Circular No. 18/TC-CSTC guiding the financial regime to be piloted in the Mong Cai Border Gate area.

CIRCULAR

Circular No. 18/1997/TC-CSTC dated April 9, 1997 of the Ministry of Finance guiding financial regulations to be piloted inMong Cai Border Gate Area

Implementing Decision No. 675/TTg dated September 18, 1996 of the Prime Minister on piloting certain policies in the Mong Cai Border Gate Area, Quang Ninh Province, the Ministry of Finance guides the implementation of financial regulations to be piloted for the Mong Cai Border Gate Area as follows:

I. PRIVILEGES REGARDING LAND RENT AND WATER SURFACE RENT; TAX PRIVILEGES

1. Preferential treatment regarding land rent and water surface rent:

Pursuant to Clause 1, Article 3 of Decision No. 675/TTg dated September 18, 1996 of the Prime Minister, enterprises leasing land and water surface shall have their rent reduced by 50% compared to the current rates applied in the Mong Cai Border Gate Area, specifically:

a - For foreign-invested enterprises:

Foreign-invested enterprises established and operating in the Mong Cai Border Gate Area, when leasing land and water surface from the State, shall have their rent reduced by 50% compared to the current rental rates for land and water surface in the Mong Cai Border Gate Area, in accordance with the provisions on determining rental rates for land and water surface set forth in Decision No. 1417 TC/TCĐN dated December 31, 1994 of the Minister of Finance.

The aforementioned rate serves as the basis for the Ministry of Planning and Investment to determine the amount of land and water surface rent that foreign-invested enterprises must pay and record in their investment permits.

All other exemptions and reductions in land and water surface rent shall still follow the provisions of Decision No. 1417 TC/TCĐN dated December 31, 1994 of the Minister of Finance, but calculated based on the determined rent payable as mentioned above.

b - For domestic enterprises:

Domestic enterprises of all economic sectors established and operating in the Mong Cai Border Gate Area, when leasing land and water surface from the State, shall have their rent reduced by 50% compared to the current rental rates for land and water surface in the Mong Cai Border Gate Area, in accordance with Decision No. 1357 TC/QĐ/TCT dated December 30, 1995 of the Minister of Finance.

All other exemptions and reductions in land and water surface rent shall still follow the provisions of Decision No. 1357 TC/QĐ/TCT dated December 30, 1995 of the Minister of Finance, but calculated based on the determined rent payable as mentioned above.

2. Incentives on corporate income tax, tax on repatriation of profits, and other taxes:

a. Corporate Income Tax:

Foreign-invested enterprises shall pay corporate income tax at the tax rate specified in their investment permit; domestic enterprises shall apply the tax rate for corporate income tax prescribed for each industry according to the Corporate Income Tax Law and the Law on Encouraging Domestic Investment during the operation period of the enterprise.

Within four years from the date the enterprise begins to pay corporate income tax, the enterprise only needs to pay corporate income tax at the lowest tax rate within the applicable tax bracket, in accordance with Clause 2, Article 3 of Decision No. 675/TTg dated September 18, 1996 of the Prime Minister, specifically:

- Foreign-invested enterprises shall apply a corporate income tax rate of 10% (the lowest rate under the Law on Foreign Investment in Vietnam) within four years from the date the enterprise begins to pay corporate income tax according to the current provisions of the Law on Foreign Investment in Vietnam.

- Domestic enterprises shall apply a corporate income tax rate of 25% (the lowest rate under the Corporate Income Tax Law) within four years from the date the enterprise begins to pay corporate income tax according to the current provisions of the Corporate Income Tax Law.

In cases where domestic enterprises fall under the category eligible for incentives under the Law on Encouraging Domestic Investment, they shall pay corporate income tax at a rate of 25% within four years from the date the enterprise begins to pay corporate income tax according to the current provisions of the Law on Encouraging Domestic Investment.

All incentives for reducing corporate income tax after the exemption period ends shall still follow the current provisions of the Corporate Income Tax Law, the Law on Encouraging Domestic Investment, and the Law on Foreign Investment in Vietnam, but calculated based on the tax rate determined above during the application period of such tax rate.

After the four-year period of applying preferential tax rates as stipulated above, enterprises must pay corporate income tax at the general tax rate applicable to enterprises in accordance with the provisions of the Corporate Income Tax Law, the Law on Encouraging Domestic Investment, and the Law on Foreign Investment in Vietnam.

b. Tax on Repatriation of Profits:

Pursuant to Clause 4, Article 3 of Decision No. 675/TTg dated September 18, 1996 of the Prime Minister, foreign investors establishing enterprises and conducting business in the Mong Cai Border Gate Area, if transferring profits abroad, shall only pay a 5% withholding tax on profit repatriation (applicable to investors choosing to enjoy investment incentives under the Law on Encouraging Domestic Investment or the Law on Foreign Investment in Vietnam).

The withholding tax rate on profit repatriation as stipulated above serves as the basis for recording in the investment permit in the Mong Cai Border Gate Area.

c. Other Taxes:

All other exemptions and reductions in various taxes shall still follow the current provisions of the Tax Laws, the Law on Encouraging Domestic Investment, and the Law on Foreign Investment in Vietnam.

3. Domestic and foreign investors who have invested in the Mong Cai Border Gate Area before the effective date of Decision No. 675/TTg dated September 18, 1996 of the Prime Minister, if currently enjoying investment incentives under existing regulations, shall, upon the effectiveness of this Circular, switch to enjoying the investment incentives stipulated in this Circular for the remaining period.

4. All investment activities of enterprises in the Mong Cai Border Gate Area shall enjoy the incentives stipulated in this Circular.

5. The procedures for applying investment incentives as stipulated in this Circular shall be carried out in accordance with current regulations on procedures for applying land rent incentives and tax incentives as prescribed in existing documents concerning land leasing, water surface leasing, and tax regimes.

II/ PROVISIONS ON RAISING CAPITAL FROM DOMESTIC AND FOREIGN SOURCES

Pursuant to Article 4 of Decision No. 675/TTg dated September 18, 1996 of the Prime Minister, raising capital shall be implemented as follows:

- Enterprises of all economic sectors investing in production, business, and infrastructure construction in the Mong Cai Border Gate area may raise capital from both domestic and foreign sources through appropriate forms such as bank loans, borrowing from organizations and individuals, issuing corporate bonds in accordance with current laws to create funds for business development.

The People's Committee of Quang Ninh Province, within its functions, tasks, and powers, is permitted to apply suitable forms of raising capital such as issuing project bonds, issuing special lottery tickets to raise capital for projects in the Mong Cai Border Gate area (after obtaining written agreement from the Ministry of Finance), mobilizing public labor... to build infrastructure in the Mong Cai Border Gate area in accordance with current legal provisions and must ensure the following conditions:

- The raising of capital must be approved by the People's Council of Quang Ninh Province regarding the methods of raising capital, the amount of capital raised...

- The raised capital can only be used to invest in building infrastructure in the Mong Cai Border Gate area;

- Raised capital must be managed in accordance with the regulations on managing basic construction investment capital;

- A separate settlement of the raised capital for building infrastructure in the Mong Cai Border Gate area must be conducted within the overall settlement of state budget revenue collection in Quang Ninh Province.

III/ PROVISIONS ON FINANCIAL REGIME FOR THE COMPANY BUILDING AND DEVELOPING INFRASTRUCTURE IN THE MONG CAI BORDER GATE AREA

1. The company building and developing infrastructure operating in the Mong Cai Border Gate area is allowed to lease land in the Mong Cai Border Gate area to construct infrastructure and then lease it back to domestic and foreign investors at agreed prices after the infrastructure has been established.

The company building and developing infrastructure is permitted to collect once-off payment for leasing back land that has been developed over multiple years but not exceeding the maximum period specified in the company's business license.

2. In cases where the company building and developing infrastructure collects once-off payment for leasing back land that has been developed over multiple years, it must fulfill the following tax obligations:

- Business income tax: Pay business income tax on the entire business income generated from subleasing land at the time of income generation according to the Law on Business Income Tax.

- Income Tax: Each year, the tax authority will determine the actual rental income, reasonable and legitimate corresponding expenses incurred during the year (wages, depreciation of fixed assets, transaction costs, land rent payable...) in accordance with the provisions of the Law on Income Tax to determine the income tax payable.

3. The company building and developing infrastructure shall enjoy all incentives related to land and water surface rents, tax incentives, and other incentives (if any) as stipulated in this Circular and other current regulations.

IV/ PROVISIONS ON MANAGEMENT OF CAPITAL INVESTED FROM THE STATE BUDGET FOR INFRASTRUCTURE CONSTRUCTION AND DEVELOPMENT IN THE MONG CAI BORDER GATE AREA

Pursuant to Article 5 of Decision No. 657/TTg dated September 18, 1996 of the Prime Minister, during the period from 1996 to 2000, the State's independent investment in the Mong Cai Border Gate area each year shall be implemented as follows:

1. Planning capital investment for the Mong Cai Border Gate area:

Based on the annual provincial budget estimate of Quang Ninh Province approved by the People's Council of Quang Ninh Province, the People's Committee of Quang Ninh Province proposes the level of State investment annually through the provincial budget for the Mong Cai Border Gate area (details for each investment project and prioritized) to be submitted to the Ministry of Planning and Investment and the Ministry of Finance for consideration.

On the basis of the annual state budget estimate in the Mong Cai Border Gate area and the proposal of the People's Committee of Quang Ninh Province, the Ministry of Finance determines the total amount of state budget investment annually for the Mong Cai Border Gate area, which must not be less than 50% of the total annual state budget revenue in the Mong Cai Border Gate area. This investment fund will be allocated through the Department of Finance and Price of Quang Ninh Province to invest in the Mong Cai Border Gate area.

The Ministry of Finance agrees with the Ministry of Planning and Investment on the investment capital for each project, the total investment capital, and related issues before the Ministry of Planning and Investment issues a decision to approve the investment plan for the entire period from 1996 to 2000 and the annual investment plan based on the dedicated provincial budget allocation.

Based on the notification from the Ministry of Planning and Investment regarding the annual investment capital from the central budget for the Mong Cai Border Gate area, the People's Committee of Quang Ninh Province is responsible for preparing the quarterly investment capital utilization plan and submitting it to the Ministry of Finance (no later than the 20th day of the last month of each quarter).

Based on the annual investment capital plan, the quarterly investment capital utilization plan prepared by the locality, and the capacity of the central budget at each point in time, the Ministry of Finance determines and notifies the quarterly capital allocation plan to the People's Committee of Quang Ninh Province.

The State's investment capital for the Mong Cai Border Gate area through the provincial budget is determined based on the annual state budget revenue estimate in the Mong Cai Border Economic Zone (excluding non-budgetary revenues such as school fees, medical fees, aid, and contributions from the people...) and will be reviewed the following year based on the actual revenue of the previous year to adjust the next year's investment capital plan. If the actual revenue in the year exceeds or falls short of the initial revenue estimate, the difference will be adjusted to the next year's investment capital. This investment capital is considered a targeted subsidy from the central budget for the province and does not count towards the local budget expenditure responsibility.

As for the investment capital for the year 1996 from the central budget allocated to the Mong Cai border gate area through the provincial budget, the People's Committee of Quang Ninh Province shall work specifically with the Ministry of Finance and the Ministry of Planning and Investment on the amount and specific purpose of this capital so that the Ministry of Finance can make a decision.

2. The procedures, formalities, methods of allocation, reporting system, and final settlement of investment capital for the Mong Cai border gate area:

In accordance with the annual and quarterly investment capital usage plans approved, the Ministry of Finance (central budget) allocates to the People's Committee of Quang Ninh Province (local budget), which then transfers the capital to the construction projects (the state investment capital for the Mong Cai border gate area through the provincial budget).

All central government budget funds allocated to the People's Committee of Quang Ninh Province must be used solely for the purpose of constructing infrastructure facilities listed in the plan approved by the Ministry of Planning and Investment and must be managed in compliance with current regulations governing the management of basic construction investment capital.

The investment capital for the Mong Cai border gate area through the provincial budget will be settled together in the local government budget final accounts but recorded separately for the construction projects in Mong Cai (including both the directly allocated budget funds and those raised by the province).

Quarterly, the province is responsible for reporting to the Ministry of Finance and the Ministry of Planning and Investment on the implementation of construction investments and capital allocation for each project, and at the end of the year, it reports to the Prime Minister on the results of the entire year's implementation.

The procedures, formalities, methods of allocation, reporting system, and final settlement of investment capital shall be carried out in accordance with the current regulations.

V/ IMPLEMENTATION

This Circular takes effect from September 18, 1996, and all previous provisions contrary to this Circular are abolished.