Circular No. 70-TC/TCDN guides the distribution of post-tax profits and the management of funds of state-owned enterprises.

CIRCULAR

GUIDELINES ON THE DISTRIBUTION OF POST-TAX PROFITS AND MANAGEMENT OF FUNDS FOR STATE ENTERPRISES ISSUED BY THE MINISTRY OF FINANCE NUMBER 70 TC/TCDN ON NOVEMBER 5, 1996

Pursuant to Decree No. 178/CP dated October 28, 1994 of the Government stipulating the functions, tasks, and organizational structure of the Ministry of Finance;
Pursuant to Decree No. 59/CP dated October 3, 1996 of the Government promulgating the Financial Management Regulations and Business Accounting for State Enterprises;
The Ministry of Finance issues this Circular guiding the distribution of post-tax profits and management of funds for State Enterprises as follows:

I- ENTERPRISE PROFITS

1- Annual realized profit is the business result of the enterprise, including operating profit and other income.

a) Operating profit is the difference between total sales revenue from products, goods, and services minus the full cost of all sold products, goods, and services and taxes as prescribed by law (excluding corporate income tax).

b) Other income includes:

- Financial activity income is the excess of income over expenses from financial activities, including leasing assets, buying and selling bonds and securities, foreign currency trading, interest on bank deposits from operating capital, interest on loans from various sources and funds, dividends, and joint venture investment returns, reversal of short-term and long-term investment security impairment reserves.

- Unusual activity income is the excess of unusual income over unusual expenses, including unsecured liabilities, recovery of previously written-off bad debts (still being monitored outside the balance sheet; surplus inventory and assets after offsetting losses of similar items; disposal gains, sale proceeds exceeding book value and disposal costs; prior year profits discovered in the current year; reversal of inventory and doubtful accounts impairment reserves, remaining warranty reserve after expiration).

2- The State is the owner of State Enterprises, and it oversees the allocation and use of enterprise funds according to the purposes specified in this Circular.

Distribution of post-tax profits aims primarily at reinvestment to expand business capacity, preserve and develop enterprise capital, while encouraging employees to enhance business efficiency.

II- DISTRIBUTION OF POST-TAX PROFITS

The total annual realized profit of the enterprise after paying corporate income tax as prescribed by law (including additional corporate income tax if applicable) shall be distributed in the following order:

1- Paying back the use of state budget capital:

- In cases where the enterprise incurs a loss, there is no need to pay back the use of capital.

- If post-tax profit is insufficient to pay back the use of capital as prescribed, the enterprise must pay the entire post-tax profit.

2- Paying fines, such as: fines for violating budget submission discipline, administrative fines, breach of contract fines, overdue debt penalties (after deducting collected fines), legitimate expenses not deducted when determining taxable income.

3- Deducting non-deductible pre-tax losses.

4- For enterprises operating in certain special sectors (such as commercial banks, insurance...) that are required by law to establish special funds from profits, after deducting items 1 to 3 above, the enterprise shall allocate these funds at the ratio prescribed by the State.

5- Dividing profits among capital contributors according to the joint venture agreement (if any).

6- The remaining profit shall be allocated to enterprise funds as prescribed in this Circular.

III- ALLOCATION OF ENTERPRISE FUNDS FROM PROFITS

1- Enterprise funds: After deducting items 1 to 5 mentioned in Section II above, the enterprise shall allocate funds as follows:

1.1- Development Investment Fund: Allocate from 50% upwards with no maximum limit.

1.2- Financial Reserve Fund: Allocate 10%. The balance of this fund shall not exceed 25% of the enterprise's charter capital.

1.3- Employment Assistance Reserve Fund: Allocate 5%. The balance of this fund shall not exceed six months' actual salary of the enterprise.

1.4- The remaining profit after allocating the aforementioned funds shall be allocated to the incentive and welfare funds as follows:

a) The enterprise may allocate up to three months' actual salary to the incentive and welfare funds, provided that the profit rate on state capital (including state budget capital, capital derived from the state budget, and capital supplemented by the enterprise itself) used in business operations this year does not fall below the profit rate on state capital last year.

b) The enterprise may allocate up to two months' actual salary to the incentive and welfare funds if the profit rate on state capital this year is lower than the profit rate on state capital last year.

The state capital referred to here is the average of state capital calculated at the beginning and end of the year.

The proportion allocated each quarter is decided by the Board of Directors or General Director (for enterprises without a board of directors) after consulting the enterprise trade union.

In cases where the balances of the financial reserve fund and employment assistance reserve fund have reached the control limits, and the welfare and incentive funds have been fully allocated according to the prescribed limits, the remaining profit shall be transferred to the development investment fund.

2- Procedures and timing for allocating funds:

a) Based on periodic financial reports (monthly, quarterly) on realized profits, the enterprise pays corporate income tax as prescribed by law. The remaining profit shall be distributed and temporarily allocated to the funds as prescribed in Sections II and III above but not exceeding 70% of the total post-tax profit for each period. Enterprises can only temporarily allocate enterprise funds corresponding to the amount of corporate income tax already paid.

b) After the enterprise publicly announces its annual financial report in accordance with the guidelines of the Ministry of Finance, the enterprise can distribute the entire annual post-tax profit according to the provisions of Sections II and III of this Circular.

IV- USE OF ENTERPRISE FUNDS

1- Investment Development Fund:

Is to be used for the following purposes:

- Expanding and developing business operations.

- Modernizing, replacing complete machinery, equipment, production lines, and technology, researching and applying scientific and technological advancements.

- Updating equipment and working conditions within the enterprise.

- Conducting scientific research, training, and enhancing the professional skills, technical knowledge, and vocational expertise of the enterprise's employees.

- Supplementing working capital.

- Participating in joint ventures, purchasing shares, and contributing capital to joint-stock companies in accordance with current regulations.

- Allocating to form the investment development fund, scientific research fund, and centralized training fund of the Corporation (if it is a member of the Corporation) at the ratio determined annually by the Corporation's Board of Directors and used for the objectives specified in the Corporation's Financial Regulations.

In cases of necessity, the State may mobilize a portion of the enterprise's investment development fund to invest in other state-owned enterprises. Such mobilization primarily takes place through contributions to the national investment support fund and other funds as prescribed by the Government.

2- Financial Reserve Fund: Used to compensate for losses and damages to assets due to natural disasters, enemy actions, fires, and unforeseen risks in business operations that are not included in cost prices and insurance compensation.

- Allocating to form the financial reserve fund of the Corporation (if it is a member of the Corporation) at the ratio determined annually by the Corporation's Board of Directors and used to support losses and damages incurred during the business operations of member enterprises as stipulated in the Corporation's Financial Regulations.

3- Unemployment Assistance Reserve Fund: Used to provide assistance to workers who have been employed by the enterprise for at least one year and have lost their jobs, and to cover costs for retraining in specialized skills and techniques due to changes in technology or new job assignments, particularly for pre-vocational training for female workers of the enterprise.

For enterprises that are members of the Corporation, if the Corporation assumes these expenditure purposes according to the Corporation's Financial Regulations, this fund will not be established.

This fund is only used to assist workers who lose their jobs due to objective reasons such as surplus labor caused by technological changes, joint ventures, organizational restructuring without alternative job placements, or timely termination procedures.

The level of unemployment assistance is determined specifically by the Director and the Chairman of the Enterprise Trade Union in accordance with current laws.

Allocating to form the unemployment assistance reserve fund of the Corporation (if it is a member of the Corporation) at the ratio determined by the Corporation's Board of Directors.

4- Welfare Fund: Used for:

- Investing in the construction or repair, supplementing capital for public welfare facilities of the enterprise, contributing capital to build common welfare facilities within the industry or with other units according to agreed contracts.

- Expenditures on social welfare activities, sports, culture, and public welfare for the collective of the enterprise's employees.

- Contributing to the social welfare fund (charitable activities, public welfare...).

- Providing regular and emergency hardship assistance to the enterprise's staff.

- Additionally, providing hardship assistance to retired workers of the enterprise who are in difficult circumstances, without support, and funding charitable social work. The Chairman of the Board of Directors, the General Director (if the enterprise does not have a Board of Directors) decides on its use after consulting with the Enterprise Trade Union.

- Allocating to form the centralized welfare fund of the Corporation (if it is a member of the Corporation) at the ratio determined by the Corporation's Board of Directors and used for the objectives decided in the Model Corporation Financial Regulations.

5- Reward Fund: Used for:

- Year-end or regular bonuses for the enterprise's staff. The bonus amount is decided by the Board of Directors, the General Director (if the enterprise does not have a Board of Directors) after consulting with the Enterprise Trade Union based on productivity, performance, and the basic salary of each employee.

- Special bonuses for individuals and groups within the enterprise who have innovative ideas improving technology and increasing business efficiency. The bonus amount is decided by the Board of Directors, the General Director (if the enterprise does not have a Board of Directors).

- Rewards for individuals and units outside the enterprise that have contractual economic relations and have successfully completed contract conditions, benefiting the enterprise. The reward amount is decided by the Board of Directors (if there is one), the General Director (if the enterprise does not have a Board of Directors).

- Allocating to form the centralized reward fund of the Corporation (if it is a member of the Corporation) at the ratio determined by the Corporation's Board of Directors and used to reward recipients as specified in the Model Corporation Financial Regulations.

V- RESPONSIBILITIES OF THE ENTERPRISE AND THE STATE CAPITAL AND ASSET MANAGEMENT ORGANIZATION AT THE ENTERPRISE

1- The Chairman of the Board of Directors, the General Director (if the enterprise does not have a Board of Directors) must be responsible for the proper distribution of the enterprise's post-tax profit for the entire year, planning the use, management, and settlement of the use of each fund in accordance with this Circular.

2- The State Capital and Asset Management Organization at the enterprise has the responsibility to inspect the distribution of the enterprise's post-tax profits, the establishment and use of funds as prescribed in this Circular.

If violations of the above regulations are discovered, depending on the severity of the offense, the decision or recommendation to the Ministry of Finance to reduce the enterprise's welfare and reward funds shall be made according to current regulations. The reduction must clearly analyze the violations and discuss with the Chairman of the Board of Directors, the General Director (if the enterprise does not have a Board of Directors) before making the decision.

VI- IMPLEMENTATION PROVISIONS

This Circular becomes effective and applies to the distribution of post-tax profits generated from January 1, 1997.

All provisions regarding the distribution of post-tax profits that are contrary to the provisions of this Circular are abolished.

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