Circular No. 06/TC-TCDN guiding the financial management regime for state-owned enterprises engaged in public welfare activities.

CIRCULAR

Regarding the guidance on financial management systems for state-owned enterprises engaged in public services

specifically for state-owned enterprises engaged in public welfare activities

Pursuant to Decree No. 56/CP dated October 2, 1996 of the Government on state-owned enterprises engaged in public services, the Ministry of Finance guides the financial management system for state-owned enterprises engaged in public services as follows:

I. GENERAL PROVISIONS

1. The subject of this Circular is state-owned enterprises engaged in public services that have been decided by competent authorities, including independent enterprises and independent accounting units that are members of State Corporations (referred to as public service enterprises). The list of public service enterprises is determined by the Minister, Head of a ministry equivalent to a ministry, Head of a government agency, Chairman of the People's Committee of provinces and centrally governed cities according to the criteria specified in Article 1 and Article 2 of Decree No. 56/CP dated October 2, 1996 of the Government.

2. Public service enterprises are responsible for using capital and resources provided by the State to supply public goods and services to target groups at prices, price ranges, or fees prescribed by the State.

3. In addition to their assigned public service tasks, public service enterprises have the right to utilize land, scenery, capital, and State assets after completing their public service tasks and raising capital to organize business activities appropriate to the enterprise's capacity and market demand under the following conditions:

- Approval in writing by the authority that established the enterprise.

- Not affecting the performance of the public service tasks assigned by the State or ordered.

- Registering additional business lines in accordance with current regulations.

- They separately account for the additional business operations.

- They fulfill tax obligations for the additional business operations according to the law.

II. MANAGEMENT AND USE OF CAPITAL AND ASSETS AT PUBLIC SERVICE ENTERPRISES

1. Capital Investment:

1. 1. Newly established public service enterprises shall be prioritized by the State to invest sufficient initial charter capital, not less than the statutory capital for each industry as stipulated in Decree No. 50/CP dated August 28, 1996 of the Government, to construct, purchase fixed assets, and circulating assets suitable to the scale and public service tasks assigned.

1.2. Public service enterprises currently operating, if truly lacking capital compared to the public service tasks assigned by the State (after mobilizing existing capital within the enterprise), shall be supplemented with capital by the State as follows:

- For profit-making public service enterprises, tax income can be reduced to supplement the enterprise's capital according to the provisions of the law.

- For unprofitable public service enterprises or those still lacking capital after tax reduction, the State will consider supplementing capital.

1. 3. The establishment authority is responsible for ensuring the initial charter capital at the time of enterprise establishment according to the provisions of Article 2 of the aforementioned Decree No. 50/CP and supplementing capital for the enterprise.

1. 4. Capital investment procedures.

a. For construction investment: enterprises implement according to the current regulations on investment and construction management.

b. Circulating capital investment: enterprises must prepare a capital allocation dossier including:

+ A copy of the enterprise establishment decision.

+ A copy of the business registration certificate.

+ The decision of the establishment authority head regarding the assignment of public service tasks.

+ The production and financial plan of the enterprise for the year requesting additional capital, which has been approved by the competent authority.

+ The previous year's financial report (if it is an operating enterprise).

+ The approved working capital standardization report by the State Capital and Asset Management Agency.

1. 5. The process of allocating capital to enterprises is carried out according to the regulations of the Ministry of Finance.

 2. Mobilizing capital:

2. 1. When there is a need to mobilize capital, form joint ventures, mortgage land use rights attached to assets managed by the enterprise from Vietnamese banks to borrow funds for public service activities according to the law, enterprises must prepare specific plans to send to the State Capital and Asset Management Agency at the enterprise for comments before submitting to the establishment authority head for approval.

2. 2. In cases where public service enterprises organize business activities outside their assigned public service tasks, they may borrow funds from credit organizations (commercial banks, finance companies, etc.), other enterprises, individuals (including employees of the enterprise) to serve business activities, but must comply with legal regulations and not change ownership forms. Specifically, for enterprises producing and repairing weapons, equipment directly serving national defense and security, the mobilization of capital for business activities must be decided by the Ministry of National Defense and Public Security after receiving comments from the State Capital and Asset Management Agency at the enterprise.

2. 3. The interest rate on mobilized capital recorded in the production and service costs of the enterprise shall not exceed the ceiling lending rate announced by the State Bank of Vietnam at the time of capital mobilization and in the same industry.

2. 4. When mobilizing capital, enterprises must carefully calculate the economic efficiency, ensure the proper and effective use of mobilized capital, and not use short-term loans for construction investment. Enterprises must repay principal and interest according to the commitments made when mobilizing capital. The General Director of public service enterprises is responsible to the State for preparing capital mobilization plans, using capital improperly or ineffectively leading to capital losses.

3. Investment outside the enterprise:

3. 1. When there is a need to use capital, assets, land use value, or land rental fees to invest outside the enterprise, public service enterprises must prepare a capital contribution plan or explain the joint venture project to send to the State Capital and Asset Management Agency at the enterprise for comments before submitting to the establishment authority head for approval.

3. 2. Investments outside the enterprise shall not affect the assigned public service tasks, must comply with legal regulations, ensure the principle of effectiveness, preservation, and development of capital, and increase income. When using land use value to invest outside the enterprise, it must be implemented according to the provisions of the Land Law.

3. 3. Public enterprises shall not use state capital for investment to engage in monetary transactions such as purchasing bonds, bills, depositing savings...

3. 4. Public enterprises shall not be permitted to invest in businesses not under state ownership where the managers, executives, or principal owners are the spouse, parent, child, or the director of that public enterprise.

4. Transfer, lease, mortgage, pledge of assets:

4. 1. The transfer, leasing, mortgaging, or pledging of assets under the management of public enterprises must be decided by the head of the agency that established the enterprise after obtaining written agreement from the state capital and asset management agency at the enterprise.

4. 2. When selling surplus or obsolete assets to recover capital, the enterprise must appraise and organize auctions in accordance with the law. The difference between the proceeds from the sale of the assets and their remaining book value and the costs of the sale shall be accounted for in the enterprise's business results.

4. 3. For assets leased to enhance utilization efficiency and increase enterprise income, depreciation must still be recorded according to prescribed regulations, and the assets must be tracked and recovered upon lease expiration. Assets pledged, mortgaged, or used as collateral for loans from financial institutions must comply with the procedures and formalities stipulated by law. Public enterprises may not pledge, mortgage, or lease borrowed, rented, held-in-custody, or received-as-collateral assets from other enterprises without the consent of the owners of those assets.

5 Liquidation of assets:

5. 1. Machinery, equipment, and key assets essential for the operation of public enterprises (excluding agricultural crops and livestock) must be approved in writing by the agency that established the enterprise and the state capital and asset management agency at the enterprise when liquidated. Specifically, assets of enterprises producing or repairing weapons, specialized equipment for national defense and security must be approved in writing by the Ministry of Defense or the Ministry of Public Security, and in special cases, by the Prime Minister. The liquidation of other assets shall be carried out as stipulated for state-owned enterprises engaged in business operations.

5. 2. Enterprises must establish a liquidation committee. If spare parts or scrap recovered from liquidated assets are used for production and business activities, the enterprise must organize appraisals. If the liquidated assets are sold, auctions must be organized in accordance with the law. The difference between the proceeds from the liquidation of the assets and their remaining book value and the costs of liquidation shall be accounted for in the enterprise's business results.

6 Capital transfers, responsibility for capital preservation, revaluation of assets, loss treatment plans, and management of receivables and payables shall be implemented as stipulated for state-owned enterprises engaged in business operations.

 7 Public enterprises have the responsibility to maintain accurate accounting records of all assets and current capital of the enterprise in accordance with the accounting system; truthfully and promptly reflecting changes in assets and capital during the course of operations.

III. FINANCIAL RESULTS AND TREATMENT OF RESULTS OF PUBLIC ENTERPRISES

A. FINANCIAL RESULTS

1. Revenue of public enterprises includes revenue from public service activities, revenue from business operations, and other activities.

1. 1. Revenue from public service activities includes: payments from the state for public goods and services according to planned indicators or orders, proceeds from the sale of products and provision of services at prices, price ranges, or fees set by the state; income from subsidies and price supports provided by the state when supplying goods and services as required by the state.

a. In cases where public enterprises are paid by the state for public goods and services according to planned indicators or orders, the basis for payment is:

-Public service tasks assigned by the head of the agency establishing the enterprise in the annual plan or order.

-The unit price for payment determined by the authorized agency according to the government's delegation.

-The acceptance record of quantity and quality of completed and handed-over products and services between the planning agency or ordering agency and the public enterprise. The finance department will review and process payment for the public enterprise after deducting fines for violations of the terms specified in the order.

b. The basis for consideration of subsidies and price supports is:

-Goods and services included in the list of subsidized and supported items by the government.

-Public service tasks assigned by the head of the agency establishing the enterprise in the annual plan.

-Quantity and quality of products and services implemented within the assigned plan.

-Subsidy and support unit prices for each product and service determined by the authorized agency according to the government's delegation. The distribution method of subsidy and support funds shall be implemented in accordance with the regulations of the Ministry of Finance.

1. 2. Revenue from business operations and other activities shall be applied as stipulated for state-owned enterprises engaged in business operations.

2. Expenses of public enterprises include expenses for public service activities, business operations, and other activities:

2. 1. The content of expenses for public service activities in each industry managed by the relevant ministry or the Chairman of the Provincial People's Committee shall be defined based on the economic and technical characteristics of the industry after obtaining written agreement from the Ministry of Finance.

2. 2. The content of expenses for business operations and other activities shall be implemented as stipulated for state-owned enterprises engaged in business operations.

3 Public enterprises may use revenue to cover expenses, including:

-Revenue from public service activities is used to cover expenses for public service activities, taxes, and other revenues of the state as prescribed by law (excluding corporate income tax).

-Revenue from business operations is used to cover the full cost of consumed goods, services, taxes, and other revenues of the state as prescribed by law (excluding corporate income tax).

- Revenue from other activities is used to offset costs, taxes, and other revenues of the State as prescribed by law (excluding income tax). Public utility enterprises must, in principle, ensure profitability in their business operations and may not use profits from public utility activities to cover losses in business operations.

B. TREATMENT OF FINANCIAL RESULTS

1. For enterprises supplying public products and services at state-prescribed prices but whose income does not significantly depend on incurred costs (after agreement with the agency deciding the establishment of the enterprise, the Ministry of Finance will determine the list of public utility enterprises falling under this category), the difference between revenue and expenditure shall be handled as follows:

a. Establishing reserves according to the following ratios and limits:

+ Development investment reserve: 25% of the difference

+ Financial contingency reserve: 5% of the difference, with the balance of this reserve not exceeding 25% of the charter capital.

+ Allocating two reward and welfare reserves equal to three months' actual salary if the budget contribution for the reporting year exceeds that of the previous year, and equal to two months' actual salary if the budget contribution for the reporting year is equal to or lower than that of the previous year.

b. The remaining difference shall be remitted to the State budget. If there are business operation profits and other activity profits, they shall be distributed like state-owned enterprises engaged in business operations, but the total amount allocated to each reserve from various sources shall not exceed the maximum limit set for state-owned enterprises engaged in business operations.

2. For enterprises supplied by the State with all products and services (including enterprises producing, repairing weapons, equipment, and specialized equipment for national defense and security), enterprises supplying public products and services at state-prescribed prices, the profit realized in the year (including both business operation profit and other activity profit) shall be distributed in the following order:

a. Pay corporate income tax as required by law.

b. Deduct fines for disciplinary violations, administrative offenses, breach of contract, overdue payment penalties, and legitimate expenses not deducted when determining taxable income.

c. Deduct unrecovered losses from pre-tax profit.

d. The remaining profit after deducting items a, b, and c, the enterprise shall establish reserves according to the following ratios and limits:

+ Development investment reserve: minimum allocation of 50%

+ Financial contingency reserve: 10%, with the balance of this reserve not exceeding 25% of the charter capital.

+ Allocating two reward and welfare reserves up to a maximum of three months' actual salary if the budget contribution for the reporting year is higher than the previous year, and equal to two months' actual salary if the budget contribution for the reporting year is equal to or lower than the previous year.

After deducting items a, b, c, and d, if the development investment reserve and financial contingency reserve have excess funds after allocating to the two reward and welfare reserves, the remaining difference shall be transferred entirely to the development investment reserve. If there are insufficient resources to allocate two reward and welfare reserves equal to two months' actual salary, the public utility enterprise shall be provided with the shortfall by the State.

3. For enterprises supplying public products and services at state-prescribed prices but which are unable to cover reasonable costs (including costs incurred due to disaster prevention, national defense, and security tasks), after using 50% of business operation profit and other activity profit to cover costs, if there is still a loss, the State shall support as follows:

- Providing sufficient compensation for the remaining loss.

- Allocating two reward and welfare reserves equal to two months' actual salary of the enterprise.

Part on remaining profits from business operations and other activities shall be used to: allocate 80% to the development investment fund, and 20% to the financial reserve fund.

4. Procedures, timing for establishing and purposes of using funds by enterprises shall be carried out as with state-owned enterprises engaged in business operations.

Within the total amount allocated to the two reward and welfare funds, the enterprise director has the authority to decide the proportion allocated to each fund after consulting the enterprise trade union.

Public utility enterprises do not establish a fund for unemployment benefits. In special cases where it is necessary to reduce the scale of public utility operations, the agency deciding to establish the enterprise and the corresponding financial agency will consider providing assistance to workers who lose their jobs according to the prescribed regulations.

5 For public utility enterprises located in remote areas, border regions, islands, or strategically important and particularly difficult areas, the State will consider supporting the following expenses:

- Kindergarten and education expenses in areas without schools under the educational system.

- Health service expenses for places that must maintain hospitals or clinics due to special conditions.

IV. FINANCIAL PLAN

1. Annually, based on the provisions and guidance of the financial agency, public utility enterprises must develop plans for producing products and supplying public services according to government policy or orders, budget estimates (including subsidy and price support plans), and report to the agency deciding to establish the enterprise and the corresponding financial agency. The agency deciding to establish the enterprise is responsible for approving, compiling reports to the competent authority and related financial agencies.

2. Within the approved annual budget estimate, the head of the agency deciding to establish the enterprise assigns production plans, supply of public services or orders, and allocates the budget to public utility enterprises and sends them to the corresponding financial agency for coordination. The budget only guarantees support within the approved budget range.

V. ACCOUNTING AUDIT, FINANCIAL REPORTING AND FINANCIAL DISCLOSURE

1. Preparation of financial statements:

- Quarterly and annually, public utility enterprises are responsible for preparing financial statements in accordance with current regulations. The enterprise director is responsible before the State and the law for the accuracy and truthfulness of the financial statements.

- Financial statements quarterly and annually are submitted to the agency deciding to establish the enterprise, tax agency, state capital and asset management agency at the enterprise, and statistical agency.

2. Accounting Audit and Financial Reporting:

- Quarterly and annually, public utility enterprises must conduct self-audits and prepare financial statements.

- The agency deciding to establish the enterprise and the state capital and asset management agency at the enterprise are responsible for organizing the review and approval of the annual financial statements of public utility enterprises.

- The financial agency is responsible for inspecting compliance with financial and accounting systems, revenue and budget discipline, and the accuracy and truthfulness of financial statements.

- Violations of accounting systems, financial income and expenditure systems, revenue and budget submission, and establishment and use of enterprise funds will be subject to administrative and economic penalties as stipulated by law.

3. Public disclosure of annual financial statements:

- Based on the annual financial statements approved by the competent authority, public utility enterprises publicly disclose certain financial indicators before the meeting of enterprise employees.

- The contents of the disclosed indicators follow the attached model in this Circular.

VI. IMPLEMENTATION PROVISIONS

1. In addition to the specific provisions for public utility enterprises in this Circular, such enterprises also comply with other legal provisions applicable to state-owned enterprises.

2. For some public utility activities with unique characteristics, the agency deciding to establish the enterprise bases its management on the financial management system in this Circular to formulate appropriate regulations after obtaining written agreement from the Ministry of Finance.

3. This Circular takes effect from the date of signing. All previous regulations on financial management for enterprises directly performing national defense and security tasks or producing products and supplying public services according to government policy that conflict with this Circular are abolished.

4. During implementation, any difficulties should be promptly reported to the Ministry of Finance for study and amendment to ensure appropriateness.

 ANNOUNCEMENT OF PUBLIC DISCLOSURE OF ANNUAL FINANCIAL REPORT...

The enterprise is responsible for the accuracy and truthfulness of this report.

Credit organization branch in province/city and basic credit cooperative…

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