JOINT CIRCULAR

GUIDING THE IMPLEMENTATION OF A NUMBER OF PROVISIONS OF THE GOVERNMENT'S DECREE No. 38/2003/ND-CP OF APRIL 15, 2003 ON TRANSFORMING A NUMBER OF FOREIGN-INVESTED ENTERPRISES TO OPERATE IN THE FORM OF JOINT-STOCK COMPANY

Pursuant to the Government' Decree No. 38/2003/ND-CP of April 15, 2003 on transforming a number of foreign-invested enterprises to operate in the form of joint-stock company;
Pursuant to the Government's Decree No. 61/2003/ND-CP of June 6, 2003 prescribing the functions, tasks, powers and organizational structure of the Ministry of Planning and Investment;
Pursuant to the Government's Decree No. 77/2003/ND-CP of July 1, 2003 prescribing the functions, tasks, powers and organizational structure of the Ministry of Finance;
The Ministry of Planning and Investment and the Ministry of Finance hereby jointly guide a number of provisions of the Government's Decree No. 38/2003/ND-CP of April 15, 2003 on transforming a number of foreign-invested enterprises to operate in the form of joint-stock company as follows:

Article 1.- Application subjects

Foreign-invested enterprises (hereinafter referred collectively to as enterprises) which meet the conditions prescribed in Article 7 of the Government's Decree No. 38/2003/ND-CP of April 15, 2003 on transforming a number of foreign-invested enterprises to operate in the form of joint-stock company (hereinafter called the Government's Decree No. 38/2003/ND-CP for short) shall be considered for transformation into joint-stock companies; particularly, the following enterprises shall not be considered for transformation yet:

a/ Enterprises where foreign parties or the parties to joint ventures (for joint-venture enterprises) or foreign investors (for enterprises with 100% foreign capital) have pledged to transfer their properties without indemnities to the Vietnamese State and Vietnamese parties.

b/ Enterprises with prepaid revenues such as enterprises engaged in the commercial operation of infrastructures in industrial parks, export-processing zones and/or new urban quarters; construction of houses for sale or lease with prepaid rentals; construction of office buildings and apartments for lease with prepaid rentals; golf-courses; services with sale of membership cards; sub-lease of land with prepaid rentals'

c/ Enterprises making investments in forms of BT, BOT or BTO.

d/ Enterprises having investment capital prescribed in their investment licenses of over USD 70 million or under USD 1 million.

e/ Enterprises having the accumulative loss amounts at the time of application for the transformation (after being offset by profits of the fiscal year preceding the transformation year) equal to or bigger than the owners' equities.

f/ Enterprises having receivable bad debts at the time of application for the transformation exceeding the owners' equities.

Article 2.- Forms of transformation

Enterprises shall be transformed in the forms prescribed in Article 4 of Decree No. 38/2003/ND-CP , including:

1. "Keeping intact the enterprises' value and investor(s)", applicable to enterprises:

a/ Having the number of investors at the time of application for the transformation, which satisfies the requirement on the minimum number of shareholders prescribed for joint-stock companies;

b/ The investors shall not transfer their contributed capital to new shareholders;

c/ Mobilizing no more charter capital.

Investors defined in Decree No. 38/2003/ND-CP and Clause 1 of this Article are foreign parties and Vietnamese parties to joint-venture enterprises and foreign investors in enterprises with 100% foreign capital defined in the investment licenses or the enterprises' charters.

The share-holding proportion between founding shareholders shall be determined according to their legal capital-contributing percentages prescribed in the investment licenses or the agreements thereon between investors, and stipulated in the joint-stock companies' charters.

2. "Transferring part of the enterprises' value to new shareholders", applicable to enterprises:

a/ Having to add new shareholders in order to satisfy the requirement on the minimum number of shareholders prescribed for joint-stock companies or wishing to add new shareholders, and

b/ Mobilizing no more charter capital.

The share-holding proportion between founding shareholders shall be determined according to agreements thereon and stipulated in the joint-stock companies' charters.

3. "Keeping intact the enterprises' value or transferring part of their capital and issuing more shares to attract investment capital", applicable to enterprises:

a/ Wishing to increase their charter capital,

b/ Wishing to mobilize more capital and increase the number of shareholders.

The share-holding proportion of new founding shareholders shall be determined according to agreements thereon and stipulated in the joint-stock companies' charters.

For cases of transformation stated in Clauses 1, 2 and 3 of this Article, the joint-stock companies must satisfy the provisions of Clause 1, Article 10 and Clause 3, Article 12 of Decree No. 38/2003/ND-CP .

Article 3.- Enterprises' value for transformation

1. The enterprises' value for transformation is the whole value of existing properties inscribed in the enterprises' records already audited independently within 6 months before the time of submitting the dossiers of application for the transformation.

2. The value of investors' capital before transformation is the whole value of existing properties inscribed in the enterprises' records already audited by independent audit companies within 6 months before the time of submitting the dossiers of application for the transformation after subtracting payable debts.

3. The time for evaluation of enterprises is the time when the financial statements have already been audited.

4. In the course of determining the enterprises' value, the inventory and classification of properties, receivable debts and payable debts must comply with the current regulations on finance, accounting and tax management.

The value of deficit, lost, damaged or unusable properties (if any) shall be deducted into the enterprises' value for transformation after subtracting compensations paid for personal responsibility.

The value of surplus properties (if any) shall be accounted into the enterprises' value for transformation.

For receivable debts, if there are enough grounds to determine that such debts are irrecoverable at the time of determining the enterprises' value, such debts shall be accounted into enterprises' costs.

For payable debts, if there are enough grounds to believe that the creditors have waived their right to such debts at the time of determining the enterprises' value, such debts shall be accounted into enterprises' incomes.

5. For joint-venture enterprises where the Vietnamese parties are allowed to use the land use right value for capital contribution to the joint ventures, if such Vietnamese parties are State enterprises, the procedures for recording capital contributed to the joint ventures with the land use right value under the Finance Ministry's guidance must be completed.

6. During the period from the date the financial reports are audited to the effective date of the adjusted investment licenses, if there arise profits or losses, thus affecting the enterprises' value, the enterprises shall have their value for the transformation adjusted corresponding to the arising profits or losses already audited.

Article 4.- Dossiers of application for transformation

1. The dossiers of application for transformation shall be compiled according to Articles 20 and 21 of Decree No. 38/2003/ND-CP .

2. The dossiers of application for the transformation must also include the written detailed explanation in the following cases:

a/ Enterprises add new founding shareholders.

b/ Enterprises have the profit-distributing percentages prescribed in the investment licenses different from the legal capital-contributing proportions of the involved parties.

c/ Enterprises sell equities to their laborers.

d/ Enterprises issue additional shares in order to mobilize more charter capital.

Article 5.- Order and procedures for the enterprise transformation

1. Enterprises which meet the transformation conditions prescribed in Article 1 of this Circular shall send the dossiers of application for transformation to the Ministry of Planning and Investment before March 25, 2004 for consideration and selection of enterprises to be transformed before May 25, 2004.

2. Time limit for appraisal:

a/ Within 3 working days after receiving the valid dossiers, the Ministry of Planning and Investment shall send dossiers to the concerned ministries and branches for the latter's opinions.

b/ Within 15 working days after receiving the valid dossiers, the concerned ministries and branches shall send to the Ministry of Planning and Investment their written opinions on enterprises' application for the transformation; past such time limit, if they do not send their written opinions, they shall be considered as having approved enterprises' application for the transformation.

c/ Within 30 working days after receiving the valid dossiers, the Ministry of Planning and Investment shall submit its appraising opinions to the Prime Minister.

d/ Within 5 days after receiving the Prime Minister's decisions, the Ministry of Planning and Investment shall notify such in writing to the enterprises applying for the transformation.

3. Within 6 months after receiving the Planning and Investment Ministry's written notices on the approval of the enterprise transformation, the enterprises shall carry out transformation procedures prescribed in Article 23 of Decree No. 38/2003/ND-CP and report the results thereof to the Ministry of Planning and Investment for granting the adjusted investment licenses approving the enterprise transformation.

Past such time limit, if the enterprises have not yet completed the transformation procedures prescribed in Article 23 of Decree No. 38/2003/ND-CP , they shall have to report such to the Ministry of Planning and Investment for consideration and decision. In cases where the enterprises fail to report thereon, they shall be considered as not having the need for transformation. The Ministry of Planning and Investment shall cease the consideration of enterprises' application for the transformation.

4. Within 7 working days after receiving the enterprises' reports on the transformation results, the Ministry of Planning and Investment shall consider and approve the transformation of enterprises into joint-stock companies in the form of adjusted investment licenses.

The above-mentioned time limit shall not include the duration for the enterprises to amend and supplement the dossiers of application for the transformation.

All requests of the Ministry of Planning and Investment for the amendment and supplementation of the dossiers of application for the transformation shall be made in writing within 15 days after receiving the valid dossiers.

5. In the course of transformation, enterprises shall maintain their organizational structures and operation under the Law on Foreign Investment in Vietnam and must ensure their normal business activities until they are granted the adjusted licenses approving the enterprise transformation.

Article 6.- Enterprise income tax preferences for, and performance of other rights and obligations by, joint-stock companies

1. Foreign-invested joint-stock companies shall enjoy enterprise income tax preferences and perform other rights and obligations according to the provisions of the Law on Foreign Investment and their investment licenses.

2. In cases where enterprises are transformed in the form of transferring part of their value to new shareholders, if there arise profits from the transfer, the transferors shall pay enterprise income tax on capital-transferring activities according to the Government's Decree No. 24/2000/ND-CP of July 31, 2000 detailing the implementation of the Law on Foreign Investment in Vietnam and Decree No. 27/2003/ND-CP of March 19, 2003 amending and supplementing a number of articles of Decree No. 24/2000/ND-CP .

Article 7.- Currencies for inscription of par value of shares

1. The par value of joint-stock companies' shares, which are issued in Vietnam, must be inscribed in Vietnam dong.

In cases where shares are issued or listed overseas, their par value may be inscribed in US dollar or freely convertible foreign currencies.

2. Shares inscribed in foreign currencies, when being traded in Vietnam, must be converted into Vietnam dong at the following rate:

- For US dollar, it is the average transaction exchange rate on the inter-bank foreign currency market between Vietnam dong and US dollar, announced by Vietnam State Bank at the time of transformation;

- For other freely convertible foreign currencies, it is the exchange rate between Vietnam dong and these foreign currencies, announced by Vietnam State Bank once every 10 days for calculation of export tax and import tax at the time of transformation.

Article 8.- Transfer of shares of foreign founding shareholders

1. In course of operation, foreign founding shareholders may transfer their shares according to Article 15 of Decree No. 38/2003/ND-CP .

2. The transfer of shares held by foreign founding shareholders must be passed by the Managing Boards of the joint-stock companies and approved by the Ministry of Planning and Investment.

3. The joint-stock companies must ensure the percentage of shares held by foreign founding shareholders prescribed in Clause 1, Article 10 and Clause 3, Article 12 of Decree No. 38/2003/ND-CP. In case of failing to meet the above-stated regulations on the percentage of shares held by foreign founding shareholders, the joint-stock companies shall have to report such to the Ministry of Planning and Investment for consideration and decision.

4. In course of operation, if the joint-stock companies are detected as having failed to meet the provisions of Clause 1, Article 10 and Clause 3, Article 12 of Decree No. 38/2003/ND-CP , they shall have to bear all responsibility therefor and be handled according to law provisions.

Article 9.- Reporting regimes

The joint-stock companies shall report their operation according to common regulations for foreign-invested enterprises, and biannually and annually report to the Ministry of Planning and Investment and the Ministry of Finance on the situation of their operation, the issuance of shares, the percentage of shares held by foreign shareholders, the participation in domestic and overseas securities markets, advantages and difficulties as well as other related matters.

Article 10.- Implementation effect

This Circular takes effect 15 days after its publication in the Official Gazette.

In course of implementation, any arising problems should be reported to the Ministry of Planning and Investment and the Ministry of Finance for study and settlement.