment incentive certificate issuing authority, and business registration certificate issuing authority to supplement the relevant records as the basis for enjoying the preferential policies stipulated in this Circular.

Organizations and individuals investing in the Chu Lai Zone shall enjoy the maximum incentives allocated for projects in areas with particularly difficult socio-economic conditions according to the Foreign Investment Law in Vietnam dated November 12, 1996, the Law Amending and Supplementing Certain Provisions of the Foreign Investment Law in Vietnam dated June 9, 2000, the Amended Law on Encouragement of Domestic Investment dated May 20, 1998, the Corporate Income Tax Law, the Value Added Tax Law, and other incentives under international treaties, bilateral and multilateral trade agreements that Vietnam has signed or joined..

If legal documents provide different levels of incentives for the same case, the highest level of incentive shall be applied. In cases where newly issued mechanisms and policies offer more incentives than those stipulated in this Circular, the new policies shall be applied.

5. The customs zone, non-customs zone, and mainland Vietnam in this Circular are understood as follows:

- The non-customs zone is a separate area within the Chu Lai Zone, equipped with customs stations to monitor and inspect goods entering and exiting, and enjoys special incentives regarding special consumption tax; value added tax; and export and import duties as prescribed in this Circular.

- The customs zone is the Chu Lai Zone excluding the non-customs zone.

- Mainland Vietnam refers to the territory of Vietnam excluding the Chu Lai Zone.

II. SPECIFIC PROVISIONS

A/ Investment Incentive Regime for Enterprises Operating in the Chu Lai Zone

1. Preferential regime on taxes, fees, and charges:

1.1. Corporate income tax:

- Projects investing in the Chu Lai Zone shall be exempt from corporate income tax for four years from the date of generating taxable income; shall have their corporate income tax reduced by 50% for nine consecutive years thereafter; and shall be subject to a corporate income tax rate of 10% for fifteen years from the start of the project's business operations.

The entity responsible for submitting to the directly managing tax authority the investment license, investment incentive certificate, and business registration certificate issued by the competent authority, clearly stating the period of tax exemption and reduction to enjoy the incentives.

- Projects constructing new production lines, expanding scale, updating technology, improving ecological environment, and enhancing production capacity shall be exempt from corporate income tax for up to four years for additional income generated by the investment and shall have their corporate income tax reduced by 50% for up to seven consecutive years thereafter.

- Organizations and individuals producing and trading goods and services, foreign-invested enterprises, and foreign parties participating in joint venture contracts operating in the Chu Lai Zone, after settling accounts with the tax authority and suffering losses, may carry forward such losses to offset against future taxable income. The carry-forward period shall not exceed five years.

- Income subject to corporate income tax from the transfer of land use rights, land lease rights attached to infrastructure and buildings on the land shall be taxed according to the provisions of Section C of Circular No. 128/2003/TT-BTC dated December 22, 2003 guiding the implementation of Decree No. 164/2003/NĐ-CP dated December 22, 2003 of the Government detailing the implementation of the Corporate Income Tax Law.

1.2. Export duties and import duties:

1.2.1. Relations between goods and services in the non-customs zone and the customs zone within the Chu Lai Zone and with the mainland are considered export and import relations and must comply with all current laws and regulations on export and import. Specifically:

a. Exempt from import duties for goods originating from the customs zone, mainland Vietnam, and imported from abroad into the non-customs zone.

b/ Import duties on goods from non-tariff zones entering tariff zones and domestic areas of Vietnam shall be implemented according to the following provisions:

- Goods with foreign origin must pay import tax according to current regulations.

- Goods produced, processed, recycled, or assembled in non-tariff zones, if the value of goods originating from ASEAN constitutes 40% or more and confirmed by an ASEAN Certificate of Origin Model D, shall be subject to the preferential import duty rate under the CEPT when imported into tariff zones and domestic areas of Vietnam.

- Goods produced, processed, recycled, or assembled in non-tariff zones without using imported raw materials or components from abroad, when imported into tariff zones and domestic areas of Vietnam, shall not be subject to import duties.

- Goods produced, processed, recycled, or assembled in non-tariff zones that use imported raw materials or components from abroad, when imported into domestic areas of Vietnam, shall only be subject to import duties on the portion of imported raw materials or components constituting the goods.

- The basis for determining the amount of import duties payable on the portion of imported raw materials or components constituting goods imported into domestic areas of Vietnam includes:

+ The value of each type of imported raw material or component constituting each unit of goods (calculated based on the import price from abroad (CIF) or the market price of similar raw materials or components within the domestic market (in VND) multiplied by the consumption quota of each type of imported raw material or component per unit of goods established by the entity and responsible before the law for the authenticity of this consumption quota).

+ The quantity of goods imported into domestic areas of Vietnam,

+ The import duty rate applicable to each type of raw material or component.

- Procedures for registering, declaring goods imported into tariff zones, into domestic areas of Vietnam, and paying duties shall be carried out in accordance with the provisions set forth in Section C of Circular No. 172/1998/TT-BTC dated December 22, 1998, issued by the Ministry of Finance guiding the implementation of Decree No. 54/CP dated August 28, 1993, and Decree No. 94/1998/NĐ-CP dated November 17, 1998, of the Government detailing the implementation of the Law on Export Tax, Import Tax, and Laws amending and supplementing certain articles of the Law on Export Tax, Import Tax.

c/ Goods produced, processed, recycled, or assembled in non-tariff zones when exported to foreign countries shall be exempted from export duties.

d/ Goods subject to export duties brought into non-tariff zones from domestic areas of Vietnam and from tariff zones within the Chu Lai Free Trade Zone for export to foreign countries must pay export duties according to current regulations.

1.2.2. Foreign-invested enterprises investing in the Chu Lai Free Trade Zone shall be exempted from import duties on production raw materials, supplies, and components for five years, starting from the date of commencement of production.

1.3. Special Consumption Tax:

- Goods and services subject to special consumption tax produced and consumed in non-tariff zones shall not be subject to special consumption tax, including: goods and services subject to special consumption tax produced, supplied, and consumed in non-tariff zones; imported from abroad into non-tariff zones or produced from domestic areas and tariff zones directly exported into non-tariff zones.

- Goods and services subject to special consumption tax exported from non-tariff zones to foreign countries shall not be subject to special consumption tax.

- Goods and services subject to special consumption tax imported from non-tariff zones into tariff zones and domestic areas of Vietnam shall be subject to special consumption tax on imported goods according to current regulations.

- Goods subject to special consumption tax if they transit through non-tariff zones based on agreements signed between two governments or sectors, approved by the Prime Minister, for temporary importation and re-exportation shall not be subject to special consumption tax. In cases where goods are transported through non-tariff zones for normal transportation, they shall still be subject to special consumption tax according to current regulations.

1.4. Value Added Tax:

- Goods and services produced and consumed in non-tariff zones shall not be subject to value added tax.

- Goods and services imported from abroad into non-tariff zones shall not be subject to value added tax.

- Goods and services exported from domestic areas of Vietnam and tariff zones into non-tariff zones shall enjoy a zero percent VAT rate.

- Goods and services imported from non-tariff zones into tariff zones and domestic areas of Vietnam shall be subject to value added tax on imported goods at the rates prescribed by current regulations.

1.5. Other types of taxes, prices, fees, and charges:

- The level of prices for infrastructure works, public utilities, and common services for the Chu Lai Free Trade Zone such as roads, ports, technical infrastructure systems, lighting, electricity, water, telecommunications, etc., shall be agreed upon between infrastructure business entities and users.

- For international telecommunication services according to the integration roadmap that Vietnam has committed to serve the Chu Lai Free Trade Zone, the levels of international telecommunication fees shall be determined by investors within the framework of laws on international telecommunication service fees.

- Other types of taxes, fees, and charges shall be implemented according to current regulations stipulated in the Tax Law, Investment Promotion Law (amended), Foreign Investment Law in Vietnam, Fee and Charge Ordinance, and other legal documents.

2. Preferential regimes regarding prices and land rental fees:

- Land rental prices for the Chu Lai Free Trade Zone shall be decided by the Management Board of the Chu Lai Free Trade Zone for each project and phase, in line with reality and to encourage investment based on the national pricing framework.

- Reductions in land rental fees shall be proposed by the Management Board of the Chu Lai Free Trade Zone and decided by the People's Committee of Quang Nam Province (hereinafter referred to as the People's Committee of Quang Nam Province). Reductions in land rental fees must comply with current legal regulations.

- The price of land use rights shall be determined through land use rights auctions organized by the Management Board of the Chu Lai Free Trade Zone as a pilot. Auctions must be conducted in accordance with legal regulations.

- The price for land use rights in the transfer of land and leasing of land for projects within the Chu Lai Industrial Zone is determined through bidding organized by the Chu Lai Industrial Zone Management Board. The bidding process shall be conducted in accordance with the provisions of the law.

- The transfer price of land use rights and subleasing of land is agreed upon between the parties involved in the transfer.

3. Investment credit preferential regime:

Domestic enterprises belonging to various economic sectors investing in production and business activities at the Chu Lai Industrial Zone are entitled to borrow state investment credit in accordance with current regulations.

B. Reward system for individuals and organizations contributing to investment activities and attracting official development assistance capital:

1 -Based on the budget capacity, the Chairman of the People's Committee of Quang Nam Province decides to reward organizations and individuals who have contributed to attracting official development assistance capital and foreign direct investment projects within the Chu Lai Industrial Zone. Specific reward levels are implemented according to the Regulation issued by the Chu Lai Industrial Zone Management Board after obtaining the opinion of the Chairman of the People's Committee of Quang Nam Province and the approval (in writing) of the Ministry of Finance.

2 -The funds used to reward organizations and individuals who have contributed to attracting official development assistance capital and foreign direct investment projects within the Chu Lai Industrial Zone are allocated from the local government bonus fund and recorded under the bonus expenditure account.

C. 4.1. Investment from the state budget for building infrastructure

1. Regarding investment from the State Budget (hereinafter referred to as the State Budget) for infrastructure construction:

1.1 Scope and objects of investment from the State Budget:

- The State Budget only supports the construction of common infrastructure projects for the entire Chu Lai Industrial Zone, excluding infrastructure dedicated to specialized zones planned within the Chu Lai Industrial Zone.

- The Chu Lai Industrial Zone Management Board is responsible for organizing and implementing infrastructure construction projects funded by the State Budget within the Chu Lai Industrial Zone.

1.2. Regarding investment from the central government budget for infrastructure construction:

1.2.1. The Chu Lai Industrial Zone Management Board is the focal point assigned annual targets and directly manages projects using central government budget funds within the Chu Lai Industrial Zone.

1.2.2. The Chu Lai Industrial Zone Management Board must organize bidding to select units with sufficient financial capability, experience, and reputation to implement infrastructure construction projects funded by the State Budget.

1.2.3. Central government budget investment for Chu Lai Industrial Zone infrastructure construction is a targeted investment by the central government budget for the Chu Lai Industrial Zone. The level of State Budget investment for Chu Lai Industrial Zone infrastructure construction is equivalent to the approved State Budget estimate that meets the needs for infrastructure development in the Chu Lai Industrial Zone in accordance with the approved planning, programs, and investment projects.

1.2.4. Management and utilization of central government budget investment for Chu Lai Industrial Zone infrastructure construction:

- Preparation of investment plans:

+ Annually, based on the socio-economic development plan of the Chu Lai Industrial Zone, the Chu Lai Industrial Zone Management Board determines the investment capital needs for infrastructure construction, specifying the list of projects to be invested in, the priority level for each project, total investment capital requirements, and the investment structure of each project (specifying the sources of investment: from local government budget, central government budget, or borrowed funds...), implementation schedule, and expected completion time. The People's Committee of Quang Nam Province compiles the infrastructure construction investment plan for the Chu Lai Industrial Zone and submits it to the Ministry of Finance and the Ministry of Planning and Investment for approval of the central government budget investment plan.

+ Based on the approved budget estimate, the capital needs of the projects, and the progress of implementation, the Ministry of Finance determines and notifies the Chu Lai Industrial Zone Management Board and the People's Committee of Quang Nam Province about the central government budget investment for the Chu Lai Industrial Zone.

+ Based on the annual central government budget investment estimate for the Chu Lai Industrial Zone, the Chu Lai Industrial Zone Management Board prepares a quarterly investment usage plan and sends it to the Ministry of Finance.

- Utilization of funds:

+ The Chu Lai Industrial Zone Management Board is responsible for using the central government budget investment funds for infrastructure construction in the Chu Lai Industrial Zone for their intended purpose and effectively. The management and utilization of funds must comply with the State's regulations on managing basic construction investment funds.

+ In cases where the central government budget investment funds for the Chu Lai Industrial Zone are insufficient to meet the infrastructure construction needs, the Chu Lai Industrial Zone Management Board will coordinate with the People's Committee of Quang Nam Province to allocate funds in the provincial annual budget plan for infrastructure construction in the Chu Lai Industrial Zone.

+ Regularly, at the time of preparing the annual budget, the Ministry of Finance, in collaboration with the Ministry of Planning and Investment and the Chu Lai Industrial Zone Management Board, reviews and redefines the progress of fund utilization and the need for central government budget investment. Central government budget investment will cease when the Chu Lai Industrial Zone has basically completed its infrastructure construction according to the plan.

- Procedures, methods of allocation, reporting systems, and final accounting of funds:

+ Annual central government budget investment funds for the Chu Lai Industrial Zone are allocated quarterly based on: The approved annual central government budget investment estimate and notification to the Chu Lai Industrial Zone Management Board; The quarterly investment usage plan prepared and submitted by the Chu Lai Industrial Zone Management Board to the Ministry of Finance; The progress of projects funded by the central government budget.

Quarterly, based on the quarterly investment usage plan prepared and submitted by the Chu Lai Industrial Zone Management Board to the Ministry of Finance, the progress of the projects, and the request of the Chu Lai Industrial Zone Management Board, the Ministry of Finance will review and directly allocate funds to the Chu Lai Industrial Zone Management Board to implement projects according to the plan.

The management, allocation, payment, final accounting, and reporting on the use of central government budget investment funds for basic construction must comply with the current laws on managing basic construction investment funds from the State Budget.

2. Land fund usage regime for infrastructure development capital:

- The Chu Lai Industrial Zone Management Board is the focal point assigned annual targets and directly manages projects using land fund capital within the Chu Lai Industrial Zone.

- The Management Board of Chu Lai Export Processing Zone organizes bidding to select units with sufficient financial capacity, experience, and reputation to implement construction projects for infrastructure investments using funds from the land fund at the Chu Lai Export Processing Zone.

- The Management Board of Chu Lai Export Processing Zone compiles a list of infrastructure construction projects throughout the Chu Lai Export Processing Zone that utilize the land fund to create capital for submission to the People's Committee of Quang Nam Province for approval by the Prime Minister. The list of infrastructure construction projects throughout the Chu Lai Export Processing Zone includes common infrastructure investment projects for the entire Chu Lai Export Processing Zone and costs for land clearance for development within the Chu Lai Export Processing Zone.

- The use of the land fund to build infrastructure at the Chu Lai Export Processing Zone shall be carried out in accordance with Decision No. 22/2003/QD-BTC dated February 18, 2003, of the Minister of Finance on the financial mechanism for the use of the land fund to construct infrastructure.

3. Mobilizing capital through the issuance of project bonds to invest in developing infrastructure at the Chu Lai Export Processing Zone:

- The Management Board of Chu Lai Export Processing Zone is permitted to issue domestic project bonds to raise capital beyond the controlled limit for Quang Nam Province.

- The issuance of project bonds by the Management Board of Chu Lai Export Processing Zone shall be conducted in accordance with the provisions of Decree No. 141/2003/CP dated November 20, 2003, of the Government on the regulations for issuing government bonds, government-guaranteed bonds, and local government bonds, and other forms of fundraising as stipulated by law.

D/ Financial regime applicable to the Management Board of Chu Lai Open Economic Zone

1 -The Management Board of Chu Lai Export Processing Zone is a state budget unit, all operating expenses of the Management Board of Chu Lai Export Processing Zone are provided by the provincial state budget of Quang Nam. All revenues collected by the Management Board of Chu Lai Export Processing Zone in accordance with regulations must be remitted to the state budget according to the current classification management of the state budget.

2 - The Management Board of Chu Lai Export Processing Zone is authorized to collect various fees and charges corresponding to the tasks entrusted by state management agencies in accordance with current regulations. When authorized by competent authorities to perform tasks, the Management Board of Chu Lai Export Processing Zone has the responsibility to notify and register with the tax authority where the Management Board is located regarding the collection of various fees and charges due to the performance of the entrusted tasks.

3. In addition to the fees and charges collected due to the performance of entrusted tasks, the Management Board of Chu Lai Export Processing Zone may also collect other types of fees and charges in accordance with the regulations applicable to provincial industrial zone management boards and border economic zone management boards.

III. IMPLEMENTATION PROVISIONS

This Circular takes effect fifteen days after its publication in the Official Gazette. The incentives provided for enterprises operating in the Chu Lai Export Processing Zone under this Circular also apply to enterprises already operating in the Chu Lai Export Processing Zone before the date this Circular takes effect; Other financial regime provisions will be applied from the 2004 fiscal year. Any difficulties encountered during implementation should be reported to the Ministry of Finance for study and resolution.