A. Openness To Foreign Investment

1. Government's Policy Toward Foreign Investment: One decade after initiation of Vietnam's economic reforms, the Eighth Party Congress, held from 28 June 1996 to 1 July 1996, reaffirmed its commitment to pursue an economic policy for the further development of a "multi-sector economy with socialist orientation." Moreover, foreign direct investment remains an essential element of Vietnam's economic reform program. The government's target is to realize $13-15 billion of implemented foreign capital between now until the year 2000.

2. Foreign Investment Trends: Foreign investment in Vietnam has increased every year between the period 1988 and 1995, growing at an average rate of 50% per year. Since the first project was licensed in 1988, over 1,600 projects have since been licensed with a total investment value topping $21 billion from over 700 companies representing about 50 countries and territories around the world. About 75% of foreign investment has been directed into three major economic growth zones (Hanoi-Hai Phong-Quang Ninh in the North; Hue-Quang Nam-Dung Quat in the Central; and Ho Chi Minh City-Dong Nai-Song Be-Vung Tau in the South). To date, about 25-30% of $21 billion in foreign investment has actually been committed, while some 258 projects (accounting for about 14% of total foreign investment) have been dissolved ahead of the licensed schedule. MPI attributed several causes for the canceled projects: 1)capital contribution shortfall; 2) shifting market conditions during the interim between project formulation and project implementation; and 3) poor organizational management.

3. Foreign Investment Experience: The past eight years of Vietnam's foreign investment experience have also demonstrated both shortcomings and major challenges. Administrative procedures for business activities like licensing, land acquisition and import-export, are time-consuming and cumbersome. The dilapidated physical infrastructure hampers operations and results in increased costs. The transportation system requires major upgrading. Power outages are still common in the South, while water shortages are prevalent in the North. Telecommunication services are improving, but charges rank as some of the highest in the region. The legal framework and financial system are in a state of development as Vietnam moves toward a market-oriented economy. As such, successful foreign investors are those who are fully aware of the risks and challenges and have factored these into the structure of their investment projects. Given the state of the business and legal environment, foreign investors cannot afford to be anything less than actively involved in all aspects of their business activities in Vietnam.

4. Basic Laws and Regulations Governing Foreign Investment: Foreign investments are governed by the Law on Foreign Investment in Vietnam and Decree 18 Providing Regulations on Foreign Investment in Vietnam, often referred to collectively as "FIL" for foreign investment legislation. Considered one of the most liberal investment codes in Southeast Asia, FIL provisions detail the form and organization for four types of investment vehicles, investment guarantees, taxation, banking and foreign exchange, and other pertinent issues. The FIL, promulgated in 1987, has already been amended twice and another set of amendments will be submitted to the October 1996 session of the National Assembly. Although it is difficult to assess which proposals are likely to be approved, some proposed changes to the FIL will address some concerns of foreign investors, including special incentives for investments in priority areas, the principle of unanimity for board of management decisions, methods of capital contribution and reinvestment, and streamlined administrative procedures for licensing.

5. Forms of Foreign Investment: Under the FIL, four forms of foreign investment are allowed: joint venture company (JVC); 100% foreign owned enterprise (FOE); a business cooperation contract (BCC); and a build-operate-transfer project (BOT). Although four investment forms are available, foreign investors should note that certain types of foreign investment are not permitted in certain areas, and are only permitted as FVCs or BCCS in other areas.

6. Joint Ventures: The joint venture company (JVC) is the most common, accounting for 70-75% of total foreign investment to date. The JVC is also presently the favored form by MPI for most investment projects. A joint venture creates a private limited liability company through shared ownership by Vietnamese and foreign partners. The minimum legal capital requirement for the foreign party is 30% and there is no statutory ceiling limit. In practice, JVCs are usually structured as a 70% contribution by the foreign party and 30% by the Vietnamese party. Legal capital contribution by the foreign party may be in the form of cash, plant, equipment, technology and know-how. The Vietnamese party's contribution is usually land-use rights. Under the FIL, valuation of all capital contributions is to be based on international market prices. Licenses are issued for a maximum duration of 50 years, although in special cases, they may be granted up to 70 years. Although over 1,400 JVCs have been licensed, it is estimated that only about 25% of these are in operation. Some major obstacles include financing; differing agendas and commercial expectations; unexpected administrative delays in clearing current occupants from the land to be used by the project and procuring necessary permits such as construction permits, and shifting market conditions. JVCs are required to form a board of directors, referred to as the Board of Management in Vietnam, of which the membership reflects the proportion of each party's capital contribution. However, the guiding principle for the management of foreign investment projects in Vietnam is equality between both parties. As such, at least two members on the board must be from the Vietnamese party, and certain major decisions affecting the JVC require unanimous vote of the board. Other decisions require a two-thirds majority.

7. 100% Foreign-Owned Enterprise (FOE): The FOE is established as a limited liability company incorporated in Vietnam with 100% foreign capital. Like JVCs that can only be established for specific investment proposes, the FOE accounts for 17% of foreign investment in Vietnam. However, increasingly more foreign investors are opting for the FOE as a way to control the various risks associated with investing. The FOE affords the advantage of independence, management control and no profit sharing. The disadvantages are difficult access to land (except in the case of industrial zones), a limited duration from 20 to 30 years not more either legally or in practice, and the lack of assistance with the government by a Vietnamese partner. It is also somewhat difficult to obtain approval for a FOE as it is currently the least favored investment form by MPI. Initially, a FOE license was typically granted for investments in the area of high technology and export-oriented production; however, the trend is becoming more broad-based.

8. Business Cooperation Contract (BCC): The BCC is a contractual arrangement between the foreign and Vietnamese party and no separate legal entity is created. It is, thus, considered the most flexible in some respects but has other limitations with respect to the other three investment types. A BCC receives a business license as opposed to an investment license and is not entitled to many tax holidays and other concessions given to foreign invested projects. In practice, the duration granted rarely exceeds 15 years and is commonly 5 years. To secure MPI approval, the parties involved must show that a high degree of commercial involvement on both sides will occur, and that it is not merely a subcontracting arrangement (processing contracts are regulated by the Ministry of Trade). The BCC contract Vietnam Post and Telecommunications has with the Australian company Telstra is an example of a successful BCC arrangement. BCCs are also common in the petroleum and telecommunications sectors, where foreign investors are prohibited from having operational involvement or management control.

9. Build-Operate-Transfer (BOT): The BOT investment form is designed to attract private foreign investment in public infrastructure projects. Under a BOT license, investors build the infrastructure, operate the project for a reasonable time period to recover their initial investment and earn a reasonable profit, and at the end of the contractual period, transfer the project without compensation to the Vietnamese government. Although this investment form has been prioritized since 1993 and foreign investors continue to show strong interest, only two foreign-invested BOT ventures have been licensed: a $30 million water plant in Ho Chi Minh City and a $638 million container port project in Vung Tau. Currently, a number of major BOT electric power projects are under negotiation. Amendments to the FIL for debate in the upcoming National Assembly is intended to encourage BOT and variations on this investment structure. An inter-ministerial committee was recently formed to coordinate government policy on and support for BOT. A host of legal and practical issues need to be addressed before investments in BOT projects reach the government's desired level.

10. Investment Licensing Process: All foreign investment must have a license issued by the Ministry of Planning and Investment (MPI) in Hanoi, except branches of certain types of foreign companies, such as banks which require the approval of the relevant ministries. MPI is designed to be a "one-stop" licensing body responsible for coordinating with various other government authorities the evaluation and approval of an investment license application. Once a license has been approved, MPI monitors and regulates the performance of licensed projects. To direct foreign investment into priority areas, MPI publishes an investment priority list which provides information regarding projects, industries and locations identified by various Vietnamese authorities as those appropriate for foreign investment. For evaluation purposes, investment projects are classified as Group A or Group B, with mandated approval periods of 65 days and 45 days, respectively. Group A requires the approval of the Prime Minister and includes projects in industrial zones, export processing zones and BOT; projects with investment capital $40 million or more; projects in the areas of culture, press and publishing; projects related to national defense and security; and projects that use 5 hectares or more of urban land and 40 hectares or more of other types of land. Group B includes all other projects and are approved solely by MPI.

11. Practical Considerations: Although the license application and approval process are standardized, in practice, the process remains bureaucratic, and can be cumbersome and lengthy. Investors can expedite the licensing process by informing and consulting with the relevant State and local authorities about the investor's purpose and progress before formal submission of the application. The interaction allows the investor to ascertain whether the project is in line with current government policy or regional development plans. Drafts of the application may be informally circulated to officials for verbal feedback. Applicants should obtain letters of endorsement from provincial People's Committees and other officials in support of their application. Sharing of proprietary or sensitive information about the investor's business strategy, however, should be on a selective and limited basis, as attitudes toward confidentiality may not be as rigorous as investors conventionally expect. Several elements of an application carry weight in MPI's evaluation criteria: 1) legal status and financial capabilities of the project's foreign and Vietnamese partners; 2) tangible and equitable benefits to the Vietnamese party -- if not evaluated as such, expect MPI to recommend amendments; 3) compatibility with the government's policy goals and priorities in terms promoting economic and social development, jobs creation, greater production capability, and technology transfer. The application package must be in Vietnamese and one other commonly used foreign language.

B. Conversion & Transfer Policies

Under the FIL, foreign parties to a BCC and foreign invested enterprises are generally required to be self-sufficient in foreign currency requirements to pay expenses, repatriate profits, repay loans and other foreign currency expenditure requirements. As all transactions in Vietnam are required to be in Vietnamese dong, which is non-convertible and does not circulate outside of Vietnam, access to foreign currency is a significant issue for most foreign investors unless their business is exporting in exchange for hard currency. Foreign invested enterprises may apply to the State Bank to purchase foreign currency. However, it distributes available foreign currency according to official priorities and favored projects, such as infrastructure construction and import-substitution, having priority, it is believed (although this has not yet been a problem). One of the proposed amendments to the FIL that will be considered in the October 1996 session of the National Assembly is a provision to allow foreign parties to joint ventures to make its contribution to legal capital in Vietnamese or foreign currency. The option to use local currency profits generated from the JVC is intended to ease the constraints of limited foreign exchange reserves.

C. Expropriation & Compensation

The FIL expressly provides guarantees against nationalization and expropriation for all forms of foreign investment. The FIL also states that where the benefits of a licensed foreign investor are "reduced due to any change in the law of Vietnam, the State shall take appropriate measures to protect the interest of the investors." In practice, there have been no instances where the State officially expropriated a foreign investment. However, foreign investors must contend with shifting policies and the introduction of new restrictions or requirements. Although inherent in developing economies, these changes are often unexpected and can adversely affect the viability of a licensed foreign investment. For example, foreign law firms are currently debating the implications of the recently proposed 24% combined turnover and profit tax on their business. Foreign investors in the auto industry face a dilemma arising from recent changes in the quota policy on CKD (completely knocked-down) components necessary for assembling cars as well as the government's revocation of its previously imposed ban on second-hand vehicle importation. Other investors report increased import duties resulting from a reclassification of goods by customs authorities.

D. Dispute Settlement

1. Economic Courts: Vietnam offers two forums for the resolution of commercial disputes: economic courts and economic arbitration bodies. Economic Courts were established in 1994 and have jurisdiction over "economic affairs," including most disputes involving foreign investments and bankruptcy. A petition must be made within six months from the date of dispute. The court is supposed to render its judgment within seven days, and appeals must be made within ten days. To date, the Economic Courts have heard about 70 cases, with 7 involving a foreign party. However, mechanisms for enforcing court judgments are not yet fully developed.

2. Economic Arbitration: It is possible to refer disputes to a Vietnamese-established arbitration center such as the Vietnam International Arbitration Center (VIAC); ad hoc arbitration groups in Vietnam; or to international arbitration centers established under UNCITRAL rules in Singapore. Vietnam recently became a member of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958. Effective January 1996, the Ordinance on Recognition and Implementation of Foreign Arbitral Awards in Vietnam establishes a mechanism for recognizing and enforcing foreign arbitration awards. There is no legal basis for enforcing domestic arbitral awards. Therefore, the efficacy of the new enabling legislation remains to be seen.

3. Practical Considerations: Investors are well-advised to negotiate the procedures for conflict resolution with their business partners and include them explicitly in the relevant contracts. Foreign arbitration is the preferred forum as the practice of arbitration in Vietnam is not yet at international standards. Moreover, legal experts contend that, with the accession of Vietnam to the 1958 New York Convention on the Recognition and Enforcement of foreign Arbitral Awards, the legal basis to enforce foreign arbitration decisions in Vietnam is indeed currently much better developed than for local awards. There is no basis yet for enforcement of local awards, as noted.

4. Bankruptcy Law: The Bankruptcy Law was enacted in December 1993. The law applies to most enterprises operating in Vietnam, including enterprises with foreign invested capital. Cases are filed and heard by the Economic Courts. Creditors, union or labor representatives or the enterprise itself can petition for bankruptcy as set out by the law. If the courts determine an enterprise is bankrupt, a committee appointed by the Enforcement Unit at the Department of Justice, will carry out the disposal of the enterprise's assets.

E. Political Risk

The government maintains a long-standing policy of not tolerating political dissent. As such, there are reported cases of the Vietnamese government arresting and detaining Overseas Vietnamese, Buddhist monks, and Vietnamese citizens, who were allegedly promoting subversive activities. In 1994, the government created the Anti-Social Evils Department under the Ministry of Labor, Invalids and Social Affairs (MOLISA) to expedite the State's campaign against "social evils." The campaign went into full force during the period leading up to the Eighth Party Congress in June 1996, with inspection teams targeting advertisement and other "undesirable cultural influences." Police confiscated and painted over signs for foreign products such as Coca-Cola and Tiger Beer. Foreign investors remain uneasy about the implicit link being made between foreign products/influences and the growth of prostitution, drug use and other social problems. It should be noted that current policy is to continue the campaign, albeit in a more controlled manner, as a measure to preserve Vietnamese culture and values. Experience since the Party Congress would seem to bear this out.

F. Performance Requirements/Incentives

Vietnam has certain requirements such as localization of production and export commitment for specific industries and projects. Requirements are usually discussed during contractual negotiations with the Vietnamese partner or during the investment licensing process. Subsequently, the negotiated terms are set forth in contracts establishing the joint venture or may be expressly stated in the foreign investment license. Take note that the following tax rates may be modified by the upcoming investment law amendments.

1. Incentives: In general, a licensed foreign investment is eligible for the incentives specified below, (this may change if the proposed amendments to the Foreign Investment Law and the Corporate Tax Law are passed), with certain exceptions:

3. Current Taxation Regime: Frequent piecemeal changes to the taxation legislation, which is currently not unified in a single tax code, has been a major concern to foreign firms operating in Vietnam. However, they may achieve some level of certainty with respect to the taxation regime where provisions are made in their foreign investment license. The license typically stipulates rates of profit and remittance tax, including preferential rates and the period of application. It is implicit in the language of the license that profit and remittance tax rates apply for the duration of the license. Although taxation reform appears to be underway, most foreign business activities in Vietnam will be affected by some variation of the following main taxes:

4. Double Taxation Relief and Tax Treaties: Although the US has not yet signed a tax agreement with Vietnam, Vietnam has signed bilateral tax treaties with over 25 countries, and some of these are in effect. Experienced foreign investors have found that local tax officials and bureaucrats have limited experience in implementing provisions of double taxation treaties and often are unaware of the treaties' provisions.

5. Proposed Tax Law Changes: Some proposed amendments drafted by the Ministry of Finance that are of relevance to a potential foreign investor encompass 1) a unified corporate tax rate of 33% that would apply to both foreign and local business enterprises; 2) a withholding tax of 15% on interest payments; 3) reduced personal income tax rates for foreigners and Vietnamese; and 4) a value added tax (VAT) to replace the existing turnover tax. Profit tax rates stipulated in current business licenses, including foreign investment licenses, will not be affected as the new law will not be applied retroactively. In its draft form, the VAT system will have multiple rates for various businesses, a range of exemptions and a separate regime for small business enterprises. The planned introduction date is 1998. However, foreign investors are well-advised to consider the implications of the VAT on the incidence of tax for pricing and contract arrangements.

G. Right To Private Ownership & Establishment

1. Forms of Business Establishment and Ownership: The legal structure for doing business in Vietnam encompasses four investment scenarios stated under the FIL (business cooperation contract, joint-venture, 100% foreign owned enterprise, a, and a build-operate-transfer project). Foreign companies can gain market entry via a representative office; agency or distributorship agreement; technology transfer; and through a management contract. Foreign invested enterprises are permitted to hire a management company, subject to the unanimous approval by the board of management of the enterprise and the MPI. The management company must operate "under the umbrella" of the foreign invested enterprise. Foreign ownership through one of the four investment forms is limited to the fixed term of the specific project. The FIL does not yet provide for the establishment of shareholding companies.

2. Ownership in Vietnamese Companies: Foreigners are not permitted to invest directly or own an equity interest in Vietnamese-owned companies, except in limited situations. In a pilot project, the government recently allowed for the first time a Vietnamese company, Ho Chi Minh City's Refrigeration Engineering Enterprise (REE), to issue low yield convertible bonds in hard currency to foreigners. These bonds will convert into an equity interest in 1998, according to a calculation based on a weighted average of the 1995, 1996 and 1997 profits. Maximum ownership can not exceed 25% and the foreign investors can have no management or control of the enterprise. In 1996, the State Bank allowed the first Vietnamese joint-stock commercial bank, the VP Bank, to sell up to 30% of their shares to foreign investors, with each subscription not to exceed 10%. The remaining 45 joint-stock commercial banks may apply to the State Bank to raise foreign funds if they meet operational and legal capital requirements. Overseas Vietnamese are entitled to special incentives if they want to purchase shares in joint-stock commercial banks.

3. Capital Markets: Plans for a stock market in Vietnam have been under consideration by the State Bank for several years, although experts doubt that a working exchange will be in place before 2000. Initially, trade is likely to be restricted to government bonds and shares issued by state-owned enterprises that have been partially privatized, or "equitized" as the State prefers to call it. It is unclear what role foreigners will play in Vietnam's "equitization" process or in the initial stages of the stock market. There are also various closed-end Vietnam investment funds listed on foreign stock exchanges. Due to legal and practical constraints, these funds can only make direct investments by buying a part of the foreign partner's equity in an established joint venture.

H. Protection Of Property Rights

Land Use Rights: Vietnam's 1992 Constitution embodies a strong commitment to the principal of the rule of law, a fundamental element of a market-based economy. This commitment is supported by frequent policy statements from Vietnam's leadership and is backed up by impressive efforts in law-making, revising institutions and training judges. Moreover, the new Civil Code adopted in 1995 and which became effective on 1 July 1996 represents a major achievement in building the legal framework in Vietnam. The principle of private ownership of land as such does not yet exist in Vietnam. Foreign investment under the FIL permits foreign investors to use land by leasing it directly or through a joint venture relationship with a local partner who has been allocated land use rights by the State. Land leases to foreign entities may be granted up to 50 years, or in special circumstances 70 years with the approval of the Prime Minister. In the case of a joint venture, the State grants the land lease to the Vietnamese partner (invariably State-owned) who usually contributes the land as legal capital worth the value of the land use right. The land use right issue is particularly vexing for foreign investors due to uncertainties and limitations with respect to valuation of the land-use rights for capitalization, the protracted approval process for acquisition, the difficulties and cost of clearing the land of its current users, and the inability to apply land use rights as collateral for foreign loans.

I. Regulatory System:

Laws & Procedures The legal system is undergoing rapid transformation in order to create a foundation for economic reform. Development of the legal framework is far from complete; Vietnam lacks a coherent body of laws covering many commercial issues, among other legal areas. Where laws do exist, the system of enforcement is altogether lacking or being slowly implemented. The Vietnamese legal profession lacks extensive practical training and experience in the application of law to commercial issues. Government officials at all levels are grappling with new administrative and regulatory reforms for which they have had limited to no prior experience in interpreting or implementing. Significant progress, however, has occurred over the past several years. The new Civil Code adopted in 1995 represents a commitment to the principle of the rule of the law, a fundamental element of a market-based economy. The new code will need to be supplemented by implementing measures, many of which are currently in draft form. As discussed earlier, a draft law to amend the FIL is under review and should provide more clarity. The establishment of an administrative court within the People's Court is aimed to enhance the responsibilities of civil servants. Nevertheless, given the evolving state of development of the law, foreign investors are wise to seek professional advice on the myriad of regulations affecting their potential investment before committing to an investment project.

J. Bilateral Investment Agreements

The US has not yet entered into bilateral agreements that would protect US investments in Vietnam. Vietnam has signed over 30 such agreements with other countries including Australia, China, France, Germany, Indonesia, Italy, Korea, Malaysia, the Philippines, Singapore, Sweden, Switzerland, Taiwan, and Thailand.

K. OPIC and Other Investment Insurance Programs

US institutions such as the Overseas Private Investment Corporation (OPIC), the Export Import Bank (Eximbank) and the Foreign Credit Insurance Association (FCIA) are currently restricted from working with Vietnam pending normalization of trade relations between the two countries. Negotiations for a U.S. - Vietnam Trade agreement are now underway.

L. Labor

1. Labor Availability: Vietnam's labor force of 40 million is relatively well-educated, boasting one of the highest literacy rates (almost 90%) in Southeast Asia. Skilled labor accounts for approximately 13% of the labor force. In general, there is a lack of understanding of international business concepts and practices and a need to increase relevant technology-based training. Foreign investors are coping with a shortage of qualified Vietnamese middle managers, technical experts and accountants. The demand-supply imbalance coupled with high personal income tax rates have sent labor costs in the middle to high range on an upward spiral. While the official minimum wage for manual laborers in foreign invested enterprises is $45 in Hanoi and Ho Chi Minh City, the average gross cost to an employer in Ho Chi Minh City for a sales representative or a chief accountant is estimated at $200 and $900, respectively.

2. Labor Code: The new Labor Code, effective since the beginning of January 1995, provides the legal framework for employee rights and employer obligations. The Labor Code requires a labor contract for all employment relationships. Provisions on work schedules require that normal working hours cannot exceed eight hours in a day or 48 hours in a week. Workers are entitled to fully paid days off on official public holidays as well as 12 to 16 days annual leave after 12 months of employment. The code covers other areas as well, like probation, maternity leave, equal opportunity, work rules and official reporting requirements.

3. Recruitment: Foreign-invested enterprises and representative offices are required to utilize the service of a labor agency to hire local labor. Representative offices transfer payroll and personnel management over to these service company hires. Only after consulting with the local labor agency on availability of candidates registered at these agencies may foreign companies advertise and pursue direct hires. Any hire must be approved by the local office of the Department of Labor agency. Hiring rules are relatively relaxed in major commercial centers.

4. Tax and Social Insurance Consideration: Employers are required to contribute 15% of their payroll to a State-operated Social Insurance Fund and 2% to a medical insurance fund. Employees are required to contribute 5% and 12%, respectively, of their individual wage. The employer is responsible for these deductions, including income tax, prior to payment of an employee's salary. Social insurance contribution together with high personal income taxes mentioned under E-3 above mean that for an employee to take home $1,000 in net income, be must be paid $4,000 to $5,000 gross.

5. Worker's Rights: The Labor Code stipulates that labor unions should be established for most businesses in operation, and that employers must recognize labor unions established in accordance with the Labor Union Law. The code also outlines provisions for dispute settlement. Local labor offices are reporting an increase in labor disputes. In 1995, there were 46 strikes, nearly double the previous year's figure of 28. Most strikes were related to delays in payments, poor working conditions or abuses of workers, and occurred primarily in factories managed by South Korean and Taiwanese investors. 6. Foreign workers: Vietnam has recently required most foreigners working in Vietnam to obtain work permits.

M. Foreign Trade Zones

1. EPZ and IZ: Export processing zones (EPZ) are industrial areas which are developed to support the production and export of goods. Industrial zones (IZ) are concentrated industrial areas established for export manufacturing and domestic production. The concept is to provide these zones and parks with essential utilities and infrastructure for operations and tax incentives and preferential treatment to encourage investment. To date, six EPZs and nine IZs exist at various stages of development in six principal regions: Hanoi, Hai Phong, Ho Chi Minh City, Dong Nai, Song Be and Can Tho. Foreign investments in these estates (including estate development investments) total about $1.2 billion, accounting for 6.5% of direct foreign investment. Investments are primarily in the sectors of garments and textiles, food and agricultural products processing, electronics, and sports equipment manufacturing. The main obstacles to the extensive expansion of EPZs and IZs are inadequate infrastructure development and lack of availability of investment capital. There is also considerable controversy over the conversion of agricultural land for industrial development.

2. EPZ Incentives: Projects located in EPZs enjoy the following investment incentives, among others: - Exemption from export tax on finished products exported from the EPZ to foreign markets; - Tax rates of 10% for production enterprises and 15% for service enterprises; - Exemption from tax on profits for the first four profitable years for production enterprises and first two profitable years for service enterprises; - A tax rate on profit remitted abroad of 5%.

3. IZ Incentives: Projects located in an IZ enjoy the following investment incentives, among others:

N. Capital Outflow Policy

Subject to foreign exchange availability and after payment of all tax obligations, foreign investors may repatriate their share of legal after-tax profits (only during the year in which profits were actually made), principal and interest due on loans, royalties or fees paid, invested capital and any other legally owned money and assets. This guarantee is valid if the activities are supported by an underlying contract that has been approved by the relevant government authorities, e.g. a technology transfer contract approved by MOSTE or a foreign loan agreement approved by the State Bank.

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Last update: March 1997 by VACETS