Chu Lai Open Economic Zone Offering Tariff Incentives

The Vietnamese Government has allowed Chu Lai Open Economic Zone in the central province of Quang Nam to apply many preferential tariff policies for local and foreign investors in order to attract investment for the development of the country’s central region.

Chu Lai Open Economic Zone includes a tariff area and a non-tariff area. The government and local authorities have released a complete system of policies, comprising maximum tariff incentives for investors within the government’s current preferential finance mechanisms.

According to Dr. Bach Thi Minh Huyen, Deputy Head of the Tax Policy Department under the Ministry of Finance, Vietnamese and foreign organisations and individuals who invest in the open economic zone will enjoy high incentives for projects in disadvantaged areas. These incentives are in line with the amended Foreign Investment Law, Domestic Investment Encourage Law, Corporate Income Tax Law and Value Added Tax Law, and incentives following international treaties, bilateral and multilateral trade agreements that Vietnam joined or signed with other nations.

Investors engaging in trading and manufacturing activities in the Chu Lai Open Economic Zone will be exempted from corporate income tax for four years after their first profit, and enjoy a tax reduction of 50 per cent for nine years following. Alternatively, they will be receive a corporate income rate of 10 per cent for 15 years after beginning operation, compared with current the corporate income tax rate of 28 per cent.

For investors expanding production, updating technologies, improving the environment and enhancing their manufacturing capacity, they will be exempted from corporate income tax on the increased amount of earnings for a maximum of four years and will receive a 50 per cent reduction in corporate income tax for the seven following years. In cases where businesses make loss in a particular year and have their financial statements checked (by tax agencies), they are allowed to transfer their losses to the following year as a deduction from their taxable income in the following year, for a maximum of five years.

According to government regulations, goods and services transactions between the non-tariff area and tariff area in the Chu Lai Open Economic Zone, and transactions between the non-tariff area and areas outside the open economic zone will be considered export-import related.

However, to create momentum for the development of the Chu Lai zone, the Government exempts import taxes on goods and services brought from the tariff area, other domestic areas and from abroad into the non-tariff area. Meanwhile, goods and services brought from the non-tariff area into the tariff area and other local areas will enjoy tax incentives.

All goods that are manufactured, outsourced, reprocessed and assembled in Chu Lai’s non-tariff areas and then imported into the tariff area and other domestic areas and have ASEAN-origin content of over 40 per cent will enjoy the Common Effective Preferential Tariffs (CEPT) under the ASEAN Free Trade Agreement.

Goods that are manufactured, outsourced, reprocessed and assembled in the Chu Lai’s non-tariff area without using input materials from abroad will be free from import taxes when they are imported into the tariff area and other areas in Vietnam. Meanwhile, items manufactured, outsourced, reprocessed and assembled in Chu Lai’s non-tariff area using input materials and components from abroad will be taxed on the imported parts only. All goods which are manufactured, outsourced, reprocessed and assembled in the non-tariff area will be exempted from import taxes if they are exported. For foreign-invested enterprises investing in the Chu Lai Open Economic Zone, they will be immune from import taxes on imported input materials and components for five years after they commence production.

In particular, all goods and services sold in the non-tariff area; or goods and services of the non-tariff area exported abroad will be exempt from special consumption taxes. Moreover, all goods allowed by the Prime Minister (under bilateral agreements signed between governments or local authorities) to be temporarily imported into the non-tariff area and then be re-exported will be exempted from the special consumption taxes. Goods and services consumed in the non-tariff area will be also free from value-added tax. Furthermore, goods and services brought from domestic areas and Chu Lai’s tariff area into the non-tariff area will enjoy an export tax of zero per cent.

With these tariff incentives and open financial policies, the Chu Lai Open Economic Zone attracted a great number of investors after one year of operation. According to statistics from the Chu Lai Management Board, the open economic zone has licensed 102 investment projects with total pledged investment capital of VND1.02 trillion (US$65.4 million). Of these, 34 projects have become operational. Hopefully in the coming time these open financial policies and mechanisms and preferential tariffs will create an economic driving force, helping the Chu Lai Open Economic Zone further attract investment capital for development.

• Tran Anh