The Circular provides guidelines on handling of financial matters and accounting for state-owned enterprises that contribute capital to establish joint ventures under the Law on Foreign Investment in Vietnam when these joint ventures terminate operations.

 

CIRCULAR

Guidelines on financial settlement and accounting for state-owned enterprises of Vietnam that have contributed capital to establish joint ventures under the Law on Foreign Investment in Vietnam when such joint ventures cease operations

Pursuant to the Law on Foreign Investment in Vietnam dated November 12, 1996 and the Law Amending and Supplementing Certain Provisions of the Law on Foreign Investment in Vietnam dated June 9, 2000

Pursuant to Decree No. 24/2000/NĐ-CP dated July 31, 2000 of the Government detailing the implementation of the Law on Foreign Investment in Vietnam

Pursuant to Decree No. 04/2000/NĐ-CP dated February 11, 2000 of the Government detailing the Law Amending and Supplementing Certain Provisions of the Land Law

The Ministry of Finance issues guidelines on financial settlement and accounting for state-owned enterprises of Vietnam that have contributed capital to establish joint ventures under the Law on Foreign Investment in Vietnam when such joint ventures cease operations as follows:

This technical regulation sets out technical requirements, testing methods, sampling procedures; management requirements; responsibilities of organizations and individuals producing, trading, and importing cigarettes.

1. Objectives and scope of application:

This Circular stipulates the financial settlement and accounting for:

1.1. The portion of assets and capital of state-owned enterprises distributed from joint ventures when joint ventures cease operations in the following cases:

- Expiration of the investment license term;

- As stipulated in the termination conditions set forth in the joint venture's contract and articles of association;

- By decision of the competent state management agency for foreign investment due to serious violation of laws or investment license provisions;

- Due to bankruptcy declaration.

1.2. State-owned enterprises transferring or purchasing joint venture shares.

2. When joint ventures cease operations, the contributing parties must establish a liquidation committee to carry out liquidation, implement the asset distribution plan, and handle assets and capital in accordance with the joint venture's articles of association and contract, ensuring fairness and compliance with the law (except in cases where the joint venture is declared bankrupt, which shall be handled according to the Bankruptcy Law).

3. The Vietnamese partner enterprise, based on the asset and capital distribution results of the joint venture liquidation committee (or the court's decision), is responsible for accepting the distributed assets from the joint venture and handling finances and accounting in accordance with Part II and III of this Circular.

The Vietnamese partner enterprise includes:

- State-owned corporations, independent accounting units of state-owned corporations, and independent enterprises under ministries, provincial people's committees, and centrally-administered municipalities that previously contributed a part of their business or assets to form joint ventures;

- In cases where state-owned enterprises previously contributed the entire value of their business to form joint ventures and no longer exist as state-owned enterprises:

+ If the enterprise was a member of state-owned corporations, the Vietnamese partner representative is the state-owned corporation.

+ If it was an independent enterprise under industry ministries or provincial people's committees, the relevant ministry or provincial people's committee is responsible for appointing an enterprise to act as the Vietnamese partner representative to accept assets and capital distributed from the joint venture.

4. General principles for financial settlement and accounting when joint ventures cease operations include:

If the value of assets and capital received from the liquidation of joint venture assets exceeds the value of the joint venture contribution, the Vietnamese partner enterprise may record an increase in operating capital. If the value is less than the joint venture contribution, the enterprise may use the Financial Reserve Fund to cover the shortfall, and if insufficient, the enterprise records the difference as financial activity expenses.

In cases where the enterprise suffers prolonged losses and lacks financial capacity to self-cover, the enterprise reports to the Ministry of Finance (for central enterprises) and the provincial people's committee (for local enterprises) for consideration and reduction of operating capital.

II. SPECIFIC PROVISIONS

1. In cases where the Vietnamese partner enterprise receives or is allocated the remaining value of land use rights, water surface, or sea surface rights not utilized during the joint venture period (hereinafter referred to as the remaining value of land use rights):

1.1. If previously, the Vietnamese partner enterprise contributed capital to the joint venture using land use funds or legally transferred land use rights without originating from the state budget, upon the joint venture ceasing operations, the enterprise continues to use the land for the remaining period granted by the state and does not need to pay state budget funds but must pay land tax according to current regulations.

1.2. If previously, the Vietnamese partner enterprise contributed capital to the joint venture using land use funds or legally transferred land use rights with funds originating from the state budget or land leased by the state, where the land use value was used to contribute to the joint venture and the lease payments were converted into state investment capital for the enterprise, upon the joint venture ceasing operations, the enterprise continues to use the land for the remaining lease or grant period and is responsible for preserving the corresponding state capital equivalent to the lease payments used to contribute to the joint venture, implementing the payment of state budget funds usage revenue from the time of using lease payments to contribute to the joint venture according to current regulations.

1.3. In cases where the joint venture is dissolved or declared bankrupt, the Vietnamese partner enterprise receives the remaining value of land use rights where the land was not previously contributed to the joint venture by the enterprise, the remaining value of land use rights is considered distributed assets. The enterprise continues to use the land for the remaining lease or grant period. Upon expiration of the land use period, the enterprise complies with current land law regulations.

The remaining value of the land use right to be divided as stipulated in Point 1, Part II above, if there is an increase (or decrease) compared to the joint venture capital contribution, shall be recorded by the enterprise according to the provisions of Point 4, Part I of this Circular.

2. For other assets to be divided such as houses, machinery, equipment, money, receivables, losses, payables, the enterprise shall base on the results of asset division by the Joint Venture Liquidation Committee (or the decision of the Court) to record according to the provisions of Point 4, Part I of this Circular.

3. Interest payable arising from borrowing to contribute to the joint venture, if the Vietnamese partner enterprise has not yet recorded, shall be recorded as financial activity expenses.

4. In the case where the Vietnamese partner enterprise purchases the portion of capital of the foreign partner, the enterprise shall record the increase in assets and sources of funds accordingly in accordance with current regulations on purchasing assets.

5. In the case where the Vietnamese partner enterprise is permitted to transfer its joint venture capital contribution to a foreign party or a third party (including cases where the joint venture is still operating or has ceased operations):

5.1. If transferring the entire joint venture capital contribution (including the land use right), the enterprise shall record it as liquidating a financial investment, the amount received from the transfer shall be recorded as financial income; the value of the joint venture capital contribution and the incurred transfer costs shall be recorded as financial activity expenses. If profit is generated, corporate income tax must be paid according to current regulations.

5.2. If the enterprise only transfers part of the joint venture capital contribution, and the land use right not transferred is leased or subleased to the foreign party or a third party, the amount received from the transferred capital contribution shall be recorded as specified in Point 5.1 above. Annual rental income from the land shall be recorded as financial income of the enterprise.

In the case of generating a loss, the difference between the value of the joint venture capital contribution and the amount received from the transfer shall be recorded according to the provisions of Point 4, Part I of this Circular.

6. In the case where the value of the land use right and assets when contributing to the joint venture are appraised higher than the value recorded in the accounting books now that the joint venture has ceased operations, after the enterprise has received the distributed assets and recorded them as prescribed above, if the value of the received assets is higher than the current market price, the enterprise shall determine the price difference and report to the Ministry of Finance (for central state-owned enterprises) and the People's Committee of the province or centrally-administered city (for local state-owned enterprises) for consideration to adjust the asset value and capital to be appropriate.

III. PROVISIONS ON RECORDING CERTAIN MAJOR TRANSACTIONS

1. When the joint venture ceases operations, the Vietnamese partner enterprise shall base on the value of the assets received (land use rights, fixed assets, tools, materials, raw materials, finished products, receivables, money...) decided by the Joint Venture Liquidation Committee (or the Court), and simultaneously determine the difference (increase or decrease) compared to the joint venture capital contribution, record:

1.1. In the case where the value of the received assets is lower than the joint venture capital contribution (the capital contribution recorded in the accounting books has been accepted by the joint venture), the difference shall first be offset by the financial reserve fund, if insufficient, it shall be recorded as financial expense, the enterprise shall record:

Debit Account 111, 112 - (received in cash)

Debit Account 138 - (received receivables)

Debit various Accounts 152, 155, 156 - (received raw materials, goods)

Debit Account 211 - Tangible Fixed Assets (remaining value)

Debit Account 213 - Intangible Fixed Assets

(received remaining value of land use rights, other intangible assets)

Debit Account 415 - Financial Reserve Fund (decrease difference)

Debit Account 811 - Financial Activity Expenses (remaining decrease difference)

Credit Account 222 - Joint Venture Capital Contribution (amount contributed)

1.2. In the case where the value of the received assets is higher than the joint venture capital contribution (the capital contribution recorded in the accounting books has been accepted by the joint venture), the difference shall be recorded as an increase in business capital, the enterprise shall record:

Debit various Accounts 111, 112 - (received in cash)

Debit Account 138 - Other Receivables (received receivables)

Debit various Accounts 152, 155, 156 - (received raw materials, goods)

Debit Account 211 - Tangible Fixed Assets (remaining value)

Debit Account 213 - Intangible Fixed Assets

(received remaining value of land use rights, other intangible assets)

Credit Account 222 - Joint Venture Capital Contribution (amount contributed)

Credit Account 411 - Business Capital (increase difference)

2. In the case of transferring joint venture capital contribution:

2.1. In the case where the transfer price is higher than the value of the joint venture capital contribution, record:

Debit various Accounts 111, 112 - (actual amount received)

Credit Account 222 - Joint Venture Capital Contribution (amount contributed)

Credit Account 711 - Financial Income (increase difference)

2.2. In the case where the transfer price is lower than the value of the joint venture capital contribution, the enterprise shall record:

Debit various Accounts 111, 112 - (actual amount received)

Debit Account 811 - Financial Activity Expenses (decrease difference)

Credit Account 222 - Joint Venture Capital Contribution (amount contributed)

2.3. Incurred transfer costs (if any), the enterprise shall record:

Debit Account 811 - Financial Activity Expenses

Credit Account 111, 112

2.4. Transfer of incurred transfer costs and transfer income (if any) to determine the result of transfer income, the enterprise shall record:

+ Transfer of incurred joint venture capital contribution transfer costs:

Debit account 911 - Determining business results

Credit Account 811 - Financial Activity Expenses

+ Transfer of joint venture capital contribution transfer income:

Debit Account 711 - Financial Income

Credit Account 911 - Determine Operating Results

3. Handling other issues related to the process of receiving back the joint venture capital contribution

3.1. If the enterprise borrows money to contribute to the joint venture but cannot repay the principal loan or interest on the borrowed amount for the joint venture contribution, the enterprise must determine the interest payable according to the loan agreement and record it as financial expense of the period, the enterprise shall record:

Debit Account 811 - Financial Activity Expenses

Credit Account 335 - Payable Expenses

3.2. In the case where the enterprise is experiencing difficulties and is allowed by the State to reduce capital, upon receipt of the competent authority's decision allowing reduction of business capital, the enterprise shall record:

Debit Account 411 - Business Capital (details according to the source of capital)

Credit Account 222 - Joint Venture Capital Contribution

Or:

Debit Account 411 - Business Capital (details according to the source of capital)

Credit Account 211, 213 - (difference in the value of assets appraised higher than the value recorded in the accounting books when contributing to the joint venture)

IV. IMPLEMENTATION PROVISIONS

Joint venture cooperation contracts, if they create common assets among the parties when ceasing operations, shall also apply this Circular.

This Circular takes effect from the date of issuance. In case of any difficulties, enterprises shall promptly reflect them to the Ministry of Finance for study and resolution./.