CIRCULAR

GUIDING THE IMPLEMENTATION OF REGULATIONS ON THE TAX RATE OF PROFIT TAX AND THE EXEMPTION FROM AND REDUCTION OF PROFIT TAX IN RELATION TO INVESTMENT PROJECTS IN VIETNAM

- Pursuant to Decree No.18/CP dated April 16,1993 of the Government which provides detailed regulations for the implementation of the Law on Foreign Investment in Vietnam;
- In order to attract foreign investment capital in accordance with the Law on Foreign Investment in Vietnam, step by step set up reasonable economic structures in respect of areas or zones and assist in the creation of favorable conditions for the investors to play an active role in preparing for their investment;-+ Upon agreement with the State Committee for Cooperation and Investment, the Ministry of Finance gives guidance on the implementation of regulations on the tax rate of profit tax and the exemption from and reduction of profit tax in relation to foreign investment projects in Vietnam as follows:

I. TAX RATES OF PROFIT TAX

Tax rates of profit tax stipulated at Articles 66, 67 and 68 of the Decree No.18/CP dated April 16,1993 of the Government are determined in relation to each project as follows:

1/ Tax rate of 10% applicable to joint venture enterprises, 100% foreign invested capital enterprises in the following fields:

- Building up infrastructures which include:

+ Sites for transportation;

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+ Sites for SEP Zones;

+ Sites for concentrated industrial zones;

+ Sites for communication, tele-communication in mountainous regions and regions that have geographical, economic and social difficulties (in accordance with the Annex No.1 attached);

- Planting new forests for exploitation;

- All the top projects in the list of projects announced by the State Committee for Cooperation and Investment periodically.

2/ Tax rate of 15 % applicable to investment projects in the following fields:

- Building up infrastructures in provinces and regions not mentioned in Annex No.1 of this Circular;

- Exploitation of natural resources, excluding exploitation of oil and gas and precious and rare natural resources;

- Heavy industrial projects which include:

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+ Mechanical production;

+ Basis chemical substances;

+ Cement;

+ Manufacture of electric and electronic materials;

+ Production of fertilizer and pharmaceutical products treating diseases as well as epidemics for domestic animals and plants;

- Planting of long life industrial trees;

- Investments in mountainous regions and regions that have geographical, economic and social difficulties (in accordance with Annex No.1 attached to this Circular) including hotel business projects;

- Project in which the foreign party promises to transfer its assets at no cost to Vietnam upon the expire of the term of its operation, including foreign party in hotel business contraction projects.

3/ Tax rate of 20% applicable to projects which possess two of the following standards:

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+ Applying advanced technology which complies with the standards mentioned in Article 4 of the Ordinance on Technology Transfer dated 5 December 1988 approved by the Ministry of Science - Technology and Environment;

+ Exporting at least 80% of the projected production;

+ Prescribed capital or contributed capital for implementing the business cooperation contract must be at least USD 10,000.

4/ Tax rate of 25% applicable to investment projects in the fields of finance, insurance, and services in the fields of consultancy, accounting, auditing, banking, commerce and hotels (excluding those of hotel business mentioned at article 2, part 1 and those are not belonging to the priority category mentioned at 1, 2, 3 above).

5/ In relation to projects for oil and gas survey, exploitation and refinery, projects for exploitation of precious and rare natural resources, tax rate of profit tax shall be above 25%. The State Committee for Cooperation and Investment shall, while considering for granting investment licenses to the investors, determine a specific tax rate for each project in accordance with international practices and also take into consideration conditions of exploitation and the quality and reservoir of the natural resources on the basis of investor's suggestion.

II.TERM FOR APPLICATION OF FAVORABLE TAX RATE STIPULATED AT ARTICLES 67 AND 68 OF THE DECREE No.18/CP

1. Tax rates of 15% and 20% stipulated in relation to projects mentioned at Articles 2 and 3, Part I of this Circular shall be applied in a 5-7 year term, commencing on the year after the year of issuing the investment license.

2. Tax rate of 10% stipulated in relation to investment projects in the mountainous regions and regions that have geographical, economic and social difficulties as mentioned in Annex No.1 attached to this Circular (excluding projects for exploitation of precious and rare natural resources), projects for building up infrastructures and projects mentioned in Article 1, Part ! above shall be applied in a 8-10 year term,commencing on the year after the year of issuing the investment license.

On special occasions, the term for application of the favorable tax rate may extend above 10 years, but it can not exceed 15 years, counting from the year after year of issuing the investment license.

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III. EXEMPTION OF PROFIT TAX FOR JOINT VENTURE ENTERPRISES, 100% FOREIGN INVESTED CAPITAL ENTERPRISES (GENERALLY CALLED FOREIGN INVESTED ENTERPRISES)

1/ Foreign invested enterprise set up in accordance with project mentioned in item 4 of Provision 1 of this Decree and located in localities specified in Appendix 1, shall be exempt from profit tax for one year starting from the first profitable year, and increase to 50% off stipulated rate in the following consequent years.

For enterprises in other localities, they can be subject to consideration for profit tax exemption for one year starting from the first profitable year and a reduction of 50% off stipulated rate in the following year.

2/ Projects mentioned in item 3 of Provision I and located in localities specified in Appendix 2, are subject to consideration for profit tax exemption for two years at most starting from the first profitable use and a reduction of 50% off the stipulated rate, for at most, in the next two consecutive years.

3/ Projects mentioned in item 2 of Provision I are exempt from profit tax for two years starting from the first profitable years and reduced 50% in the four following years.

4/ Projects mentioned in item 1 of Provision I are exempt from profit tax for the four years starting from the first profitable year and reduced 50% in the four following years.

IV. OTHER REGULATIONS

With regard to projects which concurrently invest in two or more localities found in Appendices 1 and 2, the assessment for exemption or reduction of profit tax rates is based on the locality of the main office.

Projects licensed prior to April 16,1993 are still subject to regulations on and effective period of profit tax exemption and reduction stipulated by that license.

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Projects licensed prior to the effective date of this Circular are subject to regulations stipulated by the respective licenses and are not affected by this Circular.

FOR THE MINISTRY OF FINANCE
VICE MINISTER




Phan Van Dinh