Joint Circular No. 08/2003/TTLT-BKH-BTC dated 29/12/2003
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MINISTRY OF PLANNING &                                               SOCIALIST REPUBLIC OF VIETNAM

INVESTMENT                                                                   Independence - Freedom - Happiness

MINISTRY OF FINANCE

 

No. 08-2003-TTLT-BKH-BTC                                                                Hanoi, 29 December 2003

 

 

JOINT CIRCULAR

PROVIDING GUIDELINES ON IMPLEMENTATION OF A NUMBER OF PROVISIONS IN DECREE 38-2003-nd-cP OF THE GOVERNMENT DATED 15 APRIL 2003 ON CONVERSION OF A NUMBER OF eNTERPRISES WITH FOREIGN OWNED CAPITAL TO OPERATION

 IN THE FORM OF SHAREHOLDING COMPANIES

 

 

Pursuant to Decree 38-2003-ND-CP of the Government dated 15 April 2003 on conversion of a number of enterprises with foreign owned capital to operation in the form of shareholding companies;

 

Pursuant to Decree 61-2003-ND-CP of the Government dated 6 June 2003 on the functions, duties, powers and organizational structure of the Ministry of Planning & Investment;

 

Pursuant to Decree 77-2003-ND-CP of the Government dated 1 July 2003 on the functions, duties, powers and organizational structure of the Ministry of Finance;

 

The Ministry of Planning & Investment and the Ministry of Finance hereby provide guidelines on a number of provisions in Decree 38-2003-ND-CP of the Government dated 15 April 2003 on conversion of a number of enterprises with foreign owned capital to operation in the form of shareholding companies:

 

Article 1      Applicable entities

 

Enterprises with foreign owned capital (hereinafter referred to as enterprises) which satisfy all the conditions stipulated in article 7 of Decree 38-2003-ND-CP of the Government dated 15 April 2003 on conversion of a number of enterprises with foreign owned capital to operation  in the form of shareholding companies (hereinafter referred to as Decree 38-2003-ND-CP) shall be considered for conversion to the form of shareholding company; however the following enterprises shall not yet be considered for conversion:

 

(a)      Enterprises in which the foreign party(ies) or joint venture party(ies) (in the case of a joint venture enterprise) or foreign investor(s) (in the case of an enterprise with one hundred (100) per cent foreign owned capital) have committed to transfer all their assets to the State of Vietnam and the Vietnamese party(ies) without compensation.

 

(b)      Enterprises with pre-earned revenue such as enterprises operating in the sectors of operation of infrastructure for industrial zones, export processing zones and new urban areas; construction of housing for sale or lease with receipt of money in advance; construction of offices and apartments for pre-paid lease; golf courses; services involving sale of membership cards; and pre-paid sub-lease of land and so forth.

 

(c)      Enterprises investing in the forms of BT, BOT and BTO.

 

(d)      Enterprises whose invested capital as prescribed in their investment licence is above seventy (70) million US dollars or less than one million US dollars.

 

(e)      Enterprises with accumulated losses at the date of application for conversion (after they have used the profit of the financial year immediately preceding the year of conversion in order to make up losses) greater or equal to owner’s capital.

 

(g)      Enterprises with debts receivable which are irrecoverable as at the date of application for conversion and which are greater than owner’s capital.

 

Article 2      Methods of conversion

 

Enterprises which may convert by the methods stipulated in article 4 of Decree 38-2003-ND-CP comprise:

 

1.       “Retention of the value of the enterprise and of the investor(s)” shall apply to enterprises:

 

          (a)      Whose number of investors at the date of application for conversion satisfies the requirements on the minimum number of shareholders stipulated as applicable to shareholding companies;

 

          (b)      Whose investors do not assign their capital contribution share to new shareholders;

 

          (c)      Which do not raise additional charter capital.

 

          Investors prescribed in Decree 38-2003-ND-CP and in clause 1 of this article mean the foreign party(ies) and the Vietnamese party(ies) in a joint venture enterprise, and foreign investor(s) in an enterprise with one hundred (100) per cent foreign owned capital as prescribed in the investment licence or charter of the enterprise.

 

          The ratio of shares held between founding shareholders shall be determined according to the ratio of legal capital contribution prescribed in the investment licence or as agreed between the investors and prescribed in the charter of the shareholding company.

 

2.       “Assignment of a part of the value of the enterprise to new shareholder(s)” shall apply to enterprises:

 

          (a)      Which need additional shareholders to ensure the minimum number of shareholders stipulated as applicable to shareholding companies or which wish to have more new shareholders, and

 

          (b)      Which do not raise additional charter capital.

 

          The ratio of shares held between founding shareholders shall be determined by agreement and prescribed in the charter of the shareholding company.

 

3.       “Retention of the value of the enterprise or assignment of a part of the capital and issuance of additional shares to attract investment capital” shall apply to enterprises:

 

          (a)      Which wish to increase their charter capital;

 

          (b)      Which wish to both raise additional capital and to increase their number of shareholders.

 

          The ratio of shares held by new founding shareholders shall be determined by agreement and prescribed in the charter of the shareholding company.

 

          In cases of conversion as set out in clauses 1, 2 and 3 of this article, shareholding companies must comply with the provisions in articles 10.1 and 12.3 of Decree 38-2003-ND-CP.

 

Article 3      Value of enterprise for conversion

 

1.       The value of an enterprise for the purpose of conversion shall be the total value of current assets recorded in the accounting books of the enterprise as audited independently within six months prior to the date of submission of an application file for conversion.

 

2.       The value of the investor’s capital share prior to conversion shall be the total value of current assets recorded in the accounting books of the enterprise as audited by an independent auditing organization within six months prior to the date of submission of an application file for conversion after deduction of debts payable.

 

3.       The date of valuation of an enterprise shall be the date of its audited financial reports[1].

 

4.       During the process of valuation of an enterprise, the inventory and classification of all types of assets, debts receivable and debts payable shall comply with the current regulations on financial management, accounting and taxation.

 

          The value of any assets which are missing, lost, damaged or unusable (if any) shall be deducted from the value of an enterprise for the purpose of conversion after subtracting damages/compensation for individual liability.

 

          The value of any excess assets (if any) shall be included in the value of an enterprise for the purpose of conversion.

 

          Where there are sufficient grounds for determining that some debts receivable are irrecoverable at the date of valuation of the enterprise, such debts shall be accounted for in expenses of the enterprise.

 

          Where there are sufficient grounds for determining that creditors have surrendered their rights to debts payable at the date of valuation of the enterprise, such debts shall be accounted for in revenue of the enterprise.

 

5.       In the case of a joint venture enterprise in which a Vietnamese party is permitted to use the value of its land use right to contribute capital to the joint venture, and if the Vietnamese party is a State owned enterprise then it must complete the procedures for recording capital in the form of land use right as capital contribution to the joint venture in accordance with guidelines of the Ministry of Finance.

 

6.       If in the period from the date financial reports are audited until the date of effectiveness of the amended investment licence, any profits or losses arise which impact on the value of the enterprise, such enterprise shall be entitled to amend the value of the enterprise for the purpose of conversion by the relevant amount of any such arising profit or loss as audited.

 

Article 4      Files requesting conversion

 

1.       Files requesting conversion shall be prepared in accordance with articles 20 and 21 of Decree 38-2003-ND-CP.

 

2.       In the following cases, a file requesting conversion shall include a specific explanatory paper as an item in the conversion plan:

 

          (a)      An enterprise adding new founding shareholders;

 

          (b)      An enterprise whose investment licence provides for a ratio of profit sharing which is different from the ratio of legal capital contribution of the parties;

 

          (c)      An enterprise selling shares to employees;

 

          (d)      An enterprise issuing additional shares to raise additional charter capital.

 

Article 5      Order and procedures for conversion of enterprises

 

1.       Enterprises which satisfy the conditions for conversion stipulated in article 1 of this Circular shall forward their file requesting conversion to the Ministry of Planning & Investment prior to 25 March 2004 for consideration and selection of enterprises for conversion prior to 25 May 2004.

 

2.       Time limit for evaluation:

 

          (a)      Within a time-limit of three working days from the date of receipt of a valid file, the Ministry of Planning & Investment shall forward it to the relevant ministries and branches for their opinions.

 

          (b)      Within a time-limit of fifteen (15) working days from the date of receipt of a valid file, the relevant ministries and branches shall forward their written opinion on the request for conversion to the Ministry of Planning & Investment; if the relevant ministries and branches have not provided their written opinion at the expiry of that time, they shall be deemed to have agreed to the request for conversion of the enterprise.

 

          (c)      Within a time-limit of thirty (30) working days from the date of receipt of a valid file, the Ministry of Planning & Investment shall submit its evaluation opinion to the Prime Minister of the Government.

 

          (d)      Within a time-limit of five working days from the date of receipt of a decision from the Prime Minister of the Government, the Ministry of Planning & Investment shall forward written notification to the enterprise requesting conversion.

 

3.       Within a time-limit of six (6) months from the date of receipt of notification approving conversion from the Ministry of Planning & Investment, an enterprise shall carry out the procedures for conversion stipulated in article 23 of Decree 38-2003-ND-CP and notify the results to the Ministry of Planning & Investment so that the latter may issue an amended investment licence ratifying conversion of the enterprise.

 

          If an enterprise has not completed the procedures at the expiry of that time, it shall notify the Ministry of Planning & Investment for its consideration and decision. If an enterprise fails to make such notification it shall be deemed not to request conversion and the Ministry of Planning & Investment shall terminate its consideration of the application.

 

4.       Within a time-limit of seven (7) working days from the date of receipt of notification from an enterprise of the results of undertaking conversion of the enterprise, the Ministry of Planning & Investment shall consider and approve conversion of the enterprise to a shareholding company by issuing an amended investment licence.

 

          The above time-limits shall not include any time an enterprise takes to amend or supplement its application file for conversion.

 

          All requests from the Ministry of Planning & Investment to amend or supplement an application file for conversion shall be made in writing within a time-limit of fifteen (15) working days from the date of receipt of a valid file.

 

5.       During the process of conversion, an enterprise shall maintain its organizational and operational structure in accordance with the provisions of the Law on Foreign Investment in Vietnam and must ensure normal business operations up until issuance of the amended investment licence ratifying conversion of the enterprise.

 

Article 6      Preferential corporate income tax, implementation of other rights and obligations by shareholding companies

 

1.       Shareholding companies with foreign owned capital shall be entitled to preferential corporate income tax rates, and shall implement other rights and obligations in accordance with the provisions of the Law on Foreign Investment in Vietnam.

 

2.       If an enterprise converts by the method of assignment of a part of the value of the enterprise to new shareholder(s) and earns a profit thereby, the assignor shall pay corporate income tax on the assignment in accordance with the provisions of Decree 24-2000-ND-CP of the Government dated 31 July 2000 providing detailed implementation of the Law on Foreign Investment in Vietnam and Decree 27-2003-ND-CP of the Government dated 19 March 2003 amending and supplementing a number of articles of Decree 24-2000-ND-CP.

 

Article 7      Currency for recording par value of share

 

1.       The par value of shares issued by a shareholding company in Vietnam shall be recorded in Vietnamese dong.

 

          If shares are issued or listed overseas, their par value may be recorded in US dollars or [another] freely convertible foreign currency.

 

2.       If shares recorded in foreign currency are traded in Vietnam they must be converted into Vietnamese dong at the following exchange rates:

 

          -         For US dollars, the average trading exchange rate between Vietnamese dong and US Dollar on the inter-bank foreign currency market published by the State Bank at the time of conversion;

 

          -         For other freely convertible foreign currencies, the exchange rate between Vietnamese dong and such foreign currency published by the State Bank once every ten days as applicable to import and export duties, at the time of conversion.

 

Article 8      Assignment of shares of foreign founding shareholders

 

1.       During the process of operation, foreign founding shareholders shall be permitted to assign their shares pursuant to article 15 of Decree 38-2003-ND-CP.

 

2.       Any assignment of shares of foreign founding shareholders must be passed by the board of management of the shareholding company and approved by the Ministry of Planning & Investment.

 

3.       Shareholding companies must comply with the provisions on shareholding ratios by foreign founding shareholders stipulated in articles 10.1 and 12.3 of Decree 38-2003-ND-CP. If they fail to do so, shareholding companies must report same to the Ministry of Planning & Investment for its consideration and decision.

 

4.       If during the process of operation any failure to comply with the provisions in articles 10.1 and 12.3 of Decree 38-2003-ND-CP is detected, shareholding companies shall be wholly liable and shall be dealt with in accordance with law.

 

Article 9      Reporting regime

 

Shareholding companies shall report their operational status in accordance with the general regulations applicable to enterprises with foreign owned capital and every six months and every year shall report to the Ministry of Planning & Investment and to the Ministry of Finance on their operational status, issuance of shares, shareholding ratio by foreign founding shareholders, participation in the domestic and overseas securities markets, on favourable and unfavourable matters and any other relevant issues.

 

Article 10    Effectiveness

 

This Circular shall be of full force and effect fifteen days after the date of its publication in the Official Gazette.

 

If any problems arise during the implementation of this Circular, they should be reported to the Ministry of Planning & Investment and to the Ministry of Finance for investigation and resolution.

 

 

                For the Minister of Finance

                Deputy Minister       

                LE THI BANG TAM

 

For the Minister of Planning & Investment

                Deputy Minister       

                NGUYEN BICH DAT

 

 

 

 

 

 

 

 

 

         

 

 

 

 

 

 

 

 

 



[1]                   The literal translation is "The time of valuation of an enterprise shall be the time when the financial statements have been audited".

 
 
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