Laws of Vietnam

I. SUBJECTS OF APPLICATION

The establishments under Vietnam Construction Export and Import Corporation (the Construction Ministry), which manufacture components and materials for building houses for sale on deferred payment to households in population clusters and lines in flooded Mekong River Delta areas (under Decision No. 105/2002/QD-TTg of August 2, 2002) and to indigenous ethnic minority households in the Central Highlands provinces (according to Notice No. 144/TB-VPCP of September 12, 2002 of the Government Office).

II. PREFERENTIAL TREATMENT POLICIES

1. To exempt land rents for the places were plants are built to manufacture components and materials for building houses for sale to households in flooded Mekong River Delta areas and indigenous ethnic minority households in the Central Highland provinces.

2. Regarding value added tax: Not to impose value added tax (VAT) on products being components and materials for building houses for sale to households in flooded Mekong River Delta areas and indigenous ethnic minority households in the Central Highlands provinces. When inscribing value added invoices, house components and materials-manufacturing establishments shall inscribe the sans-VAT prices on the selling price line; leave the tax rate and VAT amount lines blank and cross them. The amount of VAT on supplies and raw materials purchased for manufacture of house components and materials shall not be deducted but be included in the costs of products, house components and materials.

3. Regarding enterprise income tax: To be exempt for incomes from activities of manufacturing house components and materials throughout the period of implementation of the project on sale of houses to households in flooded Mekong River Delta areas and indigenous ethnic minority households in the Central Highlands provinces.

Where the production and business establishments are also engaged in other business and production lines, they must monitor and account separately taxable incomes of these production and business lines and declare and pay enterprise income tax thereon in accordance with the provisions of the Enterprise Income Tax Law.

4. Import tax and VAT at the importation stage:

To exempt import tax, VAT at the importation stage and surcharges (if any) on machinery and equipment belonging to technological lines of types which cannot be manufactured at home and need to be imported for creation of the enterprises’ fixed assets as well as essential supplies of types which are not yet manufactured at home and need to be imported for manufacture of house components and materials. The border-gate customs offices shall base themselves on the quantities of commodities under the decisions of Vietnam Construction Export and Import Corporation and the list of machinery, equipment and essential supplies of types which cannot be manufactured at home and need to be imported, enclosed with this Circular, in order to exempt taxes for enterprises importing machinery, equipment and essential supplies in service of the manufacture of components and materials for building houses for households in flooded Mekong River Delta areas and indigenous ethnic minority households in the Central Highlands provinces.

5. The borrowing of capital at a preferential interest rate of 3%/year from the Development Assistance Fund for investment in building establishments to manufacture components and materials for building houses for households in flooded Mekong River Delta areas and indigenous ethnic minority households in the Central Highlands provinces shall be effected as follows:

a/ Conditions for borrowing capital:

- The investment projects on building establishments to manufacture house components and materials, which are eligible for borrowing capital, are projects the investment in which has been decided by Vietnam Construction Export and Import Corporation and have completed investment procedures since October 15, 2002 under the provisions of the Government’s Decree No. 52/1999/ND-CP of July 8, 1999 promulgating the Investment and Construction Management Regulation and Decree No. 12/2000/ND-CP of May 5, 2000 amending and supplementing a number of articles of the Investment and Construction Management Regulation promulgated together with the Government’s Decree No. 52/1999/ND-CP of July 8, 1999. Before having their investment decisions approved by competent authorities, these investment projects must have their financial plans and loan repayment plans evaluated by the Development Assistance Fund and get the loan approval from the latter.

- For investors, they must comply with the provisions at Point 2, Article 9 of the Government’s Decree No. 43/1999/ND-CP of June 29, 1999 on the State’s investment and development credits.

b/ Loan capital amounts and sources:

- The loan capital amounts shall be determined on the basis of the proportion of products sold on deferred payment to households in flooded Mekong River Delta areas and indigenous ethnic minority households in the Central Highlands provinces, which meet housing difficulties, but must not exceed 70% of the projects’ total investment capital.

- The annual capital disbursement shall comply with the approved plans and the current regulations.

- The Development Assistance Fund shall use self-mobilized capital sources for lending.

c/ Lending interest rate:

- The lending interest rate shall be 3%/year. The investors shall have to mobilize capital from various sources for debt repayment as prescribed in the credit contracts. If the investors fail to repay their debts on schedule and the Development Assistance Fund refuses to prolong the debt repayment, the Development Assistance Fund shall transfer them to overdue debts and apply instead the interest rate for overdue debts according to the current regulations.

- For the lending interest rate: The Central budget shall offset the interest rate difference and charges for the Development Assistance Fund.

d/ The capital-lending term for each project

The maximum capital-lending term shall be five years. The determination of the time for starting to collect loan debts (both principal and interest) shall comply with the current regulations on the State’s investment and development credits.

6. Enterprises shall have to fully account the production and business costs and product costs on the basis of the actually incurred reasonable expenses and in accordance with the State’s current regulations.

To ensure stable selling prices of houses sold on deferred payment to people, annually, enterprises may calculate in the product cost a reserve amount for fluctuations in the prices of supplies and raw materials, which is equal to 3% of the total cost of supplies and raw materials (primary and auxiliary materials and raw materials) in the product cost for setting up the reserve fund to offset any increases in the prices of supplies and raw materials.

The deduction for setting up, use and settlement of the reserve fund for offsetting increases in the prices of supplies and raw materials shall be as follows:

- The deduction for setting up the reserve fund for fluctuations in the prices of supplies and raw materials shall be calculated on the last day of the fiscal year (December 31) according to the following formula:

The amount Total cost of supplies and 3% of the level of
deducted for setting up = raw materials in the product x deduction for the
the reserve fund cost arising in the year reserve fund

- The reserve fund shall be used to offset increases in the prices of supplies and raw materials in the year in order to stabilize the selling prices of houses sold on deferred payment to people.

- Enterprises shall have to open books to account separately the deduction and use of the reserve fund for fluctuations in the prices of supplies and raw materials as well as increases in the cost of supplies and raw materials, which are offset with the reserve fund.

- Annually, enterprises must report on the deduction for setting up, and use of, this reserve fund for price fluctuations to the tax offices and the agencies that manage the State’s capital and assets at enterprises in the localities where enterprises are headquartered.

- Upon completion of the projects on sale of houses on deferred payment to people, enterprises shall have to account all the deducted amount and the used amount of the above-said reserve fund with the Finance Ministry. Basing itself on the settlement situation, the Finance Ministry shall consider and work out concrete plans for handling the balance of the reserve fund for offsetting increases in the prices of supplies and raw materials.

III. IMPLEMENTATION ORGANIZATION

This Circular takes implementation effect as from October 15, 2002, the effective date of the Prime Minister’s Decision No 28/2002/QD-TTg of September 30, 2002. Enterprises eligible for the tax preference policies under the guidance on Part II of this Circular and having paid tax amounts before the date of signing of this Circular shall have such paid tax amounts deducted from the amounts of the same taxes payable by them for other business activities. Where enterprises have no other business activities, they shall be reimbursed the paid tax amounts.

Should any problems arise in the course of implementation, the units are requested to promptly report them to the Finance Ministry for study and additional guidance.

For the Finance Minister
Vice Minister
TRUONG CHI TRUNG

(Promulgated together with the Finance Ministry’s Circular No. 14/2003/TT-BTC of February 24, 2003)