Vietnam: Lao Bao to Boost Investment and Trading

A project to construct and develop an ASEAN Highway Network has been broached in the Vietnam by Mekong Sub-region Development Cooperation Program. According to this project, ASEAN Route 120, among 26 routes of the ASEAN Highway Network, will link from North-West of Thailand via South of Lao PDR to Lao Bao of Vietnam and run along Road #9 of Vietnam to Dong Ha, Quang Tri Province, an intersection of important transportation network of Vietnam between Highway #1A, the North- to- South railway and the national highway. ASEAN 120 route will promise potential economic areas for trade and investment between ASEAN countries, especially for Thailand, Cambodia, Lao and Vietnam.

Properly assessed the important role of such ASEAN route 120 in the development of the national economy, and in an effort to exploit strategic advantages of economic development in the regional area, Lao Bao Commercial Area was established by the Prime Minister on 12 November 1998 under Decision No. 219 to wait in front for investment and trading from both local and foreign investors. Growth of Lao Bao Commercial Area will form a motive dynamic for developing middle area of Vietnam, where economic facilities are still deemed backward. To absorb foreign investment and promote trading in this Area, the highest investment incentives specified by law are granted to this Area, which no other border-gate economic areas throughout the country would enjoy same. Article 19 of Decision 219 stipulates that "organizations, individuals investing in Lao Bao Commercial Area will be entitled to enjoy the highest investment incentives as granted to projects in social – economic areas having difficult conditions under the Law on Foreign Investment and Law on Encouragement of Domestic Investment…".

First, Tax and Land Rental Incentives. As stipulated in Circular 16/2002/TT-BTC dated 8 July 2002 of the Ministry of Finance, organizations, individuals investing, trading in this Area are entitled to the following tax incentives:

Corporate Income Tax: FIEs and BCC's foreign parties are exempted from corporate income taxes for 8 years from profit- making year, and only levied at 10% tax rate for project's remaining years. Domestic organizations, individuals are exempted for 4 years from profit making-year, enjoy 50% deduction off for following 9 years and levied at 15% tax rate for project's remaining years.

Land Rental: Projects invested in this Area are exempted from paying land rental for 11 years from the lease execution. From the 12th year on, such projects are only subject to rental at a rate equal to 30% of one applied to mountain districts of Quang Tri province.

Value-added tax: Commodities manufactured, consumed and services provided within this Area, and the ones imported from foreign countries into this Area are not required to pay VAT. Commodities, services imported from domestic areas into this Area are subject to 0% VAT.

Import duties: Commodities, services imported from foreign countries into this Area are exempted from import duties. Commodities manufactured, processed, reproduced, assembled within this Area and contained imported materials, fittings in their component are only required to pay import duties imposed on such imported materials, fittings.

Export duties: Commodities manufactured in this Area are exempted from export duties.

Special sale tax: Commodities manufactured, consumed and services provided within this Area and the ones imported from foreign countries, domestic areas into this Area are not required to pay special sale tax.

Second, various trading forms are permitted in Lao Bao Commercial Area. Under Circular 11/1999/TT-BTM dated 11 May 1999 of the Ministry of Trade, Vietnamese traders, FIEs, branches of foreign traders located in this Area are permitted to conduct at least the following trading activities within the Area: (i) Import- Export of goods on demand, except banned goods; (ii) Temporary Import for Re- export Business in accordance with Decision 1311/1998/QD-BTM dated 31 October 1998: import of goods from foreign countries for export or import into domestic areas of Vietnam; import of goods from domestic areas for export; (iii) Border- gates Transition Business in accordance with the said Decision 1311: buying goods from foreign countries for sale to other foreign countries or to domestic areas of Vietnam; buying goods from domestic areas for sale to foreign countries; all such transactions are conducted without conducting customs procedures for importing such goods into the Area; (iv) Goods Processing in accordance with Item 2, Part II, Circular 18/1998/TT-BTM dated 28 August 1998 and Decree 57/1998/ND-CP dated 31 July 1998 of the Government.

Third, visa/immigration exemption. Foreigners visiting the Area for conducting market research, preparing investment projects, trading activities, are exempted from entry- exit visa, or are favored in respect of immigration and traveling procedures.

With the above incentives, Lao Bao Commercial Area would be deemed as an attractive location for investment and trading for foreign and local businessmen. As an example, Thai businessmen currently pay serious attention to this Area due to its advantages on strategic geographic place and favorable business environment for expanding their business to Indochina or use it as their springboard for jumping into other overseas markets.