Decree No. 27/1999/ND-CP Amending and Supplementing the Financial Management and Business Accounting Regulations for State-Owned Enterprises issued together with Decree No. 59/CP dated October 3, 1996 of the Government

DECREE

Amending and supplementing the Financial Management and Business Accounting Regulations for State-Owned Enterprises issued together with Decree No. 59/CP dated October 3, 1996 of the Government

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THE GOVERNMENT

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

Pursuant to the State Enterprise Law on April 20, 1995;

At the proposal of the Minister of Finance,

DECREE:

Article 1. Amending and supplementing some Articles or Clauses of the "Financial Management and Business Accounting Regulations for State-Owned Enterprises" issued together with Decree No. 59/CP dated October 3, 1996 as follows:

1. Article 4 shall be amended as follows:

"Article 4. During the course of business operations, when necessary, the State may consider additional investment of capital to enterprises.

The enterprise must publicly disclose its registered capital and any changes to the registered capital.

In addition to the registered capital, the enterprise must independently raise capital for business development and bear responsibility for raising such capital. The enterprise has the obligation to accept, manage, and use effectively the capital and other resources assigned by the State, continuously improving business efficiency, preserving and developing capital. The enterprise bears limited civil liability for its business activities within the scope of the enterprise's capital, including the portion of capital assigned by the State."

2. Amending and supplementing Clause 1 and Clause 2 of Article 7 as follows:

"1. The State assigns existing state-owned capital at the enterprise, including budget-funded capital, capital from budget sources, and self-accumulated capital (if any).

2. For independent enterprises that take over another enterprise through merger or re-establishment based on consolidation or division from another enterprise, before assigning capital, it is necessary to clearly identify financial issues, their causes, and the responsibilities of those involved to handle them according to current regulations. If financial issues arise due to State policies, the enterprise must propose solutions to the competent state authorities. The re-established enterprise and the enterprise taking over another enterprise through merger inherit all rights and fulfill all obligations of state-owned enterprises prior to the merger, consolidation, or division."

3. Article 11 shall be amended as follows:

"Article 11. In addition to the State's invested capital, state-owned enterprises have the right to raise capital in the following forms: issuing bonds, stocks, borrowing, receiving equity contributions, and other forms. Capital raising must comply with legal provisions and not alter the form of ownership of the enterprise. When issuing bonds or stocks to raise capital, it must comply with current legal provisions."

4. Article 13 shall be amended as follows:

"Article 13. State-owned enterprises have the responsibility to preserve the State-assigned capital in accordance with the following provisions:

1. Implement the prescribed management and use of capital and assets as stipulated by the State;

2. Purchase insurance for assets as required;

3. Include the following risk reserve items in operating expenses or other activity costs:

a) Inventory write-down reserve: the anticipated reduction in value of inventory materials and goods expected to occur in the next business period;

b) Reserve for doubtful accounts receivable: the anticipated uncollectible amounts in the next business period due to debtors' inability to pay;

c) Reserve for securities price reductions in financial activities;

d) Reserve for currency exchange rate reductions between the Vietnamese dong and foreign currencies.

The Ministry of Finance shall guide the establishment and use of the reserves mentioned in Clause 3 of Article 13 of this Regulation."

5. Article 14 shall be amended as follows:

1. The budget of the Representative Office includes the operational budget of the office and the living expenses budget for members of the Representative Office according to the current State quota system. Among these, the budgets of the Defense Attaché's Office and the Trade Office shall be allocated separately by the Ministry of Finance. The budget of the Defense Attaché's Office shall be managed by the Ministry of National Defense; the budget of the Trade Office shall be managed by the Ministry of Trade. The Defense Attaché's Office and the Trade Office shall use the seal of the Representative Office in transactions.

1. State-owned enterprises shall conduct asset revaluation in the following cases:

a) Asset inventory and revaluation according to the decision of the competent state authority;

b) Carrying out shareholding, diversifying ownership forms, or changing ownership;

c) Using assets for joint ventures or contributing capital in shares (contributing assets and receiving assets back).

2. Asset inventory and revaluation must comply with the State's regulations. Any increases or decreases in value resulting from asset revaluation shall be recorded as increases or decreases in the State's capital at the enterprise."

6. Article 15 shall be amended as follows:

"Article 15. When suffering asset losses, the enterprise must determine the loss value, cause, responsibility, and handle it as follows:

1. If the cause is due to subjective reasons of individuals or collectives, the person causing the loss must compensate according to the law. The Board of Directors or General Director (for enterprises without a Board of Directors) decides on the compensation amount and is responsible for their decision.

2. If the asset was insured and suffered a loss, it shall be handled according to the Insurance Contract.

3. After compensating for the loss with personal or collective funds, insurance organization funds, if there is still a shortfall, it shall be covered by the enterprise's financial reserve fund. If the financial reserve fund is insufficient, the shortfall shall be recorded as extraordinary expenses in the period.

4. In cases of extraordinary losses caused by natural disasters or other objective reasons leading to severe damage that the enterprise cannot overcome itself, the Board of Directors or General Director (for enterprises without a Board of Directors) shall develop a loss handling plan and report it to the financial authority. After obtaining the opinion of the authority that established the enterprise, the financial authority will decide on the loss handling or report to the Prime Minister for decision."

7. Amending Clause 3 of Article 17 as follows:

"3. When the enterprise leases, mortgages, or pledges key production technology chains as defined by economic and technical management agencies, it must obtain written approval from the authority that established the enterprise."

8. Amending Clause 1 of Article 18 as follows:

"1. The enterprise can proactively sell assets to recover capital for more effective business purposes. For key production technology chains as defined by economic and technical management agencies, when selling, it must obtain written approval from the authority that established the enterprise."

9. Amending Clause 1 of Article 19 as follows:

''1. An enterprise may liquidate assets that are obsolete, have lost quality, are damaged and cannot be restored; assets that are technologically outdated, not needed for use, or used without efficiency and cannot be sold as they are. For assets that are entire main production lines as defined by the economic and technical management agency, liquidation must be approved by the agency that established the enterprise.''

10. Amend Point h of Clause 1 and Clause 2 of Article 23 as follows:

''h) Other expenses:

Provision for provisions according to Point a, b Clause 3 Article 13 of this Regulation;

Severance pay for employees according to Decree No. 198/CP dated December 31, 1994 of the Government detailing and guiding the implementation of certain articles of the Labor Code on labor contracts and other documents of the Government;

Mid-shift meal allowance for employees, reward for innovation, reward for material savings according to the guidance of the Ministry of Labor - Invalids and Social Affairs, the Ministry of Science, Technology and Environment, the Ministry of Finance;

Research and development costs, costs for technological innovation, costs for initiatives and improvements, training costs for workers, improving skills or management capacity, educational support costs (if any), health care costs for employees of the enterprise according to the prescribed regulations;

Environmental protection costs. If the cost is large and has an effect over many years, it can be gradually allocated to subsequent years;

Costs for female employees according to the prescribed regulations;

Warranty costs for products. For products with long production times or requiring warranty over many years such as construction projects, shipbuilding, enterprises are allowed to set aside these costs from annual expenses;

Costs related to fines for breach of economic contracts;

Advance deductions agreed upon in writing by the financial authority.''

''2. Other operating costs of the enterprise include:

Costs for buying and selling bonds, stocks; provision for depreciation of various securities; rental costs; costs for selling and liquidating assets (including residual value of assets and selling and liquidation costs), costs for joint ventures, cooperative operations, capital contributions; costs for recovering written-off debts; costs for collecting fines; losses remaining after compensation from sources as stipulated in Clause 3 Article 5 of this Decree;

Exchange rate fluctuation costs: according to the current financial regulations;

Other costs.''

11. Article 24 is amended as follows:

''Article 24. The following items shall not be included in business operation costs or other operating costs:

1. Penalties for violation of laws. The collective or individual who violates the law must pay these penalties according to the regulations;

2. Expenses unrelated to the business activities of the enterprise, such as hardship allowances for employees within the enterprise, support for localities, organizations, agencies...;

3. Travel expenses abroad exceeding the prescribed limit;

4. Expenses covered by other funding sources.''

12. Article 25 is amended as follows:

"Article 25. Determining product and service costs:

1. Production costs of products and services include:

a) Direct material costs: costs of raw materials, fuel, materials directly used to produce products and services;

b) Direct labor costs including: wages, bonuses, social insurance, medical insurance contributions of workers directly producing products and services according to state regulations;

c) Common production costs: costs shared for production and processing activities of workshops (business units) directly producing products and services, such as: material costs, small tools, depreciation of fixed assets belonging to workshops (business units); wages, social insurance, medical insurance contributions of workshop staff (business units), external service costs, other monetary costs incurred in workshops (business units).

2. Total costs of consumed products and services include:

a) Production costs of consumed products and services;

b) Sales costs: all costs related to the sale of products and services, including product warranty costs;

c) Management costs: costs for the management and operation of the enterprise, costs related to the enterprise's business activities, such as: small tool costs, depreciation of fixed assets serving the management and operation of the enterprise: salaries, management fee contributions to Holding Companies; external service costs; other monetary costs such as reception, ceremonial, transaction costs, severance pay for employees according to Decree No. 198/CP dated December 31, 1994 of the Government detailing and guiding the implementation of certain articles of the Labor Code; provisions for inventory write-downs, doubtful receivables according to Point a, b Clause 3, Article 13 of this Regulation; research and development costs, costs for technological innovation, initiative and improvement costs, training and education costs, healthcare costs for employees of the enterprise, environmental protection costs, costs for female employees.''

13. Article 28 is amended as follows:

''Article 28.

1. Enterprises may allocate costs for advertising, marketing, promotions for business activities, transaction costs, hospitality, external relations, conferences. Enterprises must have management regulations and publicly disclose these costs. The General Director of the enterprise decides on these costs and is responsible to the State for his decisions. These costs shall not exceed 7% of actual total costs in the period. The Ministry of Finance will provide specific guidelines for certain special industries;

2. Safety and health protection costs must be based on the current regulations and standards.

3. Member enterprises of the Corporation shall implement the allocation and payment of management fees for the Corporation according to the decision of the General Director based on the plan approved by the Board of Directors of the Corporation, which is reflected in the annual financial plan of the Corporation. If the management fees of the Corporation have been raised but not fully utilized, they may be carried over to the next year for expenditure and reduce the amount to be raised in the following year. If the amount raised is less than the actual expenditure, the Corporation may raise additional funds in the following year. The Board of Directors shall approve this additional raising amount.

14. Article 32 is amended as follows:

''Article 32. The realized profit of the enterprise after paying corporate income tax shall be distributed as follows:

1. To offset losses from previous years that were not deductible from pre-tax profits;

2. To pay the use of state budget capital;

3. To deduct fines for violations of laws attributable to the enterprise;

4. The remaining profit after deducting items 1, 2, and 3 of this Article shall be distributed as follows:

a) Allocate 10% to the financial reserve fund; when the balance of the fund reaches 25% of the charter capital, no further allocations will be made;

b) Allocate 50% to the development investment fund;

c) Allocate 5% to the unemployment reserve fund; when the balance of this fund reaches six months' salary, no further allocations will be made;

d) For certain special industries where the law permits the establishment of special funds from post-tax profits, the enterprise may allocate according to those provisions;

đ) Distribute dividends in cases of share issuance;

e) The remaining profit after deducting items a, b, c, and đ shall be allocated to two funds for rewards and welfare. The maximum allocation rate for both funds shall be based on the profit margin (calculated on state capital) as follows:

Three months' salary if the profit margin this year is not lower than last year. In cases where the enterprise invests in technological upgrades or expands business operations during a period exempted from corporate income tax under the Law on Encouragement of Domestic Investment, even if the profit margin is lower than the previous year before the investment, it can still allocate up to three months' salary.

Two months' salary if the profit margin this year is lower than last year's profit margin.

The Board of Directors or the General Director (for enterprises without a Board of Directors) shall decide the distribution ratio for each fund after consulting with the trade union.

The remaining profit after allocating to the two reward and welfare funds as mentioned above shall be fully added to the development investment fund.''

15. Amend Clause 1 of Article 33 as follows:

''1. Development investment fund: Used to supplement the operating capital of the enterprise; to allocate to the development investment fund of the Corporation at a ratio determined by the Corporation's Board of Directors.

In case of necessity, the State has the right to mobilize part of the development investment fund of the enterprise to invest in other state-owned enterprises.''

16. Add new Article 40 and renumber the old Article 40 as Article 41.

''Article 40.

1. Reward and disciplinary system for the Board of Directors, General Director, and General Director of state-owned enterprises regarding financial management:

a) If the enterprise continuously fulfills its tax obligations as prescribed by law, achieves profitability or reduces losses, and the profit margin on state capital increases year over year while preserving and developing the assigned state capital, then members of the Board of Directors, General Director, and General Director shall receive increased bonuses and be considered for early promotion.

b) If the enterprise incurs losses, the General Director and General Director must report and explain to the Board of Directors (if the enterprise has a Board of Directors). The Board of Directors (if the enterprise has a Board of Directors), General Director, and General Director (if the enterprise does not have a Board of Directors) must report and explain to the Ministry of Finance and the agency responsible for establishing the enterprise, specifying the level of loss, causes, responsibilities of the Board of Directors, General Director, and General Director, and propose remedial measures.

Depending on the level of loss, the number of years of loss, subjective reasons causing the loss, and specific levels of responsibility, the Chairman, members of the Board of Directors, General Director, and General Director shall be held accountable through the following forms: reduction or cancellation of bonuses, non-promotion of salary grades (if due), demotion of salary grades, reprimand, warning, and removal from office.

c) When the implementation of investment projects fails to yield economic benefits, leading to unrecovered state capital or inability to repay loans according to loan agreements, the damages caused by subjective reasons, depending on the nature, degree of violation, and within the scope of responsibility stipulated in Articles 38 and 39 of this Regulation, the Board of Directors, General Director, and General Director shall be subject to administrative penalties and material compensation as prescribed by law. Members of the Board of Directors who expressed reservations different from the approved project shall not be subject to such penalties.

d) Failure to comply with financial reporting systems; false public financial reports; failure to implement or violation of this regulation, within the scope of responsibility stipulated in Articles 38 and 39 of this Regulation, the Board of Directors, General Director, and General Director shall be subject to administrative penalties depending on the nature and degree of violation; if material damage is caused, compensation must be provided according to the law.

Any of the above violations, if constituting a crime, shall be prosecuted criminally.

đ) The person deciding to appoint the Chairman and other members of the Board of Directors, General Director, and General Director is the person deciding on rewards and punishments.

2. State management agencies within their functional, task, and authority scope shall manage state-owned enterprises in accordance with the law. If they make incorrect decisions, handle matters late or beyond their authority, causing damage to the enterprise and the State, they must clearly identify individual and collective responsibility, and be disciplined according to the degree of fault; if constituting a crime, they shall be prosecuted criminally according to the law.'

Article 2. This Decree shall take effect fifteen days from the date of signature. Previous regulations of the Government, Ministries, ministerial-level agencies, and government-affiliated agencies that conflict with the contents of this Regulation are hereby abolished.

Article 3. The Minister of Finance is responsible for guiding and supervising the implementation of this Decree.

The Ministers, Heads of ministerial-level agencies, Heads of government-affiliated agencies, Chairmen of provincial people's committees under the direct jurisdiction of the central government, Board of Directors, General Directors, and Directors of state-owned enterprises engaged in business operations are responsible for implementing this Decree.