Circular No. 86/2000/TT-BTC guides the implementation of financial support policies and tax incentives to develop key industrial products as prescribed in Decision No. 37/2000/QD-TTg dated March 24, 2000 of the Prime Minister.

CIRCULAR

Guidelines for implementing financial support policies and tax incentives to develop key industrial products as prescribed in Decision No.

37/2000/QĐ-TTg dated March 24, 2000 of the Government.

Pursuant to the Law on Corporate Income Tax and current guiding documents on corporate income tax;

Pursuant to the Law on Export Duties and Import Duties and current guiding documents on export duties and import duties;

Pursuant to Decision No. 37/2000/QĐ-TTg dated March 24, 2000 of the Government on issuing support policies for developing key industrial products (applicable to ships of 11,500 tons, small internal combustion engines under 30 horsepower, color television receivers);

The Ministry of Finance issues guidelines

for implementing financial support policies and tax incentives to develop key industrial products as follows: I-RANGE OF APPLICATION

1-Key industrial products eligible for financial support policies as stipulated in Decision No. 37/2000/QĐ-TTg dated March 24, 2000 of the Government include: ships of 11,500 tons, small internal combustion engines under 30 horsepower, color television receivers. These products must bear a Vietnamese brand name and be produced in Vietnam.

2-The entities eligible for financial support policies and tax incentives as stipulated in Decision No. 37/2000/QĐ-TTg dated March 24, 2000 of the Government and detailed in this Circular include:

a)Enterprises assigned the main responsibility for implementing projects to produce key industrial products include:

VietnamShipbuilding Corporation - Mainly responsible for implementing the project to produce ships of 11,500 tons.

VietnamEngine and Agricultural Machinery Corporation - Mainly responsible for implementing the project to produce small internal combustion engines under 30 horsepower.

Hanoi Electronics Corporation - Mainly responsible for implementing the project to produce color television receivers.

b)Enterprises assigned to cooperate in producing key industrial products are enterprises (regardless of whether they are domestic or foreign-invested enterprises) participating in supplying materials, raw materials, semi-finished products, components, spare parts... (including supplying semi-finished products, components, spare parts... for manufacturers) used in the production of key industrial products and recognized by the Ministry of Industry.

Theenterprises mentioned in Point 2 of Section I above shall only enjoy tax and land rental fee incentives as guided in this Circular during the period of incentives and when the products produced meet all standards as specified in Circular No. 03/2000/TT-BCN dated May 31, 2000 of the Ministry of Industry.

II-SPECIFIC CONTENTS OF INCENTIVES

A-Tax Support Policy:

1-Corporate Income Tax

a)The tax incentive rate for the production activities of ships of 11,500 tons, small internal combustion engines under 30 horsepower, and color television receivers as stipulated in Appendices 1, 2, and 3 of Decision No. 37/2000/QĐ-TTg dated March 24, 2000 of the Government shall be implemented as follows:

Income from the production activities of the aforementioned key industrial products (including production activities of materials, raw materials, semi-finished products, components, spare parts supplied to the main project implementation enterprises) shall be subject to a corporate income tax rate of 25%, exempted for the first two years from the date of taxable income, and reduced by 50% of the corporate income tax payable in the following two years.

b)The enterprises mentioned in Point 2 of Section I of this Circular shall only enjoy corporate income tax incentives as guided in this Circular if they comply with accounting and statistical systems and separately account for the results of key industrial product production activities (or production activities of materials, raw materials, semi-finished products, components, spare parts supplied to the main project implementation enterprises).

Thecorporate income tax rate of 25% shall be applied during the period of incentives as guided in Circular No. 03/2000/TT-BCN dated May 31, 2000 of the Ministry of Industry. After the expiration of the incentive period, the enterprise must declare and pay taxes according to the corporate income tax rate stipulated in the Law on Corporate Income Tax. In addition to the production activities of key industrial products (or production activities of materials, raw materials, semi-finished products, components, spare parts supplied to the main project implementation enterprises) subject to a 25% tax rate, if the enterprise has other production and business activities, it must still declare and pay corporate income tax according to the rates stipulated in the Law on Corporate Income Tax.

Tohave a basis for determining the amount of corporate income tax exempted or reduced according to the policy, the enterprise must submit a tax exemption and reduction application to the direct tax authority along with the declaration of provisional corporate income tax for the year. The application includes:

Aletter requesting tax exemption and reduction specifying the reasons for the request and the amount of corporate income tax requested to be exempted or reduced (based on the budget estimate for the year requesting tax reduction).

Theapproved project to produce key industrial products or a confirmation letter from the Ministry of Industry (for enterprises participating in the cooperative production of key industrial products).

Basedon the application submitted by the enterprise, the tax authority will verify and determine the total annual tax exemption or reduction and allocate it quarterly. Each quarter, the direct tax authority managing the enterprise will temporarily exempt or reduce 70% of the provisional tax that the enterprise must pay for the income from the production activities of key industrial products (or production activities of materials, raw materials, semi-finished products, components, spare parts supplied to the main project implementation enterprises). The temporary tax exemption or reduction must be clearly stated in the tax payment notice.

On the basis of the enterprise's application file, the tax authority shall examine and determine the total amount of corporate income tax temporarily exempted and reduced for the entire year and allocate it to each quarter. Each quarter, the tax authority directly managing the enterprise shall implement a temporary exemption and reduction equal to 70% of the corporate income tax that the enterprise must temporarily pay for each quarter from the income generated from the production of key industrial products (or activities producing materials, raw materials, semi-finished products, spare parts for supplying enterprises responsible for key industrial product production projects). The temporary exemption and reduction of tax mentioned above must be clearly recorded in the notification of corporate income tax payment.

At year-end, based on the financial settlement report and corporate income taxsettlement report, the enterprise must determine the officially exempted andreduced corporate income tax amount and provide detailed explanations regardingthe business results of producing key industrial products (or activitiesproducing materials, raw materials, semi-finished products, spare parts forsupplying to the leading enterprises in key industrial product productionprojects). The tax authority will review the enterprise's report and issue adecision on the officially exempted and reduced corporate income tax from theincome generated from producing key industrial products, serving as the basisfor the annual corporate income tax settlement of the enterprise.

If within the same period, the enterprise is eligible for preferential treatmenton corporate income tax under multiple different regulations (Corporate IncomeTax Law, Domestic Investment Promotion Law, and Decision No. 37/2000/QĐ-TTg datedMarch 24, 2000 of the Prime Minister), the enterprise can only choose one of thepreferential regimes stipulated in the aforementioned documents and must clearlystate this in the application letter requesting tax exemption or reduction.

2-On Import Duties

a)Exempt import duties until December 31, 2003 for equipment, machinery, andspecialized transportation means included in the production technology chain tocreate fixed assets of enterprises that cannot be produced domestically forproducing products listed in Table 11.500 tons of ships, small internal combustionengines under 30 horsepower, color TV receivers (as specified in Appendices 1,2, and 3 of Decision No. 37/2000/QĐ-TTg dated March 24, 2000 of the PrimeMinister).

The preferential tax exemption for equipment, machinery, and specializedtransportation means included in the production technology chain to create fixedassets of enterprises that cannot be produced domestically shall only apply toenterprises leading the implementation of key industrial product productionprojects, not to enterprises participating in the production of these products.Cases of special nature, enterprises participating in the production of keyindustrial products may be exempted from import duties for imported equipmentand machinery solely used for producing materials, raw materials, semi-finishedproducts, components, and spare parts supplied to the leading enterprisesimplementing the projects, subject to confirmation by the Ministry of Industry.

The list of equipment, machinery, and specialized transportation means includedin the production technology chain to create fixed assets of enterprises thatcannot be produced domestically for producing key industrial products shall beestablished based on differentiation from the list of equipment, machinery, andspecialized transportation means that can be produced domestically issued by theMinistry of Planning and Investment.

b)Exempt import duties until December 31, 2003 for materials required to beimported that cannot be produced domestically for producing products such as11.500-ton ships and small internal combustion engines under 30 horsepower(as specified in Appendices 1 and 2 of Decision No. 37/2000/QĐ-TTg dated March24, 2000 of the Prime Minister).

The list of materials required to be imported that cannot be produceddomestically for producing 11.500-ton ships and small internal combustionengines under 30 horsepower shall be specifically issued by the Ministry ofIndustry for each product. In cases where key industrial product productionprojects have been initiated but the Ministry of Industry has yet to issue alist of materials required to be imported that cannot be produced domestically forproducing key industrial products, the Ministry of Industry shall determine thelist of materials eligible for tax exemption for each specific project.

For materials, spare parts, and accessories imported for the production andassembly of color TV receivers, if the import duty is calculated based on thelocal content rate, they shall enjoy a preferential index with a correctionfactor of 0.5 for calculating the import duty according to the local content rateas stipulated in Joint Circular No. 176/1998/TTLT dated December 25, 1998 of theMinistry of Finance - Ministry of Industry - General Department of Customs, andthis shall only apply to the CIF value of imported materials, spare parts, andaccessories used for producing the product and spare parts of color TV receivers.

After the competent authority approves the project for producing keyindustrial products, annually or periodically (quarterly, six-monthly, yearly),the enterprise leading the implementation of the project for producing keyindustrial products must develop a production plan, compile a list, and preparean import plan for equipment, machinery, and specialized transportation meansincluded in the production technology chain to create fixed assets of theenterprise and materials required to be imported that cannot be produceddomestically for producing key industrial products, and submit them to theCustoms Authority for registration of tax exemption on import duties (forenterprises participating in the production of key industrial products, theapplication submitted to Customs must include the production and processingcontract with the leading enterprise of the project and a confirmation documentfrom the Ministry of Industry regarding participation).

Based on the comparison between the lists issued by the Ministry of Planning andInvestment and the Ministry of Industry (or the confirmation of the Ministry ofIndustry regarding the list of materials eligible for tax exemption for eachproject) and the list registered by the enterprise, the Customs Authority shalltemporarily refrain from collecting import duties according to each actualimportation by the enterprise. The enterprise importing goods must settle andfinalize the actual import duties exempted from payment to the State Budgetwith the Customs Authority.

The direct tax management authority responsible for the enterprise shallmonitor the importation of equipment, machinery, specialized transportationmeans, and tax-exempt imported materials in the above cases. If misuse ofimported goods is detected, taxes shall be recovered and penalties imposedaccording to the provisions of the Export Tax Law and Import Tax Law.

B-Support Policies for Land Rent:

Enterprises mentioned in Point 2, Section I of this Circular shall be entitled to a 50% reduction in land rental fees payable to the State budget for the area of land used for producing key industrial products (or for manufacturing raw materials, semi-finished goods, components, spare parts... used in the production of key industrial products) within the implementation period of the project approved by the competent authority or during the time they participate in the production of key industrial products (for enterprises manufacturing raw materials, semi-finished goods, components, spare parts... used in the production of key industrial products).

In cases where enterprises cannot delineate the area of land used for producing key industrial products (or for activities manufacturing raw materials, semi-finished goods, components, spare parts... used in the production of key industrial products) from the area of land used for other business purposes, the amount of land rental fees eligible for reduction shall be determined based on the proportion of revenue from the production of key industrial products (or from activities manufacturing raw materials, semi-finished goods, components, spare parts... used in the production of key industrial products) to the total revenue of the enterprise. If this proportion is less than 30%, the basis for determining the amount of land rental fees eligible for reduction shall be set at 30%.

Example 1: In 2000, Enterprise A had a total leased land area from the State of 100,000 square meters.² Of which, the enterprise used 70,000 square meters² for warehouses and production workshops for color television receivers, with the remaining area used for other business purposes; Based on Decision No. 37/2000/QĐ-TTg dated March 24, 2000 of the Prime Minister and the guidance provided in this Circular, Enterprise A is entitled to a 50% reduction in land rental fees payable for the 70,000 square meters²of land used for the production of color television receivers. The remaining 30,000 square meters²of land must be paid for according to the prescribed regulations.

Example 2: Also referring to the aforementioned Enterprise A, but the enterprise cannot determine the area of land used for the production of color television receivers from the area used for other business activities. According to the financial settlement report and tax settlement report for 2000, the total business revenue of the enterprise was 100 billion VND, with revenue from the production of color television receivers being 40 billion VND (accounting for 40% of total revenue), and the total land rental fees payable under the regulations being 50 million VND, then the amount of land rental fees eligible for reduction according to Decision No. 37/2000/QĐ-TTg is calculated as follows:

Land rental fee reduction = 50,000,000 VND x 40% x 50% = 10,000,000 VND.

Example 3In the aforementioned Example 2, if the revenue from the production of color television receivers is 25 billion VND (accounting for 25% of total revenue), then the amount of land rental fees eligible for reduction according to Decision No. 37/2000/QĐ-TTg is calculated as follows:

Land rental fee reduction = 50,000,000 VND x 30% x 50% = 7,500,000 VND.

In cases where enterprises are both eligible for a reduction in land rental fees according to Decision No. 37/2000/QĐ-TTg dated March 24, 2000 of the Prime Minister and also eligible for exemption from land rental fees according to other regulatory provisions, the enterprise shall only be exempted or reduced in land rental fees according to one of these provisions, depending on the enterprise's choice.

The period for determining the reduction in land rental fees is calculated annually. For the year when the project begins, if the project starts in the first six months of the year, the period eligible for reduction is the entire year, and if it starts in the last six months of the year, the period eligible for reduction is six months.

The procedures for reviewing reductions in land rental fees shall be carried out in accordance with current regulations.

C - Support Policies on Capital:

Implemented according to specific preferential levels for each key industrial product as stipulated in Appendices 1, 2, and 3 issued together with Decision No. 37/2000/QĐ-TTg dated March 24, 2000 of the Prime Minister. Procedures for granting support capital from the budget and procedures for borrowing development investment credit from the State Development Fund shall be carried out according to current regulations.

III - IMPLEMENTATION ORGANIZATION.

This Circular takes effect from the date of signature.

During the implementation process, if there are any issues that cause difficulties, please report them to the Ministry of Finance for guidance on resolution./.

GENERAL DEPARTMENT OF TAXATION

May 24, 2000

Respectfully submitted to:Revenue Inspection Department, Tax Administration Bureau, Tax Control Bureau

The General Department of Taxation has drafted this Circular to guide the implementation of policies supporting taxes and land rental fees for enterprises producing key industrial products as stipulated in Decision No. 37/2000/QĐ-TTg dated March 24, 2000 of the Prime Minister.

The General Department of Taxation respectfully submits this draft Circular to the relevant Departments (Bureaus) for comments before submitting to the Ministry.

OpinionComments should be sent to the General Department of Taxation (123 Lo Duc Street) by May 30, 2000 to ensure the timely implementation of Decision No. 37/200/QĐ-TTG./.