The laws of Vietnam are complex and new legislation is constantly being introduced. What follows is no more than an introductory overview that we hope will assist investors to decide which areas of law they will need to research further.

This summary is, necessarily, selective and is no substitute for detailed legal advice.

(A) EPZs

1. The motivation behind the creation of EPZs was a desire on the part of the Government to encourage and develop export industries and attract investment, particularly foreign investment with potential for transfer of technology.

2. Decree 322 HDBT of 18 October 1991, and the ancillary Regulations on Special Processing Zones of the same date (together the "EPZ legislation") set out the regulations for the establishment and administration of such zones.

3. Each EPZ is supervised and run by a Management Committee, on which are representatives of the Ministries of Finance, Trade and the Interior, the State Bank, the Customs Department, and People's Committee. It has responsibility, broadly, to establish a scheme for the development and operation of the EPZ, and to promote investment and construction within the zone.

4. Any enterprise wishing to operate inside a designated EPZ, must apply to the Management Committee, which has the authority to grant an Investment Licence. The application process is intended to be quick and easy and replaces the usual investment licence application procedure via the SCCI.

5. Favourable conditions apply to Infrastructure Development Companies (either domestic enterprises or enterprises established under the Law on Foreign Investment) set up for the purpose of constructing and operating infrastructure projects within an EPZ. They may, in accordance with the plans set out by the Management Committee, seek investment for the EPZ and may sublet land to enterprises investing within the EPZ, lease and sell buildings or make charges for services provided.

6. EPZS, themselves, as their name suggests, are dedicated to the production of goods for export, though supporting service industries are also permitted. Vietnamese Banks and insurance companies (including foreign bank and insurance branches) are permitted to establish branches within an EPZ.

7. Each EPZ must be physically divided and fenced off from the surrounding area. No-one may live in an EPZ without permission from the Management Committee.

8. For customs purposes an EPZ is considered as if it were outside Vietnam. Any goods brought in from, or sent out to, the rest of Vietnam (other than to or from another EPZ) are liable for import or export duty.

9. Vietnamese Dong may not be used in an EPZ. Al] sales, purchases and payments must take place using a freely convertible currency.

10. Foreign invested enterprise or foreign parties investing via a business co-operation contract may invest in an EPZ.

11. Incentives to do so are offered as follows:-

- 10% profits tax for production enterprises and 15% profits tax for service industries. (This compares with a standard rates elsewhere of 25%, though preferential rates of 10%, 15%, 20% may be available in certain circumstances);

- Tax holidays of 4 years for production enterprises and 2 years for service industries; A refund of tax already paid, provided profits are reinvested either into an EPZ or elsewhere in Vietnam for at least 3 years;

- Equipment, raw materials and goods imported into the EPZ and goods exported from it are duty free;

- Goods transported from one EPZ to another are also exempt from import and export duties.

12. EPZ enterprises must adhere to the terms of their investment licence and generally, the Law on Foreign Investment. The EPZ legislation, however, specifically states that they have the right to:-

- lease land for the purpose of construction of buildings and plant necessary for its business;
- use the infrastructure services provided, in return for payment of the appropriate fee;
- export to foreign markets;
- import equipment and materials required;
- make decisions and plans for the Organisation of its business;
- fix the price of products;
- hire staff, preference being given to the employment of Vietnamese workers.

13. At the same time, an EPZ enterprise, like its counterparts investing elsewhere in Vietnam, is obliged to: -

- open and maintain accounts at a Vietnamese Bank keep accounting records and comply with audit requirements, insure its assets and against other risks, implement fire safety precautions, provide for environmental protection, provide for labour safety and hygiene and adhere to the foreign investment and other laws of Vietnam.

(B) LZs

1. Many similarities exist between LZs and EPZS:-

- in both, infrastructure development involving foreign and domestic enterprises is encouraged;

- both are organised and administered by a Management Committee, constituted by separate Charter, which plans the zone, promotes investment and has authority to grant investment licences to those wishing to operate within the zone;

- both may receive investment from domestic Vietnamese entities and foreign invested enterprises.

2. The main difference lies in relation to the type of business to be carried on. An EPZ is restricted to industries producing for export, (with supporting service industries). Enterprises within an IZ on the other hand, though still limited to production, may do so either for export or for sale to the domestic market. Again supporting service industries are permitted.

3. Incentives to set up in an LZ are offered to foreign invested enterprises though to a lesser degree than those available in an EPZ:-

- an 18% profit tax rate applies to production enterprises.

- A reduction to 12% is permitted provided a minimum of 80% of the enterprise's goods are exported.

- A tax holiday of 2 years is allowed

- a 22% profit tax rate, with a 1 year tax holiday entitlement is available for service industries.

4. The rules regarding foreign exchange control within an LZ are no different to those applied in Vietnam as a whole. Similarly, no special exemptions apply in respect of import or export duties payable.

NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

If you would like further advice please contact: David Ellis, Johnson Stokes & Master, 16th Floor, Princes Building, 10 Chater Road, Hong Kong; Tel 2843 4226; Fax no. : 2845 9121. Alternatively do a text search "Johnson Stokes and Master" and "Business Monitor".