Decree No. 64/CP Issuing the Interim Regulation on the Organization and Operation of Financial Leasing Companies in Vietnam

DECREE

Issued by the Government Decision No. 64-CP dated October 9, 1995 on the Interim Regulations on the Organization and Operation of Financial Leasing Companies in Vietnam

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THE GOVERNMENT

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

On the basis of the State Bank Law, the Banking Law, Credit Cooperatives Law, and Financial Companies Law dated May 23, 1990;

At the proposal of the Governor of the State Bank,

DECREE:

Article 1.- These Interim Regulations on the Organization and Operation of Financial Leasing Companies in Vietnam are hereby promulgated together with this Decree.

Article 2.- These regulations shall only apply to financial leasing activities and shall take effect from the date of issuance.

Article 3.- The Governor of the State Bank shall be responsible for providing detailed guidance on the implementation thereof and will draw lessons and supplement these regulations to issue them officially after a certain period.

Article 4.- The Ministers, Heads of ministerial-level agencies, Heads of government-affiliated agencies, Chairpersons of People's Committees of provinces and centrally governed cities shall be responsible for enforcing this Decree.

INTERIM REGULATION

On the organization and operation of financial leasing companies in Vietnam

(Issued together with Government Decree No. 64-CP dated October 9, 1995)

Chapter 1:

GENERAL PROVISIONS

Article 1.- Financial leasing is a medium to long-term credit activity through the leasing of machinery, equipment, and other chattels. The lessor commits to purchasing machinery, equipment, and chattels according to the lessee's requirements and retains ownership of the leased assets. The lessee uses the leased asset and pays rent throughout the agreed lease term without being able to terminate the contract prematurely. Upon completion of the lease term, the lessee may transfer ownership, purchase, or continue leasing the asset under the conditions stipulated in the lease agreement.

Article 2.- In these Regulations, the following terms shall be understood as follows:

1. Lessor: A Financial Leasing Company with legal personality, licensed to operate under these regulations;

2. Lessee: An enterprise established under Vietnamese law, directly using the leased asset within the lease term for its lawful business purposes;

3. Leased Asset: Machinery, equipment, and other chattels meeting advanced technical standards, having a useful life of more than one year, produced domestically or imported;

4. Lease Term: The period during which the lessee uses the leased asset and pays rent, agreed upon by both the lessor and lessee in the lease agreement.

Article 3.- A financial leasing transaction must satisfy one of the following conditions:

1. At the end of the lease term as stipulated in the contract, the lessee has the right to transfer ownership of the leased asset or continue leasing it according to the mutual agreement;

2. The lease agreement specifies that at the end of the lease term, the lessee has the option to purchase the leased asset at a nominal price lower than its actual value at the time of repurchase;

3. The lease term for a type of asset must be at least 60% of the time required for the depreciation of the leased asset;

4. The total amount of rent for a type of asset specified in the lease agreement must be at least equivalent to the market price of that asset at the time of signing the contract.

Article 4.- The State Bank of Vietnam, hereinafter referred to as the State Bank, is the state management agency for financial leasing activities, tasked with issuing and revoking operating licenses, promulgating regulatory documents on business operations, managing, supervising, and inspecting the activities of Financial Leasing Companies in Vietnam.

Chapter 2:

FINANCIAL LEASING COMPANY

PART 1: FINANCE LEASING COMPANIES

Article 5.- A finance leasing company is a type of financial company whose primary activities include leasing machinery, equipment, and other chattels.

Finance leasing companies established and operating in Vietnam include:

1. Finance leasing companies established by banks, financial companies, or banks and financial companies together with other Vietnamese enterprises;

2. Joint venture finance leasing companies between Vietnamese parties consisting of one or more banks, financial companies, or other enterprises and foreign parties consisting of one or more banks, financial companies, foreign finance leasing companies, and international financial organizations;

3. Wholly foreign-owned finance leasing companies established by banks, financial companies, or foreign finance leasing companies.

Article 6.- The minimum capital requirement for finance leasing companies is stipulated as follows:

1. For finance leasing companies referred to in Point 1 of Article 5 of this Regulation, it is VND 55 billion;

2. For joint venture finance leasing companies referred to in Point 2 of Article 5 of this Regulation and wholly foreign-owned finance leasing companies referred to in Point 3 of Article 5 of this Regulation, it is US$ 5 million.

Article 7.- The maximum duration of operation for finance leasing companies in Vietnam is seventy years. In cases where an extension of operations is required, such must be approved by the State Bank of Vietnam. Each extension shall not exceed the initial license period.

PART 2: CONDITIONS AND PROCEDURES FOR GRANTING OPERATING LICENSES

Article 8.- Banks, financial companies, and other enterprises wishing to engage in finance leasing activities must have sufficient credibility, three consecutive profitable years of business, and establish independent finance leasing companies in accordance with the provisions of the law.

Article 9.- The procedures and documents for applying for an operating license for finance leasing companies referred to in Point 1 of Article 5 of this Regulation shall be applied as for credit institutions in Vietnam.

Article 10.-

1. Parties involved in establishing joint venture finance leasing companies referred to in Point 2 of Article 5 of this Regulation and wholly foreign-owned finance leasing companies referred to in Point 3 of Article 5 of this Regulation must submit applications and documents to the State Bank of Vietnam requesting approval in principle (principle approval letter) in accordance with the guidelines of the State Bank of Vietnam;

2. The principle approval letter is valid for twelve months from the date of issuance. Within this period, the parties must complete the application documents for an operating license according to the guidelines of the State Bank of Vietnam.

Article 11.- Within three months from the date of receipt of the application documents for an operating license of the finance leasing company, the State Bank of Vietnam will consider issuing an Operating License for the finance leasing company (referred to as the Operating License).

Article 12.- After obtaining the Operating License, the finance leasing company must:

1. Pay the licensing fee to the State Bank of Vietnam at 0.1% (one thousandth) of the registered capital within fifteen days from the date recorded on the Operating License;

2. Register business operations in accordance with current regulations;

3. Have 100% of the registered capital;

4. Announce the Operating License, Business Registration Certificate, and business content in five consecutive issues of a Vietnamese newspaper before commencing operations, following the guidelines of the State Bank of Vietnam;

5. Only commence operations after fully complying with the above requirements, with the latest start date being six months from the date recorded on the Operating License.

Article 13.- The Operating License of a finance leasing company may not be transferred.

PART 3: CONTENT AND SCOPE OF OPERATIONS

Article 14.- Sources of funds:

1. Own capital: Charter capital, funds, and undistributed profits;

2. Borrowed capital: Loans from financial and credit organizations both domestically and internationally; issuance of bonds and other securities when permitted by the State Bank;

3. A Financial Leasing Company shall not accept deposits in any form;

4. A Financial Leasing Company is allowed to open deposit accounts at the State Bank and banks operating within Vietnam. In case it wishes to open a deposit account at a bank outside Vietnam's territory, it must obtain permission from the State Bank.

Article 15.- The Financial Leasing Company must comply with the following regulations regarding the use of capital sources:

1. Not to use more than 25% of the charter capital for purchasing fixed assets for the company;

2. Borrowed capital shall not exceed twenty times the own capital;

3. The total value of leased assets for a single customer shall not exceed 30% of the own capital; if this limit is exceeded, it must be approved in writing by the State Bank;

4. Other current laws and regulations of the State Bank.

Article 16.- The Financial Leasing Company may carry out the following business activities:

1. Financial leasing;

2. Consulting and providing guarantees for customers related to financial leasing services;

3. Carrying out other business activities upon approval by the State Bank and other relevant state agencies.

Article 17.- The Financial Leasing Company may charge leasing fees according to guidelines issued by the State Bank.

Chapter 3:

FINANCIAL LEASING CONTRACT

Article 18.- The financial leasing contract (hereinafter referred to as the contract) is a type of economic contract concluded between the lessor and lessee concerning the leasing of one or several machines, equipment, or other chattels for a specified period (leasing term) under the conditions stipulated in Article 3 of this Regulation.

Article 19.- The contract must meet the following requirements:

1. It must be in writing.

2. Registered with the State Bank and the contract management agency where the Financial Leasing Company is headquartered, in accordance with the law. 3. It cannot be unilaterally terminated before the agreed leasing term.

Article 20.- The contract must include the basic contents set forth in Chapter IV of this Regulation and the contents according to the contract model guided by the State Bank.

Article 21.- The contract becomes effective from the date agreed upon by the parties in the contract.

Chapter 4:

RIGHTS AND OBLIGATIONS OF THE PARTIES

Article 22.- Rights and obligations of the Financial Leasing Company:

1. Has the right to request the lessee to provide complete and comprehensive quarterly and annual reports on production and business operations and issues related to the leased assets;

2. Has the right to ownership and to mark ownership on the leased assets throughout the leasing term;

3. Has the right to demand compensation from the lessee for all losses arising from the lessee's failure or incomplete fulfillment of responsibilities for asset preservation, repair, and payment of insurance premiums during the leasing term;

4. Has the right to transfer its rights in the contract to another Financial Leasing Company without the lessee's consent. In this case, the Financial Leasing Company must notify the lessee in writing beforehand;

5. Has the right to require the lessee to deposit a security deposit for the contract or to have a guarantor for the lessee;

6. Is responsible for registering the contract and processing insurance procedures for the leased assets;

7. Shall be responsible for signing purchase contracts, paying for purchased assets to be leased with suppliers according to the conditions agreed upon in the purchase contract. The Financial Leasing Company is not liable for the failure to deliver or deliver incorrectly the leased assets as agreed by the lessee with the supplier. In the case of imported leased assets, the Financial Leasing Company has the obligation to complete all necessary import procedures;

8. Shall fulfill its obligations and compensate the lessee for all losses resulting from the failure to deliver the leased assets on time due to the Financial Leasing Company's breach of the purchase contract.

Article 23.- Rights and obligations of the lessee:

1. Has the right to choose, negotiate, and agree with the supplier of the leased assets on technical characteristics, types, prices, insurance, delivery methods and terms, installation, and warranty of the leased assets;

2. Has the right to directly receive the leased assets from the supplier;

3. If the contract is terminated prematurely before the leased assets are delivered to the lessee due to the lessee's fault, the lessee must compensate the Financial Leasing Company for all losses;

4. Must use the leased assets for the agreed purpose as stipulated in the contract;

5. Must bear all risks of loss or damage to the leased assets and any risks caused by the leased assets to third parties;

6. Must be responsible for maintaining and repairing the leased assets during the lease term;

7. Shall not transfer the right to use the leased assets to a third party without prior written consent from the Financial Leasing Company;

8. Shall not pledge or mortgage the leased assets;

9. The lessee is obligated to pay the lease payments on time as stipulated in the contract and, in principle, must bear all costs related to the leased assets such as import costs, taxes, contract registration fees, and insurance premiums for the leased assets;

10. Is obligated to return the leased assets to the Financial Leasing Company at the end of the lease term and bear all costs related to returning the leased assets, except in cases where the lessee acquires ownership of the leased assets or continues leasing them as stipulated in the contract.

Article 24.- Termination of the contract before the expiration date.

1. The Financial Leasing Company may terminate the contract before the end of the lease term if:

The lessee fails to make lease payments as stipulated in the contract;

The lessee breaches one of the contract clauses;

The lessee loses the ability to pay, goes bankrupt, or is dissolved;

In the event that the lessee must have a guarantor, if the guarantor loses the ability to pay, goes bankrupt, or is dissolved but the lessee cannot find a replacement guarantor acceptable to the Financial Leasing Company.

2. The lessee may terminate the contract before the end of the lease term in the following cases:

The leased assets are not delivered on time due to the fault of the Financial Leasing Company;

The lessor breaches the terms of the contract.

3. The contract shall be terminated before the end of the lease term in the event that the leased property is lost or damaged beyond repair.

Article 25.- Handling when the contract is terminated prematurely.

1. In the case where the contract is terminated prematurely pursuant to Point 1 of Article 24, the lessee must immediately pay the full amount of rent due under the contract to the Financial Leasing Company.

The Financial Leasing Company has the right to immediately reclaim the leased property without having to bring this matter to any court or judicial authority.

2. The ownership rights of the Financial Leasing Company over the leased property shall not be affected in the event that the lessee goes bankrupt, is dissolved, or becomes insolvent. The leased property shall not be considered part of the lessee's assets for the purpose of settling debts to other creditors.

3. In the case where the contract is terminated according to Point 3 of Article 24, the lessee must immediately pay the full amount of rent due under the contract, or if the contract does not provide for the lessee's ownership of the leased property, the lessee must pay the remaining value of the leased property to the Financial Leasing Company. The lessor is responsible for refunding to the lessee the insurance payment received from the insurance agency, provided that the lessee has fully paid the Financial Leasing Company the amount due.

4. In the case where the contract is terminated prematurely due to the Financial Leasing Company's breach of contract, the Financial Leasing Company must compensate the lessee for all damages.

Chapter 5:

FINANCIAL ACCOUNTING

Article 26.-

Leased assets such as machinery, equipment, and imported chattels are subject to import duties at the same rate as directly imported goods by enterprises.

Leased assets exported upon termination of the contract are exempt from export duties.

Article 27.-

Taxes on the operations of the Financial Leasing Company are applied in accordance with the regulations governing banks and credit organizations as stipulated by current laws.

Article 28.- The Financial Leasing Company is permitted to set aside costs to establish a reserve fund to cover risks. The reserve fund to cover risks is regulated by the State Bank depending on specific circumstances at different times but shall not exceed 5% of the total unpaid lease payments.

Article 29.- The repatriation of profits by foreign parties shall be carried out in accordance with the Law on Foreign Investment in Vietnam.

Article 30.- The fiscal year of the Financial Leasing Company begins on January 1 and ends on December 31 each year.

Article 31.- Article 32 - Financial Receipts and Expenditures of Credit Cooperatives

1. The Financial Leasing Company must conduct accounting in accordance with the accounting chart of accounts issued by the State Bank.

2. The Financial Leasing Company must accurately record and properly maintain books and related documents in compliance with the Accounting and Statistics Ordinance.

Article 32.- Reporting system.

1. The Financial Leasing Company must comply with the periodic reporting system prescribed by the State Bank. Any violations of the reporting system will be penalized in accordance with current regulations.

2. The consolidated asset statement and annual financial report of the Financial Leasing Company must be confirmed by an auditing agency; the selection of the auditing agency must be approved by the State Bank.

Chapter 6:

SUPERVISION, INSPECTION, VIOLATION HANDLING AND DISPUTES

Article 33.- The Financial Leasing Company is subject to supervision, inspection, and audit by the State Bank in all business activities and compliance with current legal regulations.

Article 34.- Any violations by the Financial Leasing Company will be handled in accordance with the provisions of the Banking Ordinance, Credit Cooperative Ordinance, Finance Company Ordinance, and other relevant legal regulations.

Article 35.- Disputes between the Financial Leasing Company and Vietnamese legal entities shall be resolved by the Vietnamese Commercial Court.

Disputes among parties involved in joint venture Financial Leasing Companies shall be resolved through negotiation and mediation. In cases where mediation fails, the dispute shall be resolved based on the agreement recorded in the joint venture contract.

Chapter 7:

AMENDMENTS, EXTENSION, TERMINATION OF OPERATIONS AND LIQUIDATION

Article 36.-

1. When there is a need to change the location, scope of operations, or other provisions in the operating license, the Financial Leasing Company must submit an application to the State Bank for approval.

2. When there is a need to extend the operating period, the Financial Leasing Company must submit an application to the State Bank six months before the expiration date specified in the operating license or the previous extension approval.

Article 37.- The State Bank specifies the circumstances under which licenses of Financial Leasing Companies may be revoked in accordance with the Banking Ordinance, Credit Cooperative Ordinance, and Finance Company Ordinance.

Article 38.-

1. When the Financial Leasing Company is suspended from operations, its license is revoked, or it voluntarily dissolves and ceases operations upon expiration of the term specified in the license, it must proceed with liquidation and dissolution procedures in accordance with Vietnamese law.

2. In the case of voluntary dissolution prior to the expiration date specified in the license, the Financial Leasing Company must submit a written request to the State Bank for approval and can only dissolve after receiving written approval from the State Bank.

3. The State Bank provides detailed guidance on the procedures and steps for the dissolution of the Financial Leasing Company in accordance with current Vietnamese law.

Article 39.- In case the State Bank encounters difficulties or incurs losses in its business operations and is unable to meet payment obligations at maturity, it shall be declared bankrupt; the procedures for bankruptcy shall be carried out in accordance with the provisions of the law on bankruptcy.

Chapter 8:

FINAL PROVISIONS

Article 40.- Organizations engaged in financial leasing must adjust their organization and activities in accordance with this Regulation within twelve months from the date this Regulation takes effect.

Article 41.- Any amendment or supplementation to this Regulation shall be decided by the Government.