Circular No. 62/2002/TT-BTC guiding the application of value added tax (VAT) on credit institutions' activities of selling collateral assets to recover debts (Content Attached)

CIRCULAR

Guidelines on value-added tax for the disposal of collateral assets to recover debts of credit institutions

ensure loan funds to recover debts for credit institutions

Pursuant to the Law on Value Added Tax, Decree No. 79/2000/NĐ-CP dated December 29, 2000 of the Government detailing the implementation of the Law on Value Added Tax, and Circular No. 122/2000/TT-BTC dated December 29, 2000 of the Ministry of Finance guiding the implementation of Decree No. 79/2000/NĐ-CP dated December 29, 2000 of the Government;

Pursuant to Decree No. 178/1999/NĐ-CP dated December 29, 1999 of the Government on loan guarantees of credit institutions and the directive of the Prime Minister in Official Letter No. 1151/CP-KTTH dated December 20, 2001 of the Government;

The Ministry of Finance hereby provides specific guidelines on the exemption from value-added tax for the sale of collateral assets by credit institutions to recover debts when disposing of collateral assets 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. Scope of application:

This Circular applies to credit institutions that have the right to dispose of collateral assets according to Clause 2, Article 34 of Decree No. 178/1999/NĐ-CP dated December 29, 1999 of the Government on loan guarantees of credit institutions, including the following methods:

a) Credit institutions directly sell collateral assets to buyers or sell to companies managing debts and exploiting assets under commercial banks or organizations with functions of buying and selling debt assets.

b) Credit institutions authorize the sale of collateral assets to the following organizations: - Auction centers; - Enterprises conducting auctions in accordance with the Law on Auctions; - Companies managing debts and exploiting assets under commercial banks; - Organizations with functions of buying and selling assets for sale.

c) Credit institutions accept the very collateral assets to replace the obligation to repay the debt.

d) Credit institutions may directly accept assets from third parties in cases where third parties have the obligation to return assets to borrowers or guarantors. In cases of selling assets of enterprises according to Decree No. 103/1999/NĐ-CP dated September 10, 1999 of the Government on the transfer, lease, and management of state-owned enterprises, or selling assets of bankrupt enterprises according to the Bankruptcy Law of Enterprises, value-added tax does not need to be calculated, declared, or paid according to the guidance in Circular No. 122/2000/TT-BTC dated December 29, 2000 of the Ministry of Finance, and thus are not subject to this Circular.

2. Scope of Application:

Pursuant to Article 32 of Decree No. 178/1999/NĐ-CP dated December 29, 1999 of the Government and Clause 3.1, Point 1 of Decision No. 149/2001/QĐ-TTg dated October 5, 2001 of the Prime Minister approving the project to handle overdue debts of commercial banks, the cases applicable to credit institutions having the right to dispose of collateral assets to recover debts include:

a) After 60 days from the due date for repayment, if the collateral asset has not been disposed of according to the agreement.

b) Borrowers must prepay the debt as prescribed by law but fail to do so or do not fulfill their repayment obligations properly.

c) Borrowers, who are economic organizations, are dissolved before the due date for repayment, then the obligation to repay the debt, although not yet due, is considered due. If the borrower does not repay the debt and does not dispose of the collateral asset to repay the debt, the credit institution has the right to dispose of the asset to recover the debt.

d) In cases where borrowers or guarantors, who are enterprises, do not resolve collateral assets as stipulated in Clause 2, Article 13 of Decree No. 178/1999/NĐ-CP dated December 29, 1999 of the Government during division, separation, merger, consolidation, or conversion to joint-stock form.

e) Courts rule to transfer assets to credit institutions for disposal.

II. PROCEDURES, DOCUMENTS, AND INVOICES WHEN CREDIT INSTITUTIONS DISPOSE OF COLLATERAL ASSETS

1. In cases where credit institutions directly sell collateral assets:

a) Credit institutions directly selling to buyers must perform:

a1) Publicly announce the sale of collateral assets and conduct the sale of collateral assets within the time limit prescribed by the State Bank of Vietnam on the disposal of collateral assets to recover debts of credit institutions and relevant authorities.

a2) Must have a credit contract or guarantee contract between the credit institution and the borrower or guarantor (hereinafter referred to as the guarantor). For cases specified in Clause 2b, 2c, 2d, Section I of this Circular, additional processing documents from competent authorities as prescribed by law (original or certified copy) are required.

a3) When selling collateral assets, the credit institution is responsible for issuing a VAT invoice to the buyer. On the VAT invoice, it must clearly indicate the sale of collateral assets for debt repayment as stipulated in Clause 2, Article 34 of Decree No. 178/1999/NĐ-CP dated December 29, 1999 of the Government, with the tax rate and VAT amount not filled in, crossed out.

a4) Upon completion of the disposal of collateral assets, the credit institution must notify the guarantor in writing, specifying the amount received from the sale of the guarantor's collateral assets. For cases of disposing of guarantor's collateral assets as stipulated in Clause 3, Clause 4, Article 32 of Decree No. 178/1999/NĐ-CP dated December 29, 1999 of the Government, the credit institution does not need to notify the guarantor (except when the collateral asset belongs to the guarantor and the guarantor is not dissolved, divided, separated, merged).

b) Credit institutions selling to organizations with functions of buying and selling assets or companies managing debts and exploiting assets under commercial banks (referred to as purchasing units):

- Credit institutions also must comply with procedures, documents, and invoices as prescribed in Clause 1a, Section II of this Circular.

- Purchasing units, when reselling the assets purchased from credit institutions, are exempted from VAT and issue VAT invoices as prescribed in Clause 1.a.3, Section II above.

2. In cases where credit institutions authorize the sale of collateral assets to organizations specified in Point 1.b, Section I of this Circular:

a) A power of attorney contract for the sale of assets must be signed between the credit institution and the authorized party.

b) When the buyer is clearly identified, the authorized unit shall notify the credit institution of the customer's information. The credit institution shall carry out the procedures, documents, and invoices as stipulated in Clause 1a, Section II of this Circular.

3. In the case where the credit institution receives the collateral asset directly to replace the performance of the secured obligation.

a) The credit institution and the guarantor shall prepare a record of receipt of the collateral asset, which must clearly state the following contents: receiving the collateral asset for the loan according to Clause 2, Article 34 of Decree No. 178/1999/NĐ-CP dated December 29, 1999 of the Government to replace the performance of the secured obligation, the handover, receipt, valuation, disposal of the collateral asset, and payment from the disposal of the collateral asset, and other contents as prescribed by law. In this case, the credit institution does not need to issue an invoice but shall handle the transfer of ownership and usage rights of the collateral asset.

b) The document for the credit institution to account for is the record of receipt of the collateral asset to replace the performance of the secured obligation and other related documents as prescribed by law.

c) When selling these assets, the credit institution has the responsibility to issue a VAT invoice as stipulated in Clause 1.a.3, Section II of this Circular. Any difference arising from the sale of the collateral asset (if any) shall be accounted for in the credit institution's business results.

III. SPECIFIC PROVISIONS FOR THE PARTIES INVOLVED IN THE DISPOSAL OF LOAN COLLATERAL ASSETS:

1. For credit institutions:

a) Implement the provisions set forth in Section II of this Circular.

b) The VAT invoice for the sale of loan collateral assets, the credit institution must manage and monitor separately. The proceeds from the disposal of loan collateral assets shall not be considered as revenue or income of the credit institution (except for the cases specified in sub-item c, Clause 3, Section II of this Circular).

2. For the guarantor:

If the guarantor is a business entity, it shall account for the sales amount according to the notification of the credit institution as non-VAT taxable sales turnover. In the case where the guarantor is a business entity implementing VAT deduction method and the loan collateral asset falls under VAT taxable items, it must reduce the corresponding input VAT based on the sales turnover of the collateral asset within the fiscal year. The method for determining the allocation of input VAT of the loan collateral asset is calculated according to the provisions in sub-item c, Clause 1, Section III Part B of Circular No. 122/2000/TT-BTC dated December 29, 2000 of the Ministry of Finance guiding the implementation of Decree No. 79/2000/NĐ-CP dated December 29, 2000 of the Government detailing the implementation of the Law on Value Added Tax.

3. For the buyer:

Has the right to request the credit institution to issue a VAT invoice in accordance with Section II of this Circular and use this invoice as a legitimate document for accounting when purchasing the asset or completing other procedures as prescribed.

4. For tax authorities:

Provincial Tax Departments have the responsibility to provide VAT invoices to credit institutions to serve the sale of loan collateral assets.

IV. IMPLEMENTATION ORGANIZATION:

1. This Circular takes effect fifteen days after the date of signature and applies to guarantee contracts signed before the effective date of this Circular but have not yet completed the purchase and sale and issuance of invoices. Cases where the collateral asset has been sold and the VAT invoice issued to the buyer shall not be adjusted.

2. During the implementation process, if any difficulties arise, organizations and individuals are advised to promptly report to the Ministry of Finance for research and resolution./.