JOINT CIRCULAR No. 08/2003/TTLT/BKH-BTC guiding the implementation of certain provisions of Government Decree No. 38/2003/NĐ-CP dated April 15, 2003 on the conversion of some foreign-invested enterprises to joint-stock companies

 

JOINT CIRCULAR

Guidelines for Implementing Certain Provisions of Government Decree No. 38/2003/NĐ-CP dated April 15, 2003 on the Conversion of Some Foreign-Invested Enterprises to Joint Stock Companies

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Pursuant to Government Decree No. 38/2003/NĐ-CP dated April 15, 2003 on the Conversion of Some Foreign-Invested Enterprises to Joint Stock Companies;

Pursuant to Government Decree No. 61/2003/NĐ-CP dated June 6, 2003 on the Functions, Tasks, Authorities, and Organizational Structure of the Ministry of Planning and Investment;

Pursuant to Government Decree No. 77/2003/NĐ-CP dated July 1, 2003 on the Functions, Tasks, Authorities, and Organizational Structure of the Ministry of Finance;

The Ministry of Planning and Investment and the Ministry of Finance provide guidelines for implementing certain provisions of Government Decree No. 38/2003/NĐ-CP dated April 15, 2003 on the Conversion of Some Foreign-Invested Enterprises to Joint Stock Companies as follows:

Article 1. Scope of application

Foreign-invested enterprises (hereinafter referred to as enterprises) that meet the conditions stipulated in Article 7 of Government Decree No. 38/2003/NĐ-CP dated April 15, 2003 on the Conversion of Some Foreign-Invested Enterprises to Joint Stock Companies (hereinafter referred to as Decree No. 38/2003/NĐ-CP) shall be considered for conversion to joint stock companies; however, the following enterprises shall not be considered for conversion:

a) Enterprises in which the foreign party or parties participating in a joint venture (for joint venture enterprises) or the foreign investor (for wholly foreign-owned enterprises) have committed to transfer non-reimbursable assets to the Vietnamese State and the Vietnamese party.

b) Enterprises with advance revenue such as those operating in infrastructure development areas of industrial zones, export processing zones, new urban areas; construction of houses for sale or rent in advance; construction of office buildings, apartments for rent in advance; golf courses; services selling membership cards; land lease in advance...

c) Enterprises investing under BT, BOT, BTO forms

d) Enterprises with investment capital as specified in the Investment License ranging from over 70 million US dollars to less than 1 million US dollars.

e) Enterprises with accumulated losses at the time of application for conversion (after using profits from the immediately preceding fiscal year to offset) exceeding or equal to the owner's equity.

g) Enterprises with unrecoverable receivables at the time of application for conversion exceeding the owner's equity.

Article 2. Forms of Conversion

Enterprises may be converted according to the forms prescribed in Article 4 of Government Decree No. 38/2003/NĐ-CP, including:

1. "Maintaining the enterprise value and original investors" applies to enterprises:

a) Having the number of investors at the time of application for conversion meeting the minimum number of shareholders required for joint stock companies;

b) Investors not transferring their contributed capital to new shareholders;

c) Not increasing the charter capital.

The investors referred to in Government Decree No. 38/2003/NĐ-CP and Clause 1 of this Article are the foreign party, the Vietnamese party in joint venture enterprises, and the foreign investor in wholly foreign-owned enterprises as specified in the Investment License or the Enterprise Charter. The shareholding ratio among founding shareholders is determined based on the statutory capital contribution ratio specified in the Investment License, or through agreement between the investors and stipulated in the Company Charter.

2. "Transferring part of the enterprise value to new shareholders" applies to enterprises:

a) Needing to supplement additional shareholders to ensure compliance with the minimum number of shareholders required for joint stock companies or having a need to supplement new shareholders, and

b) Not increasing the charter capital.

The shareholding ratio among founding shareholders is determined through agreement and stipulated in the Company Charter.

3. "Maintaining the enterprise value or transferring part of the capital and issuing additional shares to attract investment" applies to enterprises:

a) Having a need to increase the charter capital;

b) Needing to raise additional capital while also needing to increase the number of shareholders.

The shareholding ratio of new founding shareholders is determined through agreement and stipulated in the Company Charter.

In the cases of conversion mentioned in Clauses 1, 2, and 3 of this Article, the joint stock company must comply with the provisions set forth in Clause 1 of Article 10 and Clause 3 of Article 12 of Government Decree No. 38/2003/NĐ-CP.

Article 3. The value of the enterprise for conversion

1. The value of the enterprise for conversion is the total value of existing assets recorded in the books of the enterprise that have been audited independently within six months prior to the date of submitting the conversion application documents.

2. The value of the capital portion of the investor before conversion is the total value of existing assets recorded in the books of the enterprise that have been audited by an independent auditing company within six months prior to the date of submitting the conversion application documents, after deducting all liabilities.

3. The valuation date of the enterprise is the date of the audited financial report.

4. In the process of determining the enterprise's value, the inventory, classification of various types of assets, receivables, and payables must comply with current regulations on financial management and accounting, and taxation.

The value of missing, lost, or damaged assets that cannot be used will be deducted from the enterprise's conversion value after subtracting personal liability compensation amounts.

The value of excess assets, if any, will be included in the enterprise's conversion value.

Receivables that have sufficient grounds to determine they are uncollectible at the time of determining the enterprise's value shall be recorded as expenses of the enterprise.

Payables that have sufficient grounds showing the creditor has waived their rights over such debt at the time of determining the enterprise's value shall be recorded as income of the enterprise.

5. In cases where a joint venture with a Vietnamese party is permitted to use the value of land use rights to contribute capital to the joint venture, if the Vietnamese party is a State-owned Enterprise, it must complete the registration procedures for capital contribution through the value of land use rights according to the guidelines of the Ministry of Finance.

6. During the period from the date of the audited financial report to the effective date of the amended Investment License, any interest or loss affecting the enterprise's value shall be adjusted accordingly based on the audited interest or loss amount.

Article 4. Application Documents for Conversion

1. The application documents for conversion are established in accordance with Articles 20 and 21 of Decree No. 38/2003/NĐ-CP.

2. The application documents for conversion need to include a detailed explanation in the conversion plan for the following situations:

a) The enterprise adds new founding shareholders.

b) The enterprise has a profit distribution ratio specified in the Investment License that differs from the statutory capital contribution ratio of the parties.

c) The enterprise sells shares to employees.

d) The enterprise issues additional shares to raise additional charter capital.

Article 5. Procedure and Formalities for Enterprise Conversion

1. Enterprises meeting the conversion conditions stipulated in Article 1 of this Circular submit the application documents for conversion to the Ministry of Planning and Investment before March 25, 2004, to be considered and selected for conversion before May 25, 2004.

2. Time limit for review:

a) Within three working days from the date of receiving valid documents, the Ministry of Planning and Investment sends the documents to relevant ministries and sectors for comments.

b) Within fifteen working days from the date of receiving valid documents, relevant ministries and sectors provide written opinions on the enterprise's conversion application to the Ministry of Planning and Investment; failure to provide written opinions within the aforementioned period is deemed as approval of the enterprise's conversion application.

c) Within thirty working days from the date of receiving valid documents, the Ministry of Planning and Investment submits the review opinion.

d) Within five working days from the date of receiving the Prime Minister's decision, the Ministry of Planning and Investment notifies the enterprise applying for conversion in writing.

3. Within six months from the date of receiving the notification of approval for enterprise conversion from the Ministry of Planning and Investment, the enterprise proceeds with the conversion formalities prescribed in Article 23 of Decree No. 38/2003/NĐ-CP and reports the results to the Ministry of Planning and Investment to obtain the amended Investment License approving the enterprise conversion.

Beyond the above deadline, if the enterprise has not completed the conversion formalities prescribed in Article 23 of Decree No. 38/2003/NĐ-CP, the enterprise must report to the Ministry of Planning and Investment for consideration and decision. Failure to report is deemed as the enterprise having no intention to convert. The Ministry of Planning and Investment will terminate the consideration of the conversion application of the enterprise.

4. Within seven working days from the date of receiving the report on the completion of the conversion process from the enterprise, the Ministry of Planning and Investment reviews and approves the conversion of the enterprise into a joint-stock company in the form of an amended Investment License.

The above deadline does not include the time for the enterprise to amend and supplement the application documents for conversion.

Any requirements of the Ministry of Planning and Investment for the enterprise regarding the amendment and supplementation of the application documents for conversion must be carried out in writing within fifteen working days from the date of receiving valid documents.

5. During the conversion process, the enterprise continues to maintain its organizational structure and operations in accordance with the Law on Foreign Investment in Vietnam and must ensure normal business operations until obtaining the amended Investment License approving the enterprise conversion.

Article 6. Tax incentives for corporate income tax and the exercise of other rights and obligations of Joint Stock Companies

1. Joint Stock Companies with foreign invested capital shall enjoy tax incentives on corporate income tax and exercise other rights and obligations in accordance with the Law on Foreign Investment and the Investment License.

2. In cases where enterprises convert through the transfer of part of the enterprise's value to new shareholders, if profits arise from such transfers, the transferring party shall pay corporate income tax on the transfer of capital in accordance with Decree No. 24/2000/NĐ-CP dated July 31, 2000 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam and Decree No. 27/2003/NĐ-CP dated March 19, 2003 of the Government amending and supplementing certain articles of Decree No. 24/2000/NĐ-CP.

Article 7. Currency denomination of share certificates

1. The par value of share certificates issued by Joint Stock Companies in Vietnam must be denominated in Vietnamese Dong.

In cases where share certificates are issued or listed abroad, the par value of the share certificates may be denominated in US dollars or freely convertible foreign currencies.

2. Share certificates denominated in foreign currency when traded in Vietnam must be converted into Vietnamese Dong at the following exchange rates:

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

- For other freely convertible foreign currencies, the exchange rate of Vietnamese Dong against these foreign currencies published by the State Bank of Vietnam for application in calculating export duties and import duties once every ten days at the time of conversion.

Article 8. Transfer of shares by foreign founding shareholders

1. During the course of operation, foreign founding shareholders are permitted to transfer shares in accordance with Article 15 of Decree No. 38/2003/NĐ-CP.

2. The transfer of shares by foreign founding shareholders must be approved by the Board of Directors of the Joint Stock Company and must be approved by the Ministry of Planning and Investment.

3. The Joint Stock Company must ensure that the holding ratio of shares by foreign founding shareholders complies with Clause 1 of Article 10 and Clause 3 of Article 12 of Decree No. 38/2003/NĐ-CP. In cases where the aforementioned holding ratio requirements cannot be met, the Joint Stock Company must report to the Ministry of Planning and Investment for consideration and decision.

4. During the course of operation, if it is discovered that the requirements of Clause 1 of Article 10 and Clause 3 of Article 12 of Decree No. 38/2003/NĐ-CP are not met, the Joint Stock Company shall bear full responsibility and be subject to legal sanctions.

Article 9. Reporting System

The Joint Stock Company shall implement reports on its operational status in accordance with general regulations applicable to foreign-invested enterprises, and periodically report to the Ministry of Planning and Investment and the Ministry of Finance every six months and annually regarding its operational status, issuance of shares, the ratio of shares held by foreign shareholders, participation in domestic and international securities markets, advantages, difficulties, and related issues.

Article 10. Effective Date

This Circular shall take effect fifteen days after its publication in the Official Gazette.

During implementation, any difficulties encountered shall be reported to the Ministry of Planning and Investment and the Ministry of Finance for study and resolution.