Chapter IV

TAX - FINANCE MATTERS

Article 45. - The enterprise income tax rates

Foreign-invested enterprises and business cooperation parties shall paythe enterprise income tax at the rate equal to 25% of the earned profits, except casesprescribed in Article 46 of this Decree.

For the fields of prospection, exploration and exploitation of oil andgas as well as a number of other rare and precious natural resources, the enterpriseincome tax rates shall comply with the provisions of the Petroleum Law and the relevantlegislation.

Article 46.- Enterprise income tax in cases of investmentencouragement

The preferential enterprise income tax rates shall apply as follows:

1. 20% for projects which meet one of the following criteria:

a) They are industrial park enterprises operating in the field ofservices;

b) The production projects not falling under the project categoriesmentioned in Article 45 and Clauses 2 and 3 of this Article.

2. 15 % for projects which meet one of the following criteria:

a) They are on the list of projects with investment encouragement;

b) The investment is made in geographical areas with difficultsocio-economic conditions;

c) They are service enterprises in export-processing zones;

d) They are industrial park enterprises which export more than 50% oftheir products;

e) They transfer without compensation the assets to the VietnameseState upon the expiry of the operation duration.

3. 10% for projects which meet one of the following criteria:

a) They meet two of the criteria mentioned in Clause 2 of this Article;

b) They are on the list of projects where investment is particularlyencouraged;

c) They invest in geographical areas with particularly difficultsocio-economic conditions on the list of geographical areas where investment isencouraged;

d) They are enterprises developing infrastructure in industrial parks,export processing zones, hi-tech parks; export-processing enterprises;

e) They are in the fields of medical examination and treatment,education and training, and scientific research.

4. The duration -of application of preferential enterprise income taxrates is stipulated as follows:

a) The preferential enterprise income tax rates mentioned in thisArticle shall be applied throughout the period of investment project implementation, toprojects which meet one of the following criteria;

- They are on the list of projects where investment is encouraged;

- They are in geographical areas with particularly difficultsocio-economic conditions on the list of areas where investment is encouraged;

- They are for the development of infrastructures in industrial parks,export-processing zones, hi-tech parks;

- They are for investment in industrial parks, export-processing zonesor hi-tech parks;

- They are in the fields of medical examination and treatment,education and training, scientific research.

b) The enterprise income tax rate of 10% shall be applied for 15 yearsafter the projects start their production and business operations, except the projectsprescribed at Point a, Clause 4 of this Article.

c) The enterprise income tax rate of 15% shall be applied for 12 yearsafter the projects start their production and business operation, except the projectsprescribed at Point a, Clause 4 of this Article.

d) The enterprise income tax rate of 20% shall be applied for 10 yearsafter the projects start their production and business operations, except the projectsprescribed at Point a, Clause 4 of this Article.

5. After the period of enjoying the preferential enterprise income taxrates mentioned at Points b, c and d, Clause 4 of this Article, the projects shall pay

an enterprise income tax at the rate of 25%.

6. Overseas Vietnamese investing in the country under the ForeignInvestment Law shall be entitled to the 20% reduction of the enterprise income tax ascompared with projects of the same type, except cases of enjoying the tax rate of 10%.

Article 47.- Projects not entitled to preferential enterpriseincome tax rates

The tax rates mentioned in Article 46 of this Decree shall not apply toprojects on hotels, offices and apartments for lease (except cases of investment ingeographical areas where investment is encouraged or non-compensation transfer of assetsto the Vietnamese State upon the expiry of operation duration), finance, banking,insurance, trade, service-providing projects (except projects in industrial parks,export-processing zones, hi-tech parks).

Article 48.- Enterprise income tax exemption and reduction

The enterprise income tax exemption and reduction shall be applied asfollows:

1. The projects mentioned in Clause 1, Article 46 of this Decree shallenjoy the enterprise income tax exemption for 1 year after the profits are generated frombusiness and 50% reduction for 2 subsequent years.

2. The projects mentioned in Clause 2, Article 46 of this Decree shallenjoy the enterprise income tax exemption for 2 years after the profits are generated frombusiness and the 50% reduction for 3 subsequent years.

3. The projects mentioned in Clause 1 of Article 46 of this Decree andthe projects for investment in geographical areas where investment is encouraged shallenjoy the enterprise income tax exemption for 4 years after the profits are generated frombusiness and the 50% reduction for 4 subsequent years, except the projects which areexempt from enterprise income tax for 8 years.

4. The BOT, BTO and BT enterprises investing in geographical areas onthe list of those enjoying investment encouragement; the hi-tech industrial enterprises;the hi-tech service enterprises in hi-tech parks, forestation projects and infrastructureconstruction and business projects in geographical areas meeting with particularlydifficult socio-economic conditions; large-scale projects exerting great socio-economicimpacts and being on the list of projects where investment is especially encouraged shallbe entitled to enterprise income tax exemption for 8 years after the business activitiesfield profits.

5. The tax exemption and reduction duration shall be calculatedconsecutively from the first year when the business activities yield profits.

6. The above-said enterprise income tax exemption and reduction shallnot apply to projects on hotels, offices and apartments for lease (except cases ofinvestment in geographical areas where investment is encouraged or of non-compensationproperty transfer to the Vietnamese State upon the expiry of operation duration), projectsfor investment in the fields of finance, banking, insurance, commerce, service provision(except projects in industrial parks, export processing zones, hi-tech parks).

Article 49.- Adjustment of preferential tax rates and enterprisetax exemption or reduction duration

1. In their business courses, if any foreign-invested enterprisesand/or foreign parties to business cooperation fail to meet the criteria for enjoyment ofthe preferential enterprise income tax rates and tax exemption or reduction durationprescribed in Article 46 and 48 of this Decree, the investment licensing agencies shalladjust the tax rates as well as tax exemption or reduction duration already stated in theinvestment licenses.

2. The Ministry of Finance shall decide the tax exemption and reductionaccording to the current regulations for cases of meeting with difficulties in the courseof business due to natural calamities, fires or other force majeur circumstances.

Article 50.- Tax on profit transfer abroad

1. The profits earned by foreign investors from their investment inVietnam (including the enterprise income tax refunded due to reinvestment and the profitsearned from capital transfer), if transferred abroad or retained outside Vietnam, shallall be liable to tax on profit transfer abroad.

2. The overseas profit transfer tax rates shall apply as follows:

a) 3% of the profit transferred abroad for:

- Overseas Vietnamese investing in the country under the ForeignInvestment Law;

- Foreign investors investing in industrial parks, export processing zones or hi-techparks;

- Foreign investors contributing legal capital or capital forperformance of the business cooperation contracts, which is valued at US$10 million ormore;

- Foreign investors investing in geographical areas which haveparticularly difficult socio-economic conditions and are on the list of areas whereinvestment is encouraged.

b) 5% of the profit transferred abroad for foreign investors who havecontributed legal capital or capital for the performance of business cooperationcontracts, which is valued at between US$5 million and under US$10 million and for foreigninvestors who have invested in projects on medical examination and treatment, educationand training or scientific research.

c) 7% of the profit transferred abroad for foreign investors who havecontributed legal capital or capital for the performance of business cooperation contractsin cases other than those prescribed at Points a and b of Clause 2 of this Article.

3. The profit transfer tax shall be collected upon each transfer ofprofit.

4. Where foreign investors have already paid tax for transfer of (heirprofits abroad, but later have not transferred1heir profits abroad, the already paid faxamounts shall be refunded.

Article 51. - Enterprise income tax reimbursement in case ofreinvestment.

1. Foreign investors who use their profits and other lawful incomesfrom their investment activities in Vietnam for reinvestment in projects being executed orinvestment in new projects according to the Foreign Investment Law shall be refunded apart or whole of the paid enterprise income tax on the reinvested profit amounts (exceptcases prescribed in the Petroleum Law, if they meet the following conditions:

a) Reinvestment in projects entitled to enterprise income taxpreferences stated in Article 46 of this Decree;

b) The reinvested capital shall be used for 3 years or more;

c) Having fully contributed legal capital or capital for the performance of thebusiness cooperation contracts inscribed in the investment licenses.

2. The reimbursement levels of enterprise income tax on profitsreinvested in Vietnam are prescribed as follows:

a) 100% if the profits are reinvested in projects entitled to theenterprise income tax rate of 10%;

b) 75% if they are reinvested in projects entitled to the enterpriseincome tax rate of 15%;

c) 50% if they are reinvested in projects entitled to the enterpriseincome tax rate of 20%.

3. When having the need to use their profits for reinvestment, foreigninvestors shall compile and send their dossiers to the Ministry of Finance forconsideration of the enterprise income tax reimbursement. Such a dossier shall include:

a) The application for enterprise income tax reimbursement due toreinvestment;

b) The commitment to use the profits for reinvestment for 3 years ormore;

c) The commitment of the Managing Board of joint-venture enterprise,the foreign investor or business cooperation parties that the foreign investor has fullycontributed the legal capital or the capital for the performance of the businesscooperation contract;

d) The copy of the investment license;

e) The tax office's written certification of the already paidenterprise income tax amount.

4. Within 15 working days after the receipt of complete and validdossiers, the Ministry of Finance shall notify its decisions to the applying foreigninvestors; in case of approval, the foreign investors shall fill in the procedures forenterprise income tax reimbursement for their profit amounts used for reinvestment. Pastthe above-mentioned time limit, if the case is yet to be approved or is rejected, theMinistry of Finance shall notify the foreign investor thereof in writing and clearly statethe reasons therefor.

Where the profit amounts already registered for reinvestment have notbeen used for reinvestment, the foreign investors shall have to return the alreadyreimbursed enterprise income tax amounts plus the interests thereon, which are calculatedaccording to the loan interest rates.

Article 52.- Enterprise income tax on capital transfer

The capital transfer shall comply with the provisions in Article 33 ofthe Foreign Investment Law and be liable to tax according to the following provisions:

1. Where the capital transfer yields profits, the transferors shall paythe enterprise income tax at the rate of 25% of the earned profits.

2. The taxable profit is equal to the transfer value minus the initialvalue of the transferred capital, minus the transfer expenses (if any).

Where foreign investors later continue to transfer their capital, theinitial value of the capital on each subsequent transfer shall be determined as beingequal to the transfer value of the preceding transfer contract plus the value of theadditionally contributed capital amount (if any).

3. After the investment licensing agencies certify the registration ofthe capital transfer contracts through the readjustment of investment licenses, thecapital transferors or their authorized persons shall have to submit to the local taxoffices the declaration on capital transfer activities, enclosed with the relevantdossiers according to the tax offices' regulations.

Article 53. - Tax calculation year

The tax calculation year for foreign- invested enterprises and businesscooperation parties shall commence on January 1 and end on December 31 of the calendaryear.

Foreign-invested enterprises and business cooperation parties mayrequest the Finance Ministry’s permission for the application of their own 12-month

fiscal year for the calculation and payment of enterprise income tax.

Article 54. - Profits liable to enterprise income tax

The profit liable to enterprise income tax shall be the differencebetween the total revenues and the total expenditures plus other extra profits in the taxcalculation year minus the loss amount to be carried forward according to the provisionsin Article 40 of the Foreign Investment Law. The profit liable to enterprise income taxshall include the taxable profits of the main establishment plus the taxable profits ofthe affiliate establishments (if any) of an enterprise.

The determination of profits liable to enterprise income tax shallcomply with the provisions in Article 9 of the Enterprise Income Tax Law. The foreign-invested enterprises and business cooperation parties may include in their expendituresthe expenses certified by tax offices as reasonable expenses in support of Vietnameseorganizations and/or individuals for charity and humanitarian activities.

Article 55. - Carrying forward of losses

In the course of operation, if foreign-invested enterprise; or businesscooperation parties suffer losses after settling taxes with the tax offices, they areentitled to carry forward their losses to the following year, and such loss amounts shallbe subtracted from the taxable income. The duration for carrying forward losses shall notexceed 5 years.

Article 56.- Deduction for establishment of funds of enterprises

After paying the enterprise income tax and fulfilling other financialobligations, the foreign-invested enterprises may deduct the remaining profits for settingup the reserve fund, welfare fund, production expansion land and other lands as decided bythe enterprises.

Article 57.- Import tax exemption for import goods

1. Foreign-invested enterprises and business cooperation parties shallbe exempt from import tax for goods imported to create fixed assets, including:

a) Equipment and machinery;

b) Special-use transport means included in the technological chains andspecial-use conveyance means for transportation of workers (cars of 24 seats or more,waterway means);

c) Components, details, spare parts, accessories, assembly supports,molds, auxiliaries accompanying equipment, machinery special-use transport and conveyancemeans prescribed at Point b of this Clause;

d) Raw materials and materials imported for manufacture of equipmentand/or machinery in the technological chains or the manufacture of components, details,spare parts, accessories, assembly supports, molds, auxiliaries accompanying equipmentand/or machinery;

e) Construction materials which can not produced at home yet.

2. Raw materials and materials imported for the implementation of BOT,BTO and/or BT projects; plant varieties, animal breeds and special-type agricultural drugspermitted to be imported for implementation of agricultural, forestry or fishery projectsshall be exempt from import tax.

3. The import tax exemption for import goods mentioned in Clauses 1 and2 of this Article shall also apply to cases of project expansion, technologicalreplacement and renewal.

4. Foreign-invested enterprises and business cooperation partiesinvesting in the fields of hotel, office and apartment for lease, dwelling houses, tradecenters, technical services, supermarkets, golf courses, tourist sites, sports complexes,rest and recreation areas, medical examination and treatment establishments, training,culture, finance, banking, insurance, audit, consulting services shall also be entitled tothe tax exemption under the provisions in Clauses 1 and 3 of this Article, excludingequipment only enjoying single import tax exemption according to provisions of theAppendix to this Decree.

5. Foreign-invested enterprises and business cooperation partiesinvesting in the projects on the list of projects where investment is particularlyencouraged or in geographical areas with particularly difficult socio-economic conditionsprescribed in Appendices to this Decree shall be exempt from import tax on production rawmaterials for 5 years after the commencement of production.

6. Foreign-invested enterprises and business cooperation partiesinvesting in the production of components, mechanical, electrical and/or electronicaccessories shall be exempt from import tax on production raw materials for 5 years afterthe commencement of production.

7. Raw materials, spare parts, accessories and materials imported forthe production of export goods shall be exempt from import tax.

8. Other kinds of goods and materials used for projects whereinvestment is particularly encouraged under the Prime Minister’s decisions shall beexempt from import tax.

9. Basing itself on the investment licenses, the technical- economicexpositions and technical designs of projects, the Ministry of Trade or the agencyauthorized thereby shall decide the list of import duty-free goods. The above-mentionedimport goods must not be sold in the Vietnamese market. In necessary cases where they aresold in the Vietnamese market, the approval of the Ministry of Trade is required andrelevant taxes must be paid according to law provisions.

Article 58.- Import tax on raw materials and materials imported forthe production of export goods and on raw materials for the production of products sold toexport goods- producing enterprises

1. Foreign-invested enterprises and business cooperation partiesproducing export goods may postpone the payment of import tax on raw materials andmaterials imported for the production of export goods for a duration prescribed in theExport Tax and Import Tax Law. For several kinds of products exported due to theproduction requirement or production cycles, the time limit for tax payment postponementshall be decided by the Ministry of Finance.

Past the above-said time limit, foreign-invested enterprises and/orbusiness cooperation parties shall have to pay the import tax and when exporting theirfinished products, they shall be refunded the import tax on the imported raw materialsand/or materials at the rate corresponding to the rate of exported finished products.

2. Foreign - invested enterprises and business cooperation partieswhich sell their products to other enterprises for direct production of export productsshall be exempt from import tax on raw materials corresponding to these products.

Article 59. - Import tax calculation prices

Prices for calculation of import tax on import goods liable to importtax shall be determined according to the prices inscribed in the import goods invoices.Where such invoices are not available; the import tax calculation prices shall bedetermined according to the Finance Ministry’s regulations.

Article 60.- Value added tax

1. Foreign-invested enterprises and business cooperation parties maypostpone the payment of value added tax on raw-materials and materials imported for theproduction of export goods within the time limit for the postponement of import taxpayment prescribed by the Export Tax and Import Tax Law.

2. Foreign-invested enterprises and business cooperation parties shallnot have to pay value added tax for:

a) Equipment, machinery and special-use transport means included in thetechnological chains, which cannot be produced in the country yet and are imported tocreate fixed assets of the foreign-invested enterprises or to perform business cooperationcontracts;

Where the complete import equipment and machinery chains are not liableto value added tax but include types of equipment and machinery which can be produced athome, the value added tax shall not be imposed on such complete equipment and machinerychains;

b) The construction materials which can not been produced at home yetand are imported to create fixed assets of foreign-invested enterprises or to performbusiness cooperation contracts;

c) Materials imported for the production of products to be supplied toenterprises directly engaged in the manufacture of export products.

Article 61.- Fixed asset depreciation

Foreign-invested enterprises and business cooperation parties shallmake the fixed asset depreciation according to the Finance Ministry's regulation.