Circular No. 75-TC/TCDN issued by the Ministry of Finance on November 12, 1996, guides the management and use of capital and assets in state-owned enterprises.

CIRCULAR

Guidelines for managing and using capital and assets in state-owned enterprises

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Implementing Decree No. 59/CP dated October 3, 1996 of the Government on the "Regulations on financial management and business accounting for state-owned enterprises," the Ministry of Finance guides the management and use of state capital and assets in enterprises as follows:

I. GENERAL PROVISIONS

1. The subjects to which this Circular applies are state-owned enterprises as defined in Article 1 of the Financial Management and Business Accounting Regulations issued together with Decree No. 59/CP dated October 3, 1996 of the Government.

2. State-owned enterprise assets include: Tangible fixed assets, intangible fixed assets, current assets.

2.1. Tangible fixed assets are major means of labor having material form (each unit of asset has an independent structure or is a system consisting of many parts of assets interconnected to perform one or several specific functions) with high value and long-term usage, participating in multiple business cycles while maintaining their original material form such as buildings, structures, machinery, equipment...

2.2. Intangible fixed assets are fixed assets without material form, representing a quantity of value that has been invested, directly related to multiple business cycles of the enterprise such as: costs for establishing the enterprise, land use costs, costs for patents, inventions, copyrights...

In addition to tangible fixed assets and intangible fixed assets, the enterprise also includes the following types of assets under fixed assets:

- Long-term financial investments (long-term securities investment, joint venture capital contributions, other long-term investments).

- Construction in progress.

- Long-term guarantees, pledges.

2.3. Current assets include:

- Various monetary funds (including gold, silver, precious stones...).

- Raw materials, fuels, materials, goods, products, semi-finished products, unfinished products.

- Receivables within and outside the enterprise.

- Short-term investments (short-term securities investment, short-term loans, other short-term investments).

- Advance payments.

- Prepaid expenses.

- Pending cost transfers.

- Short-term guarantees, pledges, deposits.

- Operating expenses.

3. Capital of state-owned enterprises includes liabilities and state capital.

3.1. Liabilities include:

- Short-term and long-term borrowings from economic organizations, individuals both domestically and internationally in all forms.

- Debts to the State budget.

- Debts to customers including advance payments from buyers, debts to sellers for purchased goods, materials, services...

- Debts for salaries, bonuses, social insurance payments, and other similar debts.

- Debts to internal units.

- Expenses payable (payable expenses, prepaid expenses).

- Other payable and receivable items (payable to social insurance agencies, health insurance agencies, trade union fees, other payables).

- Long-term guarantees, pledges.

3.2. State capital at the enterprise is: The total amount of capital managed and used by the enterprise minus liabilities. Specifically, it includes:

- Business capital (state budget capital and self-supplemented capital).

- Asset revaluation differences.

- Exchange rate differences.

- Development fund.

- State reserve fund (if any).

- Financial reserve fund.

- Investment capital.

- Unemployment assistance fund.

- Total company fund contributed by member enterprises.

- Undistributed profits. - Operating expenses.

- Other capital as prescribed by law.

4. The General Director or Director must establish a Regulation on Capital and Asset Management to concretize the provisions of this Circular, aiming to utilize various types of capital for business operations, preserve capital, develop capital, and fulfill obligations to repay debts.

5. State-owned enterprises are liable for civil responsibility for their business activities before the law within the scope of the capital managed by the enterprise, including the portion of state capital assigned.

II\. CAPITAL INVESTMENT AND CAPITAL ALLOCATION TO ENTERPRISES

1. Capital Investment:

1.1. The State invests part or all of the charter capital for newly established enterprises:

Investment conditions:

- Enterprises must be established in accordance with the procedures and formalities prescribed by the State.

- The authority deciding to establish the enterprise shall be responsible for ensuring capital for the enterprise.

The level of investment must not be lower than the statutory capital required for each industry as stipulated in Decree No. 50/CP dated August 28, 1996 of the Government.

Capital for newly established enterprises originates from the following sources:

- State investment.

- The State guarantees loans for enterprises.

- Capital mobilized by State Corporations from other member enterprises.

- Loans from the national investment support fund.

- Other capital raised in accordance with the law: project bonds, corporate bonds, etc. (excluding bank and financial institution loans).

1.2. The State supplements capital for operating enterprises when necessary:

In principle, operating enterprises must accumulate and mobilize capital for business development; the state budget will not supplement capital for operating enterprises except in cases where the State assigns additional tasks to the enterprises.

Management of initial investment capital and supplementary investment capital must be carried out in accordance with current regulations.

2. Allocation of capital to enterprises:

The State allocates state-owned capital to newly established enterprises, enterprises re-established based on mergers or divisions from other enterprises; State Corporations established pursuant to Decision No. 90/TTg and Decision No. 91/TTg of the Prime Minister.

2.1\. The amount of capital allocated to the enterprise is determined as follows:

a. For newly established enterprises, it is the state capital recorded in the final settlement of investment construction transferred to production and business operations and other state capital (if any).

b. For re-established enterprises, it is the total capital that has been verified and determined from member enterprises.

When allocating capital, the value of assets must be assessed and determined according to the market price at the time of capital allocation.

Before allocating capital, any financial issues (excess, shortage, loss of assets, difficult-to-collect debts...) must be identified and resolved.

2.2. The allocation of capital must be completed no later than 60 days after the enterprise is granted a business registration certificate. For State Corporations, within 30 days after receiving capital, the Corporation must organize the allocation of capital to member enterprises. Within 15 days after completing the allocation of capital to member enterprises, the State Corporation must compile and report to the agency managing state capital and property at the enterprise and the head of the authority deciding to establish the enterprise.

2.3. The Minister of Finance or the person authorized by him shall allocate capital to state enterprises. The Chairman of the Board of Directors and the General Director or Director (for enterprises with a Board of Directors), Director (for independent enterprises without a Board of Directors) shall sign to receive capital. For enterprises that are members of State Corporations, the General Director of the Corporation shall allocate capital, and the Director of the member enterprise shall receive capital.

For State Corporations established pursuant to Decision No. 90/TTg and Decision No. 91/TTg dated March 7, 1994 of the Prime Minister regarding the allocation of capital, there must be the presence of representatives of the authority deciding to establish the enterprise.

III. RAISING CAPITAL

In addition to state capital, state enterprises have the right to raise capital in all forms to develop their businesses in accordance with the provisions of the law, but they may not change the form of ownership. The total debt of raised capital must not exceed the registered capital of the enterprise at the latest published date. Specifically, for commercial banks, the total debt of raised capital must not exceed 20 times the self-owned capital and reserve fund (as stipulated in Article 23 of the Banking and Credit Cooperative Law).

1. Domestic capital raising:

- State enterprises can issue corporate bonds to raise capital for business development in accordance with Decree No. 120/CP dated September 17, 1994 of the Government on the issuance of state enterprise corporate bonds and Circular No. 91/TC/KBNN dated November 5, 1994 of the Ministry of Finance.

- They can enter into contracts, cooperate, or form joint ventures with organizations and individuals both domestically and internationally to supplement the capital of the enterprise.

- They can borrow from financial institutions (commercial banks, financial companies...), other enterprises, and individuals (including employees of the enterprise) for investment and development.

In principle, the interest rate for raising capital by enterprises must not be higher than the ceiling lending rate announced by the State Bank at the same time for each industry and can be included in the enterprise's business expenses.

2. Raising foreign capital:

State enterprises can borrow short-term, medium-term, and long-term funds (with or without interest) from foreign organizations and individuals to develop their businesses in accordance with the regulations on foreign borrowing and repayment management. In special cases, if the State guarantees foreign borrowing, it must be decided by the Prime Minister. If not approved by the Prime Minister, the guarantor organization shall bear responsibility for the foreign borrowing of the enterprise.

3. Responsibility for using and repaying raised capital:

Raising capital must be carefully calculated and considered for economic efficiency. Raised capital can only be used for business purposes and not for other purposes. Raised capital must be strictly managed and operated effectively. Short-term borrowed funds cannot be used for construction investment. Enterprises must repay principal and interest according to their commitments when raising capital.

The Board of Directors (for State Corporations and enterprises with a Board of Directors) and the Enterprise Director (for enterprises without a Board of Directors) are responsible for deciding on the capital-raising plan and approving the capital usage plan.

The General Director or Director (for enterprises without a Board of Directors) must be accountable to the State for the preparation of projects, misuse of capital for non-business purposes, ineffective use leading to capital losses.

IV. MANAGEMENT AND USE OF CAPITAL AND ASSETS

A- MANAGEMENT AND USE OF CAPITAL AND ASSETS WITHIN THE ENTERPRISE SCOPE

1. The enterprise shall be responsible for opening and recording accounting books to accurately track all assets and existing capital according to the current accounting and statistical regulations; truthfully and promptly reflecting the situation of asset and capital usage and changes during the enterprise's business process.

2. The enterprise has the right to use capital and funds to serve business operations based on the principle of efficiency, preservation, and development of capital. In cases where different types of capital and funds are used for purposes other than those specified for such capital and funds, they must follow the principle of repayment, such as using reserve funds, reward funds, welfare funds... for business operations, which must be repaid according to the intended use of each type of fund, capital.

State-owned enterprises have the right to change the structure of assets and various types of capital to serve the effective development of business operations, preservation, and development of capital.

State-owned Corporations have the right to mobilize assets of member enterprises according to the following principles:

- To use various types of assets reasonably and efficiently within the Corporation.

- Not to affect the business activities of member enterprises transferring and receiving assets.

- Not to cause losses.

- Mobilization plans must be approved by the Board of Directors and decided upon by the General Director; Mobilization must follow the principle of increasing or decreasing capital.

3. State-owned enterprises must establish management regulations for the preservation, use of enterprise assets; clearly defining the responsibilities of each department and individual in cases of damage or loss of assets.

4. Enterprises must conduct a comprehensive inventory of all existing assets and capital at regular intervals and at the end of the fiscal year. Accurately determine excess, shortage, stagnant, deteriorated assets, causes, and handle responsibility; simultaneously to have a basis for preparing the enterprise's financial report.

5. Management of receivables:

Enterprises must open detailed records to track all receivables inside and outside the enterprise.

- When enterprises advance money or sell on credit to customers, they must carefully consider their ability to pay based on the economic contracts signed between the parties and comply with the provisions of the Civil Code.

- If payment exceeds the contract period, interest corresponding to overdue bank rates may be charged.

All receivables arising must be supported by valid vouchers. Enterprises must regularly urge and apply all necessary measures to recover due receivables.

At regular intervals (monthly, quarterly), enterprises must reconcile, summarize, and analyze the situation of receivables; particularly overdue and difficult-to-collect receivables. Losses from untimely and insufficient recovery must be clearly determined in terms of extent, cause, responsibility, and handling measures. If caused by negligence, the person at fault must compensate. The Board of Directors, General Director, or Director (for enterprises without a Board of Directors) decides on the compensation amount. The difference between the loss and the compensation of the party concerned shall be covered by the bad debt provision account; if still insufficient, it shall be recorded as business expenses.

Truly uncollectible debts are subject to examination and appraisal by the state asset management agency at the enterprise, allowing them to be recorded in business results. The enterprise must continue to monitor on accounting books (off-balance sheet accounts) and regularly urge recovery. Any amounts recovered after deducting collection costs shall be recorded as extraordinary income of the enterprise.

The Board of Directors, General Director, or Director (for enterprises without a Board of Directors) shall be responsible to the State for the enterprise's receivables. Depending on the degree of violation, if the debtor does not fully repay or is unable to repay, the creditor may be administratively punished or criminally prosecuted.

6. Leasing, mortgaging, selling, liquidating assets:

6.1- Leasing, Pledging Assets:

Enterprises have the right to lease operational assets under their management and use to domestic organizations and individuals to enhance utilization efficiency and increase income but must monitor and recover assets when the lease period ends.

For leased operational assets, enterprises must still depreciate according to the prescribed regulations.

Enterprises may mortgage or pledge assets under their management and use (excluding borrowed assets that have not been fully repaid) to borrow capital or provide guarantees at financial institutions according to the procedures and formalities stipulated by law.

Enterprises may not mortgage, pledge, or lease assets borrowed, rented, held in custody, or pledged by other enterprises without the consent of the owners of these assets.

The following assets, when leased, mortgaged, or pledged, must be approved by the enterprise establishment decision-making body after being appraised by the authorized state asset management agency at the enterprise:

a. The entire or a major part of the main production technology chain.

b. Machinery, equipment, and key assets that are crucial to the enterprise's business operations.

6.2. Selling off, liquidating assets:

a. Selling off: Enterprises may sell off unused or obsolete technical assets to recover capital for more efficient business purposes.

Assets specified in points a and b of item 6.1 above, when sold off, must be agreed upon in writing by the enterprise establishment decision-making body and the state asset management agency at the enterprise. If sold to foreign individuals or organizations, permission from the Prime Minister is required.

b. Liquidation: Enterprises may liquidate outdated assets that cannot be sold off or are damaged beyond repair.

When transferring or liquidating a business, a Technical Evaluation Council must be established to assess the current technical status and appraise the value of assets. Assets for transfer or sale must be auctioned publicly. If assets are liquidated through dismantling or destruction, a Liquidation Council must be organized, decided by the General Director or Director of the enterprise. For assets specified in points a and b of Article 6.1 above, when liquidating, representatives from the agency that decided to establish the enterprise and the state asset management agency at the enterprise must participate in the Liquidation Council.

c. The difference between the proceeds from the liquidation or sale of assets and their remaining book value, along with any costs associated with the liquidation or sale, shall be recorded in other income in the financial results.

7. Handling of asset losses:

Asset loss handling shall be carried out according to the following principles:

- If due to subjective reasons, the person responsible must bear the responsibility for compensation.

- If due to objective reasons, for assets that have been insured, the insurance organization shall compensate.

- Remaining losses (after deducting compensation from the person causing the loss and insurance payouts) shall be covered by the financial reserve fund (if available); if insufficient, it shall be recorded as operating expenses.

- In cases of asset losses due to force majeure (natural disasters, fires, epidemics, enemy attacks...), the Board of Directors, General Director, or Director (for enterprises without a Board of Directors) shall develop a plan to report to the financial authority. The financial authority shall consult with the agency that decided to establish the enterprise to decide on the handling or report to the Prime Minister for decision.

After handling asset losses, the enterprise must adjust its accounting records according to the handling decision.

8. Revaluation of enterprise assets: Enterprises may revalue their assets under the following circumstances:

a. Inventory and revaluation of assets according to a State decision.

b. Implementing shareholding, diversifying ownership forms.

c. Using assets for joint ventures, capital contributions (when contributing assets and receiving assets back).

d. Adjusting prices to ensure the actual value of assets in accordance with State policy.

All differences arising from the revaluation of assets in the above cases shall be recorded as increases or decreases in capital after being approved by the Financial Authority.

B. INVESTING OUTSIDE THE ENTERPRISE

Enterprises may use capital, assets, land use rights, or land rental payments to invest outside the enterprise according to the principle of efficiency, capital preservation, development, increased income, without affecting the main business tasks; such investments must comply with current legal regulations. When using land use rights to invest outside the enterprise, the provisions of the Land Law must be followed.

Forms of investment outside the enterprise include: purchasing shares, joint venture capital contributions, share capital contributions, and other investment forms...

1. Domestic Joint Ventures:

- Investment in other state-owned enterprises shall be decided by the Board of Directors or the General Director (for enterprises without a Board of Directors) on the joint venture plan.

- Investing in non-state-owned enterprises requires the Board of Directors to approve the joint venture project. For independent enterprises (without a Board of Directors), the joint venture project must be agreed upon in writing by the state asset management agency at the enterprise and approved by the establishment agency.

- State-owned enterprises are not permitted to invest in enterprises not belonging to other economic sectors where the manager or principal owner is the spouse, parent, child, or sibling of the Chairman of the Board of Directors, General Director, or Director of the state-owned enterprise.

2. Joint Ventures with Foreign Investors:

If assets are used to invest in joint ventures with foreign investors in Vietnam or abroad, the enterprise must obtain approval for the joint venture project from the establishment agency or the Board of Directors authorized by the establishment agency, and report in writing to the state asset management agency within 15 days of approval.

Investments in joint ventures with domestic and foreign investors must ensure efficiency, not affect assigned production tasks; regular reports on joint venture conditions and results must be submitted to the state asset management agency and the establishment agency.

The Board of Directors, General Director, or Director (for enterprises with a Board of Directors) and Director (for enterprises without a Board of Directors) are responsible for appointing qualified individuals to manage, supervise, and monitor the use of contributed capital in other enterprises, reviewing periodic reports from enterprise representatives to oversee capital use, preservation, development, and profit generation from joint venture investments.

C. CAPITAL PRESERVATION AND DEVELOPMENT

Capital preservation and development are measures to protect the interests of the State and other investors who have invested in the enterprise, while creating conditions for the enterprise to stabilize and develop its business and provide income for employees.

Measures for capital preservation:

- Strictly implementing the management and use of capital and assets according to the provisions of this Circular, managing various types of capital within the enterprise, effectively using capital in business activities, fulfilling payment obligations.

- Enterprises must purchase insurance for assets as required (state assets, assets formed with borrowed funds, leased or purchased assets...) to mitigate risks and create sources to offset losses occurring during business operations. Insurance premiums shall be recorded as operating expenses.

State-owned enterprises may record the following provisions as operating expenses in the period:

- Provision for reduction in inventory value: This is the expected reduction in material and goods inventory values anticipated to occur in the next business period.

- Provision for reduction in difficult-to-collect receivables: This is the loss in value of receivables expected to occur in the next business period due to debtors' inability to pay.

- Provision for reduction in financial securities.

The establishment and use of these provisions shall be carried out in accordance with the regulations of the Ministry of Finance.

In addition to the above measures, enterprises may use profits from subsequent years to offset losses from previous years as stipulated by law, and record certain losses as operating expenses or in the financial results as prescribed by the State.

Depending on the extent of capital loss, the Board of Directors, General Director, or Director (for enterprises without a Board of Directors) shall be responsible before the State and the law: subject to administrative penalties, material compensation, and criminal liability.

The agency deciding to establish state-owned enterprises, agencies managing state capital and assets that issue decisions causing capital losses for enterprises shall bear responsibility under current laws regarding such decisions.

Enterprises may set up development investment funds from post-tax profits to expand their business scale.

V. SUPERVISION AND CONTROL OF CAPITAL MANAGEMENT AND USE
ASSETS

1. The General Director or Director of state-owned enterprises shall be responsible for regularly supervising and monitoring the mobilization, use, and management of capital and assets. Enterprises shall organize internal audits, annual financial reports, conduct periodic inventory checks, prepare and publicly disclose financial statements ensuring accuracy and truthfulness.

The Board of Directors (for enterprises with a Board of Directors) shall be responsible for supervising member enterprises in implementing financial systems and policies, capital management regulations, executing Board decisions, supervising the operations of the General Director or Director in managing and using capital and assets.

2. The agency managing state capital and assets at enterprises assists the Minister of Finance in uniformly managing and performing the role of representing the owner regarding state capital and assets within enterprises, regularly or suddenly supervising the management and use, preservation, and development of capital in enterprises. Specifically:

a. Supervising the management of state capital and assets at enterprises from capital mobilization and investment; capital use in business operations; external investments; collateral, mortgage, sale, liquidation of assets; auditing cost accounting and income distribution, fund establishment and use; preserving and developing capital according to state regulations.

b. Guiding and supervising the implementation of accounting systems as prescribed.

c. Supervising the implementation of financial reporting systems, public disclosure of financial statements; reviewing and approving budget-funded expenses.

d. Recommending measures to address violations of state regulations on capital and asset management at enterprises.

If individuals or organizations entrusted with the task of managing state capital and assets at enterprises fail to promptly and fully grasp capital losses, or if they know about them but do not report to the Ministry of Finance and the agency deciding to establish the enterprise, they shall be subject to administrative disciplinary action. In serious cases, they shall be held accountable under the law.

VI. IMPLEMENTATION PROVISIONS

This Circular takes effect from the date of signature. All previous regulations concerning capital and asset management at enterprises that conflict with this Circular are abolished.

During implementation, any difficulties faced by ministries, sectors, and enterprises should be reported to the Ministry of Finance for study and amendment.