Circular No. 17/2006/TT-BTC guiding the implementation of Decree No. 101/2005/NĐ-CP dated August 3, 2005 of the Government on valuation appraisal

CIRCULAR

Guidelines for Implementing Decree No. 101/2005/NĐ-CP

dated August 3, 2005 of the Government on Price Appraisal

Pursuant to the Price Ordinance No. 40/2002/PL-UBTVQH10 dated April 26, 2002;

Pursuant to Decree No. 101/2005/NĐ-CP dated August 3, 2005 of the Government on price appraisal;

Pursuant to Decree No. 77/2003/NĐ-CP dated July 1, 2003 of the Government stipulating the functions, tasks, authorities, and organizational structure of the Ministry of Finance;

The Ministry of Finance issues guidelines for implementing Decree No. 101/2005/NĐ-CP dated August 3, 2005 of the Government on price appraisal (hereinafter referred to as Decree No. 101/2005/NĐ-CP) as follows:

A. SCOPE OF APPLICATION

This Circular guides methods of price appraisal; selection of price appraisal methods; service prices for price appraisal; price appraisal enterprises; price appraisers; management of lists of price appraisers and lists of price appraisal enterprises.

B. SPECIFIC PROVISIONS

I. Methods of price appraisal:

1. Comparative method:

The comparative method is a method of price appraisal based on the analysis of prices of similar assets to the asset being appraised that have been successfully traded or are currently being bought and sold on the market at the time of appraisal or close to the time of appraisal to estimate the market value of the asset being appraised.

The comparative method is mainly applied in the appraisal of assets with frequent transactions, purchases, and sales on the market.

2. Cost method:

The cost method is a method of price appraisal based on the costs incurred to create a similar asset to the asset being appraised to estimate the market value of the asset being appraised.

The cost method is mainly applied in the appraisal of specialized assets with infrequent or no common transactions on the market; used assets; assets not meeting the conditions for applying the comparative method.

3. Income method:

The income method (also known as the investment method) is a method of price appraisal based on the conversion of future net cash flows expected from the exploitation of the asset being appraised into the present value of the asset (this conversion process is also called income capitalization) to estimate the market value of the asset being appraised.

The income method is mainly applied in the appraisal of investment assets (real estate, chattels, businesses, finance) that have the potential to generate income in the future and have a determined rate of income capitalization.

4. Residual method:

The residual method is a method of price appraisal where the market value of the asset being appraised is determined by estimating the current value of the asset based on the difference between the estimated value of the assumed development of the asset and all costs incurred to achieve that development.

The residual method is mainly applied in the appraisal of real estate with development potential.

5. Profit method:

The profit method is a method of price appraisal based on the profitability of using the asset to estimate the market value of the asset being appraised.

The profit method is mainly applied in the appraisal of assets where comparison with similar assets is difficult due to the asset's value primarily depending on its profitability, such as hotels, restaurants, cinemas, etc.

6. Other international appraisal methods (if any) must be approved by the Ministry of Finance before application.

The specific content of the appraisal methods shall be implemented in accordance with the Vietnamese Appraisal Standards issued by the Ministry of Finance.

II. Selection of appraisal methods:

1. Based on the purpose of the appraisal; the nature and characteristics of the asset being appraised; market information conditions, the appraiser selects the most appropriate appraisal method among those specified in Section I, Part B of this Circular to apply and may combine other appraisal methods specified in Section I, Part B of this Circular to check, compare, and cross-reference the estimated price level to determine a specific price.

2. Determination of the value of state-owned companies for shareholding conversion applies the method prescribed in Decree No. 187/2004/NĐ-CP dated November 16, 2004 of the Government on the conversion of state-owned companies into joint-stock companies, Circular No. 126/2004/TT-BTC dated December 24, 2004 of the Ministry of Finance guiding the implementation of Decree No. 187/2004/NĐ-CP and the methods prescribed in this Circular.

Determination of land prices for public announcement by competent state agencies on January 1st each year applies the method prescribed in Decree No. 188/2004/NĐ-CP dated November 16, 2004 of the Government on the method of determining land prices, land price ranges, and Circular No. 114/2004/TT-BTC dated November 26, 2004 of the Ministry of Finance guiding the implementation of Decree No. 188/2004/NĐ-CP and the methods prescribed in this Circular.

III. Service Prices for Appraisal:

1. Service prices for appraisal are carried out in accordance with Article 7 of Decree No. 101/2005/NĐ-CP and are determined through mutual agreement between the appraisal enterprise and the client, clearly stated in the service appraisal contract.

2. State assets required to be appraised as stipulated in Clause 1, Article 5 of Decree No. 101/2005/NĐ-CP:

2.1. State assets required to be appraised where the service appraisal fee is covered by the state budget must implement the tendering provision of services according to Clause 2, Article 7 of Decree No. 101/2005/NĐ-CP and the following provisions:

- For state assets with book value or projected value of 30 billion VND or more; or tender packages for appraisal services valued at 100 million VND or more must implement the tendering method for appraisal services.

- For state assets with book value or projected value below 30 billion VND; or tender packages for appraisal services valued below 100 million VND, the state agency owning the asset required to be appraised may organize tenders or designate tenders for the provision of appraisal services.

2.2. Appraisal enterprises participating in tendering for the provision of appraisal services must meet the following conditions:

- Listed in the annual valuation firm list published by the Ministry of Finance.

- Possess appropriate valuation experience as required by the tenderer (must be reflected in the bidding dossier).

- Have sufficient human and resource capacity to provide valuation services according to the tenderer's requirements (must be reflected in the bidding dossier).

2.3. The form, procedures, and sequence of bidding for valuation services shall comply with the laws on bidding.

A valuation firm may only participate in one bid proposal in one bidding round either as a sole bidder or a joint venture bidder. In case a branch under the name of the bidding firm participates in the bidding, other branches directly affiliated with it shall not participate as independent contractors in the same bidding round.

IV. Valuation firms:

1. Organizational structure and operation of valuation firms:

1.1. Valuation firms are established and operate in accordance with the laws on enterprises and Article 8 of Decree No. 101/2005/ND-CP, including the following forms:

- Joint-stock company;

- Limited liability company (one member, two members or more);

- Partnership company;

- Private enterprise.

1.2. Valuation firms organize and operate in compliance with the laws on enterprises suitable to each type. Valuation activities of valuation firms are carried out through service provision contracts in writing with state agencies, organizations, or individuals requiring valuation services. Service provision contracts must include all contents stipulated in the Civil Code and related legal documents.

1.3. Valuation Centers and centers with valuation functions established and operating before the effective date of Decree No. 101/2005/ND-CP, if continuing to provide valuation services, must convert their operations to one of the forms of valuation firms specified in Clause 1, Section IV, Part B of this Circular.

1.4. The conversion of Valuation Centers and centers with valuation functions to valuation firms must be completed within two (02) years from the effective date of Decree No. 101/2005/ND-CP (from August 31, 2005 to August 31, 2007).

Ministers of Ministries, Heads of agencies at the level of ministries, agencies under the Government; Chairmen of People's Committees of provinces and centrally governed cities; Heads of mass organizations are responsible for guiding and directing the conversion of Valuation Centers and centers with valuation functions established before August 31, 2005 to operate in the form of enterprises as prescribed in Decree No. 101/2005/ND-CP and this Circular.

2. Conditions for establishment and operation of valuation firms:

2.1. In addition to the conditions for establishment and operation of each type of enterprise as prescribed by the laws on enterprises, valuation firms must meet the conditions stipulated in Clause 2, Article 9 of Decree No. 101/2005/ND-CP, specifically as follows:

- Having at least three qualified appraisers whose appraisal licenses are still valid, among whom the legal representative of the enterprise must be a qualified appraiser.

The owner of a private valuation enterprise must be a qualified appraiser; one qualified appraiser can only be the owner of one private valuation enterprise.

The general partners of a partnership valuation company must be qualified appraisers; one qualified appraiser can only be a general partner of one partnership valuation company.

- Registering to provide advisory valuation services and other activities with valuation functions with the business registration agency.

2.2. Within thirty days from the date of issuance of the Business Registration Certificate, the valuation firm must notify the Ministry of Finance (Price Management Department) in writing about the establishment of the valuation firm and the list of appraisers registered to practice valuation at the firm.

2.3. During the process of providing valuation services, valuation firms must continuously ensure they meet the conditions stipulated above. If a valuation firm fails to meet these conditions for three consecutive months, it must cease providing valuation services and bear legal responsibility for the quality of valuation services provided according to signed contracts during this period.

3. Branches of valuation firms:

3.1. Valuation firms may establish branches in accordance with the Civil Code and other relevant laws. Branches of valuation firms are subordinate units of valuation firms, tasked with performing all or part of the functions of valuation firms. Valuation firms are legally responsible for the activities of their affiliated valuation branches.

3.2. For branches of valuation firms that conduct full valuation activities (issuing appraisal certificates), there must be at least two qualified appraisers whose licenses are still valid (for foreign branches, foreign appraisers holding foreign certification recognized by the Vietnamese Ministry of Finance). The head of the branch must be a qualified appraiser.

3.3. For branches of valuation firms that only perform partial valuation activities (without issuing appraisal certificates), it is not necessary to have qualified appraisers.

4. Foreign valuation organizations:

4.1. Foreign valuation organizations that establish branches in Vietnam to conduct valuation activities shall comply with the provisions set forth in Clause 1, Article 15 of Decree No. 101/2005/NĐ-CP and the following regulations:

Foreign valuation organizations wishing to establish branches in Vietnam to conduct valuation activities must submit to the Ministry of Finance the following documents and materials: A request for establishing a branch in Vietnam; a license for establishment or operation issued by the competent authority in the home country where the main office of the valuation organization is located; an introduction about the organization and its valuation activity results over the last three years (including the number of valuation experts, the number of employees, the number of branches operating valuation services both domestically and internationally, and the number of valuation services provided); a proposed list of valuation experts who will work at the branch.

Within thirty days from the date of receipt of the complete request documents and materials as prescribed, the Ministry of Finance shall issue a response letter. Only if approval is granted may the foreign valuation organization proceed with establishing a branch in Vietnam. The establishment and operation of foreign valuation organization branches in Vietnam must comply with Vietnamese laws and the provisions of Decree No. 101/2005/NĐ-CP.

4.2. Foreign valuation organizations that have not established branches in Vietnam:

- Shall conduct valuations in Vietnam according to the provisions of subclauses a and b, Clause 2, Article 15 of Decree No. 101/2005/NĐ-CP.

- In cases where they independently carry out a valuation in Vietnam and circulate the valuation report in Vietnam according to the provisions of subclause c, Clause 2, Article 15 of Decree No. 101/2005/NĐ-CP, they must submit to the Ministry of Finance a request for conducting such a valuation (specifying the client, the asset to be valued, and the purpose of the valuation) along with the required documents as stipulated for requesting the establishment of a branch in Vietnam.

Within fifteen days from the date of receipt of the complete request documents and materials as prescribed, the Ministry of Finance shall issue a response letter. If approved, the foreign valuation organization may proceed with independently conducting the valuation.

5. Rights of valuation enterprises:

5.1. Valuation enterprises have the rights as prescribed in Article 10 of Decree No. 101/2005/NĐ-CP.

5.2. Valuation enterprises may participate in domestic and international valuation industry associations and chambers. Membership fees for associations and chambers are considered business expenses based on actual costs and must be supported by valid invoices and receipts.

5.3. Valuation enterprises may charge service fees for valuations according to the prices specified in Part B, Section III of this Circular.

6. Obligations of valuation enterprises:

6.1. Valuation enterprises have the obligations as prescribed in Article 11 of Decree No. 101/2005/NĐ-CP.

6.2. Valuation enterprises must purchase professional liability insurance from a legally operating insurance company in Vietnam. In cases where Vietnamese insurance companies do not offer professional liability insurance for valuations, valuation enterprises may purchase such insurance from foreign insurance companies. Enterprises with foreign investment capital and valuation enterprises that are members of international valuation organizations may also purchase professional liability insurance from foreign insurance companies. Insurance costs are considered business expenses based on actual costs and must be supported by valid invoices and receipts.

6.3. In cases where valuation enterprises do not purchase professional liability insurance, they must establish a risk reserve fund included in business expenses, with an annual contribution rate of between 0.5% and 1% of valuation service revenue (excluding value-added tax), depending on the financial capacity of the enterprise. When the balance of the risk reserve fund at the end of the fiscal year reaches 10% of the valuation service revenue for that fiscal year, no further contributions to the fund are required.

6.4. Valuation enterprises are liable under the law and to clients for the results of valuations recorded in valuation certificates according to signed valuation contracts. In cases where incorrect valuation results cause damage to clients or users of the valuation results (the State, organizations, or individuals), the valuation enterprise must compensate for the damage. Compensation for damages shall be carried out in one of the following ways:

a) Agreement-based compensation.

b) Resolution through arbitration in accordance with commercial arbitration laws or court rulings as prescribed by law.

When compensation for damages caused by the fault of the valuation enterprise is required, the enterprise can be compensated by the insurance company according to the insurance contract, or use the risk reserve fund to compensate for the damage. If the amount to be paid for compensation exceeds the insurance compensation or the risk reserve fund, the enterprise may draw from the financial reserve fund (if available) to cover the payment. If the financial reserve fund is insufficient, the shortfall will be treated as a business expense after deducting any compensation received from units or individuals (if applicable) according to current laws.

6.5. Maintain records of valuation-related documents conducted by the enterprise, including valuation reports, valuation certificates, and all related materials. The minimum retention period is ten years from the date the enterprise issues the valuation certificate.

V. Valuation Experts

1. Qualifications of valuation experts:

Valuation experts must meet the qualifications prescribed in Article 16 of Government Decree No. 101/2005/NĐ-CP dated August 3, 2005, on valuation, and must pass the valuation expert examination organized by the Examination Board of the Ministry of Finance, and be issued a valuation expert card by the Minister of Finance.

2. Conditions for practicing as a Price Appraiser:

2.1. A Price Appraiser can only practice price appraisal when meeting the conditions stipulated in Article 17 of Decree No. 101/2005/NĐ-CP.

2.2. A Price Appraiser whose name is not on the list of registered appraisers announced by the Ministry of Finance (Price Management Department) shall not practice price appraisal at enterprises and shall not sign appraisal certificates for enterprises.

2.3. The name of a Price Appraiser who practices price appraisal will be removed from the list of registered appraisers announced by the Ministry of Finance in the following cases:

a) Engaging in prohibited acts as specified in Article 20 of Decree No. 101/2005/NĐ-CP.

b) Registering to practice price appraisal but not actually practicing at an enterprise.

c) Violating laws or violating professional ethics and discipline that are strictly prohibited under the law on price appraisal.

2.4. A Price Appraiser whose name has been removed from the list of registered appraisers shall not be allowed to re-register for practice within one (01) year from the date of removal.

3. Registration for Practicing as a Price Appraiser:

3.1. A Price Appraiser wishing to practice price appraisal must register with an appraisal enterprise. After the initial registration, annually, a Price Appraiser must renew their registration for practicing price appraisal with the appraisal enterprise by January 1st each year.

The Ministry of Finance (Price Management Department) manages the list of registered appraisers through appraisal enterprises.

3.2. Registration for Practicing as a Price Appraiser at an Appraisal Enterprise:

a) Conditions for Registration for Practicing as a Price Appraiser:

- Vietnamese citizens who meet the conditions stipulated in Clause 1 of Article 17 of Decree No. 101/2005/NĐ-CP may register for practicing price appraisal. For foreign Price Appraisers, they must have a valid professional certificate issued by a competent authority abroad recognized by the Vietnamese Ministry of Finance, have a labor contract with an appraisal enterprise, and have been permitted to reside in Vietnam for at least one year from the date of signing the labor contract.

- Having a clear record, being honest, having professional ethics in price appraisal; not belonging to those who are not allowed to register for practicing price appraisal as stipulated in Article 18 of Decree No. 101/2005/NĐ-CP on price appraisal.

- Holding a valid Price Appraiser card.

b) Documents for Registration for Practicing as a Price Appraiser include:

- An application for registration for practicing as a Price Appraiser (in accordance with Form 01/TĐVVG attached to this Circular);

- A certified copy of the Price Appraiser card issued by the Ministry of Finance (for foreign Price Appraisers, a certified copy of the professional certificate issued by a competent authority abroad is required), or a certified copy signed and stamped by the director of the appraisal enterprise;

- Certified copies of other related documents according to the conditions stipulated in Point 3.2 Section V Part B of this Circular.

Those who have registered for practicing price appraisal in the previous year and continue to practice at the enterprise in the following year only need to submit the application for registration for practicing.

3.3. The director of the appraisal enterprise, based on the application for registration for practicing as a Price Appraiser and the regulations on conditions for practicing price appraisal, is responsible for reviewing and compiling a list of practicing Price Appraisers at the enterprise (in accordance with Form 02/TĐVVG attached to this Circular) to be submitted to the Ministry of Finance (Price Management Department) for annual review and announcement.

The director of the appraisal enterprise is responsible for registering Price Appraisers for practice; if there is any violation (fraud) in including persons who do not meet the conditions and standards in the list of practicing Price Appraisers at the enterprise, they will be handled according to the provisions of the law on administrative penalties in the field of prices; if the violation is serious, their name will be removed from the list of appraisal enterprises with sufficient conditions for appraisal activities announced annually by the Ministry of Finance (Price Management Department).

4. Rights and Obligations of Practicing Price Appraisers:

4.1. The rights and obligations of Price Appraisers are implemented according to the provisions of Article 19 of Decree No. 101/2005/NĐ-CP dated August 3, 2005 of the Government on price appraisal.

4.2. Right to Participate in Professional Organizations:

a) Practicing Price Appraisers have the right to participate in domestic and international professional organizations (associations, professional associations) in the capacity of individuals or as representatives of appraisal enterprises.

b) Costs for participating in professional organizations as representatives of appraisal enterprises by Price Appraisers can be included in the business expenses of the appraisal enterprise and must be supported by legitimate invoices and receipts.

4.3. Price Appraisers are obligated to retain appraisal files and documents they have prepared for a minimum period of ten years from the date of publication of the appraisal certificate. In case a Price Appraiser transfers to another location, they still bear responsibility before customers and the law regarding the legality of all documents, data, and appraisal results in the files handed over during the retention period as prescribed.

5. Prohibited Acts for Practicing Price Appraisers:

5.1. Purchasing bonds or other assets of the entity being appraised, affecting the principle of independence in the appraisal activity.

5.2. Receiving any amount of money or benefits from the entity being appraised outside the agreed service fee and costs in the contract, or taking advantage of their position as a Price Appraiser to obtain other benefits from the entity being appraised.

5.3. Renting, lending, or allowing other organizations or individuals to use their name and Price Appraiser card to conduct appraisal activities.

5.4. Registering to practice price appraisal simultaneously at two or more appraisal enterprises at the same time.

5.5. Disclosing information about the entity being appraised known during the practice, except where the entity being appraised agrees or the law provides otherwise.

5.6. Exploiting responsibility and authority for personal gain, colluding, or covering up violations of the appraised entity.

5.7. Signing simultaneously both the appraisal expert's signature responsible for the appraisal and the Director's (or authorized representative's) signature on the appraisal certificate.

5.8. Other acts prohibited by laws on appraisal.

6. Appraisal experts shall not conduct appraisals in the following cases:

6.1. Not listed in the list of registered appraisal experts announced by the Ministry of Finance (Price Management Department).

6.2. Having economic or financial relations with the appraised entity such as capital contribution, purchasing stocks or bonds; lending funds; buying or selling other assets or engaging in other economic or financial transactions that affect the independence of the appraisal activity.

6.3. Having parents, spouse, children, siblings as members of the management board or chief accountants of the appraised entity.

6.4. The appraised entity makes demands contrary to professional ethics or requirements of appraisal expertise or contrary to legal provisions.

VI. Unified management of the list of practicing appraisal experts and the list of appraisal enterprises:

1. Annually, before January 15, appraisal enterprises must notify the Ministry of Finance (Price Management Department) of relevant information and documents related to the enterprise: Enterprise name, legal representative, address, telephone number, along with the business registration certificate of the enterprise and the list of appraisal experts registered to practice at the enterprise (in accordance with Appendix No. 02/TĐVVG), accompanied by a copy certified by the enterprise director of the appraisal expert's practice registration file at the enterprise as stipulated in Point 3.2, Section V, Part B of this Circular.

Before January 31 each year, the Ministry of Finance (Price Management Department) will announce nationwide the list of practicing appraisal experts and the list of appraisal enterprises meeting the conditions for appraisal activities. Only those appraisal experts and appraisal enterprises listed in the announcement of the Ministry of Finance (Price Management Department) are permitted to engage in appraisal activities.

The Minister of Finance authorizes the Director of the Price Management Department to carry out the review, inspection, and organization of the annual announcement of the list of practicing appraisal experts and the list of appraisal enterprises meeting the conditions for appraisal activities.

2. Enterprises that newly register or supplement their appraisal service business operations during the year, after notifying the Ministry of Finance in accordance with Point 1, Section VI, Part B of this Circular, will be considered and added to the list of practicing appraisal experts and the list of appraisal enterprises meeting the conditions for appraisal activities within 15 days from the date of receipt of the enterprise's notification.

3. During the course of operation, if an appraisal enterprise has new appraisal experts registering to practice at the enterprise; practicing appraisal experts violate the law and lose their right to practice appraisal or transfer, quit the profession, then the appraisal enterprise must notify the Ministry of Finance (Price Management Department) of the list of these appraisal experts within 15 days from the date the appraisal expert registers to practice or from the date the practicing appraisal expert ceases practice at the enterprise.

Within 10 days from the date of receipt of the notification of the list of practicing appraisal experts at the enterprise, the Ministry of Finance (Price Management Department) will consider, supplement, and announce the list of appraisal experts meeting the conditions for practicing appraisal.

C. IMPLEMENTATION

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

Repeal Clause 2, Section V, Part B of Circular No. 15/2004/TT-BTC dated March 9, 2004, issued by the Ministry of Finance guiding the implementation of Decree No. 170/2003/NĐ-CP dated December 25, 2003, of the Government detailing the implementation of certain provisions of the Price Ordinance.

2. Ministries, sectors, People's Committees, and Provincial Departments of Finance directly under the Central Government have the responsibility to guide appraisal enterprises to implement this Circular.

In the process of implementation, if there are difficulties, please reflect them to the Ministry of Finance for research and appropriate amendments and supplements./.