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1 PHILLIPS FOX Lawyers Vietnam Legal Update March 2001 Part 1 Summary of Selected New Legal Instruments 1.1 Foreign Investment: Circular 13 of the Ministry of Finance dated 8 March 2001 on Taxation of Foreign Investment Projects 1.2 Personal Income Tax: Decree 09 of the Government dated 2 March Conditional Lines of Business: Decree 08 of the Government dated 22 February 2001 on Security Conditions for A Number of Conditional Lines of Business 1.4 Labelling: Circular 04 of Ministry of Trade dated 22 February 2001 on Labelling 1.5 High-Tech Enterprises, Second-Hand Equipment and Environmental Reports: Circular 02 of the Ministry of Science, Technology and Environment dated 15 February Import-Export: Circular 01 of the General Department of Customs dated 9 February 2001 on Import-Export by Foreign Experts on ODA Projects 1.7 Customs Clearance: Decision 01 of the General Department of Customs dated 3 January 2001 on Single Declaration Registration for Customs Clearance Procedures Part 2 Features 2.1 Quarterly Overview of Legislative Reforms 2.2 Land Leasing 2.3 Competition Law Part 3 Did You Know? 3.1 Personal Income Tax 3.2 Temporary Imports 3.3 Retrenchment Allowances 3.4 Importation of Cinematographic Films 3.5 Promotion of Software Industry 3.6 Duty-Free Purchases 3.7 Update on Labelling 3.8 Update on Goods Quality Part 4 Publications

2 This publication is copyright. Except as permitted under relevant laws, no part of this publication may be reproduced by any process, electronic or otherwise, without the specific written permission of the copyright owner, The material contained in Vietnam Legal Update is intended to inform you of recent legal developments in Vietnam. It is not intended, and should not be relied upon, as legal advice. Should you wish further information in relation to any legal instrument or matter mentioned in this Update, please do not hesitate to contact one of the offices listed below. Hanoi Bill Magennis 50 Trieu Viet Vuong Street Hanoi, Vietnam Phone: Mobile: Fax: bill@melb.phillipsfox.com.au Ho Chi Minh City Nigel Russell Suite 607, Saigon Tower 29 Le Duan Boulevard Ho Chi Minh City, Vietnam Phone: Mobile: Fax: nigel@melb.phillipsfox.com.au We also refer you to the following websites for further information regarding and investment in Vietnam: For legal matters related to Laos and Cambodia, is proud to work in association with: David Doran DFDL 45 Preah Suramarit Boulevard Phnom Penh, Cambodia Phone: Fax: dfdl-pp@bigpond.com.kh

3 Part 1 Summary of Selected New Legal Instruments 1.1 Circular TC-BTC of the Ministry of Finance dated 8 March 2001 Providing Guidelines for Implementation of Provisions on Taxation In Respect of Forms of Investment Under the Law on Foreign Investment in Vietnam ("Circular 13") Circular 13 introduces a number of reforms to the taxation regime for foreign investment projects, including: 1. Circular 13 specifically applies to foreign invested insurers and insurance brokers and does not apply to petroleum projects. 2. Corporate income tax ("CIT"): CIT is still calculated separately for each business co-operation contract ("BCC"), even where a foreign investor invests at the same time in several BCCs (including where the foreign investor establishes a general operating office in Vietnam). The entitlement of foreign BCC parties to carry forward losses now commences as from the fiscal year In the case of foreign BCC parties adopting a fiscal year other than the Gregorian calendar year whereby the fiscal year ended prior to 1 July 2000, losses of the fiscal year may not be carried forward to following years. The obligation and time-limit for registration by a foreign invested project of the plan to carry forward losses is clarified. The categories of deductible expenditure have been amended, including: - Costs of renting premises (residential or office/factory) are now included as "expenditure on external services"; - Items contributed to Vietnamese organizations for charitable and humanitarian purposes, such as contributions to overcome the consequences of natural disasters and unforeseen accidents; contributions to funds for families of Vietnamese heroes, war heroes and people who contributed to the revolution; contributions to funds for the disabled, for homeless soldiers, and funds for the suppression of social evils are now included as a separate category; - Foreign invested projects may not deduct apportioned management costs of the head company overseas. Special guidelines for determination of taxable income are included for particular BCC scenarios. Previous special guidelines for determination of taxable income by enterprises engaging in property leasing operations have been omitted. Enterprises which were issued with an investment license prior to 1 August 2000 and which satisfy the conditions for entitlement to a preferential CIT rate and CIT exemption/reduction (as stipulated in Decree 24 of the Government dated 31 July 2000 on Foreign Investment Regulations ("Decree 24")) may forward a written request to the investment licensing body for amendment of their licenses and will be entitled to preferential treatment for the remaining duration of their licenses. The former provision permitting enterprises with branches and shops to register for tax at the local tax office where such offices were located has been omitted. Enterprises now register at the tax office where the head office is located only. Profits which foreign investors have already remitted overseas or which have already been used for other investment or business purposes and which are now recovered for re-investment are not entitled to a refund of CIT on the ground of re-investment. 3. Withholding tax upon remittance of profits: Where an investment license issued prior to 1 August 2000 provides for a higher rate of withholding tax than the rate stipulated in Decree 24, investors may apply to the investment licensing body for amendment of the investment license. If, pending official amendment, investors remit profits abroad, they should prepare an application and forward it to the local tax department explaining clearly the conditions which entitle them to the new rate and they should declare and pay tax at the new rate.

4 4 The new withholding tax rates were applicable to overseas remittances as from 1 July Where, in the annual CIT declaration submitted to the tax office, it is projected that an enterprise will earn profits and the investors are agreed on sharing those profits every 3 or 6 months (evidenced by a board resolution), the foreign investor(s) may make provisional remittances abroad each period, subject to declaring and paying withholding tax on each occasion of remittance. However, the maximum amount of shared profits provisionally remitted abroad may not exceed 70% of the amount of profits the investor may receive as a share, determined on the basis of the financial reports of the enterprise for the period. 4. Import/export duties: Enterprises producing export goods may provisionally not pay import duties on raw materials and supplies imported in order to produce export goods for a period of nine months (275 days) calculated as from the date when the enterprise receives the official tax notice from the customs office on the amount of duty payable. Where an enterprise sells its products to another enterprise for the purpose of the latter enterprise to manufacture export goods, the former enterprise will be entitled to a refund of the import duties paid upon importation of the raw materials required to manufacture such products. In the case of specially encouraged enterprises subject to an export ratio of 80%+ of their products, the 5 year import duty exemption currently available under Decree 24 will only apply to those products which actually achieve the 80%+ export ratio. In the case of enterprises investing in areas with specially difficult socio-economic conditions but which have other production establishments in localities which are not in areas with difficult socioeconomic conditions, the import duty exemption currently available under Decree 24 only applies in respect of the amount of raw materials imported which are used in production at production establishments in areas with difficult socio-economic conditions. 5. Capital assignment: CIT exemption upon assignment of capital to a Vietnamese State owned/controlled enterprise and CIT reduction upon assignment to any other type of Vietnamese enterprise are no longer available (consistent with amendments to the foreign investment regime in 2000). The assignee is now responsible to submit the CIT declaration and to deduct CIT payable by the assignor and pay it into the State Budget. Where foreign investors assign their capital before they have fully paid up their licensed legal capital, if they earn a profit from the assignment, when they remit such profit overseas, they will be subject to the withholding tax rate (as prescribed in Decree24) which corresponds to the actual paidup capital at the time of assignment. 6. The time-limit for submission of tax finalization documents is now 90 days (previously, 60) from the end of the fiscal year. 7. The cases requiring annual examination of tax payments now include: - Where newly-operating enterprises have losses arising in 3 or more consecutive years; - Where enterprises have large one-off receipts; - Where enterprises have inaccurate or unclear tax finalization reports or where tax finalization reports do not include all criteria necessary to calculate taxes; - Where enterprises fail to submit tax finalization reports or fail to submit them on time; - Where the financial situation of enterprises in the tax year differs greatly in comparison to previous years. 8. In cases where a foreign party has undertaken to transfer assets to the State of Vietnam without compensation upon expiry of the duration of operations, if operations are terminated early for reasons other than force majeure and the foreign party fails to transfer assets as undertaken, it must refund any preferential treatment it has received due to such undertaking. The tax office is responsible to determine, on the basis of the actual situation of the enterprise and the provisions of Decree 24, the amount of tax payable and to notify the liquidation committee of the enterprise and the investment licensing body. Circular 13 was effective as of 23 March 2001 and replaces Circular TC-TCT of the Ministry of Finance

5 5 dated 13 May 1998 and Circular TC-TCT of the Ministry of Finance dated 16 July Decree ND-CP of the Government dated 2 March 2001 ("Decree 09") on Amendment of Article 21 of Decree 05-CP of the Government dated 20 January 1995 Providing Detailed Regulations on Implementation of the Ordinance on Income Tax of High Income Earners ("Decree 05") After lengthy debate, the Government has decided to repeal the following provision of Decree 05: "Establishments which manage, train, or recruit workers shall be permitted to deduct a maximum 8% of the workers' incomes in order to meet the management, training, and recruitment expenses. The above expenses shall be managed and utilized in accordance with the financial regime currently in force." Decree 09 was effective as of 17 March Decree ND-CP of the Government dated 22 February 2001 on Security Conditions for A Number of Conditional Lines of Business ("Circular 08") Decree 08 stipulates the lines of business which have a potential impact on security and order in society and which are therefore subject to certification of security and order conditions or subject to an undertaking to comply with provisions on security and order. Businesses subject to certification include high-rise buildings with more than 10 storeys used for hotels, residential or offices. Businesses subject to an undertaking to comply with provisions on security and order include house leasing to foreigners, printing, karaoke/discos. Decree 08 was effective as of 9 March Circular TT-BTM of the Ministry of Trade ("MoT") dated 22 February 2001 ("Circular 04") Providing Guidelines for Implementation of Directive CT-TTg of the Prime Minister of the Government dated 27 December 2000 ("Directive 28") on Implementation of the Regulations on Labelling of Goods issued with Decision QD-TTg of the Government dated 30 August 1999 ("Labelling Regulations") In order to deal with outstanding issues and difficulties which continue to impede the effective implementation of the Labelling Regulations, the Prime Minister issued Directive 28 at the end of 2000 (see Part 3.4 of the February 2001 issue of Vietnam Legal Update) and the MoT has issued Circular 04 to provide a number of additional implementing guidelines, including: Inspection: - Inspection of implementation of the Labelling Regulations must cover (i) the form of labelling (such as the way of recording contents of labels on goods, commercial packages, supplementary labels, explanatory documents, language used, etc.) as well as (ii) the contents of labels (including compulsory and non-compulsory contents). - Inspection must be concentrated upon delivery points such as wholesale markets, supermarkets, commercial centres, etc. - Attention will be paid to inspection of such goods as foodstuffs, medicines, cosmetics, fertilizers, cement, building materials; diesel lubricant, etc. - Misuse of inspections so as to harass production and business establishments is strictly prohibited. Old labels of goods which were printed prior to 1 January 200, which do not comply with the new Labelling Regulations and which remain in stock will be dealt with as follows: - Manufacturers and traders must submit declarations of such labels for certification by competent

6 6 bodies. The accuracy of declarations may be inspected prior to certification. - In the case of foreign invested enterprises ("FIEs") in industrial zones, export processing zones and high-tech zones ("IZs"), only the quality of old labels of goods which are permitted to be imported and sold in the domestic market is required to be declared and inspected/certified. - In the case of FIEs outside IZs, the quantity of old labels must be declared and inspected/certified. - The forms for declaration are attached to Circular The time-limit for declaration and inspection/certification of old labels in stock is 31 May Supplementary labels in Vietnamese must be used where any information required by the new Labelling Regulations is not included on the old labels. If supplementary labels cannot be affixed, they must be pinned on, attached to or enclosed with the goods for provision to buyers.

7 7 1.5 Circular TT-BKHCNMT of the Ministry of Science, Technology and Environment ("MoSTE") dated 15 February 2001 Providing Guidelines With Respect To Enterprises with Foreign Owned Capital in Vietnam on Criteria for Projects in High-Tech Industry, Producing New or Rare and Precious Materials, Applying New Bio-Technology or Technology for Manufacturing Information & Telecommunications Equipment, Treating Environmental Pollution or Treating and Processing Waste in which Investment is Specially Encouraged; on Environmental Impact Evaluation Reports; on Importation of Second-Hand Machinery ("Circular 02") 1. Specially encouraged projects: Circular 02 stipulates the criteria for licensed foreign invested projects to qualify for preferential treatment as "high-tech industry projects" or projects producing new or rare and precious materials, applying new bio-technology or new technology for manufacturing information and telecommunications equipment, treating environmental pollution, or treating and processing waste. Circular 02 also stipulates the application procedures for preferential treatment. 2. Environmental impact evaluation reports: Circular 02 provides for the following amendments to the current system of preparation and appraisal of an environmental impact evaluation report ("EIER"): - The time-limit for appraisal of an EIER must not exceed 45 days from the date on which the State body in charge of environmental protection receives a full and proper application file. Within 10 days of approval of an EIER, the appraisal body must issue a decision on approval. - The time-limit for consideration of a "registration of satisfaction of environmental standards" and issuance of a "certificate of confirmation" must not exceed 20 days from the date on which the State body in charge of environmental protection receives a full and proper application file. - The following types of projects are now subject to application for approval of EIERs: projects for processing of waste, projects for treatment of waste or treatment of environmental pollution. 3. Importation of second-hand equipment: Circular 02 applies to second-hand equipment being machinery (single items or production lines) for the purpose of manufacturing capital goods or other goods; means of transportation; equipment for handling loading/unloading; vehicles, machines servicing the construction of works and other specialized equipment which is second-hand and belongs to foreign invested projects. Circular 02 does not apply to second-hand equipment which is temporarily imported for re-export or which is leased in order to carry out processing contracts, to produce goods, to construct works which winning contractors carry out; and second-hand equipment which is imported in the form of donations or aid goods. Second-hand equipment that is imported into Vietnam must be of a standard and quality consistent with production requirements; must satisfy the requirements for environmental protection and occupational safety; and must be listed in the feasibility study accompanying the investment license application. Except in the case of second-hand equipment prohibited from import (see list below), project owners are the people to make decisions and to bear responsibility for the economic-technical effects and other consequences of the importation of second-hand equipment. Second-hand equipment that is imported must satisfy the following general technical requirements: (a) Residual quality must be at least 80% of original quality; (b) Vietnamese occupational safety and hygiene standards and environmental standards must be satisfied. A Quality Certificate issued by a Vietnamese or foreign evaluation organization with legal entity status is required to certify that the quality of the second-hand equipment is consistent with these general technical requirements. In necessary cases, MoSTE and/or investment licensing body may require a re-evaluation of the quality of second-hand equipment that a project owner applies to import. If there is a complaint about differences between results of evaluations, the decision of MoSTE will be the final decision.

8 8 List of second-hand equipment prohibited from import: (a) Equipment in the petroleum processing industry, the power industry, cement production lines, the ore processing and metallurgy industries; equipment in the industries producing basic chemicals, fertilizer and insecticide. (b) Equipment in industries with high precision requirements, such as measuring facilities, equipment for experiments and for testing, equipment used on post and telecommunications networks. (c) Equipment with high safety requirements, such as boilers, lifts, nuclear reaction controls and equipment for the inspection and control of security systems. (d) Equipment affecting large areas, such as waste treatment equipment, sluice gates, and production line equipment used in work stages where accidents may easily occur causing serious environmental pollution. Circular 02 was effective as of the start of March Circular TT-TCHQ of the General Department of Customs dated 9 February 2001 Providing Guidelines for Customs Procedures on Temporary Import/Re-export of Belongings, Luggage and Vehicles of Foreign Experts ("Circular 01") Circular 01 provides guidelines for temporary import/re-export of vehicles, luggage and personal belongings of foreign experts involved in ODA projects (and their relatives), including: Permits are only required to be obtained from customs offices for the import of vehicles and motorbikes. In the case of all other personal belongings and luggage, customs clearance procedures may be completed at the bordergate without need for issuance of permits. Conditions for import of vehicles and motorbikes (not applicable to relatives of experts): - Experts must have permission to reside in Vietnam for 183 days or more; and - Experts are permitted to import replacement vehicles (if applicable) in case of traffic accidents, or in the case of experts who have been working in Vietnam for 3 years or more, or in the case of experts who will continue to work in Vietnam for 6 months or more (prior to import of a replacement vehicle, the original vehicle must be re-exported or otherwise disposed of); and - Vehicles must be new, have less than 12 seats and be left-handed steering wheels; or motorbikes must be new with less than 175 cc engines (if used, the other conditions still apply). Circular 01 stipulates the documentation and procedures for issuance of a permit for import of vehicles or motorbikes and the procedures for re-export thereof. Temporarily imported vehicles and motorbikes may be transferred in the following cases: - The vehicle has been damaged as the result of a traffic accident; - The expert is permitted to import a replacement vehicle; - The duration of work of the expert in Vietnam has ended. The expert must have fulfilled all obligations on taxes and financial duties before a transfer. All transfers are subject to the permission of the customs office. Circular 01 also stipulates the levels of duty exemption applicable to personal belongings and household utensils of experts and relatives entering and exiting Vietnam. Circular 01 was effective as of 24 February 2001.

9 9 1.7 Decision QD-TCHQ of the General Department of Customs dated 3 January 2001 issuing Provisional Regulations on Single Declaration Registration for Customs Clearance Procedures ("Provisional Regulations") In accordance with the Government's programme for reform of administrative procedures in the customs area, the Provisional Regulations provide for registration of a single customs declaration to cover a fixed quantity of goods which may be imported/exported in multiple consignments during a specified period. Single declaration registration is only available in limited circumstances, where: - The items of goods covered are the same for the whole registration period; - The goods are imported/exported through bordergates administered by a single customs office; - The goods are imported/exported pursuant to a single contract of sale and purchase; - During the registration period, there is no change in policy on import/export administration for, and duties on, the specified line of goods; and in respect of the following types of goods: - Goods without import or export duty; - Goods exempt from import or export duty; - Goods with import or export duty rate of 0%. The documentation required to complete procedures for single declaration registration is specified. Upon registration, a monitoring slip is issued by Customs to record statistics of the quantity of goods imported/exported on each occasion. On the basis of the registered declaration, each time goods are imported/exported, the enterprise will submit a registration slip for goods' inspection to Customs for inspection of the goods (without again carrying out procedures for registration of the declaration). Upon expiry of the single declaration, the enterprise must conduct finalization of the declaration. On the basis of the registered declaration, the monitoring slip and the registration slip, Customs shall make a comparison and record the total quantity of goods actually imported/exported on the declaration and shall certify completion of customs clearance procedures on the customs declaration, so completing the process of single declaration registration. The Provisional Regulations were effective as of 18 January 2001 and will apply until 30 June 2001.

10 10 Part 2 Features 2.1 Overview of Legislative Reforms in First Quarter of 2001 The first quarter of 2001 witnessed the introduction of a broad range of legislative reforms, including: As part of the Government's on-going reforms of customs procedures, Decision QD-TCHQ of the General Department of Customs dated 3 January 2001 provides for a system of registration of a single customs declaration to cover a fixed quantity of goods imported/exported in multiple consignments during a specified period (on trial until 30 June 2001). Detailed guidelines for establishment of foreign invested vocational training centres were issued by the Government on 9 January The State Securities Commission continued to streamline the securities sector with amendments to Decision QD-UBCK3 on Organization and Operation of Securities Companies (including revised applications for securities trading operations licenses and securities business practising licenses) and Circular TT-UBCK on Public Issue of Shares and Bonds (including expanded provisions on rights attaching to shares and bonds), effective as of mid-january. Decree ND-CP of the Government dated 17 January 2001 provided for a number of amendments to the foreign exchange control regime introduced in The most significant reforms, effective as of 1 February 2001, include: - The obligation to sell foreign currency revenue to authorized banks now extends to all foreign invested enterprises and foreign parties to business co-operation contracts (previously, only those which were assured by the Government to receive assistance in balancing their foreign currency requirements); - All residents are treated equally in terms of rights to purchase foreign currency to satisfy current transactions (with the exception that foreign invested special/infrastructure projects are entitled to priority rights to purchase foreign currency). As of 2 February 2001, under Circular TT-BTC of the Ministry of Finance dated 18 January 2001, foreign bank branches, foreign law firm branches, branches of foreign tobacco companies and any other branches of foreign companies licensed to conduct business in Vietnam are now subject to a 32% corporate income tax rate (previously, 25%) but are now permitted to take into account a proportion of their parent company's business management expenses when determining taxable income and are no longer subject to profits remittance tax. The new system is applicable as from the 1999 financial year. Decree ND-CP of the Government dated 1 February 2001 on Amendment of and Addition to A Number of Articles of Decree 63-CP of the Government dated 24 October 1996 provided for the following main amendments to the industrial property regime, effective as of 16 February 2001: - Protection is now available for affiliated trademarks and well-known trademarks; - Period of protection of appellations of origin and well-known trademarks is indefinite; - Grounds and procedures for compulsory licensing of industrial property rights have been clarified; - Licensing requirement for industrial property representative service organizations has been replaced by a number of business conditions; - National register of industrial property representatives is to be established; - Transfer of industrial property rights of Vietnam to foreign individuals or organizations is no longer specifically subject to the approval of the Ministry of Science, Technology and Environment, but all contracts for transfer of industrial property rights remain subject to registration therewith. At the end of February, the Ministry of Trade issued guidelines to deal with the ongoing dilemma of stock-in-hand of labels which do not comply with the Labelling Regulations introduced in 1999, requiring declaration and certification of stock by 31 May As of early March, Circular TT-BKHCNMT of the Ministry of Science, Technology and Environment dated 15 February 2001 introduced new criteria to qualify for preferential treatment as a "high-tech industry project" or

11 11 project producing new materials, applying new technology, treating environmental pollution, or treating and processing waste; and also amended the current system of environmental impact evaluation reports and the current restrictions on importation of second-hand equipment. Revised guidelines on taxation of foreign investment projects issued by the Ministry of Finance under Circular TT-BTC dated 8 March 2001 became effective as of late March. 2.2 Land Leasing In recent years, the refrain of "there aren't enough laws in Vietnam" (once often heard in foreign investment circles) has been replaced by "there are too many"! Not only do foreign investors complain about the quantity of Vietnam's legal instruments (about 60 new legal instruments affecting foreign investors are issued each month) but also the quality of those legal instruments. Many are poorly drafted and inconsistent with one another. Consequently, foreign investors have great difficulty finding and understanding Vietnam's laws so that they can plan and implement their investments efficiently. One example of this problem arises in relation to land leasing by foreign invested enterprises. Under Vietnam's laws on foreign investment, it is clear that foreign investors can acquire the right to use land in one of two ways - the value of the right to use land may be contributed by a Vietnamese party to a joint venture enterprise as capital; or a foreign invested enterprise (whether 100% foreign owned or joint venture) may lease the land from the State, i.e., by entering into a land lease contract with the provincial/municipal Department of Land and Housing (or the Department of Land Administration, in Hanoi). But is there a third option? Can a foreign invested enterprise lease (or sub-lease) land from a Vietnamese organization to which the State has allocated/leased the land? Article 78(c) of the amended Law on Land dated 2 December 1998 suggests that this is possible, in certain circumstances. That provision states "Economic organizations which are allocated land by the State and pay land use fees shall have the right to lease-out the right to use land attached to structures of infrastructure works which are constructed on such land". Officials have confirmed this means that a State owned enterprise ("SOE") which has been allocated land by the State and which has paid-up all land use fees may lease such land, provided such SOE has completed basic infrastructure on the land (e.g., water supply, drainage, power supply, etc). A recent circular issued by the Ministry of Finance, Decision 189 dated 24 November 2000, supports this view. Article 2.1 states that a foreign invested enterprise which leases land from such an SOE does not need to pay land rent to the State (presumably because the foreign invested enterprise is obliged to pay land rent to the SOE which has leased it the land). However, other Vietnamese laws contradict this position. In fact, Article 1 of the amended Law on Land says, "The State shall lease land to foreign individuals or organizations" (in this context, "foreign organizations" refers to foreign invested enterprises). This suggests that, contrary to Article 78(c) of the same legal instrument, foreign invested enterprises can only lease land from the State. Further, Article 7 of Decree 11 of the Government dated 24 January 1995 provides that a land leasing contract "is a document entered into between the competent State body of Vietnam and a [foreign invested] lessee". Similarly, Article 3 of Circular 679 of the General Department of Land Administration dated 12 May 1997 states "the [foreign invested] lessee shall enter into a land leasing contract with the Department of Land Administration". This suggests that in order to have a valid lease contract, a foreign invested enterprise must enter such contract with the relevant State authority. One might be tempted to dismiss these two legal instruments as "old laws" which have been superseded by "new laws". The problem with this analysis is that the new decree implementing foreign investment in Vietnam, Decree 24 of the Government, states "foreign invested enterprises may lease land from the State of Vietnam" (and presumably, therefore, from no-one else). Decree 24 was issued on 31 July 2000, more than a year after the amendments to the Law on Land were promulgated. So, where does this leave us? On the one hand, we have laws which provide that SOEs have the right to lease-out

12 12 land in certain circumstances, but on the other hand we have laws which state that foreign invested enterprises can only lease land from the State! Most foreign investors are not prepared to risk taking a lease from an SOE in this situation. Foreign investors need to know that their leases, and the land use rights they acquire under them, will be legally valid. A foreign investor could, and may need to, apply to the relevant authority for "clarification" if, for instance, the SOE which "owns" the land which the foreign investor wishes to lease insists on leasing the land directly to the foreign investor. But while such clarification may be helpful, it cannot resolve the underlying contradiction referred to above and provide the degree of legal certainty required by most foreign investors before they will agree to a lease from an SOE, rather than from the State. The only way to do this is to amend the offending laws. The way to avoid these kinds of problems in the future, of course, is to co-ordinate the drafting of laws more carefully so that such contradictions do not arise in the first place. 2.3 Competition Law A seminar on competition (antitrust) law was held on 15 March 2001 in HCMC, attended by the Vice Minister of Justice, senior personnel of the anti-monopoly regulatory organization of Italy, and representatives from the Ministry of Trade, the Ministry of Planning and Investment, academic institutions, local and foreign law firms and other organizations. The purpose of the seminar was to share with Vietnamese experts the experiences of Italy and of other countries in the development and implementation of competition and anti-monopoly laws, in preparation for drafting a competition law of Vietnam. Italian experts spoke on the following topics: role of the State in Italy's economy; functions and characteristics of the Italian anti-monopoly regulatory organization; purposes, general principles and subjects of a competition law; procedures for examination and investigation of anti-competitive practices; and penalties for breaches, with reference to specific cases. Attending Vietnamese officials indicated that, after incorporation of opinions of relevant Government bodies and of local and foreign experts, a draft Competition Law of Vietnam would be submitted to the National Assembly for deliberation, possibly by the end of The draft Competition Law is likely to deal with the following matters: Agreements Restricting Competition: These agreements include those that set prices directly or indirectly, share market or sources of supply, control quantity of production or of purchase/sale, restrict market access or free participation in competition, and apply different commercial terms to different commercial partners in relation to identical transactions. Abuse of Dominant Position or Monopoly Power: The following conduct may be deemed to be an abuse of dominant position (in terms of financial capacity, experience or distribution network): increasing prices or temporarily reducing prices below costs to maintain a dominant position, applying different conditions in relation to identical transactions with different suppliers thereby placing them into different positions in the market; and requiring the other party of a contract to perform obligations unrelated to the subject matter of the contract. Merger and Amalgamation: Conditions to examine a merger will be stipulated, as well as measures to encourage beneficial amalgamations, particularly of Vietnamese enterprises to increase their sizes and to enhance their competitiveness in the international market. Unfair Competition: Including coercing customers, infringing trade names, procuring employees from competitors, damaging reputation of competitors, and appropriating commercial secrets. State Authority Regulating Competition: The current proposed models for a regulatory body to supervise anticompetitive or monopolistic practices are: (1) a department under the Minister of Trade, (2) a State committee under the Government, or (3) a State committee under the Prime Minister.

13 13 Penalties for Breaches: Breaches of the Competition Law are proposed to be dealt with consistently with the Civil Code and other relevant laws.

14 14 Part 3 Did You Know? 3.1 Personal Income Tax Personal income tax is (temporarily) not collected on income from profits earned from share purchases, including profits earned from the exercise of share purchase rights by individuals. (Official Letter 267-VPCP-KTTH of the Office of Government dated 16 January 2001) 3.2 Temporary Imports Temporary imports for re-export, such as leased machinery and equipment temporarily imported to carry out construction works or goods temporarily imported for a fair or exhibition, and so forth, may, upon expiry of the lease or at the end of the fair or exhibition, be temporarily delivered into a customs bond warehouse to await export overseas or to carry out the procedures to take them out of the customs bond warehouse for the purpose of constructing other works or for participation in another fair or exhibition. (Official Letter 5755-TT-TCHQ of the General Department of Customs dated 12 December 2000) 3.3 Retrenchment Allowances As of 9 January 2001, a retrenchment allowance is no longer available to employees in the following cases (previously provided for in Circular 21 on Labour Contracts dated 12 October 1996): - An employee is dismissed for taking 7 days off in a month or 20 days off in a year without proper reasons; - An employee is maltreated by the employer; - An employee is unable to perform a labour contract for personal or family reasons; - An employee repeatedly fails to perform assigned work; - The employer ceases operation pursuant to a decision on dissolution by an authorized State body, a bankruptcy declaration by a court, or the withdrawal of its operating license for breach of law. 3.4 Importation of Cinematographic Films Cinematographic film business establishments must satisfy both of the following conditions to have the right to import films: - Own a film-screening theatre (or have the right to use one for 5 or more years) meeting standards set by the Ministry of Culture and Information ("MoCI") and the Ministry of Construction in 1989; - Have an import business code number registered with a provincial or municipal customs office. The above film business establishments must submit an annual film import plan to the Cinematography Department of the MoCI for approval. The plan must be submitted in October of the preceding year; any changes required may only be made in June and October of the following year. Based on the import plan approved by the Cinematography Department, on each occasion when it imports a film, the film business establishment must complete the procedures for "inspection of a cultural product" at the Department for Management of Import/Export of Cultural Products of the MoCI or at the Department of Culture and Information at the place of importation. Every imported film must be submitted for approval to the competent body prior to dissemination of the film. The importing film business establishment must record the full contents of the work in a signed declaration. If the film is not licensed for dissemination, then the importing establishment must re-export it and report on same within 30 days of refusal of licensing. A fee is payable for approval of an imported film. Film importing establishments which have registered for commercial distribution of films may distribute imported films only after developing film-screening facilities in their theatres. It is strictly prohibited to misuse the right to import cinematographic feature films only with the aim of distribution.

15 Promotion of Software Industry As of mid-december 2000, a number of Government policies and measures to encourage investment by domestic and foreign investors in the production of software products and services in Vietnam became effective, including: Preferential corporate income tax rates (such as 10% rate for foreign invested projects); Exemption from corporate income tax for 4 years as from when they have taxable income; Taxable income threshold and progressive tariff applicable to foreigners is applicable to professional Vietnamese employees directly participating in activities of software production and services; Software products and services are entitled to the highest preferential VAT treatment; Import duty exemption for raw materials which directly service the activities of production of software products and which are not yet produced domestically; Export duty exemption for software products; Preferential treatment with respect to credit for domestic investors; Preferential treatment with respect to land use and land rent Preferential policies and treatment are also available to IT training establis hments. The Ministry of Culture and Information is responsible to facilitate increased protection of copyright in respect of software products; and to increase the ability and effectiveness of the activities of management bodies and the enforcement of software copyright. The General Department of Posts and Telecommunications is responsible to formulate policies whereby: - Lecturers, teachers, students and pupils at all schools in the national educational system enjoy a regime of exemption from and/or reduction of fees for accessing the internet at training establishments; - A competitive environment is promoted to facilitate software enterprises engaging in telecommunications and internet services to supply full and favourable telecommunications and internet services to users with high speed and high quality at prices lower or equal to those of other countries in the region; - Concentrated software industrial zones are permitted to connect private internet gateways with the international internet system so that all software enterprises in these zones and all software enterprises registering for internet services via these zones may fully and readily use internet services at a price which is competitive with other countries in the region. 3.6 Duty-Free Purchases The General Department of Customs has recently instructed that foreign tourists and other foreign non-permanent residents in Vietnam wishing to purchase durable consumer goods with a high value (specifically TVs, fridges, washing machines, air-conditioners, entertainment systems) should do so only at bordergate duty-free shops, rather than downtown duty-free shops. If such a purchase must be made at a downtown duty-free shop, the goods must be delivered to the bordergate for pickup by the customer. 3.7 Update on Labelling All manufacturers and traders having any stock of labels printed prior to 1 January 2001 which do not comply with the new Labelling Regulations must submit a declaration of the quantity/value of such labels for inspection/certification by competent bodies by 31 May (See Part 1.4 of this issue of Vietnam Legal Update) 3.8 Update on Goods Quality As from 1 January 2001, the system of registration of goods quality has been replaced by the system of proclamation of goods quality standards. A list of goods in respect of which goods quality standards must be proclaimed is currently being drafted by relevant Government bodies. Pending this, enterprises are encouraged to implement the method of voluntary proclamation of standards. Pending promulgation of new Government regulations, State inspection of quality of imported and exported goods will continue to be carried out in accordance with current regulations. (See Official Letter 3971-BKHCNMT-TDC of MoSTE dated 27 December 2000 on Implementation of Ordinance on Quality of Goods)

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17 17 Part 4 Publications The following publications on regulations affecting foreign investment and business in Vietnam are available through our offices in Vietnam. If you would like to purchase any of these publications please contact us. Foreign Investment Laws of Vietnam Loose-Leaf Subscription Service Χ 10 volume loose-leaf set, including subscription service from to US$ (plus US$100 postage and handling fee for destinations other than Australia and Vietnam) Χ Subscription service from to only US$ Χ Additional loose-leaf binders (each) US$35.00 Other Vietnam Laws Publications Χ Labour Code of Vietnam 1994 (English) US$20.00 Χ Labour Code of Vietnam 1994 (Japanese) US$50.00 Χ Civil Code of Vietnam 1996 (English) US$60.00 A wide range of material affecting investment and business in Australia and New Zealand which has been prepared by lawyers of for clients and friends of the firm is available on our website at Hanoi Ho Chi Minh City Bill Magennis Nigel Russell 50 Trieu Viet Vuong Street Suite 607, Saigon Tower Hanoi, Vietnam 29 Le Duan Boulevard Ho Chi Minh City, Vietnam Phone: Phone: Mobile: Mobile: Fax: Fax: bill@melb.phillipsfox.com.au nigel@melb.phillipsfox.com.au