Decree No. 16/2001/ND-CP On the organization and operation of Financial Leasing Companies

DECREE

On the organization and operation of Financial Leasing Companies

_______________________

THE GOVERNMENT

Pursuant to the Government Organization Law dated September 30, 1992;

Pursuant to the Law on the State Bank of Vietnam No. 01/1997/QH10 dated December 12, 1997;

Pursuant to the Law on Credit Organizations No. 02/1997/QH10 dated December 12, 1997;

At the proposal of the Governor of the State Bank of Vietnam,

DECREE:

PART I

GENERAL PROVISIONS

Article 1.

1. Financial leasing is a medium and long-term credit activity carried out through leasing machinery, equipment, means of transportation, and other chattels based on a leasing contract between the lessor and lessee. The lessor commits to purchasing machinery, equipment, means of transportation, and other chattels according to the lessee's requirements and retains ownership over the leased assets. The lessee uses the leased asset and pays rent throughout the agreed lease period.

2. Upon completion of the lease term, the lessee has the right to choose to purchase the leased asset or continue leasing it under the conditions agreed upon in the financial leasing contract. The total amount of rent for a type of asset specified in the financial leasing contract must be at least equivalent to the value of the asset at the time the contract was signed.

3. Financial leasing activities within the territory of Vietnam must be conducted through financial leasing companies established and operating in Vietnam and complying with the provisions of this Decree.

4. Financial leasing activities of financial leasing companies operating abroad shall be carried out in accordance with the provisions of this Decree and other relevant regulations of Vietnamese law, or the parties may agree to apply international customs if such customs do not conflict with Vietnamese law.

Article 2. A financial leasing company is a non-bank credit institution, a Vietnamese legal entity. Financial leasing companies established and operating in Vietnam shall take the following forms:

1. State-owned financial leasing company.

2. Joint-stock financial leasing company.

3. Financial leasing company affiliated with a credit organization.

4. Joint venture financial leasing company.

5. Foreign-owned financial leasing company.

Article 3.

1. A joint venture financial leasing company is established by capital contribution from the Vietnamese side comprising one or more credit organizations and domestic enterprises, and the foreign side comprising one or more foreign credit organizations, based on a joint venture agreement.

2. A wholly foreign-owned financial leasing company is established by capital contribution from one or more foreign credit organizations in accordance with Vietnamese law.

Article 4.

1. Shareholders in a joint venture financial leasing company may transfer their contributed capital in accordance with Article 26 of Decree No. 13/1999/NĐ-CP dated March 17, 1999, of the Government and must give priority to transferring to other shareholders in the joint venture financial leasing company. The transfer of capital in a joint venture financial leasing company must be stipulated in the Company Charter and comply with the law.

2. A wholly foreign-owned financial leasing company has the right to transfer its capital but must give priority to Vietnamese organizations.

Article 5.

1. The maximum duration of operation for a financial leasing company in Vietnam is 50 years. In cases where an extension of the operating period is required, it must be approved by the State Bank of Vietnam. Each extension shall not exceed 50 years.

2. For financial leasing companies that were established and granted an Operating Permit before the effective date of this Decree, the operating period shall be applied as stipulated in the issued Operating Permit.

Article 6. The State Bank of Vietnam is the state management agency for financial leasing activities, responsible for issuing and revoking the Operating Permit for establishment and operation; supervising and inspecting the operations of financial leasing companies; and presenting to competent state agencies or issuing according to its authority regulations governing financial leasing activities.

Article 7. In this Decree, the following terms are understood as follows:

1. The lessor is a financial leasing company established and operating in accordance with Vietnamese law.

2. The lessee is an organization or individual operating in Vietnam, directly using the leased asset for their own operational purposes.

3. Leased assets are machinery, equipment, means of transportation, and other chattels.

Chapter II

ORGANIZATION AND MANAGEMENT OF FINANCIAL LEASING COMPANIES

Section 1

LICENSE ISSUANCE FOR ESTABLISHMENT AND OPERATION

Article 8.

1. Conditions for obtaining an Operating Permit for establishment and operation for a financial leasing company:

a) Having the need to operate financial leasing on the territory where it seeks to operate;

b) Having sufficient statutory capital as prescribed by the Government in Decree No. 82/1998/NĐ-CP dated October 3, 1998;

c) Founding members being reputable organizations and individuals with financial capacity;

d) Managers having full civil capacity and appropriate professional qualifications for the operation of a financial leasing company;

đ) Having a draft charter on organization and operation consistent with the Law on Credit Organizations and other legal provisions;

e) Having a feasible business plan.

2. In addition to the conditions set forth in Clause 1 of this Article, foreign entities in a joint venture or wholly foreign-owned company must be permitted by authorized organizations in accordance with foreign law to engage in joint ventures and operate financial leasing in Vietnam.

Article 9.

1. Documents for applying for an Operating Permit for establishment and operation for a financial leasing company:

a) Application for an Operating Permit for establishment and operation;

b) Draft Charter;

c) Three-year business plan, clearly stating the effectiveness and economic benefits of the company;

d) List, curriculum vitae, and certificates proving the qualifications and professional expertise of founding members, board members, supervisory board members, and General Manager (Director);

đ) Capital contribution plan and list of contributing individuals and organizations;

e) Financial situation and related information about major shareholders;

g) Approval of the People's Committee with jurisdiction where the financial leasing company is located.

2. In addition to the documents stipulated in Clause 1 of this Article, applications for an Operating Permit for establishment and operation for joint venture financial leasing companies and wholly foreign-owned financial leasing companies must also include the following documents:

a) Operating articles of the organization in the foreign country;

b) Operating Permit of the foreign organization;

c) Document from the foreign organization with authority permitting the foreign party to operate in Vietnam;

d) Balance sheet, profit and loss statement audited, and report on the operating situation of the last three years of the foreign organization;

đ) Draft joint venture agreement.

3. The application file prescribed in Clause 2 of this Article must be established in two sets, one in Vietnamese and one in a commonly used foreign language. The State Bank shall stipulate that documents in the foreign language set must be legalized by consular authentication. Vietnamese copies and translations from foreign languages into Vietnamese must be certified by a Vietnamese notary office or diplomatic missions, consular posts of Vietnam abroad.

Article 10. Financial leasing companies established in accordance with Clauses 1, 2, and 3 of Article 2 of this Decree must pay a licensing fee and for each renewal of the business license at a rate of 0.1% of the charter capital.

The payment of fees by joint venture financial leasing companies and wholly foreign-owned financial leasing companies shall be carried out in accordance with Article 18 of Decree No. 13/1999/NĐ-CP dated March 17, 1999 of the Government.

Article 11.

1. To commence operations, a financial leasing company must meet the following conditions:

a) By-laws approved by the State Bank;

b) Having sufficient statutory capital, appropriate premises for financial leasing activities, and having been issued a business registration certificate;

c) The portion of statutory capital contributed in cash must be deposited into a frozen account at the State Bank at least 30 days before commencing operations;

d) Publishing in central and local newspapers, as prescribed by law, the contents specified in the license.

2. Within twelve months from the date of issuance of the business license, the financial leasing company must commence operations.

Article 12. The revocation of licenses of financial leasing companies shall be implemented in accordance with Article 29 of the Law on Credit Institutions and guidelines of the State Bank.

Section 2

ORGANIZATIONAL STRUCTURE, MANAGEMENT, OPERATIONS AND CONTROL OF FINANCIAL LEASING COMPANIES

Article 13.

1. The establishment of domestic and overseas branches and representative offices of financial leasing companies must be approved in writing by the State Bank.

2. The establishment of affiliated companies with independent legal status and separate accounting of financial leasing companies to operate in certain financial, banking, and insurance fields shall be carried out in accordance with the regulations of the State Bank.

Article 14. The conditions, procedures for establishing branches and representative offices of financial leasing companies shall be applied according to Article 33 of the Law on Credit Institutions and guidelines of the State Bank.

Article 15. Management, operation, control, internal audit systems of financial leasing companies shall be implemented in accordance with Section 3 and Section 4 of Chapter II of the Law on Credit Institutions.

Chapter III

ACTIVITIES OF FINANCIAL LEASING COMPANIES

Article 16. Business activities of financial leasing companies include

1. Raising funds from the following sources:

a) Accepting time deposits of one year or longer from organizations and individuals in accordance with the regulations of the State Bank;

b) Issuing bonds, deposit certificates, and other securities with terms of more than one year to raise funds from domestic and foreign organizations and individuals when approved by the Governor of the State Bank;

c) Borrowing from financial and credit institutions both domestically and internationally;

d) Receiving other sources of funds as prescribed by the State Bank.

2. Financial leasing.

3. Purchase and leaseback under financial leasing (hereinafter referred to as purchase and leaseback). Under this form, the financial leasing company purchases machines, equipment, transportation means, and other chattels owned by the lessee and leases them back to the lessee for continued use in their own operations.

4. Advising customers on issues related to financial leasing operations.

5. Implementing entrusted services, asset management, and guarantees related to financial leasing activities.

6. Other activities when permitted by the State Bank.

Article 17.

1. A financial leasing contract is an agreement between the lessor and the lessee regarding the leasing of one or several machines, equipment, transportation means, and other chattels in accordance with the provisions of Article 1 of this Decree, consistent with the rights and obligations of the parties.

2. A financial leasing contract must be documented in writing in compliance with the provisions of the law. The contract must clearly state the handling of the contract if it terminates prematurely.

3. The lessee and the lessor may not unilaterally terminate a financial leasing contract (except in cases specified in Article 27 of this Decree).

Article 18. Financial leasing companies are allowed to directly import machines, equipment, transportation means, and chattels that the lessee has been permitted to purchase, import, and use in accordance with current laws (hereinafter referred to as permitted imported leased assets).

Article 19. Leased assets must be registered at the Registration Center for Secured Transactions. The Ministry of Justice will provide detailed guidance on the registration of leased assets.

Article 20. For leased assets that are transportation vehicles or fishing vessels with registration certificates, the financial leasing company retains the original registration certificate, while the lessee uses a certified copy with a notarized certification and confirmation from the financial leasing company during the lease period. The financial leasing company only confirms on a copy of the registration certificate after it has been notarized. If the asset participates in international operations, the financial leasing company retains a certified copy of the registration certificate with a notarized certification.

Article 21. For leased assets that require usage permits, the competent authority shall consider issuing usage permits to the lessee based on proof of ownership of the leased asset by the financial leasing company and the leasing contract. The State Bank shall coordinate with the authorities issuing usage permits for assets to guide the implementation of this provision.

Article 22.

1. Taxes on machinery, equipment, transportation means, and other chattels purchased domestically or imported by financial leasing companies for leasing purposes shall be applied as if the lessee had directly purchased or imported these assets.

2. The leased assets shall be reclaimed in accordance with Clause 1 of Article 28 of this Decree, if the reclaimed assets are imported from abroad, they shall not be subject to export tax when exported.

3. In the case where ownership of the leased assets is transferred to the lessee at the end of the lease term through the sale or assignment of the leased assets, the lessee shall not be required to pay the stamp duty.

Article 23. The lessor has the right

1. To request the lessee to provide quarterly reports, annual financial settlements, and information on business operations and issues related to the leased assets.

2. To inspect the management and use of the leased assets.

3. To purchase or import leased assets according to the lessee's requirements.

4. To affix ownership markings on the leased assets throughout the lease period.

5. To transfer their rights and obligations under the finance lease contract to another finance leasing company. In such cases, the lessor only needs to notify the lessee in writing.

6. To require the lessee to deposit a security deposit or have a guarantor for the performance of the finance lease contract if deemed necessary.

7. To reduce rent, extend the payment period, or sell the leased assets in accordance with the regulations of the State Bank.

8. To claim compensation from the lessee for damages caused by the lessee's breach of the finance lease contract.

Article 24. The lessor has the obligation

1. To sign a purchase contract with the supplier according to the conditions agreed upon between the lessee and the supplier. The lessor shall not be responsible for the failure to deliver or incorrect delivery of the leased assets as agreed upon by the lessee with the supplier.

2. To register ownership rights and arrange insurance procedures for the leased assets.

3. To fully and accurately fulfill all terms committed to in the contract.

Article 25. The lessee has the right

1. To select and negotiate with the supplier regarding technical specifications, types, prices, methods, and deadlines for delivery, installation, and warranty of the leased assets.

2. To directly receive the leased assets from the supplier according to the purchase contract agreement.

3. To decide whether to purchase the assets or continue leasing them after the expiration of the finance lease contract.

4. To claim compensation from the lessor for damages caused by the lessor's breach of the finance lease contract.

Article 26. The lessee has the obligation

1. To provide quarterly reports, annual financial settlements, and information on business operations and issues related to the leased assets when requested by the lessor; to facilitate the lessor's inspection of the leased assets.

2. To bear responsibility for the selection and negotiation as stipulated in Clause 1 of Article 25 of this Decree.

3. To use the leased assets strictly for the purpose agreed upon in the finance lease contract; not to transfer the usage rights to other individuals or organizations without the written consent of the lessor.

4. To pay rent as agreed upon in the finance lease contract and to settle all related costs including import duties, registration fees, and insurance premiums for the leased assets.

5. To bear all risks of loss or damage to the leased assets and to be responsible for any consequences arising from the use of the leased assets that affect other organizations or individuals during the lease period.

6. To maintain and repair the leased assets during the lease period. Not to erase or damage ownership markings affixed to the leased assets.

7. Not to use the leased assets as collateral, pledge, or guarantee for other obligations.

8. To fully and accurately fulfill all terms committed to in the contract.

Article 27.

1. The lessor may terminate the finance lease contract prematurely in any of the following circumstances:

a) The lessee fails to pay rent as stipulated in the leasing contract;

b) The lessee breaches the terms of the leasing contract;

c) The lessee goes bankrupt or is dissolved;

d) The guarantor goes bankrupt or is dissolved, and the lessor does not approve the lessee's request to terminate the guarantee or to replace the guarantor.

2. The lessee may terminate the contract prematurely if the lessor breaches any of the following circumstances:

a) The lessor fails to deliver the leased assets on time.

b) The lessor breaches the contract.

3. The finance lease contract may be terminated prematurely if the leased assets are lost or damaged beyond repair.

4. The finance lease contract may be terminated before the end of the lease term if the lessor agrees to allow the lessee to pay the full rent ahead of schedule as specified in the finance lease contract.

Article 28.

1. In the event that the finance lease contract is terminated prematurely in accordance with any of the circumstances stipulated in Clause 1 of Article 27 of this Decree, the lessee must immediately pay the remaining rent to the lessor. If the lessee cannot pay the rent, the lessor has the right to immediately reclaim the leased assets and the lessee must compensate the lessor for material losses. After reclaiming the leased assets, the lessor has the right to transfer or lease the assets to others.

2. The lessor's ownership rights over the leased assets during the lease period shall not be affected in the event of the lessee's bankruptcy, dissolution, or inability to pay debts. The leased assets shall not be considered the lessee's property when settling debts to other creditors.

3. In the event that the finance lease contract is terminated prematurely in accordance with Clause 2 of Article 27 of this Decree, the lessor must compensate the lessee for damages.

4. In the event that the finance lease contract is terminated prematurely in accordance with Clause 3 of Article 27 of this Decree, the lessor must refund the lessee the asset insurance premium paid by the lessee to the lessor once the lessee has paid the full rent due to the lessor and the lessor has received the insurance payment from the insurer.

Article 29. A finance leasing company shall not engage in finance leasing with the objects specified in Clause 1 of Article 77 of the Law on Credit Institutions.

Article 30.

1. A finance leasing company shall not offer favorable terms for finance leasing to the objects specified in Clause 1 of Article 78 of the Law on Credit Institutions.

2. The total value of leased assets for the objects specified in this Clause shall not exceed 5% of the finance leasing company's own capital.

Article 31.

1. Financial leasing companies must maintain the safety ratio as prescribed in Article 81 of the Law on Credit Institutions and guiding documents of the State Bank.

2. Limits on financial leasing for one customer:

a) The total amount of financial leasing for one customer shall not exceed 30% of the charter capital of the financial leasing company, except for financial leasing from entrusted funds of the Government, organizations, individuals, or customers who are credit institutions.

b) In cases where the leasing needs of a customer exceed 30% of the charter capital of the financial leasing company or the customer has leasing needs from multiple sources, financial leasing companies may lease pooled capital in accordance with the regulations of the Governor of the State Bank. In special cases, implement according to the provisions of point c, Clause 1, Article 79 of the Law on Credit Institutions.

Chapter IV

FINANCE, ACCOUNTING AND REPORTING

Article 32. Financial leasing companies are permitted to open deposit accounts at the State Bank and banks operating within the territory of Vietnam. Opening a deposit account at a bank outside the territory of Vietnam must be approved by the State Bank.

Article 33.

1. The fiscal year of a financial leasing company begins on January 1st each year and ends on December 31st of the Gregorian calendar.

2. Financial income and expenditure activities, accounting of financial leasing companies shall be carried out in accordance with the financial system regulations of the Government for credit institutions.

Article 34. Financial leasing companies must set aside risk reserves and record them as operational expenses. The establishment and use of risk reserves shall be implemented in accordance with the regulations of the State Bank.

Article 35. Profit distribution and fund establishment of financial leasing companies shall be carried out in accordance with the financial system regulations of the Government for credit institutions.

Article 36. The transfer of profits and assets abroad by foreign parties in joint venture financial leasing companies and wholly foreign-owned financial leasing companies shall be implemented in accordance with the provisions of Article 112 of the Law on Credit Institutions.

Article 37. Financial leasing companies shall not purchase or invest in fixed assets of their own exceeding 50% of their charter capital.

Article 38. Financial leasing companies must comply with accounting, statistics, and auditing systems as prescribed by the Government's financial system regulations for credit institutions.

Chapter V

SPECIAL INSPECTION, CONTROL, BANKRUPTCY, DISSOLUTION, LIQUIDATION

Article 39.

1. Financial leasing companies are subject to inspection and examination in accordance with the law.

2. The State Bank's inspection of the operations of financial leasing companies in Vietnam shall be carried out in accordance with the provisions of Section 1, Chapter IX of the Law on Credit Institutions.

Article 40. Special control, bankruptcy, dissolution, and liquidation of financial leasing companies shall be carried out in accordance with the provisions of Chapter V of the Law on Credit Institutions.

Article 41. Rewards and penalties for leasing activities shall be carried out in accordance with the provisions of Chapter X of the Law on Credit Institutions.

Chapter VI

IMPLEMENTING PROVISIONS

Article 42. This Decree takes effect 15 days after the date of signature and replaces Decree No. 64/CP dated October 9, 1995 of the Government.

The State Bank of Vietnam shall take the lead and coordinate with relevant agencies to guide the implementation of this Decree.

Article 43. The Ministers, Heads of ministerial-level agencies, Heads of government agencies, Chairpersons of People's Committees of provinces and centrally governed cities are responsible for implementing this Decree./.