Circular No. 78/2006/TT-BTC guiding the financial regime applicable to Border Economic Zones managed by Provincial People's Committees

CIRCULAR

Guidelines on Financial Regulations to be Applied at Border Economic Zones Managed by Provincial People's Committees

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Pursuant to the State Budget Law; Investment Law; Laws, Ordinances on taxes, fees, and customs;

Pursuant to Decision No. 53/2001/QĐ-TTg dated April 19, 2001 of the Prime Minister on policies for border economic zones;

Pursuant to Decision No. 273/2005/QĐ-TTg dated October 31, 2005 of the Prime Minister amending and supplementing certain provisions of Decision No. 53/2001/QĐ-TTg dated April 19, 2001 of the Prime Minister on policies for border economic zones;

The Ministry of Finance issues guidelines on financial regulations to be applied at border economic zones managed by provincial people's committees as follows:

I. SCOPE AND APPLICABLE SUBJECTS

Article 1. Scope of Application:

These Circular applies to border economic zones (hereinafter referred to as "Border Economic Zones" or "BEZ") established pursuant to Decisions of the Prime Minister and under the management of provincial people's committees.

As for BEZs established individually pursuant to Decisions of the Prime Minister and under central management, financial regulations shall be implemented according to separate Circulars issued by the Ministry of Finance.

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

This Circular applies to the following entities:

2.1. Provinces having BEZs as stipulated in Clause 1, Section I above;

2.2. Domestic and foreign investors engaged in business activities (including infrastructure construction, production, trading, and service provision) within BEZs;

2.3. Business activities carried out within the scope of border economic zones.

In cases where domestic and foreign investors conduct business activities within BEZs but do not establish economic entities within BEZs, they must separately account for their business operations within BEZs to determine preferential treatment.

3. Definitions:

- Duty-free zone: is the duty-free zone within BEZs established as provided for in Clause 1, Article 1 of Decision No. 273/2005/QĐ-TTg dated October 31, 2005 of the Prime Minister.

- Vietnam's inland territory: includes the part of BEZs outside the duty-free zone and the remaining territory of Vietnam (excluding areas similar to non-tariff zones as defined in Clause 1, Article 5 of the Export Tax, Import Tax Law No. 45/2005/QH-11 passed on June 14, 2005 and Clause 2, Article 1 of Government Decree No. 149/2005/NĐ-CP dated December 8, 2005 detailing the implementation of the Export Tax, Import Tax Law).

- Non-tariff zone: refers to non-tariff zones as defined in Clause 1, Article 5 of the Export Tax, Import Tax Law No. 45/2005/QH-11 passed on June 14, 2005 and Clause 2, Article 1 of Government Decree No. 149/2005/NĐ-CP dated December 8, 2005 detailing the implementation of the Export Tax, Import Tax Law.

II. FINANCIAL PREFERENCES

1. Preferences for investment in infrastructure development of BEZs:

1.1. Support from the central budget for infrastructure development:

a. Recipients of support from the central budget:

The central budget supports the provincial budgets managing border BEZs to invest in constructing technical-social infrastructure projects, important public services and utilities serving all BEZs, as allocated within the approved annual budget estimates.

b. Scope of support from the central budget:

The central budget only supports the construction of common infrastructure projects for the entire BEZ, including those outside the BEZ but directly serving it, excluding infrastructure dedicated to individual functional zones within the BEZ.

c. Principles of support from the central budget:

- Support from the central budget for infrastructure development in BEZs is implemented through projects consistent with detailed BEZ planning and approved by competent authorities.

- Based on the central budget's annual balancing capacity and the difficulties faced by localities, the Government will consider submitting to the National Assembly for approval targeted support for essential infrastructure projects in border BEZs managed by provincial people's committees.

- Central budget support funds for provincial budgets to invest in BEZ infrastructure are clearly stated in the state budget estimates allocated to provinces.

- The Management Board of BEZs or provincial people's committees (where there is no BEZ Management Board) serve as the focal point for local plans to receive targeted central budget support for basic construction projects funded by the central budget to build BEZ infrastructure; they are the direct project sponsors managing infrastructure development projects funded by the state budget within BEZs in accordance with current national regulations on investment and construction management.

d. Procedures for planning, using, and managing funds supported by the central budget:

- Annually, when preparing the state budget, the BEZ Management Board collaborates with relevant agencies to develop a list of infrastructure development projects consistent with the approved detailed BEZ plan and prepares a preliminary budget estimate for basic construction projects for these projects to submit to the provincial people's committee. For BEZs without a Management Board, the provincial people's committee directly implements this requirement.

- Based on the list of infrastructure development projects and the budget estimates prepared by the BEZ Management Board, the provincial people's committee compiles the capital requirements for BEZ infrastructure development projects and assesses the local resource balancing capacity to determine the list of infrastructure development projects to request central budget support, which is then submitted to the Standing Committee of the Provincial People's Council for review.

- Based on the list of infrastructure development projects requesting central budget support approved by the Provincial People's Council, the provincial people's committee prepares a detailed budget estimate for each specific project and sends it to the Ministry of Planning and Investment and the Ministry of Finance.

- The Ministry of Planning and Investment shall take the lead in compiling the investment support needs from the central budget of provinces with SEZs, coordinating with the Ministry of Finance to compile reports for submission to the Government for presentation to the National Assembly for decision on supplementary targeted investment in infrastructure within the capacity of the state budget. Only projects within the scope of state budget investment support as stipulated in Point b, Clause herein shall be considered for compilation and reporting to the Government for presentation to the National Assembly for decision.

- Central budget capital invested in constructing infrastructure in SEZs shall be managed and utilized in accordance with regulations on basic construction investment management, the State Budget Law, and current guiding documents.

1.2. Mechanism for using land revenue to create capital for developing infrastructure in SEZs:

Provincial People's Committees may use land revenue (which includes revenues as prescribed by laws on land such as land use fees and land rental fees) to construct infrastructure and create capital for land clearance for development investment, prioritizing SEZs. Specifically, land use fees and land rental fees for land within the planning area of SEZs shall be prioritized for investment in constructing infrastructure in SEZs.

Land allocation and land leasing to create capital for investment in SEZ infrastructure construction shall be carried out through public auctions of land use rights, bidding for projects involving land use, or not conducting public auctions of land use rights in accordance with Decree No. 181/2004/ND-CP dated October 29, 2004 of the Government on implementing the Land Law, Decree No. 198/2004/ND-CP dated December 3, 2004 of the Government on collecting land use fees, Decree No. 17/2006/ND-CP dated January 27, 2006 of the Government on amending and supplementing certain articles of guiding decrees for implementing the Land Law, Decree No. 187/2004/ND-CP on converting state-owned companies into joint-stock companies, Decision No. 216/2005/QD-TTg dated August 31, 2005 of the Prime Minister on promulgating the auction mechanism for land use rights to allocate land with land use fees or lease land and other relevant provisions of current laws..

Based on local land use plans, the potential for land use fee revenue from auctions, the need for compensation and support for people whose land is being reclaimed, and the demand for investment in infrastructure projects funded by the state budget as prescribed by law, provincial People's Committees shall direct financial agencies to consolidate these revenue and expenditure tasks into annual budget estimates for submission to the same-level People's Council for decision.

Based on the annual budget estimate decided by the provincial People's Council, the provincial People's Committee shall instruct financial agencies to coordinate with related units to organize the collection and disbursement from land use fee revenue and settle accounts into the state budget according to prescribed regulations.

In cases where organizations or individuals advance funds for compensation and support for people whose land is being reclaimed for investment in infrastructure projects funded by the state budget, followed by land use right auctions to collect land use fees, the land use fee revenue used to repay the organizations or individuals who advanced funds must be fully recorded in the state budget according to current regulations.

2. Preferential policies for business projects in SEZs:

2.1. Preferential policies for tourism projects:

Investors of tourism business projects in SEZs shall enjoy investment incentives applicable to projects listed in the Priority Investment Catalogue as prescribed by the Government.

2.2. Preferential policies on land rent and water surface rent:

Domestic investors and foreign investors investing in SEZs shall enjoy preferential policies on land rent and water surface rent as prescribed in Decree No. 142/2005/ND-CP dated November 14, 2005 of the Government on land rent and water surface rent and guiding documents.

2.3. Preferential policies on tax:

Projects investing in SEZs shall enjoy tax incentives as prescribed by current laws.

III. TAX-FREE ZONES AND FINANCIAL REGULATIONS APPLIED IN TAX-FREE ZONES

1. Conditions for establishment and operation of tax-free zones:

Tax-free zones in border economic zones may only be established when the following conditions are met simultaneously:

- Having a hard barrier ensuring isolation of activities within the tax-free zone from other functional areas in the SEZ;

- There shall be no residential areas or permanent or temporary residents (including foreigners) within the tax-free zone;

- There shall be customs authorities supervising and inspecting goods and means of transport entering and exiting the tax-free zone.

2. Business activities in tax-free zones:

Pursuant to Clause 1, Article 1, Decision No. 273/2005/QD-TTg dated October 31, 2005 of the Prime Minister on amending and supplementing certain provisions of Decision No. 53/2001/QD-TTg dated April 19, 2001 of the Prime Minister on policies for border economic zones, the following business activities may be conducted in tax-free zones: Logistics services; Production and processing of goods; International trade; Product exhibitions.

3. Tax, fee, and charge policies applied in tax-free zones:

3.1. Corporate income tax:

Investment projects in tax-free zones shall enjoy corporate income tax incentives as prescribed by the Corporate Income Tax Law and guiding documents.

3.2. Export duties, import duties:

a. Goods subject to export duties and import duties in the following cases shall not be subject to such duties:

- Goods exported from the tax-free zone to overseas; Goods imported from overseas into the tax-free zone and solely used within the tax-free zone;

- Goods transferred from the tax-free zone to duty-free zones, export processing enterprises, and vice versa.

- Goods not subject to export duties originating from domestic Vietnam brought into the tax-free zone.

b. Goods subject to export duties originating from domestic Vietnam brought into the tax-free zone must pay export duties and complete export procedures in accordance with current regulations.

c. Goods from the Import Duty-Free Zone entering the domestic market of Vietnam must pay import duties according to current regulations. However, goods produced, processed, recycled, or assembled in the Import Duty-Free Zone, if they meet the conditions stipulated in Circular No. 14/2006/TT-BTC dated February 28, 2006, issued by the Ministry of Finance guiding the implementation of special preferential import tariff rates of Vietnam for the Common Effective Preferential Tariff (CEPT) Agreement of ASEAN countries, shall be subject to the provisions of this Circular.

d. Domestic and foreign organizations and individuals engaged in production and business activities within the Import Duty-Free Zone importing raw materials, supplies, and goods from abroad but not fully utilized, and by-products still having commercial value, may sell them into the domestic market of Vietnam, provided that they complete all customs procedures and pay import duties according to current regulations.

3.3. Special Consumption Tax:

a. Goods and services subject to special consumption tax produced, consumed, or imported from abroad into the Import Duty-Free Zone and vice versa are exempt from special consumption tax. However, passenger cars with less than 24 seats must pay special consumption tax according to the general current regulations.

b. Goods and services subject to special consumption tax exported from the domestic market of Vietnam to the Import Duty-Free Zone are exempt from special consumption tax. However, passenger cars with less than 24 seats must pay special consumption tax according to the general current regulations.

c. Goods and services subject to special consumption tax transferred from or sold to non-tariff zones from the Import Duty-Free Zone are exempt from special consumption tax.

d. Goods subject to special consumption tax imported from the Import Duty-Free Zone into the domestic market of Vietnam must pay special consumption tax on imported goods according to current regulations.

3.4. Value Added Tax:

Production and business establishments in the Import Duty-Free Zone are allowed to use value-added tax invoices according to current regulations, and must register, declare, and pay value-added tax as prescribed in this Circular. For cases where goods are not subject to value-added tax, the value-added tax column in the invoice should be crossed out (x). Specifically:

a. Goods and services produced and consumed in the Import Duty-Free Zone and imported from abroad into the Import Duty-Free Zone and vice versa are exempt from value-added tax.

b. Goods and services transferred from or sold to non-tariff zones from the Import Duty-Free Zone are exempt from value-added tax.

c. Goods and services exported from the domestic market of Vietnam to the Import Duty-Free Zone are subject to a 0% value-added tax rate.

d. Goods and services imported from the Import Duty-Free Zone into the domestic market of Vietnam must pay value-added tax on imported goods at the applicable current rate. Specifically, enterprises in the Import Duty-Free Zone when selling to domestic enterprises in Vietnam issue invoices without value-added tax, crossing out the tax rate and value-added tax columns. Domestic enterprises (or enterprises in the Import Duty-Free Zone in the case of self-importation for sale) only need to pay value-added tax on imported goods based on the customs declaration when importing into the domestic market.

3.5. Other Taxes, Fees, and Charges:

Other taxes, fees, and charges are implemented according to current regulations in the Laws, Ordinances on taxes, Investment Law, Fee and Charge Ordinance, and other guiding legal documents.

4. Customs Procedures for Goods Entering and Leaving the Import Duty-Free Zone:

Customs procedures, inspection, and supervision systems for goods entering and leaving the Import Duty-Free Zone are carried out according to the provisions in Section VIII, Part B, of Circular No. 112/2005/TT-BTC dated December 15, 2005, issued by the Ministry of Finance guiding customs procedures, inspections, and supervision for goods entering and leaving the Free Trade Zones and Non-Tariff Zones.

IV. IMPLEMENTATION

1. Regarding People's Committees of provinces with Border Economic Zones:

- Based on development needs and trade exchanges in Border Economic Zones, the Chairmen of People's Committees of provinces with Border Economic Zones are responsible for directing the study of establishing an Import Duty-Free Zone within the Border Economic Zone and ensuring compliance with all conditions stipulated in Clause 1, Section III, of this Circular. If these conditions are not met, the establishment and operation of the Import Duty-Free Zone are not permitted.

- The Chairman of the People's Committee of a province with a Border Economic Zone decides on the establishment of an Import Duty-Free Zone within the Border Economic Zone after coordinating with the Ministry of Construction, the Ministry of Commerce, and the Ministry of Finance regarding the planning of the Import Duty-Free Zone to ensure consistency nationwide.

- The People's Committee directs relevant agencies (border guard forces, border police, customs authorities, tax authorities, etc.) to strengthen cooperation to implement inspection and control measures to combat smuggling and fraudulent trade practices in Import Duty-Free Zones within Border Economic Zones.

2. Regarding the General Department of Customs:Deploy customs forces to handle customs procedures for goods entering and leaving the Import Duty-Free Zone and to supervise the Import Duty-Free Zone according to customs laws.

3. Effective Date:

- This Circular takes effect 15 days after its publication in the Official Gazette. This Circular replaces Circular No. 59/2001/TT-BTC dated July 17, 2001, issued by the Ministry of Finance guiding the implementation of financial policies applied to border economic zones.

- Management boards of Border Economic Zones, tax authorities, customs authorities, state treasury agencies, and other related agencies in Border Economic Zones need to strengthen coordination in implementing the provisions of this Circular, while ensuring inspection and control measures to combat smuggling and fraudulent trade practices in Border Economic Zones.

During implementation, if any difficulties arise, please report to the Ministry of Finance for research and resolution.