CIRCULAR

Guidelines on certain financial preferential policies for mechanical enterprises producing passenger buses with 25 seats or more.

motor vehicle carrying passengers of twenty-five seats or more.

__________________

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

Pursuant to the Law on Export and Import Taxes and current guiding documents on export and import taxes;

Pursuant to Decree No. 77/2003/ND-CP dated July 1, 2003 of the Government on the tasks, powers, and organizational structure of the Ministry of Finance;

Pursuant to Decision No. 175/2002/QĐ dated December 3, 2002 of the Prime Minister approving the Strategy for the Development of the Automotive Industry in Vietnam until 2010 and vision until 2020;

Pursuant to Decision No. 186/2002/QĐ-TTg dated December 26, 2002 of the Prime Minister approving the Strategy for the Development of the Mechanical Industry in Vietnam until 2010 and vision until 2020.

The Ministry of Finance issues guidelines on certain financial preferential policies for mechanical enterprises producing passenger buses with 25 seats or more (hereinafter referred to as passenger buses) as follows:

I - APPLICABLE OBJECTS

The objects entitled to enjoy financial support policies and tax preferences as stipulated herein are enterprises (including foreign-invested enterprises) directly engaged in the production of passenger buses. Notably, Company 1-5 of the Transport Machinery Corporation shall be subject to financial support policies as prescribed in Decision No. 1223/QĐ-TTg dated September 11, 2001 of the Prime Minister regarding the supplementation of passenger buses with 25 seats or more into the list of mechanical products eligible for preferential development policies.

Mechanical enterprises producing passenger buses must register with the Ministry of Industry their domestic content ratio of passenger buses reaching 20% by 2005 and 35-40% by 2010 as prescribed in Decision No. 175/2002/QĐ-TTg dated December 3, 2002 of the Prime Minister approving the Strategy for the Development of the Automotive Industry in Vietnam until 2010 and vision until 2020.

II - SPECIFIC CONTENT

A - Preferential policies on capital for enterprises.

1- When implementing investment projects to build new production facilities or enhance production capacity for passenger buses approved by competent authorities, enterprises are entitled to borrow investment capital from the Development Support Fund, with a loan term not exceeding 12 years, including two years without interest payment and commencement of repayment from the fifth year onwards, with an interest rate of 3% per annum applied separately for each loan. Enterprises borrowing capital are not required to provide collateral but may not transfer assets before fully repaying the principal and interest for each loan.

2- In cases where the Development Support Fund cannot meet these loan requirements, enterprises are permitted to borrow from commercial banks to implement the projects. The Ministry of Finance will consider and process supplementary payments to cover the difference between the interest rates charged by commercial banks and those of the Development Support Fund.

Documents and procedures for supplementary payments to cover the difference between interest rates charged by commercial banks and those of the Development Support Fund include:

- A letter from the enterprise addressed to the Ministry of Finance requesting supplementary payments to cover the difference between interest rates charged by commercial banks and those of the Development Support Fund. It should clearly state the total amount borrowed, the interest rate requested for supplementary payment, and the account number at the commercial bank.

- Investment project documents approved by competent authorities.

- Confirmation from the commercial bank that has provided the loan.

B - Preferential policies on tax for enterprises.

In addition to the incentives stipulated in the Law on Encouraging Domestic Investment, the Law on Foreign Investment, and guiding documents issued by the Government and the Ministry of Finance, enterprises are also entitled to apply the preferential policies specified below. In cases where the incentives stipulated in this circular overlap with those in other laws, enterprises shall benefit from the highest level of incentive.

1- Import tax

- Exemption from import tax on equipment, machinery, and transportation means specifically used in production lines to create fixed assets that are not produced domestically according to regulations of the Ministry of Industry (or confirmed by the Ministry of Industry).

- Annually or periodically (quarterly, six-monthly), enterprises must submit plans for production, lists, and import plans for machinery, equipment, and transportation means (used in production lines) to create fixed assets that are not produced domestically to customs offices handling import procedures to register for exemption from import tax.

- Customs offices shall coordinate with local tax authorities to inspect and settle the use of imported machinery, equipment, and transportation means (used in production lines). If misuse of imported goods is detected, taxes exempted and penalties shall be imposed according to the law.

2- Corporate Income Tax

a- Enterprises producing passenger buses are exempt from corporate income tax for the first two years from the date of generating taxable income and are granted a 50% reduction in corporate income tax payable for the next two years for activities related to the production of passenger buses. Other production activities shall continue to follow the current mechanism.

b- Enterprises are responsible for using the exempted or reduced corporate income tax for investment projects aimed at developing and enhancing the production capacity of passenger buses.

3- Land rental fees

A 50% reduction in land rental fees for new construction projects producing passenger buses until the end of 2005.

C - Policies on support for research and development.

1- State-owned enterprises producing passenger buses shall receive partial funding from the state budget for activities such as hiring experts, purchasing designs, acquiring technology, and transferring technology beyond their capabilities within approved investment projects.

2- Passenger bus manufacturing enterprises are allowed to allocate up to 2% of the sales revenue of passenger buses sold to establish a research and development fund. Enterprises must develop regulations for the use of this fund to ensure it is used for its intended purpose and is effective.

III. IMPLEMENTATION ORGANIZATION

This provision shall take effect fifteen days after its publication in the Official Gazette.

Any difficulties encountered during implementation should be reported to the Ministry of Finance for timely supplementation to ensure compliance./.