Circular No. 16/2002/TT-BTC guides the financial regime applicable at the Lao Bao Trade Zone in Quang Tri Province.

CIRCULAR

Guidelines for financial regimes applicable at the Lao Bao Trade Zone, Quang Tri Province

Implementing Decision No. 219/1998/QĐ-TTg dated November 12, 1998 of the Prime Minister promulgating the Regulation on the Encouraged Economic and Trade Development Zone of Lao Bao, Quang Tri Province, and Decision No. 08/2002/QĐ-TTg dated January 11, 2002 of the Prime Minister amending and supplementing certain provisions of the Lao Bao Trade Zone Regulation issued together with Decision No. 219/1998/QĐ-TTg dated November 12, 1998, the Ministry of Finance issues guidelines for financial regimes applicable at the Lao Bao Trade Zone, Quang Tri Province, as follows:

I. SCOPE AND APPLICABLE SUBJECTS

Article 1. Scope of Application:

According to Article 2 of Decision No. 219/1998/QĐ-TTg dated November 12, 1998 of the Prime Minister, the scope of application of some financial policies stipulated in this Circular shall be implemented within the territory of Lao Bao Town, Khe Sanh Town, and communes: Tan Thanh, Tan Long, Tan Lien, Tan Lap, Tan Hop under Huong Hoa District, Quang Tri Province.

The above area is referred to as the Lao Bao Trade Zone.

2. Recipients of incentives:

The recipients of financial incentive policies stipulated in this Circular are organizations and individuals from Vietnam and abroad operating production and business activities in the Lao Bao Trade Zone, including:

a) Domestic investors belonging to various economic sectors established in accordance with the Law on State Enterprises, the Enterprise Law, the Cooperative Law, and individual households, independent practitioners...;

b) Organizations and individuals from foreign countries including foreign-invested enterprises, foreign investors participating in joint venture contracts, overseas Vietnamese investing in Vietnam according to forms prescribed in the Law on Foreign Investment in Vietnam, and foreign investors conducting business not under the Law on Foreign Investment in Vietnam.

Only business activities conducted within the territory of the Lao Bao Trade Zone are eligible to enjoy incentives as provided in this Circular. In cases where organizations and individuals have business activities both within the Lao Bao Trade Zone and in the domestic market of Vietnam, they must separately account for their business activities within the Lao Bao Trade Zone to serve as a basis for determining incentive regimes.

For enterprises granted licenses to operate before the issuance of Decision No. 219/1998/QĐ-TTg dated November 12, 1998, which have not fully enjoyed incentives, such enterprises must request the investment license issuing authority, investment incentive certificate issuing authority, and business registration certificate issuing authority to supplement the relevant information as a basis for enjoying the incentive policies stipulated in this Circular.

II. SPECIFIC GUIDELINES

Organizations and individuals investing in the Lao Bao Trade Zone are entitled to the maximum incentives provided for projects invested in areas with particularly difficult socio-economic conditions as stipulated in the Law on Foreign Investment in Vietnam dated November 12, 1996, the Law Amending and Supplementing Certain Provisions of the Law on Foreign Investment in Vietnam dated June 9, 2000, and the Law on Encouraging Domestic Investment (Amended) dated May 20, 1998, as well as incentives under international treaties to which Vietnam is a party.

A. INCOME TAX INCENTIVES; LAND RENT INCENTIVES; LOAN CAPITAL INCENTIVES

1. Income tax incentives:

1.1. Corporate income tax:

Foreign-invested enterprises and foreign parties participating in joint venture contracts investing in the Lao Bao Trade Zone are exempt from corporate income tax for eight years from the date of generating taxable income and are subject to a corporate income tax rate of 10% for subsequent years.

Domestic organizations and individuals investing in the Lao Bao Trade Zone are exempt from corporate income tax for four years from the date of generating taxable income; they are entitled to a 50% reduction in corporate income tax payable for the next nine years; and they are subject to a corporate income tax rate of 15%.

The entity responsible for submitting to the direct tax management agency 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 incentives.

Foreign-invested enterprises and foreign parties participating in joint venture contracts using profits earned for reinvestment in the Lao Bao Trade Zone are entitled to a full refund of corporate income tax paid on the reinvested profits if both of the following conditions are met simultaneously:

- The reinvestment capital is used for three years or more.

- The statutory capital has been fully contributed as recorded in the investment license.

The amount of corporate income tax refunded for reinvested profits is determined as follows:

Where:

Th: Amount of corporate income tax refunded

L: Profit distributed after paying corporate income tax used for reinvestment in the Lao Bao Trade Zone.

S: Corporate income tax rate recorded in the investment license.

The procedure for refunding corporate income tax on reinvested profits is carried out in accordance with Clause c, Paragraph 6, Section I, Part II of Circular No. 13/2001/TT-BTC dated March 8, 2001 of the Ministry of Finance guiding the implementation of tax regulations for investment forms under the Law on Foreign Investment in Vietnam.

Organizations and individuals engaged in production and business activities, foreign-invested enterprises, and foreign parties participating in joint venture contracts operating in the Lao Bao Trade Zone, after settling accounts with the tax authority and suffering losses, may carry forward those losses to offset against future taxable income. The carry-forward period does not exceed five years.

1.2. Export duties and import duties:

All commodity and service transactions between the Lao Bao Trade Zone and the domestic market are treated as import and export transactions and must comply with all current laws and regulations on import and export.

Goods transiting through the Lao Bao Trade Zone border gate based on agreements signed between the two governments or departments and localities approved by the Prime Minister are exempt from export tax and import tax.

Goods originating from the domestic market of Vietnam and goods imported from abroad into the Lao Bao Trade Zone are exempt from import tax.

Goods produced, processed, recycled, or assembled in the Lao Bao Trade Zone when exported abroad are exempt from export tax.

Goods subject to export tax when brought from domestic Vietnam into the Lao Bao Trade Zone for export to foreign countries shall be taxed according to current regulations.

Import duties on goods imported from the Lao Bao Trade Zone into domestic Vietnam shall be implemented as follows:

Goods originating from outside countries (excluding Laos) shall pay import duties according to current regulations.

Goods originating from Laos shall have their import duties reduced according to Decision No. 181/1998/QĐ-TTg dated September 21, 1998, of the Prime Minister or according to agreements between the two governments.

Goods produced, processed, recycled, or assembled at the Lao Bao Trade Zone that do not use imported raw materials or components from outside countries shall not be subject to import duties when imported into domestic Vietnam.

Goods produced, processed, recycled, or assembled at the Lao Bao Trade Zone using imported raw materials or components from outside countries shall only be subject to import duties on the portion of imported raw materials or components constituting the goods when imported into domestic Vietnam.

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

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

(b) The quantity of goods imported into domestic Vietnam,

(c) The import duty rate applicable to each type of raw material or component.

Procedures for registering, declaring goods imported into domestic Vietnam and paying taxes shall be carried out according to the provisions in Section C, Circular No. 172/1998/TT-BTC dated December 22, 1998, of 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 and Import Tax and Laws amending and supplementing certain articles of the Law on Export Tax and Import Tax.

1.3. Special Consumption Tax:

Goods and services subject to special consumption tax consumed within the Lao Bao Trade Zone shall not be subject to such tax, including:

Goods and services subject to special consumption tax produced, supplied, and consumed within the Lao Bao Trade Zone.

Goods and services subject to special consumption tax imported from abroad into the Lao Bao Trade Zone or produced domestically and directly exported into the Lao Bao Trade Zone.

Goods and services subject to special consumption tax exported from the Lao Bao Trade Zone to foreign countries shall not be subject to such tax.

Goods and services subject to special consumption tax imported into domestic Vietnam from the Lao Bao Trade Zone shall be subject to special consumption tax according to current regulations.

Goods and services subject to special consumption tax if they transit through the Lao Bao Trade Zone's border gates based on agreements signed between the two governments or sectors and localities approved by the Prime Minister shall not be subject to special consumption tax.

1.4. Value Added Tax:

Goods and services produced and consumed within the Lao Bao Trade Zone shall not be subject to Value Added Tax.

Goods and services imported from abroad into the Lao Bao Trade Zone shall not be subject to Value Added Tax.

Goods and services from domestic Vietnam exported into the Lao Bao Trade Zone shall enjoy a zero percent VAT rate.

Goods and services imported into domestic Vietnam from the Lao Bao Trade Zone shall be subject to Value Added Tax according to current regulations governing imported goods.

1.5. Other Taxes, Fees, and Charges:

Other taxes, fees, and charges shall be implemented according to current laws on taxes, the Law on Domestic Investment Promotion (amended), the Law on Foreign Investment in Vietnam, and other relevant legal documents.

2. Land Rent Exemption:

Organizations and individuals with investment projects in the Lao Bao Trade Zone shall be exempted from land rent for the first 11 years from the date of signing the land lease contract and shall enjoy a land rent rate equal to 30% of the land rent rate applied to mountainous districts of Quang Tri Province starting from the 12th year onwards.

Organizations and individuals shall submit directly to the tax management authority their investment license or certificate of investment incentives, business registration certificate issued by the competent authority, clearly stating the period of exemption or reduction of land rent to enjoy the incentive.

3. Preferential investment loans:

Vietnamese enterprises of all economic sectors investing in production and business activities in the Lao Bao Trade Zone shall be considered for state credit loans by the Development Support Fund according to Decree No. 43/1999/NĐ-CP dated June 29, 1999, of the Government on state investment credit development and other current regulations on state credit loans. In cases where the Prime Minister decides to adjust the interest rate for state credit loans, they shall enjoy the new loan interest rate according to the Prime Minister's Decision.

B. INCENTIVES FOR ORGANIZATIONS AND INDIVIDUALS WHO ATTRACT NON-REPAYABLE INVESTMENT FUNDS (OUTSIDE THE STATE BUDGET)

1. Based on the budget capacity, the Chairman of the People's Committee of the Province shall decide to award organizations and individuals who attract non-repayable investment funds (outside the state budget) as non-repayable aid directly provided by domestic and foreign organizations and individuals (outside budget support) to invest in economic and social infrastructure projects in the Lao Bao Trade Zone a maximum bonus amounting to 1% of the total value of non-repayable aid and not exceeding 50,000 USD. These aids must be recorded as income and expenditure through the provincial budget of Quang Tri Province according to regulations.

2. The expenses used to reward organizations and individuals who have contributed to attracting non-repayable investment capital (capital outside the state budget) for investment in economic and social projects in the Lao Bao Trade Zone shall be extracted from the local government's award fund and recorded under extraordinary award expenditures.

C. MANAGEMENT OF CAPITAL RETURNED FROM THE STATE BUDGET FOR INFRASTRUCTURE DEVELOPMENT IN THE LAO BAO TRADE ZONE

Based on the actual revenue collected from the state budget within the Lao Bao Trade Zone area (excluding value-added tax on imported goods, recorded income-expenditure items, revenues not included in the local budget balance such as confiscated smuggled goods, public donations, tuition fees, medical fees, aid, etc.), the State will reinvest the following amounts to develop infrastructure in the Lao Bao Trade Zone: 100% of the annual state budget revenue collected within the Lao Bao Trade Zone if the annual state budget revenue collected within the Lao Bao Trade Zone is less than 50 billion VND; 50 billion VND plus 50% of the remaining actual revenue if the annual state budget revenue collected within the Lao Bao Trade Zone is 50 billion VND or more.

The management and utilization of capital returned from the central government budget for infrastructure development in the Lao Bao Trade Zone shall be carried out in accordance with the provisions of Part III of Circular No. 59/2001/TT-BTC dated July 17, 2001, issued by the Ministry of Finance, guiding the implementation of financial policies applicable to border economic zones.

D. FINANCIAL REGIME APPLICABLE TO THE MANAGEMENT BOARD OF THE LAO BAO TRADE ZONE

1. The Management Board of the Lao Bao Trade Zone is a state budget unit, all expenses for the activities of the Management Board of the Lao Bao Trade Zone shall be covered by the state budget, all revenues as prescribed by the Management Board of the Lao Bao Trade Zone must be remitted to the state budget according to the current state budget management hierarchy.

2. The Management Board of the Lao Bao Trade Zone is permitted to collect various fees and charges corresponding to the tasks delegated by state management agencies in accordance with current regulations. When authorized by competent state authorities to perform tasks, the Management Board of the Lao Bao Trade Zone is responsible for notifying and registering with the tax authority where its headquarters is located to handle procedures for remitting collected fees and charges from performing delegated tasks.

III. IMPLEMENTATION PROVISIONS

This Circular takes effect from the date of signature. During the implementation process, any difficulties should be reported to the Ministry of Finance for study and resolution./.