Circular No. 48/TC-TCT guides the implementation of regulations on tax rates and exemptions/reductions for corporate income tax applicable to foreign investment projects in Vietnam.

CIRCULAR

Guidelines for implementing provisions on tax rates and tax exemptions/reductions for foreign investment projects in Vietnam

income and tax exemptions and reductions for foreign investment projects in Vietnam

Pursuant to Decree No. 18/CP dated April 16, 1993 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam;

To promote the attraction of foreign direct investment under the Law on Foreign Investment in Vietnam, gradually forming a reasonable economic structure by region and territory, while creating favorable conditions for investors to be proactive in the investment preparation process;

After reaching consensus with the State Committee for Cooperation and Investment, the Ministry of Finance provides guidelines for implementing provisions on profit tax rates and profit tax exemptions/reductions applicable to foreign investment projects in Vietnam as follows:

I. RATES OF PROFIT TAX

The profit tax rates specified in Articles 66, 67, and 68 of Decree No. 18-CP dated April 16, 1993 of the Government shall be determined for each project as follows:

1. A rate of 10% shall apply to joint ventures and wholly foreign-owned enterprises operating in the following sectors:

Construction of infrastructure facilities including transportation works, power production and supply, construction of infrastructure in export processing zones, centralized industrial parks, telecommunications works, and information and communication facilities in mountainous areas and regions with difficult natural, economic, and social conditions (as listed in Appendix 1 attached hereto);

Planting new forests for harvesting;

Special important projects included in the list of projects announced by the State Committee for Cooperation and Investment during each period.

2. A rate of 15% shall apply to projects investing in the following sectors:

Construction of infrastructure facilities in provinces and regions not listed in Appendix 1 attached hereto;

Exploitation of natural resources, except oil and gas and rare minerals;

Heavy industry projects including metallurgy, machinery manufacturing, basic chemicals, cement, electrical and electronic materials production, fertilizer production, and animal and plant disease control agents.

Cultivation of perennial cash crops.

Investment in mountainous areas and regions with difficult natural, economic, and social conditions (as listed in Appendix 1 attached hereto), including hotel business projects;

Projects where the foreign party commits to transferring non-reimbursable assets to Vietnam upon termination of operations, including foreign parties in build-operate-transfer hotel projects.

3. A rate of 20% shall apply to projects meeting two of the following criteria:

Employing at least 500 Vietnamese workers;

Using advanced technology that meets the standards set forth in Article 4 of the Technology Transfer Ordinance dated December 5, 1988, approved by the Ministry of Science, Technology, and Environment;

Exporting at least 80% of the products produced by the project;

Legal capital or contributed capital to implement a joint venture contract amounting to at least USD 10 million.

4. A rate of 25% shall apply to projects investing in financial services, insurance, consulting services, accounting and auditing services, banking, trade, and hotels (excluding hotel business projects mentioned in Point 2 of this Section) and projects not encouraged as specified in Points 1, 2, and 3 of this Section.

5. For exploration, exploitation, and processing of oil and gas and exploitation of rare minerals, the profit tax rate higher than 25% shall be determined specifically for each project when issuing an investment permit by the State Committee for Cooperation and Investment, in accordance with international practices and taking into account the conditions of exploitation, quality, and reserves of resources, based on the proposals of investors.

II. PERIOD OF APPLICATION OF THE DISCOUNTED TAX RATES AS PROVIDED FOR IN ARTICLES 67 AND 68 OF DECREE 18-CP

1. The rates of 15% and 20% specified for projects mentioned in Points 2 and 3 of Section I of this Circular shall be applied for a period of 5 to 7 years from the year following the issuance of the investment permit.

2. The rate of 10% specified for projects investing in mountainous areas and regions with difficult natural, economic, and social conditions (excluding projects exploiting rare minerals) as listed in Appendix 1 attached hereto, infrastructure construction projects, and projects mentioned in Point 1 of Section I above shall be applied for a period of 8 to 10 years from the year following the issuance of the investment permit.

In special cases, a longer period of up to 15 years may be granted from the year following the issuance of the investment permit.

The duration of application of the rates specified in Points 1 and 2 of this Section shall be determined specifically for each project when issuing an investment permit by the State Committee for Cooperation and Investment, in accordance with the level of encouragement needed for each project and based on the opinions of the investors.

III. EXEMPTIONS AND REDUCTIONS OF PROFIT TAX FOR JOINT VENTURES AND WHOLLY FOREIGN-OWNED ENTERPRISES

(Hereinafter referred to as foreign-invested enterprises)

1. Foreign-invested enterprises in projects mentioned in Point 4 of Section I of this Circular located in localities listed in Appendix 1 attached hereto shall be exempt from profit tax for one year from the first profitable year of operation and have their tax reduced by 50% for the next two years.

If located in other localities, they may be considered for exemption from profit tax for one year from the first profitable year of operation and have their tax reduced by 50% for the next year.

2. Projects mentioned in Point 3 of Section I located in localities listed in Appendix 2 attached hereto may be considered for exemption from profit tax for a maximum of two years from the first profitable year of operation and have their tax reduced by 50% for a maximum of three years thereafter.

If located in other localities listed in Appendices 1 and 2 attached hereto, they may be considered for exemption from profit tax for one year from the first profitable year of operation and have their tax reduced by 50% for a maximum of two years thereafter.

3. Projects mentioned in Point 2 of Section I shall be exempt from profit tax for two years from the first profitable year of operation and have their tax reduced by 50% for the next four years.

4. Projects mentioned in Point 1 of Section I shall be exempt from profit tax for four years from the first profitable year of operation and have their tax reduced by 50% for the next four years.

IV. OTHER PROVISIONS

For a project that simultaneously invests capital in different localities listed in both Appendix 1 and Appendix 2 attached to this Circular, the determination of the corporate income tax rate and tax exemption/reduction shall be based on considering which locality the main office of the project is located in.

For projects that have been granted investment licenses on April 16, 1993, the provisions regarding tax exemption/reduction and the application period for corporate income tax as stipulated in those investment licenses shall still be implemented.

This Circular replaces Circular Joint No. 66/TT-TB dated October 30, 1992, and takes effect from the date of signature. Projects that have been granted investment licenses before the effective date of this Circular shall continue to implement the provisions of their respective licenses and not apply this Circular.

APPENDIX 1

(Attached to Circular No. 48-TC/TCT dated June 30, 1993)

Quang Ninh (excluding Hoa Binh City), Bac Thai, Cao Bang, Lang Son (excluding Lang Son City), Lao Cai, Yen Bai, Ha Giang, Tuyen Quang, Son La, Lai Chau, Hoa Binh, Nghe An, Thanh Hoa (excluding Sam Son Town), Ha Tinh, Quang Tri, Quang Binh, Quang Ngai, Binh Dinh, Phu Yen, Binh Thuan, Ninh Thuan, Gia Lai, Kon Tum, Dak Lak, Lam Dong (excluding Da Lat), Tay Ninh.

ANNEX NO. 2

Hanoi, Hai Phong, Thai Binh, Hai Hung, Nam Ha, Ninh Binh, Ha Tay, Ha Bac, Vinh Phuc, Thua Thien - Hue, Quang Nam - Da Nang, Khanh Hoa, Long An, Tien Giang, Dong Thap, Ben Tre, Vinh Long, Tra Vinh, Can Tho, Soc Trang, Kien Giang, An Giang, Minh Hai, Song Be, Hoa Binh City, Lang Son City, Sam Son Town, Da Lat City./.