PHILLIPS FOX Lawyers

Transcription

1 PHILLIPS FOX Lawyers Vietnam Legal Update May 2001 Part 1 Summary of Selected New Legal Instruments 1.1 Software Industry: Circular 31 of Ministry of Finance dated 21 May 2001 on Tax Incentives 1.2 Finance Leasing: Decree 16 of Government dated 2 May VND Loan Interest Rate: Decision 557 of State Bank of Vietnam dated 26 April Protective Services: Decree 14 of Government dated 25 April Non-Governmental Organizations: Decision 59 of Government dated 24 April Security: Joint Circular 03 of State Bank of Vietnam, Ministry of Justice, Ministry of Police, Ministry of Finance, General Department of Land Administration dated 23 April 2001 on Realization of Loan Security Property for Recovery of Debts Owed to Credit Institutions 1.7 USD Deposit Rate: Decision 238 of State Bank of Vietnam dated 29 March Advertising: Decision 10 of Hanoi People's Committee on Advertising in Hanoi dated 9 March 2001 Part 2 Features 2.1 Outline of Recent Changes to Foreign Currency Controls 2.2 Update on Vietnamese Securities Market 2.3 Report on Nam Con Son Pipeline Project Part 3 Did You Know? 3.1 Vietnamese Visas in Cancelled Passports 3.2 Border Gate Economic Zones 3.3 Cross-Border Leasing 3.4 Import and Export of Cultural Products 3.5 Domestic Airline Tickets 3.6 State Evaluation Committee for Investment Projects 3.7 New Mobile Telephone Numbers in Vietnam 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.magennis@phillipsfox.com Ho Chi Minh City Nigel Russell Suite 607, Saigon Tower 29 Le Duan Boulevard Ho Chi Minh City, Vietnam Phone: Mobile: Fax: nigel.russell@phillipsfox.com We also refer you to the following websites for further information regarding and investment in Vietnam: fox.com.au For legal matters related to Laos and Cambodia, works in association with: David Doran DFDL 45 Preah Suramarit Boulevard Phnom Penh, Cambodia Phone: Fax: dfdl-pp@bigpond.com.kh

3 3 Part 1 Summary of Selected New Legal Instruments 1.1 Circular TT-BTC of the Ministry of Finance dated 21 May 2001 Providing Guidelines on Tax Incentives Under Decision QD-TTg of the Prime Minister of the Government on Policies and Measures for the Encouragement of Investment in and Development of the Software Industry ("Circular 31") Circular 31 provides guidelines for the following tax incentives available to domestic organizations and individuals in all economic sectors, to Vietnamese permanently residing overseas, and to individual foreigners investing in the manufacture of software products and providing software services in Vietnam: Preferential corporate income tax ("CIT") rates (such as 10% for software enterprises with foreign owned capital operating under the Law on Foreign Investment in Vietnam). CIT exemptions for 4 years commencing from the time they earn profits; and exemption from additional CIT. Preferential profit remittance tax rate of 3% for investors under the Law on Foreign Investment. VAT is not payable on software products and services supplied to consumers in Vietnam; and a VAT rate of 0% applies to software products and services which are exported. Vietnamese professional employees are subject to the taxable income threshold and progressive tariff applicable to foreigners. Precisely who qualifies for this treatment is the subject of some confusion. Import and export duty exemptions. Exemptions from and reductions of land use fees, land rental, and land use tax. Circular 31 will be effective as of 5 June Decree 16 of the Government on Organization and Operation of Finance Leasing Companies dated 2 May 2001 ("Decree 16") Effective as of 17 May 2001, Decree 16 replaces the provis ional regulations on finance leasing issued by the Government in late In addition to the establishment and operation of finance leasing companies in Vietnam, Decree 16 regulates the conduct of finance leases between finance leasing companies and Vietnamese lessees of moveable assets such as equipment, machinery and means of transportation. Finance lessees may be individuals as well as organizations (including foreign invested enterprises, which by Decree 12 of the Government dated 31 July 2000 were entitled for the first time to finance lease machinery and equipment forming part of their fixed assets, subject to the approval of the investment licensing body). Finance leasing is classified as a form of medium or long-term credit activity, whereby a finance leasing company purchases assets required by the lessee and then leases them to the lessee. The finance leasing company retains ownership of the assets during the term of the lease, but upon expiry of the lease the lessee may elect to either purchase the assets or continue to lease them in accordance with the finance lease contract. To qualify as a finance lease, the total lease payments during the lease period must equal or exceed the value of the assets at the time of signing the contract. Finance leasing companies are prohibited from leasing to a single lessee assets which exceed 30% in value of the finance leasing company's equity, unless under syndication with other finance leasing companies or (in special cases) with Prime Ministerial approval. Finance leasing companies are also subject to prudential requirements under the Law on Credit Institutions (such as liquidity and capital adequacy requirements). Assets subject to finance leases must be registered by the finance leasing company at an office for registration of security transactions (not yet established). Finance lease contracts may be terminated by either the finance leasing company or the lessee in the event of a breach of contract by the other party. Curiously, a finance leasing company may only reclaim the leased assets when both of these conditions are satisfied: (i) upon termination and (ii) where the lessee fails to pay any outstanding lease fees. Ordinarily, in the event of a breach of contract by the lessee, a finance leasing company

4 4 would prefer to keep the contract, and all its rights thereunder, alive until after it had recovered the assets and all lease payments owing. A new circular is expected to be issued shortly by the State Bank of Vietnam to provide detailed implementing guidelines, which it is hoped will deal with issues such as tax, foreign currency, cross-border finance leasing, and purchase-and-lease-back arrangements. 1.3 Decision QD-NHNN of the State Bank of Vietnam on Promulgation of Basic Interest Rate As Basis For Credit Institutions To Fix Interest Rates for Loans Denominated in Vietnamese Dong to Customers dated 26 April 2001 ("Decision 557") As of 1 May 2001, the basic interest rate to be used as the basis for credit institutions to fix interest rates for VND loans to customers is 0.65% per month (down from 0.70% in April 2001; 0.725% in March 2001; 0.75% from August 2000 to February 2001). Since the introduction of the new system for control of loan interest rates in August 2000 (see Part 1.4 of the August 2000 issue of the Vietnam Legal Update), credit institutions have been free to determine the interest rate on VND loans provided that such rate does not exceed the basic interest rate plus a margin published by SBV (varying from 0.3% per month for short-term loans and 0.5% per month for medium- and long-term loans). 1.4 Decree ND-CP of the Government dated 25 April 2001 on Management of Business Activities of Protective Services ("Decree 14") Decree 14 regulates State management of the following types of business activities in the field of protective services: - Protective services for people; - Protective services for property and goods; - Manufacture and repair of specialized facilities for protective services activities. Various types of entities are not entitled to establish and manage a protective services business enterprise, including foreign organizations and individuals, Vietnamese permanently residing overseas, enterprises with foreign owned capital or enterprises of Vietnamese permanently residing overseas. Such entities are also not entitled to directly conduct protective services business (except for a number of activities manufacturing or repairing specialized facilities for protective services activities). Under Decree 14, it is strictly prohibited to establish enterprises in order to investigate secrets, or in order to conduct activities of armed protection, or in order to misuse protective services business activities to encroach upon the interests of the State or the legal rights and interests of organizations and individuals. Decree 14 stipulates the application procedures for business registration of protective services business and the procedures for notification of provincial police. The Ministry of Police is responsible for State management of the protective services sector and to provide implementing guidelines under Decree 14. Joint venture enterprises which were licensed to conduct protective services business prior to promulgation of Decree 14 are permitted to continue such business activity until the expiry of their investment licenses, but are prohibited from expanding the scale or geographical area of their operations. Decree 14 was effective as of 10 May 2001.

5 5 1.5 Decision QD-TTg of the Government dated 24 April 2001 on Establishment of a Working Committee on Foreign Non-Governmental Organizations ("Decision 59") Decision 59 provides for the establishment of a Working Committee on Foreign Non-Governmental Organizations ("the Committee") to assist the Prime Minister ("PM") to provide directions and to resolve issues relating to foreign non-governmental organizations ("NGOs") operating in Vietnam. Specifically, the Committee will have the following duties: - To propose policies and guidelines concerning NGOs; and to liaise between the relevant authorities to guide, monitor and inspect the implementation of laws and policies relating to the operations of NGOs; - To administer the consideration, issuance, amendment and revocation of operating licenses, licenses to establish project offices, and licenses to establish representative offices of NGOs; - To report periodically to the PM on the operational status of NGOs. The Committee will have the following membership: - As Chairman: Deputy Minister for Foreign Affairs - As standing member: President of the Association of Vietnamese Friendship Organizations - As members: Deputy Minister of Police Deputy Minister of Planning and Investment Deputy Head of the Government Committee for Organization and Personnel Head of the Government Committee for Religion Deputy Head of the Government Office One of the Deputy Heads of the Central Committee for Foreign Relations The Committee will not have a regular staff (each member is responsible to appoint its staff to implement its assigned tasks). The Committee will use as its working office the office of the Association of Vietnamese Friendship Organizations. Decision 59 was effective as of 9 May Joint Circular TTLT-NHNN-BTP-BCA-BTC-TCDC of the State Bank of Vietnam, Ministry of Justice, Ministry of Police, Ministry of Finance, General Department of Land Administration dated 23 April 2001 Providing Guidelines on Realization of Security Property for Loans In order to Recover Debts Owing to Credit Institutions On 23 April 2001, the State Bank of Vietnam, the General Department of Land Administration, and the Ministries of Justice, Police and Finance jointly issued Circular 03 providing guidelines on the realization of secured collateral for debts owing to credit institutions. Joint Circular 03 is likely to be well received by bankers operating in Vietnam as it provides specific regulations on both the foreclosure of secured collateral and the resale and transfer of ownership of such assets by credit institutions. In so doing, Joint Circular removes existing constraints on the settling of secured assets of credit institutions. The procedures which a credit institution must follow before it realizes (ie forecloses) a secured asset are clearly set out in the circular. The realization of the secured asset must be carried out in accordance with the credit agreement or security contract subject to written agreement between the debtor and the credit institution to the contrary and notice must be provided to the owner of the secured asset before any sale is carried out. After the provision of notice, the credit institution is possessed of a number of rights, specifically listed in Joint Circular. These rights include the right to exploit or use the secured asset or to authorize a third party to do so during the period prior to the realization of the asset. Joint Circular 03 provides special provisions on the realization of secured assets which are the right to use land. Prior to auctioning land use rights permission must be obtained from the district or provincial people's committee. The contents of the file requesting permission to auction a land use are spelled out in the circular. The auction itself is required to be carried out by a property auction center.

6 6 Joint Circular 03 stresses the responsibility of competent State bodies such as local people's committees, police and the courts to assist credit institutions in carrying out the settlement of secured assets. These entities are required to cooperate with credit institutions in the preparation of the necessary documentation to carry out the realization of secured assets, and to assist with the seizure of property in certain situations. 1.7 Decision QD-NHNN of the State Bank of Vietnam ("SBV") on Adjustment of Maximum Interest Rates for USD Deposits of Legal Entities at Credit Institutions dated 28 March 2001 ("Decision 238") Decision 238 adjusts the maximum interest rates (per annum) for USD deposits (previously provided in Decision QD-NHNN1 of SBV dated 1 September 1999) as follows: From To On-call deposits 0.5% 0.1% Term deposits up to 6 months 2.5% 1.5% term deposits over 6 months 3.0% 2.0% Legal entities affected by the above adjustments comprise: economic organizations, insurance companies (except for credit institutions), State bodies, units of the people's armed forces, political organizations, sociopolitical organizations, socio-professional organizations, social funds, charitable funds, and other organizations satisfying the conditions stipulated in article 94 of the Civil Code. Decision 238 was effective as of 1 April Decision QD-UB of the Hanoi People's Committee ("HPC") dated 9 March 2001 issuing Regulations on Advertising on Boards, Panels and Banners within the Hanoi City Area ("Decision 10") Decision 10 applies to all organizations and individuals conducting advertising on boards, panels and banners for enterprises, goods and services, trademarks, names and symbols of production and trading establishments, conferences, seminars, exhibitions, fairs, artistic performances, sports activities and entertainments, within the Hanoi City area. The above activities are subject to permit, the application for which must be submitted to the HPC Department of Culture and Information by either the owner of the advertisement or the entity performing the advertising services (and must include a copy of the contract with the owner or user of the site or facilities for the advertising board or panel). Fees are payable. Decision 10 includes the following specific restrictions: Advertisements may not be placed on boards and panels with a surface dimension above 15m 2 and on banners in specified areas (including : Ba Dinh Square, Hoan Kiem Lake and surrounding streets, August Revolution Square, Trang Tien and Trang Thi streets, median strips separating two-way roads; lake surfaces in the city, parts of Old Hanoi). Advertisements are permitted on boards and panels with any materials (but not iron frames) with a maximum dimension of one of the surfaces of 60m 2 with a support structure in the ground, and boards and panels with a maximum surface dimension of 40m 2 veneered to house walls or on house roofs, in belt area 2 (delimited by the following roads: Buoi Street, Lang Street, Truong Chinh Street, Dai La Street, Minh Khai Street, Linh Nam Street, Nguyen Khoai Street, Tran Khanh Du Street, Tran Quang Khai, Tran Nhat Duat Street, Yen Phu Street, Nghi Tam Street, Au Co and Lac Long Quan Streets). Outside belt area 2, advertisements on any materials may be placed with a maximum dimension of one surface area not exceeding 200m 2. Advertising boards and panels with one surface dimension of 30m 2 or more placed on buildings and with one surface dimension of above 60m 2 placed on other sites must be approved by the Municipal Committee for Evaluation of Advertising Applications ("HPC Advertising Committee)" in terms of landscape, architecture, durability of the board or panel, and urban traffic order and safety.

7 7 Advertising boards and panels with dimensions of 15m 2 and below which are placed at production and business establishments, services establishments and restaurants, must comply with the following conditions: - Must not encroach upon public space; - Maximum height of 50% of their length; - Must relate to goods or services of the establishments; - Small advertisements must be placed at least 10cm distance from the board with the name of the establishment and must not be made of iron materials. The HPC Advertising Committee must approve (prior to erection) any electronic advertising boards and panels of coloured LED with a maximum dimension of one of the surfaces of 60m 2 with a support structure in the ground. Advertisements on banners for conferences, seminars, exhibitions, fairs, artistic performances, sports activities and entertainments may not use red coloured background with yellow lettering; and the banner size is set at 0.8m-1m width and 8m length. A permit will be issued once only for a maximum 20 banners for one program for a maximum 10 days and the banners must be suspended in the correct places within the planning of the HPC Department of Culture and Information. Flags and posters are only permitted to be suspended within the parameters of the places where such conferences, etc, are held. The advertising permit-holder will be fully responsible before the law for any unsafe advertisement which causes loss and damage to social property or to the property or lives of people. Inspectors from the HPC Department of Culture and Information and of other functional branches of Hanoi and its districts are responsible to inspect and deal with any breaches of advertising activities. Decision 10 was effective as of 24 March 2001.

8 8 Part 2 Features 2.1 Outline of Recent Changes to Foreign Currency Controls Since the raft of amendments to the foreign investment regime in Vietnam in mid-2000, which extended the foreign currency purchase rights of foreign invested enterprises ("FIEs") and foreign parties to business co-operation contracts ("foreign BCC parties") and relaxed the restrictions on overseas bank accounts, the foreign currency regulations of Vietnam have been gradually updated. The latest foreign currency developments include: - Decision QD-TTg of the Government dated 25 April 2001 on Obligations to Sell and Rights to Purchase Foreign Currency of Residents being Organizations ("Decision 61"); - Circular TT-NHNN of the State Bank of Vietnam ("SBV") dated 18 May 2001 Providing Guidelines on Foreign Exchange Control in respect of FIEs and Foreign BCC Parties ("Circular 04"). A. Decision 61 Decree ND-CP of the Government dated 17 August 1998 on Foreign Exchange Control ("Decree 63") was amended in January to reflect the extension of the right to purchase foreign currency to a broader range of organizations operating in Vietnam. To implement the amended Decree 63, the Government introduced Decision 61 providing guidelines in relation to the obligations to sell and rights to purchase foreign currency of resident organizations operating in Vietnam. Effective as of 10 May 2001, Decision 61 replaces Decision QD-TTg of the Government dated 12 September 1998 (as amended 1 December 1998 and 30 August 1999) ("Decision 173") and provides the following guidelines in relation to the foreign currency rights and obligations of FIEs and foreign BCC parties (together referred to as "FIEs", unless otherwise stated). A.1 Right to Purchase Foreign Currency All FIEs (along with foreign company branches and foreign contractors) now have the right to purchase foreign currency from authorized banks2 to satisfy foreign currency requirements for current transactions3, capital transactions4 or other permitted transactions5, upon presentation of proper papers and source documents6. SBV approval for purchases of foreign currency by FIEs which are not entitled to Government assistance in foreign currency balancing is no longer required. Of note, Decision 61 now expressly entitles foreign currency purchases for "capital transactions", which were previously not referred to in Decision 173 and are currently not referred to in Circular 04, as discussed further in B.2.1 below. Of fundamental significance, the right of FIEs to purchase foreign currency is expressly limited by the availability of foreign currency funds at the authorized bank at the time of purchase. The only exceptions to this are as follows: "Guaranteed projects": A FIE investing in a specially important project in accordance with a program of the 1 Decree ND-CP of the Government dated 17 January An "authorized bank" is a bank operating in Vietnam which is authorized to deal in foreign currency. 3 "Current transactions" are defined in Circular TT-NHNN7 of SBV dated 16 April 1999 providing guidelines for implementation of Decree 63 ("Circular 01") as transactions between a resident and a non-resident relating to goods and services, income earned from direct investment, income earned from investment in valuable papers, interest on foreign loans and interest on foreign deposits, one-way money transfers (not relating to payment for goods and services), and other similar transactions. A list of "current transactions" appears as Appendix 3 to Circular 01 and is reproduced in D below. 4 "Capital transactions" are defined in Circular 01 as transactions for the purpose of transferring capital into or out of Vietnam in relation to direct investments, investments in valuable papers, borrowing and repayment of foreign loans, provision and recovery of foreign loans, or other investments in accordance with law, which increase or decrease the assets or liabilities of a resident to a non-resident. A list of capital transactions appears as Appendix 4 to Circular 01 and is reproduced in E below. 5 "Other permitted transactions" is defined in Circular 04 (see B.2.1 below). 6 "Proper papers and source documents" are now stipulated in Circular 04, as discussed in B.4 below.

9 9 Government will be considered by the Prime Minister ("PM") on a project-by-project basis for issuance of a decision guaranteeing foreign currency balancing. If such decision is issued, the authorized bank is responsible to satisfy the foreign currency requirements of the FIE and, where its current foreign currency funds are insufficient, it must report to the SBV for additional foreign currency funds. "Assured projects": A FIE investing in an infrastructure construction project or another important project will be considered by the PM for issuance of a decision assuring assistance in foreign currency balancing upon the proposal of the SBV Governor. Decision 61 is not clear as to whether an overall decision assuring assistance will be issued or whether a specific decision will be issued upon each occasion when the SBV proposes to make available additional foreign currency. In any event, the grounds for exercise of discretion by SBV to propose that additional foreign currency be made available are not stipulated in Decision 61. Of interest, the same Vietnamese word is used for both "guarantee" and "assurance" above in relation to foreign currency purchase rights, however, the Vietnamese Government has defined the meaning differently as applied to the above two categories of FIEs. The nature of the foreign currency purchase rights of the above two specific categories of FIEs is discussed further in B.2.2 below. A.2 Obligation to Sell Foreign Currency As a result of the broadening of the right to purchase foreign currency to all FIEs, irrespective of whether or not they are entitled to Government assistance in foreign currency balancing, all FIEs (along with foreign company branches and foreign contractors) are now obliged to sell at least 40% (down from 50% under Decision 173) of their foreign currency revenue from current transactions to authorized banks immediately upon transfer or payment into the foreign currency account. Any amounts of foreign currency revenue in the form of subsidy or aid are exempted. Decision 61 entitles an authorized bank to "take the initiative" and conduct the purchase of the above 40% of foreign currency revenue in any case where a FIE refuses to sell. Formerly, Decision 173 provided for the authorized bank to issue a reminder notice and grant a 5 day grace period from the date of that notice to any resident organization which failed to perform its obligation to sell prior to the bank conducting the compulsory purchase. Under Decision 61 (as under Decision 173), residents being State bodies, units of the armed forces, political organizations, socio-political organizations, social organizations, socio-professional organizations, social funds and charitable funds of Vietnam are still obliged to sell 100% of foreign currency revenue from current transactions. B. Circular 04 Effective as of 2 June 2001, Circular 04 updates the foreign currency regulations governing all types of FIEs when undertaking the following foreign exchange transactions: opening and operating accounts in domestic and foreign banks; purchasing foreign currency; transferring capital into and out of Vietnam; remitting profits and other permitted payments overseas. The foreign exchange activities of foreign individuals working in FIEs are no longer governed by Circular 04 but are now subject to the provisions of Circular TT-NHNN7 of SBV dated 16 April 1999 providing guidelines for implementation of Decree 63 ("Circular 01"). As before, the foreign exchange activities of credit institutions, investment funds with foreign owned capital, and forms of indirect investment are not governed by Circular 04. Circular 04 repeals Circular 02-TT-NH7 of SBV dated 28 June 1997 ("Circular 02") and Decision QD-NHNN7 of SBV dated 8 November 2000 ("Decision 468"). B.1 Bank Accounts B.1.1 Specialized foreign currency deposit account All FIEs must open a specialized foreign currency deposit account7 at an authorized bank in order to conduct the 7 Although the Vietnamese text of Circular 04 does not specify singular or plural, the context infers that, in normal circumstances, only one specialized foreign currency account may be opened.

10 10 following capital transactions: - Transfers into and out of Vietnam of legal capital; and medium- and long-term foreign loan principal; - Transfers out of Vietnam of interest and fees on medium- and long-term foreign loans for the purpose of repayment of the foreign loans; and lawful profits and other income of foreign investors; - Withdrawals of capital for the purpose of transfer into a foreign currency deposit account of the FIE; and deposits of capital from foreign currency accounts of the FIE. An additional specialized foreign currency deposit account may only be opened upon satisfaction of all of the following conditions: (i) in special circumstances (undefined), (ii) at the request of a foreign lender, and (iii) solely for the purpose of receipt of foreign loan capital and repayment of foreign loans. B.1.2 Foreign currency deposit account FIEs may open and operate an unrestricted number of foreign currency deposit accounts at authorized banks for the purpose of servicing their activities. Every item of revenue or expenditure in foreign currency must be transacted through a foreign currency deposit account. The operation of foreign currency deposit accounts is strictly regulated by Circular 01, as follows: Only foreign currency revenue from the following sources is permitted to be deposited: - Transfer from overseas; - Domestic transfer of permitted foreign currency revenue in Vietnam; - Domestic transfer from issue of valuable papers in foreign currency; interest earned from investment in valuable papers in foreign currency; - Domestic transfer from purchase of foreign currency from a credit institution authorized to carry out foreign exchange activities; - Foreign currency revenue in cash (where permitted to collect foreign currency in cash upon export of goods and services; or where brought in from abroad as certified by the bordergate customs office); - Other foreign currency revenue by way of transfer or payment in foreign currency in cash when permitted by the Governor of the State Bank. Only the following expenditure may be made from foreign currency deposits: - Payment for import of goods and services provided by foreign parties (including incurred costs relating to import and export of goods and services); - Payment for goods and services provided by domestic organizations and individuals authorized to receive payment in foreign currency; - Repayment of principal, interest, fees and other costs incurred on foreign currency loans borrowed from domestic banks and on foreign loans; - Sale of foreign currency to credit institutions authorized to conduct foreign exchange activities; - Investment in valuable papers in foreign currency and investment in all kinds of securities permitted by law; payment of principal and interest of valuable papers and securities of all kinds in foreign currency; - Conversion to other payment instruments in foreign currency, such as cheques, credit cards and other payment instruments; or conversion to other kinds of foreign currency in accordance with regulations of authorized banks; - Capital contribution to other foreign investment projects in Vietnam; - Remittance of foreign currency overseas by foreign investors; - Remittance of foreign currency overseas for purpose of investment overseas; - Withdrawal of foreign currency in cash or transfer for expenses of employees upon secondment abroad and for payment of salaries, bonuses and other allowances for employees. B.1.3 Vietnamese dong accounts FIEs may open an unrestricted number of VND deposit accounts at banks licensed to operate in Vietnam in accordance with SBV regulations and individual bank guidelines. B.1.4 Overseas foreign currency accounts Circular 04 reflects the relaxation of restrictions on overseas bank accounts introduced in mid-2000, however, a number of restrictions still apply.

11 11 FIEs8 may now open two types of overseas accounts, subject to conditions: Overseas accounts for the purpose of implementing a medium- or long-term foreign loan, subject to the following conditions: - The foreign loan has a value of USD5 million or more, or its equivalent (previously USD3 million); - The foreign loan has been registered with SBV; - The foreign lender has requested that an overseas account be opened in order to manage the foreign loan. Overseas accounts for the purpose of servicing other objectives, in the following cases: - The FIE is categorized as a specially important investment in accordance with a program of the Government; - A FIE investing in the BOT, BTO or BT form requires to open an account overseas for the purpose of fulfilling its undertakings; - A FIE investing in the aviation, maritime, postal, insurance or tourism industries with international business activities requires to open an overseas account for the purpose of payment and off-setting in accordance with international practice; - Where necessary in order to service the activities of a branch or representative office overseas; - On a case-by-case basis, as decided by the SBV Governor, depending on requirements and necessity for opening an account overseas9. An application to open an overseas account must be submitted to SBV - in the case of loan accounts, with contents as stipulated in Circular 01; in the case of "other" accounts, with contents as stipulated in Circular 04. The SBV Governor must issue a decision to permit or not to permit the opening of an overseas account overseas within 15 working days. A Decision permitting the opening and operation of an overseas account will specify the purpose of use, the duration of operation, and the operational items (foreign currency receipts, expenditure and account balance) of the overseas account. The previous restriction of the duration of an overseas account to the duration of the foreign loan contract does not appear in Circular 04. The right of SBV to revoke, and the grounds for revocation of, a Decision permitting the opening and operation of an overseas account (previously stipulated in Circular 02) are not provided for in Circular 04. However, the standardform Decision issued with Circular 04 provides as follows: "The operation of this account shall be suspended if the Company breaches any of the provisions in this Decision." Circular 04 specifically provides that petroleum projects which are subject to the Law on Petroleum may open overseas accounts in accordance with the provisions of the Law on Petroleum, but must, within 15 days from the date of opening such account, register such account with the SBV. B.2 Right to Purchase Foreign Currency Reflecting the broadening of the foreign currency purchase rights of FIEs in mid-2000, the outdated provisions of Circular 02 restricting rights to purchase foreign currency and imposing onerous application procedures for SBV approval of foreign currency purchases were repealed in November 2000 (by Decision 468). Circular 04 now enshrines the right of all FIEs (irrespective of the nature of the investment project) to purchase foreign currency. B.2.1 Permitted Transactions As mentioned in A.1 above, whereas Decision 61 now entitles FIEs to purchase foreign currency for "current transactions, capital transactions and other permitted transactions", Circular 04 only entitles FIEs to purchase foreign currency for "current transactions and other permitted transactions", which is consistent with former foreign currency regulations. 8 As in the Law on Foreign Investment in Vietnam and its implementing Decree 24, Circular 04 does not mention the rights of foreign BCC parties to open overseas bank accounts. Arguably, foreign BCC parties may open such accounts without SBV approval, whether related to a project in Vietnam or not. 9 Circular 04 does not provide any further details of the "requirements and necessity" which will merit a decision permitting the opening of an overseas account by the SBV Governor "on a case-by-case basis".

12 12 Circular 04 prescribes "other permitted transactions" (previously stipulated in Decision 468) as follows: - Repayment of principal and interest and fees on short-term foreign loans (which comply with SBV regulations); - Repayment of principal, interest and fees on medium- and long-term foreign loans (where registered with SBV); - Repayment of principal, interest and fees on foreign currency loans at banks authorized to operate in Vietnam; - Transfer overseas of legal capital or re-invested capital upon expiry of duration or early dissolution (including cases of assignment of capital). There is considerable overlap between the Circular 04 definition of "other permitted transactions" and the Circular 01 definition of "capital transactions" (see footnote 4 above) but not all Circular 01 "capital transactions" are included in Circular 04 "permitted transactions", with the result that Decision 61 is currently wider than Circular 04. This fundamental inconsistency between Decision 61 and Circular 04 awaits further clarification. B.2.2 Preferential treatment As to "guaranteed projects" and "assured projects", Circular 04 provides as follows: Where an authorized bank does not have sufficient foreign currency to satisfy a request for purchase by a guaranteed project, it must report to the SBV so that the SBV may provide the foreign currency to the authorized bank "pursuant to a decision of the Prime Minister". It is not clear whether Circular 04 is here referring to the overall decision of the PM guaranteeing foreign currency purchase rights or is, in addition, requiring a specific decision to be issued by the PM for each occasion when the SBV provides foreign currency to an authorized bank in order to fulfil the foreign currency requirements of a guaranteed project. Where an authorized bank does not have sufficient foreign currency to satisfy fully a request for purchase by an assured project, it must report to the SBV so that the SBV may consider and make a submission to the PM to make a decision on assistance with foreign currency. Circular 04 appears to imply that there is no overall decision assuring assistance but that a specific decision must be made for each occasion when the SBV recommends that additional foreign currency be made available. Unfortunately, Circular 04 fails to provide any further guidance as to the circumstances in which SBV will exercise its discretion in favour of assistance to an assured project. B.3 Transfers Into and Out Of Vietnam The transfer/remittance rights of FIEs have changed little since Circular 02 in B.3.1 Transfers into Vietnam FIEs must contribute invested capital correctly in accordance with the schedule stated in the approved joint venture contract and/or the charter of the FIE. FIEs which have foreign currency revenue from current transactions overseas must remit it back to Vietnam into their foreign currency deposit accounts opened at authorized banks (and then comply with their obligations to sell foreign currency as referred to in A.2 above). B.3.2 Remittances out of Vietnam Foreign investors are entitled to remit overseas (in all cases, after fulfilling financial obligations to the State of Vietnam) the following: Profit earned from business activities, distributed income, income from the supply of services and from technology transfers, and other items of money and assets which they legally own. Previously, such remittances were only permitted to be made at the end of each financial year (except upon termination of operations prior to the end of the financial year). Now, consistent with 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 Vietnam10, Circular 04 expressly entitles FIEs to 10 Circular 13 permits a maximum 70% of the profits that the investor may receive as a share (determined on the basis of the financial reports of the enterprise for the quarter, six months and the whole year) to be provisionally remitted overseas in cases where (i) profits are projected in the annual corporate income tax declaration and (ii) the investors are agreed on sharing the profits of the enterprise every quarter or six months (according to a

13 13 remit profits or distributed income overseas on a number of occasions in a year, subject to written approval of the authorized tax office. Legal capital, re-invested capital, and legally owned assets upon expiry or early dissolution of a FIE. Where the amount to be remitted overseas is higher than the amount of the initial capital or re-invested capital, such amount may only be remitted overseas after approval from the investment licensing body. Foreign currency for the purpose of repaying foreign loans, including principal, interest and fees. B.4 Proper Papers and Source Documents for Purchases of Foreign Currency Circular 04 includes specific provisions (as previously stipulated in Decision 468) on the documentation which FIEs must present, in addition to their investment license, to the authorized bank upon purchase of foreign currency, as follows: When purchasing foreign currency for remittances overseas: - For the purpose of importing raw materials and supplies and replacement accessories: import license (if any), commercial contract, and documents proving delivery of the goods or implementation of the commercial contract; - For the purpose of making money payment for services from foreign parties: Services contract with the foreign party and documents proving performance of the services contract; - For the purpose of remitting legal profit and income overseas: Minutes of the board of management on the distribution of profit; and written confirmation from the tax authority that all financial obligations to the State of Vietnam have been fulfilled11; - For the purpose of transferring overseas legal salaries and other income of foreign individuals working in FIEs: Letter of confirmation from the FIE of the amount of money to be transferred overseas (total lawful income less amount paid to fulfil financial obligations and less amount paid for expenses in Vietnam); and written confirmation from the tax authority that all financial obligations to the State of Vietnam have been fulfilled; - For the purpose of payment of principal, interest and fees on loans: Foreign currency loan contract (or deed of indebtedness); schedule of repayment; for a foreign medium or long term loan, in addition to the above documents, there must also be written confirmation of loan registration from the SBV; - For the purpose of remitting overseas legal capital, re-invested capital upon termination of operation or early dissolution: Decision on dissolution, enclosing a report on the results of liquidation; and written confirmation from the tax authority that all financial obligations to the State of Vietnam have been fulfilled; - In the case of capital assignment (upon purchase foreign currency for transfer to overseas assignor): contract of assignment of capital which has been registered and bears confirmation from the authorized body; and written confirmation from the tax authority that all financial obligations to the State of Vietnam have been fulfilled (if the assignment of capital has resulted in a profit). When purchasing foreign currency for the purpose of servicing other current transactions, the authorized bank may, on a case-by-case basis, require necessary documents proving the legality of those current transactions. All of the above sales of foreign currency to FIEs are subject to the strict requirement that the foreign currency be paid directly to overseas payees or permitted domestic payees. Foreign currency sold by authorized banks may not be retained in accounts of FIEs. Foreign currency purchased for overseas transfer of (i) invested capital or re-invested capital of a foreign investor, (ii) legal profit and income of a foreign investor or (iii) repayments of principal, interest and fees on medium- and longterm foreign loans must be transferred through the specialized foreign currency deposit account referred to in B.1.1 (or an additional specialized foreign currency deposit account opened for the purpose of receipt of foreign loan capital and repayment of foreign loans). The period between the time of purchase and transfer into the specialized foreign currency deposit account and the time of transfer to make payment overseas must not exceed 5 working days. B.5 Exchange Rates Circular 04 stipulates the following exchange rates: - The applicable conversion rate from USD to VND for the purpose of contribution of legal capital is the average resolution of the board of management), subject to payment of profit remittance tax upon each occasion of remittance. 11 Audited financial statements are no longer required (previously required under Decision 468).

14 14 trading exchange rate between VND and USD in the inter-bank foreign currency market as published by the SBV at the time of capital contribution. - The applicable conversion rate for the purchase and sale of foreign currencies relating to the business activities of FIEs is the buying and selling exchange rates of the authorized bank at the time of the transaction. B.6 Reporting Obligations Every year, no later than 15 January (for a yearly report) and no later than 15 July (for a report on the first 6 months of the year): - FIEs and foreign BCC parties must submit a standard-form report on the current status of implementation of invested capital to the SBV and to the provincial or municipal SBV branch; - FIEs 12 which have been permitted to open bank accounts overseas must submit a standard-form report to the SBV on the current status of operation of such accounts. C. Summary Decision 61 and Circular 04 finally bring the foreign currency regulations fully up-to-date with the amendments to the foreign investment regime in Notwithstanding that the foreign currency purchase rights of FIEs have improved significantly in the last year, fundamental concerns remain: The obligation to sell current foreign currency revenue is strict. There appears to be no or little leeway for holding USD revenue until a matching USD expense can be arranged - USD revenue (albeit at the now reduced level of 40%) is payable immediately upon receipt. The right to purchase, while broader, remains subject to (i) availability of foreign currency, (ii) compliance with the official list of permitted foreign currency transactions and (iii) presentation of specific documentation in support an application to purchase foreign currency. There is an inherent risk that the VND-USD rate will change significantly from the time when FIEs are forced to sell USD to the time at which they need to buy it back (which may be several months later). For foreign investors, the right to purchase foreign currency when they need it must be more certain to balance the strict obligation to sell their foreign currency revenue. In particular, the fundamental inconsistency between Decision 61 and Circular 04 as to the types of transactions for which FIEs may purchase foreign currency from authorized banks awaits immediate clarification. D. List of Current Transactions (Appendix 3 to Circular 01) Receiving payment Receiving Making payment Nature of transactions Payment for export of goods, including advances or deferred payments. Receiving Making Refund of amounts which have been paid for exports, such as discounts, payment for compensation and other costs for export of goods. Making Payment for import of goods, including freight and insurance, advances for import of goods, payments relating to investment in the form of machinery and equipment. Receiving Making Payment for temporary import for re-export. Receiving Making Customs duties paid for purchase or sale of goods, costs for packaging, loading and unloading and costs of storage. Receiving Making Freight for transportation by water, air, road and railway (such as costs of loading, unloading and transportation of equipment and container); commissions and other costs, salvage charges, payment of tickets, expenses relating to telecommunications, postal or information services and communication or broadcasting services and costs for airlines or maritime lines. Receiving Making Costs relating to tourist services. 12 See footnote 8 above.

15 15 Receiving payment Making payment Nature of transactions Receiving Making Payment for accommodation during holiday tours and relevant services (including restaurant services, tourist services, hire of automobile, service charges). Receiving Making Costs relating to study and meetings (including membership fees for training courses, workshops and conferences). Receiving Making Medical expenses. Receiving Making Costs of technical consultancy services, management, maintenance and repair (including licensing fees, fees for transfer of technical know-how, administrative costs, costs for using trademarks, design and names) and costs of survey. Receiving Making Payments for service contracts (including charges for specialized services, banking fees, costs for market research and other costs). Receiving Making Costs for legal and consultancy services. Receiving Making Costs relating to design and construction projects and procurement of goods and services on the basis of sub-contracts. Receiving Making Commissions relating to procurement of goods and services, taxes, costs of examination and evaluation of quality and classification, escrow deposits, insurance costs and brokerage charges, payments for increase of contracts for purchase of goods in the future, option contracts, forward contracts and other contracts for exchange of goods. Receiving Making Costs relating to advertising, marketing, television and movie programs abroad (including wages, rent of sites for business, administrative expenses, insurance costs and payments paid to marketing companies by investment companies). Receiving Making Costs of maintenance and repair of machinery and equipment (such as ships, aircraft and other automobiles of all types). Receiving Making Expenses for branches and representative offices (including rent and other operating expenses). Receiving Making Rights of reproduction, copyright. Receiving Making Payment for insurance for transport, payment for re-insurance (payment of premiums for hull insurance, aircraft insurance and insurance for other means of transport and compensation for damage). Receiving Making Fines in foreign trading. Receiving Making Payment of wages, bonuses and other allowances. Receiving Making Operating costs of hired machinery and equipment. Receiving Making Interest, dividend and other revenue relating to direct investment (including loans provided by the parent company). Receiving Making Loan interest and deposit interest. Receiving Making Interest earned from securities. Receiving Making Remittance overseas of profits earned from direct investment. Receiving Making Non-refundable aid provided by international organizations or non-governmental organizations. Receiving Making Membership fees and awards. Receiving Making Other subsidies of the Government. E. List of Capital Transactions (Appendix 4 to Circular 01) Receiving payment Making payment Nature of Transactions Receiving Making Transfers of cash and assignment of securities. Receiving Making Assignment of shares and transfer of long term capital from a company to its branches. Receiving Making Assignment of capital contribution to direct investment projects. Receiving Making Remittance overseas of capital contribution in direct investment and investment in purchase of shares and other valuable papers.