Circular No. 87/2003/TT-BTC dated September 15, 2003 of the Ministry of Finance guiding a number of financial preferential policies for mechanical-engineering enterprises engaged in manufacture of passenger cars of 25 seats or more

CIRCULAR

GUIDING A NUMBER OF FINANCIAL PREFERENTIAL POLICIES FOR MECHANICAL-ENGINEERING ENTERPRISES ENGAGED IN MANUFACTURE OF PASSENGER CARS OF 25 SEATS OR MORE

Pursuant to the Enterprise Income Tax Law and the current documents guiding the enterprise income tax;

Pursuant to the Law on Import Tax and Export Tax and the current documents guiding import tax and export tax;

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

Pursuant to the Prime Minister’s Decision No. 175/2002/QD-TTg of December 3, 2002 approving the strategy on development of Vietnam’s automobile industry till 2010 and the vision till 2020;

Pursuant to the Prime Minister’s Decision No. 186/2002/QD-TTg of December 26, 2002 approving the strategy on development of Vietnam’s mechanical-engineering industry till 2010, with vision till 2020,

The Ministry of Finance hereby guides a number of financial preferential policies for mechanical-engineering enterprises engaged in manufacture of buses of 25 seats or more (hereinafter called passenger cars) as follows:

I. SUBJECTS OF APPLICATION

Subjects entitled to financial support policies and tax preferences as prescribed in this Circular are enterprises (including foreign-invested enterprises) directly engaged in the manufacture of passenger cars. Particularly, the Automobile Mechanical-Engineering Company 1-5 under the Communications and Transport Mechanical-Engineering Corporation shall be entitled to the financial support policies under the provisions in the Prime Minister’s Decision No. 1223/QD-TTg of September 11, 2001 on adding passenger cars of 25 seats or more to the list of mechanical-engineering products entitled to development assistance policies.

Mechanical-engineering enterprises engaged in the manufacture of passenger cars must register with the Ministry of Industry the passenger cars’ localization rate of up to 20% by 2005 and of between 35% and 40% by 2010 as prescribed in the Prime Minister’s Decision No. 175/2002/QD-TTg of December 3, 2002 approving the strategy on development of Vietnam’s automobile industry till 2010, with vision till 2020.

II. SPECIFIC CONTENTS

A. CAPITAL PREFERENTIAL POLICIES FOR ENTERPRISES

1. When investing in projects on building new production establishments or raising the passenger car-manufacturing capacity approved by competent authorities, enterprises may borrow capital from the Development Assistance Fund with the borrowing term not exceeding 12 years, including 2-year grace period, debts shall be repaid from the fifth year on with the loan interest rate of 3%/year counted separately for each loan. The capital-borrowing enterprises shall not have to mortgage their assets but must not transfer them before paying up their debts (both principals and interests) for each loan.

2. In cases where the Development Assistance Fund fails to provide such loans, the enterprises may borrow them from commercial banks for execution of the projects. The Ministry of Finance shall consider and carry out procedures for allocation to offset the difference between loan interest rates of the commercial banks and those of the Development Assistance Fund.

Dossiers and procedures for allocation to offset the difference between loan interest rates of the commercial banks and those of the Development Assistance Fund include:

- Enterprises’ documents requesting the Finance Ministry to provide allocation to offset the difference between loan interest rates of the commercial banks and those of the Development Assistance Fund, which clearly inscribe the total loan amount, proposed offset-allocation interest rate and the serial numbers of transaction accounts at the commercial banks.

- Investment project dossiers approved by competent authorities.

- Commercial banks’ certification on the provided loans.

B. TAX PREFERENTIAL POLICIES FOR ENTERPRISES

Apart from the preferences prescribed in the Law on Domestic Investment Promotion, the Foreign Investment Law and the Government’s and the Finance Ministry’s documents guiding the implementation thereof, the enterprises may apply the preferential policies mentioned below, in cases where the preferences prescribed in this Circular coincide with the regulations in the above-said legal documents, the enterprises shall be entitled to the highest preferential level.

1. Import tax:

- Import tax shall be exempt for special-use equipment, machinery and transport means in technological chains for the formation of fixed assets which cannot be produced at home yet according to the Industry Ministry’s regulations (or  with the Industry Ministry’s certification).

- Annually or periodically (quarterly or bi-annually), the enterprises must work out production plans, draw up lists of, and plans for the import of,  machinery, equipment and transport means (in technological chains) for the formation of the enterprises’ fixed assets, which cannot be produced at home, and send them to the customs offices where import procedures shall be carried out for the registration of import tax exemption.

- The customs offices shall assume the prime responsibility and coordinate with the local tax departments directly managing the enterprises in examining and making settlement of the use of machinery, equipment and transport means (in technological chains); if detecting that import goods are used for wrong purposes, the exempted import tax amount must be retrospectively collected, and sanctions shall be imposed according to law provisions.

2. For enterprise income tax:

a/ The passenger car-manufacturing enterprises shall be entitled to tax exemption for the first 2 years after taxable incomes are generated and the 50% reduction of payable income tax amount for the 2 following years for activities of manufacturing products being passenger cars, while the activities of manufacturing other products shall still comply with the current mechanism.

b/ The enterprises shall have to use the exempted or reduced enterprise income tax source for the right purposes for investment in projects aiming to develop and raise their passenger car-manufacturing capacity.

3. For land rents:

Newly invested and constructed projects on manufacturing passenger cars shall be entitled to the 50% reduction of land rents till the end of 2005.

C. RESEARCH AND DEVELOPMENT SUPPORT POLICIES

1. For State enterprises engaged in the manufacture of passenger cars, the State budget shall partly provide capital support for such activities as the hiring of experts, the purchase of designs and technologies, and transfer of technologies beyond their capabilities under investment projects approved by competent authorities.

2. The passenger car-manufacturing enterprises may deduct up to 2% of the passenger car sale turnover to set up the research and development funds. Enterprises shall elaborate regulations on the efficient use of such funds for the right purposes.

III. IMPLEMENTATION ORGANIZATION

This Circular takes effect 15 days after its publication in the Official Gazette.

Any problems arising in the course of implementation should be reported to the Finance Ministry for timely and appropriate supplementation.