CIRCULAR

GUIDING THE APPLICATION OF VALUE ADDED TAX (VAT) ON CREDIT INSTITUTIONS’ ACTIVITIES OF HANDLING LOAN SECURITY ASSETS TO RECOVER DEBTS

Pursuant to the VAT Law, the Government’s Decree No.79/2000/ND-CP of December 29, 2000 detailing the implementation of the VAT Law and the Finance Ministry’s Circular No.122/2000/TT-BTC of December 29, 2000 guiding the implementation of the Government’s Decree No.79/2000/ND-CP of December 29, 2000;
Pursuant to the Government’s Decree No.178/1999/ND-CP of December 29, 1999 on security for loans of credit institutions and directing opinions of the Prime Minister in the Government’s Official Dispatch No.1151/CP-KTTH of December 20, 2001.
The Finance Ministry hereby guides in detail the contents concerning the non-collection of VAT on credit institutions’ activities of selling assets to recover debts when handling loan security assets, as follows:

I. APPLICATION OBJECTS AND SCOPE

1. Application objects:

This Circular shall apply to credit institutions which are entitled to handle loan security assets according to the provisions in Clause 2, Article 34 of the Government’s Decree No. 178/1999/ND-CP of December 29, 1999 on security for loans of credit institutions, by the following modes:

a/ Credit institutions directly sell loan security assets to purchasers or to debt-managing and asset-exploiting companies under commercial banks, and/or to organizations with the function of purchasing and selling debt assets.

b/ Credit institutions shall authorize the sale of loan security assets to the following organizations:

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- Asset-auctioning enterprises defined by the legislation on asset auction;

- Debt-managing and asset-exploiting companies under commercial banks;

- Organizations with the function of purchasing assets for sale.

c/ Credit institutions shall take the very loan security assets in lieu of the debt repayment obligation.

d/ Credit institutions shall be allowed to receive assets directly from a third party in cases where such third party is obliged to return the assets to the borrower or the guarantor.

Cases of selling enterprises’ assets under the provisions of the Government’s Decree No.103/1999/ND-CP of September 10, 1999 on the sale, business contracting or lease of State enterprises or selling assets of bankrupt enterprises under the provisions of the Enterprise Bankruptcy Law, which are not subject to VAT calculation, declaration and payment as guided in the Finance Ministry’s Circular No.122/2000/TT-BTC of December 29, 2000, shall not be governed by this Circular.

2. Application scope:

Pursuant to Article 32 of the Government’s Decree No.178/1999/ND-CP of December 29, 1999 and Item 3.1, Point 1 of the Prime Minister’s Decision No.149/2001/QD-TTg of October 5, 2001 on the approval of schemes on handling of unsettled debts of commercial banks, cases where credit institutions shall be entitled to handle loan security assets for debt recovery include:

a/ 60 days after debts become due, the loan security assets are not yet handled as agreed upon.

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c/ Undue debt repayment obligations shall be considered due if borrowers being economic organizations are dissolved before the debt repayment deadlines come. If borrowers fail to repay debts and fail to handle loan security assets for repaying debts, credit institutions may handle such assets to recover their debts.

d/ For cases where borrowers or guarantors are enterprises which are not yet split up, separated, consolidated, merged, transformed or equitized, the handling of loan security assets according to the provisions in Clause 2, Article 13 of the Government’s Decree No.178/1999/ND-CP of December 29, 1999 shall not be effected.

e/ Courts rule that assets shall be handed over to credit institutions for handling.

II. PROCEDURES, DOSSIERS, VOUCHERS AND INVOICES WHEN CREDIT INSTITUTIONS HANDLE LOAN SECURITY ASSETS

1. Cases where credit institutions directly sell loan security assets:

a/ Credit institutions which sell assets directly to purchasers shall have to:

a.1. Publicly announce the sale of security assets and shall be allowed to sell security assets within the time limit prescribed by Vietnam State Bank for the handling of loan security assets for debt recovery by credit institutions and competent agencies.

a.2. There must be credit contracts or security contracts between credit institutions and borrowers or guarantors (hereinafter referred collectively to as securing parties). For cases prescribed in Clauses 2b, 2c and 2d, Section I of this Circular, the handling documents of competent agencies as defined by law (the originals or notarized copies) shall also be required.

a.3. When selling loan security assets, credit institutions shall have to issue VAT invoices to customers. Such VAT invoices must clearly describe the sale of loan security assets according to Clause 2, Article 34 of the Government’s Decree No. 178/1999/ND-CP of December 29, 1999, with the blank lines reserved for VAT rates and amounts crossed out.

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b/ Credit institutions sell loan security assets to organizations with the function of selling and purchasing assets or debt-managing and asset-exploiting companies under the commercial banks (called purchasing units for short):

- Credit institutions shall also have to complete formalities regarding dossiers, vouchers and invoices according to the provisions in Item 1a, Section II of this Circular.

- Units which purchase assets from credit institutions shall be exempt from VAT and issue VAT invoices according to the provisions in Item 1.a.3, Section II above.

2. In cases where credit institutions authorize the sale of loan security assets to the organizations defined at Point 1.b, Section I of this Circular:

a/ There must be asset-sale authorization contracts signed between credit institutions and the authorized parties.

b/ When clearly identifying the purchasers, the authorized units shall notify credit institutions of the information on such customers. Credit institutions shall complete formalities regarding dossiers, vouchers and invoices according to the provisions in Item 1a, Section II of this Circular.

3. In cases where credit institutions take the very security assets in lieu of performance of secured obligations:

a/ Credit institutions and securing parties shall make written records on receipt of security assets, clearly stating the following contents: the receipt of loan security assets according to the provisions in Clause 2, Article 34 of the Government’s Decree No.178/1999/ND-CP of December 29, 1999 in lieu of performance of the secured obligations, the hand-over, reception, pricing and handling of security assets and payment from the handling of security assets, as well as other contents prescribed by law. In these cases, credit institutions shall not have to issue invoices but shall carry out procedures to transfer the rights to own and use security assets.

b/ Vouchers for accounting by credit institutions shall be written records on receipt of the very security assets in lieu of performance of secured obligations and other relevant vouchers as prescribed by law.

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III. SPECIFIC REGULATIONS APPLICABLE TO THE CONCERNED PARTIES WHEN THE HANDLING OF LOAN SECURITY ASSETS IS EFFECTED

1. Credit institutions:

a/ Shall have to comply with the provisions in Section II of this Circular.

b/ VAT invoices on sale of loan security assets must be separately managed and monitored by credit institutions. Proceeds from the handling of loan security assets shall not be considered turnovers or incomes of credit institutions (except for cases prescribed in Paragraph c, Clause 3, Section II of this Circular).

2. Securing parties:

Securing parties being business establishments shall be entitled to account sale proceeds as notified by credit institutions into the VAT-free sale turnover. In cases where the securing parties being business establishments pay VAT by the deduction method and loan security assets are subject to VAT, they shall have to deduct input VAT corresponding to the security asset sale turnover in the fiscal year. The method of determining and distributing input VAT on loan security assets shall comply with the provisions in Paragraph c, Clause 1, Section III, Part B of the Finance Ministry’s Circular No.122/2000/TT-BTC of December 29, 2000 guiding the implementation of the Government’s Decree No.79/2000/ND-CP of December 29, 2000 detailing the implementation of the VAT Law.

3. Purchasing parties:

They are entitled to request credit institutions to give VAT invoices according to the provisions in Section II of this Circular, and then use such invoices as lawful vouchers for book-keeping and accounting when purchasing assets or completing other procedures as prescribed.

4. Tax offices:

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IV. ORGANIZATION OF IMPLEMENTATION

1. This Circular takes effect 15 days after its signing and applies to security contracts signed before its effective date, provided that the purchase and sale have not yet been actually effected and invoices not yet issued. Cases where security assets have already been sold and VAT calculation invoices already issued to purchasers shall not be readjusted.

2. Any problems arising in the course of implementation should be promptly reported by the concerned organizations and individuals to the Finance Ministry for study and solution.

FOR THE MINISTER OF FINANCE
VICE MINISTER




Truong Chi Trung