Circular No. 64/1999/TT-BTC guiding the profit distribution regime after tax and the management of funds in state-owned enterprises

CIRCULAR

Guidelines on the distribution of post-tax profits and management of funds in state-owned enterprises

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Pursuant to Decree No. 59/CP dated October 3, 1996 of the Government on the Management Regulations and Financial Accounting for State-Owned Enterprises and Decree No. 27/1999/NĐ-CP dated April 20, 1999 of the Government amending and supplementing Decree No. 59/CP mentioned above;

The Ministry of Finance issues guidelines on the distribution of post-tax profits from corporate income tax and the management of funds in state-owned enterprises as follows:

I. SUBJECTS AND SCOPE OF APPLICATION

These guidelines apply to state-owned enterprises engaged in business operations, including holding companies, member enterprises under holding companies that operate on an economic accounting basis, and other independent enterprises in all sectors managed by central and local authorities.

State-owned enterprises established pursuant to Decree No. 56/CP dated October 2, 1996 of the Government for public welfare purposes; and enterprises within training and research institutions established pursuant to Decision No. 68/1998/QĐ-TTg dated March 27, 1998 of the Prime Minister shall implement separate profit distribution regimes and not apply these guidelines.

II. SPECIFIC GUIDELINES

A. PROFITS OF THE ENTERPRISE:

1. Annual realized profit is the result of the enterprise's business activities, including profit from business operations and profit from other activities.

a) Profit from business operations: Is the difference between total revenue and the full cost of goods, services consumed during the fiscal year of the enterprise.

b) Profit from other activities includes:

- Financial activity profit is the excess of income over expenses from financial activities, including: leasing assets; buying and selling securities; buying and selling foreign currencies; interest on bank deposits belonging to operating capital; interest on loans; dividends and profits distributed from joint venture investments; reversal of the balance of provisions for impairment of securities investments.

- Unusual activity profit is the excess of income over expenses from unusual activities, including: amounts payable but unpayable due to creditor's side; bad debts previously written off now recovered; profit from ownership and use of assets; surplus materials and assets after offsetting losses and damages; differences arising from liquidation or sale of assets; profits from previous years discovered this year; reversal of the balance of provisions for inventory write-downs and doubtful debts; remaining warranty product reserves after the warranty period has expired.

2. The State retains post-corporate income tax profits for the enterprise primarily to replenish operating capital, establish a financial reserve fund to self-compensate for part of the risks; while also taking care of material benefits for employees in the enterprise.

B. POST-TAX PROFITS:

After transferring losses according to Article 22 of the Corporate Income Tax Law and paying corporate income tax as prescribed by law, the remaining profit is distributed in the following sequence:

1. Replenish pre-tax losses from previous years that were not deductible;

2. Pay the proceeds from the use of state budget capital according to current regulations;

3. Pay fines for violations of state laws such as: tax law, traffic law, environmental law, trade law, administrative regulations... after deducting compensation paid to the collective or individual responsible (if applicable);

4. Deduct actual expenses incurred but not included in reasonable costs when determining taxable income;

5. Distribute profits to capital contributors according to cooperation agreements (if applicable);

6. The remaining profit after deducting items (1, 2, 3, 4, 5) is distributed as follows:

6.1. Allocate 10% to the financial reserve fund. When the balance of this fund equals 25% of the enterprise's charter capital, no further allocations are made;

6.2. Allocate at least 50% to the development investment fund;

6.3. Allocate 5% to the unemployment assistance reserve fund. When the balance of this fund reaches six months' salary of the enterprise, no further allocations are made;

6.4. For certain special industries (such as commercial banks, insurance...) where the law requires the establishment of special funds from post-tax profits, the enterprise allocates according to those regulations;

6.5. Distribute dividends in cases of share issuance;

6.6. The remaining profit after allocating to the funds (6.1, 6.2, 6.3, 6.4, 6.5) is allocated to the Merit Award Fund and Welfare Fund. The maximum allocation rate for both funds is based on the profit margin on state capital (state capital here refers to the average balance of state capital at the beginning of each quarter of the year), as follows:

a) Three months' salary for the following cases:

- Enterprises with a profit margin this year equal to or higher than last year.

- Enterprises investing in technological upgrades and expanding business operations currently enjoying corporate income tax exemptions under the Domestic Investment Promotion Law if their profit margin is lower than last year before the investment.

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

The Board of Directors or General Director (for enterprises without a Board of Directors) decides the proportion of the amount to be allocated to each fund after soliciting opinions from the Trade Union Executive Committee.

After fully allocating the Merit Award Fund and Welfare Fund according to the above regulations, the remaining profit is supplemented entirely into the Development Investment Fund.

7. Procedures and timing for establishing funds.

7.1. Based on quarterly financial reports on realized profits, enterprises declare and pay corporate income tax according to the law, and the remaining profit is temporarily allocated to the funds specified in Section II above, but the temporary allocation to the funds does not exceed 70% of the total post-tax profit of the quarter.

7.2. After publicly announcing the annual financial report according to the guidance of the Ministry of Finance, enterprises distribute the entire post-tax profit for the year according to the provisions of Section B of this Circular.

C. PURPOSES OF ENTERPRISE FUNDS:

1. Development Investment Fund for:

1.1. Supplementing state operating capital:

- To expand the scale of business operations and upgrade technology, equipment, and working conditions of the enterprise;

- Contributing to joint ventures, purchasing shares, and contributing to joint stock companies according to current regulations;

- For state-owned enterprises tasked with purchasing and processing agricultural, forestry, and marine products, this fund may be directly invested in developing raw material regions or lent to other economic sectors to develop raw material regions supplying the enterprise.

Based on investment needs and the fund's capacity, the Board of Directors or the General Director (for enterprises without a Board of Directors) decides on the form and methods of investment according to the principle of efficiency, capital preservation, and development.

1.2. The contribution to the State-Owned Enterprise Group Development Fund (if it is a member of a State-Owned Enterprise Group) at the ratio determined annually by the Group's Board of Directors.

1.3. In necessary cases, the State may mobilize part of the development fund of an enterprise to invest in developing another state-owned enterprise. The Ministry of Finance, after reaching agreement with the agency deciding the establishment of the enterprise, will decide on this mobilization.

2. Financial reserve fund for:

2.1. Compensating the remaining losses and damages to assets occurring during business operations after compensation from organizations and individuals causing the loss and insurance organizations.

2.2. Contributing to form the financial reserve fund of the State-Owned Enterprise Group (if it is a member of a State-Owned Enterprise Group) at the ratio determined annually by the Group's Board of Directors.

3. Unemployment allowance reserve fund for:

3.1. Providing unemployment allowances to workers who have worked at the enterprise for one year or more and temporarily lose their jobs according to state regulations; funding retraining in specialized skills and techniques for workers due to technological changes or new job assignments, especially pre-vocational training for female workers of the enterprise. This fund is only used to provide unemployment allowances to workers losing their jobs due to objective reasons such as excess labor due to technological changes, joint ventures, organizational changes while not yet being reassigned to other work or timely resolved for retirement.

3.2. For state-owned enterprise members where the unemployment allowance is handled by the State-Owned Enterprise Group according to the Group's financial regulations, the enterprise member contributes to form the unemployment allowance reserve fund of the Group at the ratio determined annually by the Group's Board of Directors.

The level of allowance for each specific case is decided by the General Director after consulting with the Trade Union President of the enterprise.

4. Welfare fund for:

4.1. Investing in constructing or repairing, supplementing construction funds for public welfare facilities of the enterprise, contributing capital to construct common welfare facilities within the industry or with other units according to agreed contracts.

4.2. Funding sports, cultural, and public welfare activities for the collective of employees of the enterprise.

4.3. Contributing to social welfare funds (charitable and public welfare activities...).

4.4. Providing regular and emergency assistance to enterprise staff.

4.5. Additionally, assistance can be provided to retired workers of the enterprise who are in difficult circumstances, without support, building benevolent houses, and charitable activities.

4.6. Contributing to form the centralized welfare fund of the State-Owned Enterprise Group (if it is a member of a State-Owned Enterprise Group) at the ratio determined by the Group's Board of Directors.

The enterprise's General Director coordinates with the Trade Union Executive Committee of the enterprise to manage and utilize this fund.

5. Reward fund for:

5.1. Year-end or regular rewards for enterprise staff. The reward amount is decided by the enterprise's General Director after consulting with the Trade Union organization based on labor productivity and work achievements of each staff member.

5.2. Rewards for individuals and external units with economic relations that have successfully completed contractual conditions and effectively contributed to the enterprise's business activities. The reward amount is decided by the enterprise's General Director.

5.3. Contributing to form the centralized reward fund of the State-Owned Enterprise Group (if it is a member of a State-Owned Enterprise Group) at the ratio determined by the Group's Board of Directors.

D. RESPONSIBILITIES OF THE ENTERPRISE AND THE STATE FINANCIAL MANAGEMENT AGENCY:

1. The Chairman of the Board of Directors or the General Director (for enterprises without a Board of Directors) is responsible for accurately determining the enterprise's profits, distributing and using post-tax profits according to the provisions of this Circular.

The establishment and use of enterprise funds must be transparent before state management agencies and the labor collective of the enterprise.

2. The state financial management agency is responsible for inspecting the distribution of post-tax profits, the establishment and use of enterprise funds according to the provisions of this Circular.

If violations are discovered, they must require enterprises to correct them. If there are violations, appropriate measures will be applied depending on the severity of the offense: administrative penalties, material compensation, or reduction of the welfare and reward funds according to current laws.

III. IMPLEMENTATION PROVISIONS

This Circular applies to the distribution of post-tax profits from the fiscal year 1999 and replaces Circular No. 70 TC/TCDN dated November 5, 1996 of the Ministry of Finance.

Management agencies and state-owned enterprises are responsible for implementing this Circular.