CIRCULAR

GUIDING THE FINANCIAL REGULATIONS APPLICABLE TO ONE-MEMBER LIMITED LIABILITY COMPANIES OWNED BY THE STATE, POLITICAL ORGANIZATIONS OR SOCIO-POLITICAL ORGANIZATIONS

In furtherance of the Government’s Decree No. 63/2001/ND-CP of September 14, 2001 on the transformation of State enterprises, enterprises of political organizations or socio-political organizations into one-member limited liability companies, the Finance Ministry hereby guides the financial regulations applicable to one-member limited liability companies as follows:

I. GENERAL PROVISIONS

1. This Circular prescribes the financial regulations applicable to one-member limited liability companies owned by the State, political organizations or socio-political organizations (hereinafter called one-member limited liability companies for short).

2. The one-member limited liability companies operate under the provisions of the Enterprise Law, the documents guiding the implementation of the Enterprise Law, Decree No. 63/2001/ND-CP of September 14, 2001, this Circular and the companies charters not contrary to the State’s stipulations.

II. SPECIFIC PROVISIONS

A. MANAGEMENT OF CAPITAL AND ASSETS

1. Charter capital:

The charter capital of one-member limited liability companies shall be invested by the owners or the owners representatives (hereinafter referred collectively to as owners) and prescribed in the companies charters.

1.1. The charter capital of the one-member limited liability companies shall include:

- The owners capital actually reflected on the accounting books at the time of transformation from the State enterprises, enterprises of political organizations or socio-political organizations into the companies as provided for in Decree No. 63/2001/ND-CP of September 14, 2001 of the Government or the capital invested by the owners at the time of founding the companies;

- After-tax profits left for the companies as addition to their capital;

- Capital supplemented to the companies by the owners (if any);

For the State-owned one-member limited liability companies, their capital shall also be supplemented from the following sources:

+ Amounts remittable to the State budget but left by the State for capital supplement (if any) according to the State’s regulations;

+ Capital of other sorts originating from the budget and considered as belonging to the budget under the stipulations of the Finance Ministry.

1.2. The increase and decrease of the companies charter capital shall be decided by owners.

The owners can withdraw their capital invested in the companies only in case of charter capital adjustment. In cases where the companies charter capital is not adjusted, the owners can withdraw their capital already invested in the companies only through form of transferring whole or part of their capital to other organizations or individuals.

For the capital amounts to be supplemented to one-member limited liability companies as pledged by the owners, the owners shall have to fully invest the capital according to the committed time limits. Where the owners, after two years, fail to invest the pledged capital amounts fully and on time, they must make the decrease adjustment of the companies charter capital.

2. Capital mobilization:

In addition to the capital amounts invested by owners, the companies are entitled to mobilize capital of organizations and individuals within and without the country under the provisions of law in service of their business. The capital mobilization by the companies must not alter the form of ownership of the companies.

The companies have the responsibility to repay the mobilized capital and the interests thereon (if any) to creditors as committed.

The company owners shall decide on and take responsibility for the capital-borrowing contracts with value being equal to or larger than 50% of the total asset value inscribed in the latest financial reports of the companies on the basis of ensuring the economic efficiency of the borrowed capital. For special cases, the owners may authorize the Managing Boards or the company presidents to decide on these capital-borrowing contracts. The authorization must be inscribed in the companies charters.

Where the owners decide on a percentage smaller than 50% of the total asset value inscribed in the financial reports, the specific percentages must be inscribed in the companies charters. The remaining capital-borrowing projects shall be decided by the Managing Boards or the company presidents.

3. Fixed assets:

3.1. The companies fixed assets include tangible fixed assets and intangible fixed assets.

The standards (on time and value) and the cost prices of fixed assets shall be determined according to the regulations of the Finance Ministry.

The payable interests on borrowed capital and the exchange rate differences of foreign currency loans for investment, which arise before the fixed assets are put to use, shall be accounted by the companies into the cost prices of the fixed assets.

3.2. The companies are entitled to select on their own plans for investment in the procurement of fixed assets, renewal of technological equipment or restructure of the fixed assets to suit the business objectives in order to raise the use efficiency of assets and capital.

- Companies shall invest in construction, procurement of assets according to the provisions of the current Regulation on investment and construction management. Regarding the competence to decide investment projects, the company owners shall decide on projects for procurement of fixed assets with value being equal to or larger than 50% of the total value of the companies assets inscribed in the financial reports at the time of latest publicization. Where owners decide on percentages smaller than 50%, the specific percentages must be prescribed in the companies charters.

The remaining investment projects shall be decided by the Managing Boards or the company presidents.

- The company directors have the responsibility to organize the implementation and take responsibility before the Managing Boards and the owners representatives for the tempo and quality of the investment projects already decided.

- For fixed assets being works, works items, which have been already completed and put to use, but their values have not yet been settled, their cost prices shall be temporarily recorded increasingly according to their temporarily calculated values for depreciation. After the final settlement, if there appear the increase or decrease difference against the temporarily calculated values, the cost prices shall be adjusted according to the settlement values approved by competent authorities.

3.3. Management and use of fixed assets: The fixed assets shall be managed and used according to the State’s regulations and the companies charters. The Managing Boards or the company presidents shall decide on the level of depreciation of fixed assets according to the frame prescribed by the Finance Ministry in order to recover the investment capital and preserve capital. The owners shall decide on the depreciation levels outside the prescribed frame of the Finance Ministry.

3.4. Liquidation and sale of fixed assets: The companies shall take initiative in drawing up plans on sale or liquidation of fixed assets when there is no need to use them or the assets have been unusably damaged in order to recover capital, and submitting them to the Managing Boards or the company presidents for decision. The sale or liquidation of assets must be effected through auctions. The proceeds from asset sale or liquidation shall be accounted into incomes in order to determine the business results of the companies.

For plans on liquidation or sale of fixed assets with their residual value being equal to or larger than 50% of the total asset value inscribed in the companies financial reports at the time of latest publicization, they shall be decided by the owners. For special cases, the owners may authorize the Managing Boards or the company presidents to decide and take responsibility for the results of the plans on asset liquidation or sale. The authorization must be inscribed in the companies charters. Where the owners decide on percentages lower than 50%, the specific percentages must be inscribed in the companies charters.

4. Management of stock merchandise:

- Current assets are stock merchandise, including goods purchased for sale and left in stock, purchased goods en route, consignment goods, raw materials, materials, instruments, tools in stock or purchased en route, unfinished products being in the process of production or finished products but not yet warehoused, stock finished products or products on consignment.

The stock merchandise prices shall be determined according to their original prices covering: the purchase prices, the processing expenses and other relevant expenses such as expenses for transportation, loading and unloading, preservation, insurance premium, import tax (if any), for carrying stock merchandise to the present locations and state. If the original prices inscribed on the accounting books are higher than the net realizable value, the enterprises must make deductions to set up reserves for stock price decrease as stipulated.

- Current assets being instruments or labor tools shall have their values distributed into the companies production and business expenses for one or two years depending on the nature and value of the assets. When their values are fully distributed but the instruments and tools are still in use, the companies shall have to open detailed-monitoring books to manage them.

5. Debts receivable, payable:

The companies shall have to open books to monitor debts according to each subject: The total amount of receivable debts, the amounts already received and the amounts to be received, the total amount of payable debts, the amounts already repaid and the amounts to be repaid. To regularly analyze and urge the recovery of receivable debts and the repayment of payable debts.

Before closing the accounting books to make the annual financial reports, the enterprises must inventory and compare debt amounts one by one with the creditors and/or the debtors. For receivable debts which are determined as bad debts or have been overdue for two years or more, the reserves must be set up according to the current regulations. The receivable bad debts shall be handled by crossing them from accounting books according to the regulations of the State and made up for with the receivable bad debt reserves; after subtracting the pecuniary compensations by concerned individuals and/or collectives, the deficit shall be accounted into business expenses of the enterprises.

6. Capital management and use:

6.1. The companies are entitled to flexibly manage and use the entire capital amounts invested by owners and other lawful capital sources for their business activities with a view to gaining profits, and at the same time take responsibility before the owners for capital preservation, for the efficient use of capital and ensure the interests of persons related to the companies such as creditors, customers, as committed.

6.2. The companies may use their capital and assets for investment outside the companies according to the provisions of law. The use of the land use right value as capital contribution for investment outside the companies must comply with the provisions of the Land Law and relevant stipulations of the State.

- The investment outside the companies (including investment overseas) shall be effected in forms of capital contribution to joint ventures, contribution of capital for the establishment of limited liability companies or joint-stock companies; receipt of investment capital transferred from other investors, or other investment forms prescribed by law.

- The owners shall decide on projects for investment outside the companies or the transfer of capital for investment outside the companies with value being equal to or larger than 50% of the total value of assets inscribed in the companies financial reports at the time of latest publicization. Where the owners decide on percentages lower than 50% of the total asset value, the specific percentages must be prescribed in the companies charters.

The remaining projects on investment outside the companies shall be decided by the Managing Boards or the company presidents.

- The re-evaluation of assets for contribution to joint ventures, to the establishment of joint-stock companies, limited liability companies shall comply with the current law provisions.

6.3. Annually, before closing the accounting books to make annual financial reports, the companies must organize the practical inventory of fixed assets, stock merchandise, capital money, debts in order to determine the actual figures at the time of making the financial reports; value the surplus, deficit or damaged assets; to clearly determine the causes thereof and responsibilities of concerned individuals and/or collectives and determine the material compensation levels according to law provisions and charters of the companies. The compensation levels shall be decided by the general directors or directors of the companies. The value of surplus assets shall be accounted into other incomes. The actual values of deficit or damaged assets, after subtracting the compensation money of individuals and/or collectives or insurance organizations shall be accounted into business expenses.

B. MANAGEMENT OF TURNOVER, EXPENSES AND COST PRICES

The companies are entitled to decide on their goods sale prices and on expenses arising in the course of their production and business activities. The turnover and business operation expenses are determined as follows:

1. Turnover and incomes of companies:

1.1. The business operation turnover means the enterprise’s entire money amount earned or expected to be earned from goods sale and/or service provision in the period, including extras and/or surcharges (if any).

1.2. The financial operation turnover means the money amount earned or expected to be earned from the use of the companies assets by other parties; incomes generated from loan capital, deposit interests, bond and/or note interests or income divided from capital invested outside the companies such as equity capital, joint-venture capital The income from investment outside the enterprises, if for which the enterprise income tax has not yet been paid, must be accounted by the companies into pre-tax incomes.

1.3. Other incomes mean money amounts earned or expected to be earned from liquidation or sale of fixed assets, insurance indemnities, fines collected from customers due to their contract breaches, payable debts which are now written off

1.4. The above-mentioned turnovers and incomes shall be determined under the provisions in Standard No. 14- Turnovers and other incomes, issued together with Decision No. 149/2001/QD-BTC of December 31, 2001 of the Finance Minister promulgating and announcing Vietnamese accounting standards (phase 1) and documents guiding the implementation of accounting standards.

2. The companies expenses shall include:

2.1. Business operation expenses:

a/ Production and business expenses arising in the period, including:

- Expenses for raw materials, materials, fuel, power, semi-finished products, services purchased from outside (calculated according to actual consumption and actual cost prices), distributed expenses of instruments and labor tools, expenses for fixed-asset repair;

- Expenses for fixed-asset depreciation determined according to the provisions at Point 3, Section A, Part II of this Circular;

- Wages and remuneration paid to laborers, decided by the Managing Boards under the guidance of the Ministry of Labor, War Invalids and Social Affairs;

- Social insurance fund, trade union fund, health insurance premiums of laborers inside the enterprises, to be paid according to regulations;

- Expenses for transactions, brokerage, guest reception, marketing, advertisement, meetings, calculated according to actually arising amounts. The Managing Boards or the company presidents shall decide on the expense levels and publicize them for use as basis for management, administration and supervision. The general directors or directors of the companies shall decide on the expense levels and take responsibility before the Managing Boards or the company presidents and the owners for their decisions.

- Other pecuniary expenses such as severance allowances for laborers, expenses for training to raise the managerial capabilities and professional skills of laborers, medical expenses, scientific research expenses, assorted taxes such as natural resource tax, land tax, land rent, expenses for female laborers, prior-deducted expenses for product warranty or asset repair, property insurance premium.

- The actual value of damaged assets (determined as being equal to the value of assets inscribed on the accounting books minus the compensations paid by concerned individuals and/or collectives, indemnities paid by insurance agencies, value of recovered discarded materials and amounts offset by financial reserve funds), irrecoverable debts.

- The value of reserves for stock or investment security price decrease, reserves for receivable bad debts, differences in exchange rates of long-term loan debts in foreign currency. The appropriation levels of reserves for expenses shall be based on the practical situation of the enterprises and the State’s regulations.

b/ The production and business expenses shall be divided according to clauses and items as follows:

- The direct production and business expenses include:

+ Expenses for raw materials, materials, fuel, power, which are used directly for the manufacture of the enterprises products; expenses payable to laborers directly involved in production such as wages, wage allowances, social insurance, health insurance, trade union funding.

+ General production expenses arising in work-shops such as expenses for fixed-asset depreciation, indirect raw materials and materials expenses, wages, wage allowances, social insurance, health insurance, trade union funding for workshop staff.

- Enterprise management expenses include expenses for the managerial and administrative apparatuses related to business activities of the companies, such as:

+ Expenses for depreciation of fixed assets, small labor tools in service of the apparatuses managing and administering the companies.

+ Wages, wage allowances and amounts for social insurance, health insurance, trade union funding of the apparatuses managing and administering the companies.

+ Expenses for services purchased from outside, other pecuniary expenses such as expenses for citizen reception, meetings, transactions, severance allowances for laborers, expenses for scientific research, technological renovation research, expenses for rewards to innovations and modifications, expenses for education and training, medical expenses for laborers of the enterprises, expenses for environmental protection, expenses for female laborers, property insurance premiums.

- The goods sale expenses mean all expenses related to the sale of products, services, including product warranty expenses, such as wages payable to sale personnel, social insurance and health insurance premiums, trade union funding for sale personnel, expenses for product packages, packing

- Expenses for stock price decrease reserves, receivable bad debt reserves, exchange rate differences of long-term loan debts in foreign currency.

- The actual value of damaged assets, irrecoverable debts.

2.2. Financial operation expenses, including; expenses related to investment outside the enterprises (capital contribution to joint-ventures, business cooperation, to the establishment of companies), expenses for interests on borrowed business capital, payment discount expenses, financial leasing expenses, reserve for investment securities price decrease, expenses for buying and selling bonds, shares, including investment losses, if any.

2.3. Other expenses

- Expenses for fixed- asset sale, liquidation (including the remaining value of fixed assets upon liquidation and sale);

- Expenses for recovery of receivable bad debts already written off from accounting books;

- Expenses for fines on breaches of economic contracts.

- Expenses for collection of fines;

- Other irregular expenses.

2.4. The following expenses which are offset by other sources or not related to production and business shall not be calculated into business expenses:

- Expenses for procurement, construction, installation of tangible and intangible fixed assets.

- Payable loan interests, exchange rate differences arising before the time the projects are put to use.

- Expenses not related to business activities of the companies.

3. Cost of products and/or services sold/provided in the period (or the cost prices of goods sold or services provided in the period).

- Production cost of products and/or services consumed in the period shall be calculated by the method of weighted average of the production costs of products in the period and the prices of stock products at the beginning of the period; or the production costs of products which are taken in first and delivered first; or the production costs of products which are taken in last but delivered first.

The production costs of products in the period shall be determined with the expenses for unfinished products at the beginning of the period, plus the direct production expenses arising in the period, minus the expenses for unfinished products at the end of the period.

- The enterprise management expenses arising in the period: Where the product-manufacturing cycle is long or the production is of particular character, depending on the practical situation of each enterprise, the Managing Board or the company president shall decide to distribute the enterprise management expenses into products consumed in the period, products left in stock and unfinished products at the end of the period on the principle that the value of stock products and unfinished products at the end of the period is not larger than the value which can be recovered.

- Goods sale expenses arising in the period.

- Expenses for stock price decrease reserves, receivable bad debt reserve, exchange rate differences of long-term loan debts in foreign currency.

- Value of actually damaged assets, irrecoverable debts.

4. For activities in forms of business cooperation, product-sharing contracts, the companies must organize the separate accountings of turnover and production expenses corresponding to the shared- product quantity. Where the profit-sharing form is applied, the profits earned from joint-venture cooperation contracts shall be accounted into the financial incomes of the enterprises.

5.The companies implemented profits shall be determined according to the financial expenses prescribed in this Circular. The enterprise income serving as basis for calculation of enterprise income tax shall be based on the expenses prescribed in the Enterprise Income Tax Law and the sub-law guiding documents of the Finance Ministry and other concerned ministries and functional branches.

C. PROFITS AND USE OF PROFITS OF COMPANIES

1. The gross profits of a company shall cover the business operation profits, the financial operation profits and other profits.

The total implemented profits of a company is the difference between the business operation turnover, the financial operation turnover as well as other incomes against the costs of consumed products, financial operation expenses and other expenses.

2.The companies implemented profits, after the payment of enterprise income tax as provided for in the Enterprise Income Tax Law and the offset for the preceding year’s losses not deducted from pre-tax profits, shall be used under the owners decisions according to the following directions:

a/ Deducting 10% for setting up the financial reserve fund. When this fund balance represents 25% of the charter capital, the deduction is no longer required.

b/ Deducting 5% for setting up the job-loss allowance fund; when this fund balance is equal to six months implemented wages, the deduction is no longer required.

c/ After subtracting amounts prescribed in Items a and b, the remaining profit amount shall be used for:

+ A maximum 10% - deduction to set up the reward fund;

+ A maximum 10% - deduction to set up the welfare fund;

+ A maximum 5% - deduction to set up a fund to reward the Boards which manage and administer the companies. The deduction level must not exceed VND 100 million provided that the ratio between the implemented pre-tax profits and the owners capital of the companies must be equal to or larger than the plan profit ratio; where the implemented pre-tax profit ratio is lower than the plan profit ratio, the corresponding reduction is required;

+ The minimum 30% - deduction to supplement capital to the companies.

The remainder shall be retained under the owners decisions to continue supplementing capital for the companies or mobilize for investment in other enterprises or to remit to the Budget.

3. The financial reserve fund is used to:

- Make up for property losses or damage incurred in the business process after subtracting the compensation money of concerned organizations and/or individuals and the insurance agencies.

- Make up for the companies losses under decisions of the companies owners.

4.The job-loss allowance funds are used to provide support for the laborers who have worked at the enterprises and temporarily lost their jobs under the regulations of the State; to provide funding for professional and technical retraining of laborers due to technological changes or their transfer to new jobs or for training the enterprises female laborers in reserve jobs.

5. The companies reward funds are used for:

Annual or periodical rewards to laborers in the companies, including the Managing Boards, general directors or directors, and people outside the companies who have assisted the companies in business activities. The Managing Boards or the company presidents shall ratify the plans on the use of reward funds, submitted by the general directors or directors of the companies. The general directors or directors of the companies shall decide on the concrete reward levels for laborers and take responsibility before the Managing Boards or the company presidents for their decisions.

6. The welfare funds are used for:

- Investment in, or repair of the welfare facilities of the companies or capital contribution to the construction of joint welfare projects with units in the corporations, ministries, branches, People’s Committees or other units as agreed upon in contracts.

- Expenditures for sport and cultural activities as well as public welfare of the labor collectives in the companies.

- Contribution to funds or expenditures for public welfare activities of local administrations where the enterprises are headquartered (including charity work, the construction of gratitude houses).

- Assistance to laborers in the companies, including those who have retired, lost their working capacity or left their jobs, who meet with regular or extraordinary difficulties.

7. The reward funds for managerial and administrative boards are used for:

Rewards to the Managing Boards of presidents, general directors, directors of the companies. The owners shall decide the reward levels for the Managing Boards or the presidents of the companies; the Managing Boards shall decide on the reward levels for general directors or directors of companies according to results of the companies activities.

8. The use of the above-mentioned funds must be publicized according to the regulations on grassroots democracy and the regulations of the State.

When the companies have not yet paid all their debts and fulfilled other property obligations, they must not make deductions for setting up of reward funds, welfare funds and reward funds for managerial and administrative boards of the companies and the owners must not withdraw profits of the companies. In this case, those who decide the deductions for setting up other funds or distribute profits shall have to recover them; if not, they shall have to pay compensations therefor.

D. FINANCIAL PLANS, ACCOUNTING, AUDIT

1. The companies shall draw up investment schemes and plans as well as long-term and annual financial plans in line with the business plans of the companies according to set forms.

2. The annual investment schemes and plans shall be drawn up according to the provisions of the current Regulations on investment and construction management.

3. The Managing Boards or the company presidents shall decide on the companies financial plans and report them to the owners for use as basis for supervision and evaluation of the results of management and administration of business activities of the Managing Boards (of the company presidents), general directors (or directors).

The norm on pre-tax profit ratio on owners capital shall be used for determination of the deduction levels for setting up the general directors funds from after-tax profits according to the provisions in Clause 2, Part II of this Circular.

4. The companies must organize and implement the work of internal audit according to the Finance Ministry’s regulations in order to serve the work of administration by the general directors or directors of the companies and the work of supervision and inspection by the Managing Boards.

5. At the end of an accounting period (quarter, year), the companies shall have to make financial reports according to the financial regimes prescribed in this Circular, other relevant guiding documents on finance and accounting and the charters of the companies.

The Managing Boards or the company presidents have the task to verify the financial reports of the companies and take responsibility for the truthfulness of the data in the verified financial reports. After the verification, the companies shall send the financial reports to functional bodies according to the current regulations of the Finance Ministry and submit them to the owners for approval.

The owners must approve the financial reports of companies within 15 days after receiving them. The written approval of the financial reports must be addressed to the enterprises and the financial report- receiving agencies according to the current regulations.

6. The companies shall have to effect the financial publicity according to the regulations on grassroots democracy and the regulations of the State.

III. IMPLEMENTATION PROVISIONS

1. The ministries, the ministerial-level agencies, the agencies attached to the Government, the People’s Committees of the provinces and centrally-run cities, the provincial/municipal Finance-Pricing Services, Tax Departments, the State corporations and one-member limited liability companies shall have to strictly follow the guidance in this Circular.

2. This Circular takes implementation effect 15 days after its signing. If problems arise in the course of implementation, the ministries, branches, localities and enterprises are requested to report them in time to the Finance Ministry for study and settlement guidance.