Vietnam has announced new rules, including a tax on profits sent overseas, that appear to bedesigned to encourage re-investment in the country and discourage "cowboys" from churning investment licences.

Lawyers and accountants said the law, which took effect on January 1 but was only made public on Wednesday, went a long way toward clearing up the confusion that has reigned in the past over capital gains taxes.

As is always the case in Vietnam, however, some grey areas remain.

Previously, how much a company owed in capital gains tax depended upon whom you talked to. The State Committee for Cooperation and Investment (SCCI), now part of the Ministry of Planning and Investment, said foreign companies owed a flat rate of 25 percent on capital gains.

The tax department of the Finance Ministry, quoting a different law, held that the amount of the difference between the capital investment and the sale price should be taxed at 25 percent, and that companies would also be liable for a two percent tax on the whole amount of the sale price.

There was no law governing capital gains for domestic companies.

In the new circular, the Finance Ministry decreed a rate of 25 percent on capital gains for foreign firms, plus a remittance tax if the profit is shipped back overseas. The remittance rate will vary according to the licence, but will generally be between five and 10 percent of the capital gain.

"It seems to be designed to discourage the remittance of money overseas, to keep money here for reinvestment," commented one accountant.

The Finance Ministry circular stated that it superseded previous regulations. "But can a Finance Ministry circular override an SCCI regulation?" pondered another accountant.

He also noted that while no mention of the turnover tax was made in the new ruling, Vietnamese state bodies have been known to be somewhat arbitrary in their interpretation of legal changes: "The Ho Chi Minh City tax office, which thinks it's another country, may well turn around and say the turnover tax wasn't mentioned, so it still stands."

The new ruling makes life a lot more expensive for people in business who butter up good contacts to get investment licences in Vietnam, and then sell them on to other investors.

The practise of churning licences, common in the earliest days of foreign investment in Vietnam, is dying out now that more experienced Vietnamese authorities are better able to sort the real investors from the cowboys.

But remaining churners will be vastly discouraged by the new law.

For the first time, profits from licence sales will be liable for capital gains tax.

The new law, known as Circular 96, left other loopholes open, however. Lawyers and tax advisors said it did not seem to apply to the sale of offshore holding companies of Vietnamese interests.

Copyright 1996 Asia Times.

(c) 1996 Chamber World Network International Ltd