Circular No. 7071/TC/TCT regarding Investment Incentives at the Lao Bao Commercial Zone

LETTER

OF THE MINISTRY OF FINANCE NUMBER 7071 TC/TCT ON JUNE 26, 2002
REGARDING INVESTMENT INCENTIVES AT LAO BAO TRADING ZONE

Respected: - People's Committee of Quang Tri Province

- Tax Department of Quang Tri Province

- Department of Finance and Prices of Quang Tri Province

In response to Circular No. 435/UB-TM dated March 29, 2002 and Circular No. 848/UB-TM dated May 29, 2002 of the People's Committee of Quang Tri Province, Circular No. 171/CV-TCVG dated March 29, 2002 of the Department of Finance and Prices of Quang Tri Province, and Circular No. 560 CT/NV dated April 26, 2002 of the Tax Department of Quang Tri Province regarding investment incentives at Lao Bao Trading Zone, the Ministry of Finance has the following opinions:

1/ Pursuant to point 5, Article 57 of Decree No. 24/2000/NĐ-CP dated July 31, 2000 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam; point 1 and point 8, Article 1 of Decision No. 08/2002/QĐ-TTg dated January 11, 2002 of the Prime Minister amending and supplementing certain provisions of the Regulation on Lao Bao Trading Zone issued together with Decision No. 219/1998/QĐ-TTg dated November 12, 1998, goods produced, processed, recycled, or assembled in the Lao Bao Trading Zone by foreign-invested enterprises and joint venture parties using imported raw materials and components from abroad when imported into the domestic market of Vietnam shall be exempt from import duties on the portion of imported raw materials and components that constitute part of the product.

2/ Pursuant to point 1, item A, Part II of Circular No. 16/2002/TT-BTC dated February 8, 2002 of the Ministry of Finance guiding financial regulations applicable in the Lao Bao Trading Zone of Quang Tri Province, the following applies:

2.1/ All transactions of buying and selling, exchanging goods and services between organizations and individuals within the Lao Bao Trading Zone are considered export and import relations. Therefore, goods and services sold by domestic enterprises in the domestic market to domestic and foreign organizations and individuals within the Lao Bao Trading Zone must go through export procedures and be subject to a 0% VAT rate.

Goods sold into the Lao Bao Trading Zone that are subject to a 0% VAT rate must have complete documentation proving that they have actually been exported according to the provisions of the Law on Export Duties and Import Duties, the Law on VAT, and related implementing regulations. For special types of goods such as electricity, water, telephone, and other goods not required to undergo customs procedures as specified in Circular No. 23/1999/TT-BTM dated July 26, 1999 of the Ministry of Trade, there is no need for an export declaration form.

2.2/ When enterprises with headquarters in the Lao Bao Trading Zone export goods to the domestic market for sale, the buyers must go through import procedures and declare and pay import duties and VAT on imported goods according to the regulations. If enterprises with headquarters in the Lao Bao Trading Zone export goods to their branches or affiliated stores in the domestic market for sale, these branches or stores must also go through import procedures and declare and pay import duties and VAT on imported goods according to the regulations.

The Customs Office at Lao Bao Border Gate will calculate and collect import duties and VAT on imported goods, and the importing entity must declare and pay taxes according to the law.

2.3/ Enterprises with headquarters outside the Lao Bao Trading Zone exporting goods to their branches or affiliated stores within the Lao Bao Trading Zone for sale must issue VAT invoices and apply a 0% VAT rate if they have complete documentation proving that the goods have been exported (without the condition of having a sales contract) according to the provisions of the Law on Export Duties and Import Duties, the Law on VAT, and related implementing regulations. When branches or affiliated stores sell goods and services to other entities within the Lao Bao Trading Zone, they are not subject to VAT.

2.4/ Enterprises with headquarters outside the Lao Bao Trading Zone engaged in construction and installation activities within the Lao Bao Trading Zone are not subject to VAT. In this case, if enterprises transport raw materials, machinery, and equipment from the domestic market into the Lao Bao Trading Zone for construction purposes, they must go through export procedures and apply a 0% VAT rate. Machinery and equipment transported from the domestic market into the Lao Bao Trading Zone for construction purposes under the temporary export-reimport scheme are not subject to VAT.

2.5/ Pursuant to Article 19 of the Regulation on the Lao Bao Trading Zone issued together with Decision No. 219/1998/QĐ-TTg dated November 12, 1998 of the Prime Minister, which has been amended and supplemented by Decision No. 08/2002/QĐ-TTg (mentioned above), the beneficiaries of tax exemptions and reductions are Vietnamese and foreign organizations and individuals conducting production and business activities in the Lao Bao Trading Zone. To enjoy tax exemptions and reductions, Vietnamese organizations and individuals conducting production and business activities in the Lao Bao Trading Zone must meet the conditions stipulated in the regulation, namely:

- Having an investment project in the Lao Bao Trading Zone in accordance with the Law on Encouraging Domestic Investment as stipulated in Article 19 of the Regulation on the Lao Bao Trading Zone (mentioned above).

- Adhering to accounting systems and paying taxes according to declarations as stipulated in Article 36 of the Law on Corporate Income Tax and Article 31 of the Law on Encouraging Domestic Investment.

According to the above regulations, individual businesses paying taxes under a turnover tax system and income tax rates do not meet the conditions to enjoy tax benefits under the Lao Bao Trading Zone regulation.

3/ Enterprises and business establishments with headquarters in the Lao Bao Trading Zone must use invoices in accordance with prescribed regulations when buying and selling goods and services.

To manage and control trading activities of goods and services between production and business establishments with headquarters in the Lao Bao Trade Zone and these establishments with other production and business establishments outside the Lao Bao Trade Zone, it is proposed that the Quang Tri Provincial Tax Department study and propose the issuance of specific invoices for businesses within the Lao Bao Trade Zone; in the interim, implement the measure of stamping "Lao Bao Trade Zone" on invoices issued to units using them; for businesses registered to print their own invoices for use, require such businesses to clearly indicate "Businesses within the Lao Bao Trade Zone" on self-printed invoices.

The Ministry of Finance informs the People's Committee of Quang Tri Province, the Quang Tri Provincial Tax Department, and the Quang Tri Provincial Department of Finance and Prices for their knowledge and guidance to relevant entities to implement.