Joint Circular No. 13/1997/TTLB/BKHĐT-BTC guiding the engagement of management organizations to manage the business operations of foreign-invested enterprises.

JOINT CIRCULAR

Guidelines for hiring management organizations to manage business operations of foreign-invested enterprises foreign-invested enterprises

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Pursuant to the Law on Foreign Investment in Vietnam adopted by the National Assembly of the Socialist Republic of Vietnam on November 12, 1996;
Pursuant to Decree No. 12-CP dated February 18, 1997 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam;
Pursuant to Decree No. 75-CP dated November 1, 1995 of the Government stipulating the functions, tasks, and organizational structure of the Ministry of Planning and Investment;
Pursuant to Decree No. 178-CP dated October 28, 1994 of the Government stipulating the tasks, authorities, and organizational structure of the Ministry of Finance,

The Ministry of Planning and Investment and the Ministry of Finance hereby issue this Circular to guide the hiring of management organizations to manage business operations of foreign-invested enterprises as follows:

For office premises of agencies and units under the Ministry of Public Security and the Ministry of Defense, they shall be implemented according to separate guidelines issued by the Ministry of Public Security and the Ministry of Defense after consultation with the Ministry of Finance.

1.1. This Circular regulates the hiring of management organizations to manage business activities of foreign-invested enterprises, including joint ventures and wholly foreign-owned enterprises (hereinafter referred to as enterprises).

1.2. Hiring a management organization to manage business operations of an enterprise involves leasing management and exploitation of the enterprise's facilities during its business operations.

1.3. Foreign-invested enterprises that hire management organizations must meet the following conditions:

- Hiring a management organization must be based on the enterprise's needs for business management and the potential profitability of such management.

- Enterprises may only hire management organizations for specific business areas: hotels, offices, rental apartments, golf courses, sports clubs, entertainment venues, hospitals, schools, and other business areas requiring specialized management skills requested by the enterprise.

- Hiring a management organization to manage business operations shall not alter or negatively impact the project's objectives and the interests of the Socialist Republic of Vietnam as stipulated in the Investment License.

II. MANAGEMENT CONTRACT

2.1. The hiring of a management organization to manage business operations of an enterprise shall be carried out through a management contract signed between the enterprise and the management organization. Signing the management contract must be decided by the Board of Directors of the enterprise (for joint ventures) or the investor (for wholly foreign-owned enterprises).

2.2. The term of the Management Contract shall be agreed upon by the enterprise and the management organization and specified in the Management Contract, but shall not exceed ten years from the date the Contract becomes effective. In necessary cases, the parties may apply for an extension and submit it to the investment license issuing authority for review and approval.

The Management Contract shall only take effect after being approved by the investment license issuing authority.

2.3. The contents of the Management Contract shall be agreed upon by the parties, but must at least include the following main elements:

- Name, address, business objectives, and scope of operations of the enterprise;

- Name, address, and business certificate of the management organization;

- Responsibilities of the enterprise and the management organization;

- Relationships between the General Director, Deputy General Director of the enterprise with the management organization and the Managing Director or heads of departments appointed by the management organization to directly manage during business operations;

- Principles for financial income and expenditure and bank account usage;

- Recruitment and utilization of labor;

- Number of foreign workers appointed by the management organization and related costs for salaries, accommodation, travel, leave, etc., of these workers. Training and development plans for Vietnamese workers to replace them;

- Duration of effectiveness of the Contract. Cases of terminating the contract before expiration;

- Use of the name or sign of the facility;

- Management fees payable to the management organization;

- Conditions binding the management organization regarding the results of production and business operations of the enterprise;

- Financial obligations of the management organization to the Socialist Republic of Vietnam;

- Procedures for resolving disputes among the parties.

III. MANAGEMENT FEES

3.1. Management fees payable to the management organization shall be agreed upon by the parties, based on:

- Nature, scale, and grade of the facility.

- Reputation, business management capability, and responsibility of the management organization.

- Effectiveness generated by the management organization's activities.

- Full package management of the facility or management of individual components.

- Market competition.

3.2. Management fees that the enterprise must pay to the management organization shall be stipulated in the Management Contract and constitute a reasonable proportion of the total management costs of the enterprise.

Management fees include: basic fees, incentive fees, consulting fees, marketing fees, reservation fees, signage and name usage fees. In principle, the parties may specify different fee calculation methods, but regardless of the method used, the total management fees payable to the management organization relative to revenue and gross operating profit (GOP) shall not exceed the prescribed limit.

Gross Operating Profit (GOP) for calculating incentive fees is the profit obtained after deducting operational expenses (excluding basic depreciation, asset insurance fees, interest on loans payable by the enterprise, and corporate income tax) from revenue.

IV. ACTIVITIES OF THE MANAGEMENT ORGANIZATION AND PROCEDURES FOR APPROVAL OF THE MANAGEMENT CONTRACT

4.1. The management organization hired by the enterprise to manage must be an organization established and registered to operate in the management field and must comply with Vietnamese laws during its operation.

4.2. The management organization operates under the name, seal, and account of the enterprise. The management organization is assigned tasks and receives fees as stipulated in the Management Contract, while also being responsible to the enterprise and Vietnamese law for fulfilling its rights and obligations as specified in the Management Contract.

4.3. The managing organization must fulfill its financial obligations to the State of Vietnam in accordance with the current provisions of Vietnamese law. The enterprise is responsible for withholding the tax due from the managing organization and submitting on behalf of the managing organization the tax amounts to the State.

4.4. The management contract must be submitted to the authority issuing the Investment License for review and approval. The submission package includes:

- An application for approval of the Management Contract.

- One original copy of the Management Contract in Vietnamese and one in a commonly used foreign language, along with any consultancy contracts, service contracts, sign usage agreements, or name usage agreements (if applicable).

- A minutes of the Board of Directors' meeting approving the Management Contract (for joint venture enterprises) or the opinion of the investor (for wholly foreign-owned enterprises).

- Documentation confirming the legal status, experience, reputation, and management capability of the managing organization.

4.5. The time limit for reviewing and approving the Management Contract by the authority issuing the Investment License shall not exceed thirty days from the date of receipt of complete and valid documents. If approval is not granted within this period, the authority issuing the Investment License will notify the enterprise and the managing organization in writing, providing reasons for the refusal to approve the Management Contract.

4.6. In all cases, the enterprise is responsible for all activities of the managing organization under Vietnamese law regarding matters related to the management activities specified in the Management Contract. The managing organization is directly responsible under Vietnamese law for its activities outside the scope of the Management Contract.

4.7. The General Director and Deputy General Director of the enterprise have the responsibility to support and supervise the activities of the managing organization, and to recommend the Board of Directors or the investor to handle breaches of contract by the managing organization.

4.8. During the course of operation, if the managing organization seriously violates the provisions of Vietnamese law, the provisions of the Investment License, and the Management Contract, the authority issuing the Investment License has the right to issue a decision terminating the legal effect of the Management Contract.

4.9. Any disputes between the managing organization and the enterprise, and disputes between the managing organization and other enterprises in Vietnam, shall be resolved in accordance with the current provisions of Vietnamese law.

V. IMPLEMENTATION

5.1. Management Contracts of enterprises previously approved by the State Committee for Cooperation and Investment or currently by the Ministry of Planning and Investment need not be resubmitted to the Ministry of Planning and Investment, except in cases where there are adjustments, amendments, or supplements to the Management Contract.

In cases where Management Contracts signed before the effective date of this Circular have not yet been approved by the Ministry of Planning and Investment or the authority issuing the Investment License, they must comply with the provisions of this Circular.

5.2. For enterprises whose Investment Licenses are issued by provincial People's Committees or Industrial Park Management Boards authorized to issue such licenses, after reviewing and approving the Management Contract, the provincial People's Committee or Industrial Park Management Board must submit one copy to the Ministry of Planning and Investment.

5.3. This Circular takes effect from October 23, 1997. All previous regulations concerning the hiring of managing organizations are hereby repealed.

ANNEX

GUIDELINES ON MAXIMUM MANAGEMENT FEES FOR CERTAIN SECTORS
(Annexed to Joint Circular No. 13/TTLB dated October 8, 1997)

1. Hotel business or rental apartments (with hotel-like services): 3% of revenue and 10% of gross profit, wherein the fee for using signs and names does not exceed 1% of revenue.

2. Office and rental apartment business (without hotel-like services) or rental villas: 2% of revenue and 5% of gross profit.

3. Golf course or sports and entertainment club business;

- 2.5% of revenue and 7% of gross profit. In the initial period without gross profit, the maximum management fee is 4% of revenue. Revenue for determining the management fee for this type of business does not include membership card sales revenue and hotel or villa revenue (if any) included in the project. For hotels or villas, the management fee is implemented according to the provisions of items 1 and 2 above.

- Where fees are specified in absolute terms, the total management fee payable to the management company (including both basic and incentive fees) must be converted to revenue and shall not exceed 4%.

- Commission for selling membership cards is a fee paid to the managing organization based on the number of membership cards sold by the managing organization. This fee shall not exceed 5% of the revenue from selling membership cards by the managing organization.

4. For certain other sectors, depending on the nature of the project and the benefits generated, the parties may agree on a reasonable fee consistent with international practices and submit it to the authority issuing the Investment License for review.

5. In cases where enterprises use signs and names mentioned in item 1 above of the managing organization or other organizations, those signs and names must be registered trademarks owned by that organization. The use of signs and names can be stipulated in the Management Contract or in a separate agreement.