MINISTRY OF FINANCE SOCIALIST REPUBLIC OF VIETNAM

THE MINISTRY OF FINANCE

SOCIALIST REPUBLIC OF VIET NAM
Independence – Freedom – Happiness

No: 206/2003/QD-BTC

Hanoi, December 12, 2003

DECISION

ON ISSUANCE OF THE REGULATIONS ONMANAGEMENT, USE AND DEPRECIATION OF FIXED ASSETS

THE MINISTER OF FINANCE

- Pursuant to the Law on Business Income Tax (BIT)No. 09/2003/QH11 dated 17 June 2003;
- Pursuant to Government Decree No. 86/2002/ND-CP dated 5 November 2002,stipulating functions, duties, powers and organizational structure ofministries and ministerial equivalent agencies;
- Pursuant to Government Decree No. 77/2003/ND-CP dated 1 July 2003, stipulatingfunctions, duties, powers and organizational structure of the Ministry ofFinance;
- With a view to enhancing the management, use and depreciation of fixed assetsby enterprises; to enabling enterprises to charge in full and in a correctmanner the depreciation costs of their fixed assets; to replacing machinery andequipment and applying advanced technologies and modern techniques in line withbusiness activities of enterprises and the national economy;
- Following the proposal of the Director of the Legislation Department;

DECIDES:

Article 1: To issue together with this Decision the “Regulations onmanagement, use and depreciation of fixed assets”.

The regulations shall apply to State companies, State jointstock companies, one-member State limited companies, more-than-one-member Statelimited companies, enterprises with controlling shares or capital of the State.

Other enterprises shall only be obliged to apply theprovisions related to determination of the depreciation costs of fixed assetsfor calculation of Business Income Tax (BIT).

Article 2: This Decision shall have full force and effect after 15days from the date on which it is published in the gazette and apply as fromthe financial year 2004. This Decision replaces Decision No.166 TC/QD/CSTCdated 30 December 1999 of the Minister of Finance on issuance of theRegulations on management, use and depreciation of fixed assets.

Article 3: The Director of the Legislation Department, the Ministry’sOffice Manager, the Director of the Business Finance Department, the GeneralDirector of Taxation, heads of units belonging to or under the control of theMinistry of Finance shall, within their respective functions and powers, beresponsible for developing, guiding and examining the implementation of thisDecision.

FOR MINISTER OF FINANCE
DEPUTY MINISTER




Le Thi Bang Tam

REGULATIONS

ON MANAGEMENT, USE AND DEPRECIATIONOF FIXED ASSETS
(issued together with Decision No.206/2003/QD-BTC dated 12 December 2003 ofthe Minister of Finance)

Section I: GENERAL PROVISIONS

Article 1: Subjects for and scope of application:

1. The regulations shall apply to State companies, Statejoint stock companies, one-member State limited companies, more-than-one-memberState limited companies; enterprises with controlling shares or capital of theState.

Other enterprises shall only be obliged to apply theprovisions related to determination of the depreciation costs of fixed assetsfor calculation of BIT.

2. The management, use and depreciation stipulated in theRegulations shall be applied to each fixed asset of enterprises.

Article 2: Terms used in the Regulations are interpreted as follows:

1. Tangible fixed assets mean capital goods mainly inmaterial forms (an asset has its independent structure or a system comprisingmany assets linked together to perform one or a number of particular functions)which meet the standards of tangible fixed assets and which, while engaged inmany business cycles, still maintain their initial material form such asbuildings, architectural structures, machinery, equipment,…

2. Intangible fixed assets mean assets without materialforms, which meet the standards of intangible fixed assets and represent anamount of value related to many business cycles such as expenses directlyrelating to land use right, issuance right, patent, copyright,…

3. Financial leasing fixed assets mean fixed assets that theenterprise leases from a financial leasing company. Upon termination of theleasing term, the lessee shall have the right to purchase the leased assets orcontinue to lease assets in accordance with the conditions agreed in thefinancial leasing contract. The total rent paid for an asset stated in the financialleasing contract shall be at least equivalent to the value of such asset at thetime when the contract is signed.

All financial leasing fixed assets which fail to meet theabove regulations shall be considered operation leasing fixed assets.

4. Similar fixed assets mean fixed assets with a similar usein the same line of business and with an equivalent value.

5. Historical cost of fixed assets:

- Historical cost of tangible fixed assets means the totalexpenses that the enterprise has to incur to acquire such assets, calculated upto the time when the fixed assets are put into use.

- Historical cost of intangible fixed assets means the totalexpenses that the enterprise has to incur to have such assets, calculated tothe time when the intangible fixed assets are put into use as expected.

6. Reasonable value of fixed assets mean the value of assetswhich can be exchanged between parties with knowledge of parity exchange.

7. Useful life of fixed assets mean the duration for whichthe enterprise expects to use fixed assets in business and productionactivities, or the duration which, according to the existing regulations, isdetermined on the basis of the quantity or volume of products expected to beproduced from the use of such fixed assets in normal conditions in line witheconomic-technical parameters of the fixed assets and with other factorsrelated to the operation of the fixed assets.

8. Wear and tear of fixed assets mean the gradualdevaluation of fixed assets due to their involvement in business and productionactivities, natural corrosion, technical advancement etc…during the course ofoperation of fixed assets.

9. Value of accumulated wear and tear of fixed assets meanthe total value of wear and tear of fixed assets as at the time of reporting.

10. Depreciation of fixed assets means the calculation andsystematic allocation of the historical costs of fixed assets to business andproduction expenses during the period of using such fixed assets.

11. The accumulated depreciation of fixed assets mean thetotal amount of depreciation costs of fixed assets which have been charged tobusiness expenses, calculated as at the time of reporting.

12. Book value of fixed assets mean the difference betweenthe historical cost of fixed assets and the accumulated depreciation cost (orthe value of accumulated wear and tear) of fixed assets, calculated at the timeof reporting.

13. Repair of fixed assets means the renovation, maintenanceand repair of fixed assets when they are broken down during the course ofoperation in order to recover their normal operation capacity.

14. Upgrading fixed assets means the reformation,construction and installation of, and provision of additional equipment to,fixed assets in order to improve their capacity, quality and performance asagainst the initial capacity, quality and performance of fixed assets, or toextend the useful life of fixed assets; or the application of new technologywhich decreases operation expenses of fixed assets compared with previousexpenses.

Section II. PROVISIONS ON MANAGEMENT AND USE OF FIXED ASSETS

Article 3: Standards and awareness of fixed assets:

1. Standards and awareness of fixed assets:

All means of production whether they are a tangible fixedasset with independent structure or a system of separate parts which have beencombined together to perform one or a number of particular functions and whichcould not operate properly if any part of the asset is lacking, shall beconsidered fixed assets if they concurrently satisfy the four standards below:

a) The future economic interests shall certainly be gainedfrom the use of such assets;

b) The historical cost of fixed assets must be determinedreliably;

c) Their useful life is equivalent to or exceeds one year;

d) Their value is from 10,000,000 million dong (ten milliondong) or more.

In the event that a system consisting of many separate partslinked with one another, in which each component has different useful life andthe system could still perform its main operating function in case of absenceof certain parts and that each part of the asset is required to be managedseparately due to the requirement for management and use of it, the part of theasset shall be considered an independent tangible fixed asset if itconcurrently satisfies 4 standards of fixed assets.

With respect to livestock working and/or generatingproducts, each animal shall be considered a tangible fixed asset if itconcurrently satisfies 4 standards of fixed assets.

With respect to gardens of perennial trees, each garden oreach tree shall be considered a tangible fixed asset if it concurrentlysatisfies 4 standards of fixed assets.

2. Standards and awareness of intangible fixed assets:

Any actual costs incurred by an enterprise, which satisfiesconcurrently 4 conditions stipulated in clause 1 of this Article and does notform tangible fixed assets shall be considered an intangible fixed asset.Expenses which do not concurrently satisfy the four standards mentioned aboveshall be directly charged or gradually allocated to business expenses of theenterprise.

In particular, costs incurred in the development stage shallbe recognised as intangible fixed assets generated from internal activities ofenterprises if they satisfy the following seven conditions:

a) The enterprise has a technical feasibility study ensuringthe completion of intangible fixed assets for bringing them into use asexpected, or for sale;

b) The enterprise intends to complete the intangible fixedassets for use or for sale;

c) The enterprise has an ability to use or sell suchintangible fixed assets;

d) The intangible fixed assets must generate future economicinterests;

dd) The enterprise has enough technical or financialresources and other resources to complete the stages of development, sale oruse of such intangible fixed assets;

e) The enterprise has an ability to determine certainly thetotal costs in the development stage to generate such intangible fixed assets;

g) The enterprise estimates that the intangible fixed assetsmeet full standards on useful life and value in accordance with theregulations.

Expenses for establishment of the enterprise, training ofemployees or advertisement incurred before the establishment of the enterprise,expenses in the research stage, expenses for relocation to another place, commercialgoodwill shall not be intangible fixed assets and shall be allocated tobusiness expenses over a maximum period of no more than 3 years from the timewhen the enterprise commences its operations.

Article 4: Determination of historical cost of fixed assets:

1. Determination of historical cost tangible fixed assets:

a) Tangible fixed assets purchased:

Historical cost of purchased tangible fixed assets(including brand-new or second-hand assets) shall consist of the actualpurchase price payable plus (+) taxes (excluding taxes to be refunded) andrelevant expenses calculated to the time when such fixed assets are put intooperation such as interest on loans invested in fixed assets; freight charges,stevedoring fees; fees for upgrading fixed assets; fees for installation andtrial operation of fixed assets; registration fess;…

Where tangible fixed assets are purchased on the basis ofdeferred payment or instalments, the historical cost of purchased fixed assetsshall include the purchase price paid on the prompt payment basis at the timeof purchase plus (+) taxes (excluding taxes to be refunded) and relevantexpenses calculated to the time when such fixed assets are put into operationsuch as freight charges, stevedoring fees; fees for upgrading fixed assets;fees for installation and trial operation of fixed assets; registration fees,…The difference between the purchase price paid on the deferred payment basisand the purchase price paid on the prompt payment basis shall be included infinancial expenses at the time of payment, except that the difference ischarged to historical cost of tangible fixed assets in accordance with theprovisions on capitalisation of interest on loans.

b) Tangible fixed assets purchased in the form of anexchange:

The historical cost of a tangible fixed asset purchased inthe form of an exchange for a non-similar tangible fixed asset or a differentasset shall be the reasonable value of the tangible fixed asset received orexchanged (after adding the amounts additionally payable or deducting theamounts receivable) plus (+) taxes (excluding taxes to be refunded) andrelevant expenses calculated to the time when such fixed asset is put intooperation such as freight charges, stevedoring fees; fees for upgrading thefixed asset; fees for installation or trial operation; registration fees,…

The historical cost of a tangible fixed asset which ispurchased in the form of an exchange for a similar tangible fixed asset, orwhich is sold in exchange for the ownership of a similar tangible fixed assetis the remaining value of the exchanged tangible fixed asset.

c. Tangible fixed assets constructed or produced by theenterprise itself:

The historical cost of a tangible fixed asset which isconstructed or produced by the enterprise itself shall include the actualproduction cost of the fixed asset plus (+) expenses for installation and trialoperation and other relevant expenses calculated to the time when such fixedasset is put into operation (except for internal profits, unreasonable expensessuch as wasted materials, labour costs or other expenses in excess of theamount of expenses regulated for the construction or production by theenterprise itself).

d. The historical cost of a tangible fixed asset formed fromcapital construction under the mode of tendering shall be the finalisationprice of the construction project in accordance with the current regulations onmanagement of investment and construction plus (+) registration fee and otherrelevant fees.

With respect to fixed assets which are livestock workingand/or generating products, or gardens of perennial trees, the historical costshall include all actual expenditures paid for the livestock or gardens ofperennial trees from the time when they are formed to the time when they areput into use in accordance with the current regulations on management ofinvestment and construction, and other relevant expenses.

dd. Tangible fixed assets granted or transferred…

The historical cost of a tangible fixed asset which isgranted or transferred … shall include the remaining value of such fixed assetstated in the accounting books of the granting unit or the transferring unit,or the value according to the actual assessment of the fixed asset receptionand delivery council plus (+) expenses incurred by the recipient of asset,calculated to the time when such fixed asset is put into use such as freightcharges, stevedoring fees; expenses for upgrading the fixed asset, installationand trial operation; registration fee (if any),…

In particular, the historical cost of a tangible fixed assettransferred among dependent member units of the same enterprise shall be theoriginal cost shown on the accounting books of the transferor in line with therecord of that fixed asset. The recipient of the tangible fixed asset shallbase on historical cost, accumulated depreciation costs, the net book value andthe record of that fixed asset to record in the accounting books. Costs relatedto the transfer of the fixed asset among dependent member units shall not beadded to the original cost, but be allocated to business expenses in theperiod.

e. Tangible fixed assets granted, donated or presented;received as joint venture capital contribution; returned from contributedcapital; discovered as excessive payment.

The historical cost of a tangible fixed asset which isgranted, donated or presented; received as joint venture capital contribution;returned from contributed capital; discovered as excessive payment, …. shall bethe value according to the actual assessment by the fixed asset reception anddelivery council plus expenses incurred by the recipient of fixed asset,calculated to the time when such fixed asset is put into use such as freightcharges, stevedoring fees; expenses for upgrading the fixed asset, installationand trial operation; registration fee,…

2. Determination of historical cost of intangible fixedassets:

a. Intangible fixed assets purchased:

The historical cost of a purchased intangible fixed assetshall be the actual purchase price payable plus (+) taxes (excluding taxes tobe refunded) and relevant expenses incurred by the enterprise, calculated tothe time when such intangible fixed asset is put into use as expected.

Where an intangible fixed asset is purchased in the mode ofdeferred payment or instalments, the historical cost of the intangible fixedasset shall be the purchase price paid on the basis of a prompt payment at thetime of purchase. The difference between the purchase price paid on the basisof a deferred payment and the purchase price paid on the basis of a promptpayment shall be included in financial expenses at the time of payment, exceptthat the difference is charged to historical cost of the intangible fixed assetin accordance with the provisions on capitalisation of the interest on loans.

b. Intangible fixed assets purchased in the form of anexchange:

The historical cost of an intangible fixed asset purchasedin the form of an exchange for a non-similar intangible fixed asset or adifferent asset shall include the reasonable value of the intangible fixedasset received or exchanged (after adding the amounts additionally payable ordeducting the amounts receivable) plus (+) taxes (excluding taxes to berefunded) and relevant expenses calculated to the time when such intangiblefixed asset is put into use as expected.

The historical cost of an intangible fixed asset which ispurchased in the form of an exchange for a similar intangible fixed asset, orwhich is sold in exchange for the ownership of a similar intangible fixed assetshall be the remaining value of the exchanged intangible fixed asset.

c. Intangible fixed assets generated from internalactivities of enterprises:

The historical cost of an intangible fixed asset generatedfrom internal activities of an enterprise shall be expenses directly relatingto the designing, construction and trial production incurred by the enterprise,calculated to the time when such intangible fixed asset is put into use asexpected.

In particular, expenses arising from internal activities ofan enterprise so that the enterprise has trademarks of goods, issuance right,list of customers; expenses arising in the research stage and similar itemsshall not be determined as intangible fixed assets but shall be included inbusiness expenses in the period.

d. Intangible fixed assets granted, donated or presented:

The historical cost of an intangible fixed asset which isgranted, donated or presented shall be the value according to the actualassessment by the fixed asset reception and delivery council plus (+) relevantexpenses incurred by the enterprise, calculated to the time when such fixedasset is put into use as expected.

dd. Land use right:

The historical cost of a fixed asset which is the land useright (including fixed-term land use right and long-term land use right) shallbe the payment made to obtain the lawful land use right plus (+) compensatorypayments for clearance of site, expenses for levelling the ground, registrationfee,…(excluding expenses paid for construction of projects on the land); or thevalue of the land use right from capital contribution.

Where an enterprise leases land, the land rental shall begradually allocated to its business expenses and shall not be recognised asintangible fixed asset.

e. Issuance right, copyright, patent:

The historical cost of a fixed asset which is the issuanceright, copyright or patent shall be the total of actual expenses incurred bythe enterprise to obtain such issuance right, copyright or patent.

g. Trademarks of goods:

The historical cost of a fixed asset which is the trademarkof goods shall be the actual expenses directly relating to the purchase of suchtrademark of goods.

h. Computer software:

The historical cost of a fixed asset which is the computersoftware (in case where the software is a component which can be separated fromthe relevant hardware) shall be the total of actual expenses incurred by theenterprise to obtain the computer software.

3. The historical cost of a financial leasing fixed assetrecorded in the accounting books of the lessee shall be the reasonable value ofthe leased asset at the time when the leasing of such asset commences. If thereasonable value of the leased asset is higher than the current value of theminimum rent payment, the historical cost shall be recorded in accordance withthe current value of the minimum rent payment. The initial expenses arising indirect relation to the financial leasing shall be charged to the historicalcost of the leased fixed asset.

4. The historical cost of fixed assets without invoices orsource documents of business individuals or households establishing privateenterprises, limited liability companies or joint stock companies shall be thereasonable value that the enterprises themselves determine at the time of registrationof their business, and the enterprises shall be responsible before the law forthe accuracy of that value.

Where the value of fixed asset determined by the enterpriseis larger than the market price of fixed assets of the same or similar kind,the enterprise shall be required to re-determine the reasonable value of fixedassets for calculation of business income tax (BIT). After the enterprisere-determines the reasonable value of fixed assets, if the value of fixedassets still does not conform to the actual market price, the tax office shallhave the right to request the enterprise to re-determine the value of fixedassets through the local assessment council or an organisation having thefunction to valuate assets in accordance with the provisions of the law.

5. The historical cost of fixed assets of enterprises shallonly be changed in the following cases:

a. Reassessment of the value of fixed assets in accordancewith the law;

b. Upgrading fixed assets;

c. Removal one or a number of parts of the fixed asset;

Upon change of the historical cost of fixed assets, theenterprise is required to make out a minutes clearly stating the bases for suchchange and re-determine the items regarding historical cost, net book value,accumulated depreciation of fixed assets and practise the accounting inaccordance with the current regulations.

6. The recording of increase or decrease in the historicalcost of fixed assets shall be made at the time of increase or decrease in fixedassets.

Article 5: Rules on management of fixed assets:

Each fixed asset of the enterprise must have a separate setof file (the set of file shall include a minutes on handover and reception ofthe fixed asset, contract, invoice for purchase of the fixed asset and otherrelevant documents). Each fixed asset must be classified, statisticallycompiled, numbered and given a separate card, and be monitored in detailaccording to its category, and shown in the log-book of fixed assets.

Each fixed asset must be managed in terms of its historicalcost, accumulated depreciation cost and net book value:

Net book value of fixed asset

=

Historical cost of fixed asset

-

Accumulated depreciation cost of fixed asset

In respect offixed assets which are not engaged in production and business activities as stipulatedin clause 2 of Article 9 of these Regulations, the enterprise shall mange thefixed assets in terms of their historical cost, value of accumulated wear andtear and net book value:

Net book value of fixed asset

=

Historical cost of fixed asset

-

Value of accumulated wear and tear of fixed asset

The enterprise is required to manage fixed assets which havebeen fully depreciated but still engaged in business activities in the samemanner as other normal fixed assets.

At the end of each financial year, the enterprise mustconduct an inventory of fixed assets. In respect of cases of excess of orshortfall in fixed assets, the enterprise must make out the minutes, find outthe causes and deal with them.

Article 6: Classification of fixed assets in enterprises:

Based on the nature of fixed assets, enterprises shallclassify fixed assets according to the following categories:

1. Fixed assets used for business mean fixed assets used bythe enterprise for its business purposes.

a. Tangible fixed assets shall be classified as follows:

Category 1: Buildings and architectural structures mean fixed assetsof the enterprise which are formed after a construction process such asoffices, warehouses, fences, water towers, ground, decorative works associatedwith buildings, roads, bridges, railroads, harbours, quays.

Category 2: Machinery and equipment mean all kinds of machineryand equipment used for business activities of the enterprise such asspecialised machinery, working equipment, technological lines, individualmachinery,…

Category 3: Means of transportation, equipment for transmissionmean all kinds of means of transportation including means of transportation forrailway, waterway, road, airway, pipeline and equipment for transmission suchas information system, electricity system, water pipeline, conveyers,…

Category 4: Equipment and instruments for management meanequipment and instruments used for management of business activities ofenterprises such as computers for administration, electronic equipment, equipmentand tools for measurement, quality-control equipment, dehumidifiers, vacuumcleaners, termite and woodworm killer,…

Category 5: Gardens of perennial trees, livestock working and /or generating products mean gardens of perennial trees such as coffee, tea orrubber trees; orchards, carpets of grass and green trees; livestock working and/ or generating products such as herds of elephants, horses, buffaloes, cows,…

Category 6: Other kinds of fixed assets mean all other fixedassets which are not listed in 5 mentioned-above types, such as pictures,artworks,…

b. Intangible fixed assets such as land use right, issuanceright, patent, trademark,…

2. Fixed assets used for welfare, administration, nationalsecurity and defence mean fixed assets owned by enterprises and used forpurposes of welfare, administration, national security and defence withinenterprises. Those fixed assets are also classified in accordance with theprovisions of clause 1 of this Article.

3. Fixed assets which are maintained, kept or stored onbehalf of the State mean fixed assets that the enterprise maintains or keeps onbehalf of other units or the State in accordance with the provisions of theauthorised State body.

Based on the management requirements of each enterprise, theenterprise itself shall make a detailed classification of fixed assets in eachcategory accordingly.

Article 7: Upgrading and repairing fixed assets:

1. Costs incurred by an enterprise to upgrade a fixed assetshall be added to the historical cost of that fixed asset; the enterprise isnot allowed to charge the costs to its business expenses in the period.

2. Costs for repair of fixed assets shall be regarded ascosts and directly charged or gradually allocated to business expenses of theperiod of no more than 3 years.

With respect to a number of industries whose repair costsare large and incurred unequally over periods or years, the enterprise isallowed to advance costs for repair of fixed assets into its business expensesin the period provided that after making such advance the enterprise still getprofits in its business activities. The enterprise is required to make out aplan for advancing repair costs and notify it to the relevant tax office.

The enterprise must reconcile the actual repair costs with theadvanced repair costs. If the actual repair costs are larger than the advancedamount, the difference shall be totally charged or gradually allocated toexpenses of the period of no more than 3 years. If the actual repair costs aresmaller than the advanced amount, the difference shall be recorded as adecrease in business expenses of the period.

3. Costs in relation to the intangible fixed asset arisingafter the initial recognition, which are valuated certainly as increasing theeconomic interests of the intangible fixed asset compared with its initialeconomic interests, shall be added to the historical cost of the fixed asset.Other expenses in relation to the intangible fixed asset arising after theinitial recognition shall be charged to business expenses.

Article 8: Leasing, mortgage, pledge, sale or disposal of fixed assets:

1. All activities of leasing, mortgage, pledge, sale anddisposal of fixed assets must comply with the current regulations of the law.

2. In respect of operating lease fixed assets:

- The lessee shall have responsibility to manage and usefixed assets in accordance with the provisions stated ion the lease contract.The fixed asset rent shall be included in business expenses of the period.

- The lessor as an owner of the fixed asset shall berequired to monitor and manage the leased fixed assets.

3. In respect of financial lease fixed assets:

- The lessee must monitor, manage and use the leased fixedasset in the same manner as its own fixed asset, and fulfil all obligationscommitted in the financial lease contract.

- The lessor as an investor must monitor and carry outproperly all terms and conditions in the financial lease contract.

4. In respect of the sale and sublease of fixed assets:

- Where an enterprise sells or subleases an operating leasefixed asset, the enterprise is required to carry out the same responsibilitiesas regulated for the lessee of the operating lease fixed asset. The differencearising when the agreed sale price or the sublease amount of fixed asset is loweror higher than the reasonable value shall be promptly charged to theenterprise’s income in the period or gradually allocated to its expenses asregulated.

- Where an enterprise sells and subleases a financial leasefixed asset, the enterprise is required to carry out the same responsibilitiesas regulated for the lessee of the financial lease fixed asset. The differencebetween the revenue from sale of the asset and the net book value of the assetshall be charged to the enterprise’s income as regulated.

5. The fixed asset handover and reception council, the fixedasset liquidation council, the fixed asset sale council of the enterprise shallbe established according to the decision of the enterprise and shall includemandatory members who are director and chief accountant of the enterprise, atechnical expert who has good knowledge of the fixed asset (the expert withinor out of the enterprise), a representative of the party handing over the asset(if any) and other members decided by the enterprise. In special cases oraccording to the current regulations on financial management, the enterpriseshall invite representatives of the financial body directly managing theenterprise and the agency managing technical-economic industries (if any) toparticipate in these councils.

Section III. PROVISIONS ON DEPRECIATION AND USE OFDEPRECIATION FUND

Article 9: Rules on calculation of depreciation costs of fixed assets:

1. All fixed assets of the enterprise related to itsbusiness activities must be depreciated. The depreciation costs of fixed assetsshall be charged to business expenses in the period.

The enterprise shall not be allowed to calculatedepreciation costs of fixed assets which have been fully depreciated but stillengaged in its business activities.

In respect of fixed assets which have not been fullydepreciated and are damaged, the enterprise must determine the causes andrequire the compensatory payments from responsible persons, and include thedamaged fixed assets in other expenses.

2. Depreciation costs shall not be calculated in respect offixed assets not engaged in business activities, including:

- Fixed assets being State reserves which are allotted tothe enterprise for the latter to manage and keep them on behalf of the State.

- Fixed assets serving welfare of the enterprise such asnursery, club, traditional house, canteen, …invested from the welfare fund.

- Fixed assets serving general needs of the whole societyand not merely serving business activities of the enterprise such as dams,bridges, roads, … which the State allots to the enterprise for the latter tomanage them.

- Other fixed assets not engaged in business activities.

The enterprise shall manage and monitor the above fixedassets in the same manner as it does in respect of fixed assets used forbusiness, and calculate the wear and tear level of these fixed assets (if any).The wear and tear level shall be determined by dividing the historical cost offixed assets by their useful life which is provided for in Appendix 1 issuedtogether with Decision 206/2003/QD-BTC dated 12 December 2003 of the Ministerof Finance.

If these fixed assets are engaged in business activities,the enterprise shall charge depreciation costs to its business expenses duringthe period for which the fixed assets are engaged in business activities.

3. The enterprise which leases operating fixed assets mustcalculate depreciation costs in respect of the leased fixed assets.

4. The lessee of financial lease fixed assets must calculatedepreciation costs in respect of financial lease fixed assets in the samemanner as it does for its own fixed assets in accordance with the currentregulations. Where at the outset of the leasing of assets, the lessee of thefinancial lease fixed assets guarantees in the lease contract that he shall notbuy the leased assets, the lessee shall be allowed to calculate depreciationcosts in respect of the financial lease fixed assets over the leasing periodstated in the lease contract.

5. The calculation of depreciation costs or stoppage ofcalculation of depreciation costs in respect of fixed assets shall be commencedfrom the date (in accordance with the ordinal number of day of the month) onwhich fixed assets increase, decrease or stop to be engaged in businessactivities.

6. The long-term land use right is a special intangiblefixed asset, the enterprise shall recognise it as an intangible fixed asset atits historical cost but shall not be allowed to calculate its depreciationcosts.

Article 10: Determination of useful life of tangible fixed assets:

1. With respect to brand-new fixed assets (unused fixedassets), the enterprise must base on the frame of useful life of fixed assetsstipulated in Appendix 1 issued together with Decision 206/2003/QD-BTC stated12 December 2003 of the Minister of Finance to determine the useful life offixed assets.

2. With respect to fixed assets which have been used, theuseful life of fixed assets shall be determined as follows:

Useful life of fixed asset

=

Reasonable value of fixed asset

x

Useful life of the brand-new fixed asset of the same type, determined according to Appendix 1 (issued with Decision 206/2003/ QD-BTC dated 12 December 2003)

Sale price of the brand-new fixed asset of the same type (or of a similar fixed asset in the market)

in which:

The reasonable value of fixed asset shall be the actualpurchase price or actual exchange price (in case of purchase or exchange), theremaining value of fixed asset (in case where the fixed asset is granted ortransferred), the value according to the assessment of the fixed asset handoverand reception council (in case where the fixed asset is given, donated orreceived as a capital contribution).

3. In cases where an enterprise wishes to determine theuseful life of fixed assets differently from the frame of useful life asprovided for in Appendix 1 issued together with Decision 206/2003/QD-BTC dated12 December 2003 of the Minister of Finance, the enterprise is required to makeout a report, explaining clearly the bases for determining the useful life ofthat fixed asset and submit it to the Ministry of Finance for consideration anddecision based on the three following standards:

- Technical life of fixed assets as designed;

- Current conditions of fixed assets (used time of fixedassets, generation of fixed assets, actual conditions of fixed assets…);

- Economic life of fixed assets.

4. In case where there are a number of impacting factors(e.g. upgrading or removing one or some parts of the fixed asset…) with a viewto extending or shortening the determined useful life of fixed assets, theenterprise shall re-determine the useful life of fixed assets based on 3standards provided for in clause 3 of this Article, concurrently shall draw upa minutes clearly stating the bases which lead to the change in the useful lifeof fixed assets.

Article 11: Determination of useful life of intangible fixed assets:

The useful life of intangible fixed assets shall bedetermined by enterprises themselves, however the maximum useful life shall notexceed 20 years. In particular, the useful life of the fixed-term land useright is the duration for which the enterprise is allowed to use land inaccordance with the regulations.

Article 12: Determination of useful life of fixed assets in a number ofspecial cases;

- With respect to investment projects in the form of Build –Operate – Transfer (BOT), the useful life of fixed assets shall be determinedfrom the time when the fixed assets are put into use until the end of suchprojects.

- With respect to a business cooperation contract (BCC) withthe participation by foreign parties, after termination of the contract theforeign parties shall transfer the project to the State of Vietnam withoutcompensation, the useful life of the fixed assets to be transferred shall be determinedfrom the time when such fixed assets are put into use until the end of theproject.

Article 13: Depreciation methods in respect of fixed assets:

1. The contents of the straight line method; the reducingbalance method with adjustment; the depreciation method based on quantity orvolume of products are stipulated in Appendix 2 issued together with Decision206/2003/QD-BTC dated 12 December 2003 of the Minister of Finance.

2. Based on the ability to meet the conditions stipulatedfor each depreciation method in respect fixed assets, the enterprise shall beallowed to select depreciation methods suitable for each kind of its fixedassets.

- Straight line method:

Fixed assets engaged in business activities shall bedepreciated in accordance with the straight line method.

Enterprises operating and gaining high economic efficiencyshall be allowed to conduct a rapid depreciation of their fixed assets in orderto quickly renew technologies, however the rapid depreciation rate shall notexceed two times the depreciation rate provided for in accordance with thestraight line method. Fixed assets engaged in business activities and entitledto a rapid depreciation shall include machinery, equipment; measuring andexperimental instruments; equipment and means of transport; tools used formanagement; livestock, gardens of perennial trees. When conducting the rapiddepreciation, enterprises must ensure that they get profits in their business.

- Reducing balance method with adjustment:

Fixed assets engaged in business activities and depreciatedin accordance with the reducing balance method with adjustment mustconcurrently meet the following conditions:

+ Being brand-new fixed assets (unused assets);

+ Being machinery, equipment; measuring and experimentalinstruments;

The reducing balance method with adjustment shall apply toenterprises with technologies required to be rapidly replaced or developed.

- Depreciation method based on quantity or volume ofproducts:

Fixed assets engaged in business activities and depreciatedin accordance with this method shall include machinery and equipment whichconcurrently meet the following methods:

+ Directly relating to the production of products;

+ The total quantity or volume of products turned out on thebasis of the

designed capacity of fixed assets can be determined.

+ The average actual capacity used during the months of thefinancial year is not

lower than the designed capacity.

3. The enterprise is required to register with the relevanttax office the depreciation method that it has selected before applying suchdepreciation method. Where the depreciation method selected by the enterpriseis not consistent with the regulated conditions, the tax office shall haveresponsibility to notify this to the enterprise for the latter to change itsdepreciation method accordingly.

4. The depreciation method selected and registered by theenterprise to apply to each fixed asset must be applied consistently during thecourse of using such fixed asset.

Article 14: Use of the amount from depreciation of fixed assets:

The enterprise must use the amount from depreciation offixed assets in accordance with the current regulations of the law.

Section IV. ORGANISATION OF THE IMPLEMENTATION

Article 15: These Regulations shall apply as from the financial year2004 onward.

Article 16: Fixed assets put into use prior to 1 January 2004 shall bedepreciated in accordance with the new provisions in Appendix 2 issued togetherwith Decision 206/2003/QD0 -BTC dated 12 December 2003 of the Minister of Finance.

Fixed assets depreciated in accordance with the provisionsof Decision 2000/QD-BTC dated 31 December 2002 of the Ministry of Finance onpilot application of the depreciation regime in accordance with the reducingbalance method with adjustment shall continue to be depreciated in accordancewith that method provided for in these Regulations.

In respect of fixed asset with its historical cost of lessthan 10,000,000 dong (ten million dong) which is not eligible to be a fixedasset in accordance with the regulations, the enterprise shall monitor, manageand use it and allocate its remaining value in the accounting books in the samemanner as it does for capital goods.

Article 17: Units belonging to and under the control of the Ministryof Finance shall, within their respective functions and duties, be responsiblefor implementing, and guiding enterprises to properly implement, theseRegulations.

APPENDIX I

FRAME OF USEFUL LIFE OF FIXED ASSETS
(issued together with Decision No. 206/2003/QD-BTC dated 12 December 2003 ofthe Minister of Finance)

No.

List of categories of fixed assets

Maximum useful life (years)

Minimum useful life (years)

A.

Motive machinery and equipment

1

Motive force generating machinery

8

10

2

Generators

7

10

3

Transformers and electric devices

7

10

4

Other motive machinery and equipment

6

10

B.

Working machinery and equipment

1

Machine tools

7

10

2

Mining and construction machinery

5

8

3

Tractors

6

8

4

Machinery used in agriculture and forestry

6

8

5

Water and fuel pumps

6

8

6

Metallurgical equipment, equipment for coating the metal surface with anti-rust and anti-corrosion substances

7

10

7

Specialised equipment for production of chemicals

6

10

8

Specialised machinery and equipment for production of construction materials, ceramics and glass

6

8

9

Specialised equipment for production of electronic and optical components and precise mechanical devices

5

12

10

Machinery and equipment used for producing leather, printing stationery and cultural products.

7

10

11

Machinery and equipment used in the textile industry

10

15

12

Machinery and equipment used in the garment industry

5

7

13

Machinery and equipment used in the paper industry

5

15

14

Machinery and equipment used for production and processing of food and foodstuffs

7

12

15

Machinery and equipment used in the cinema and health care

6

12

16

Machinery and equipment used in telecommunication, information, electronic, informatic and television industries

3

15

17

Machinery and equipment for production of pharmaceutical products

6

10

18

Other working machinery and equipment

5

12

C.

Measuring and experimental instruments

1

Equipment for measuring and testing mechanical, acoustic and thermal quantity

5

10

2

Optical equipment and spectrometers

6

10

3

Electric and electronic equipment

5

8

4

Equipment for measurement and analysis of physical and chemical elements

6

10

5

Equipment and instruments for measurement of radioactive elements

6

10

6

Specialised equipment used for special purposes

5

8

7

Other measuring and experimental equipment

6

10

8

Moulds used in moulding industry

2

5

D.

Equipment and means of transport

1

Means of transport for roads

6

10

2

Means of transport for railway

7

15

3

Means of transport for waterway

7

15

4

Means of transport for airway

8

20

5

Transportation equipment being pipelines

10

30

6

Means of stevedoring and lifting goods

6

10

7

Other equipment and means of transport

6

10

E.

Instruments used for management

1

Computing and measuring equipment

5

8

2

Informatic or electronic machinery and equipment and computer software serving management

3

8

3

Other means and instruments used for management

5

10

F.

Buildings, architectural structures

1

Strong buildings (1)

25

50

2

Other buildings (1)

6

25

3

Storehouses, containers; bridges, roads, parking lots, drying ground…

5

20

4

Dikes, dams, canals, drains, ports, docks…

6

30

5

Other architectural structures

5

10

G.

Livestock and gardens of perennial trees

1

All kinds of livestock

4

15

2

Gardens of industrial trees, orchards, gardens of perennial trees

6

40

3

Carpets of grass, carpets of green trees

2

8

H.

Other kinds of fixed assets not included in the above categories

4

25

Notes:

(1) Strong buildings mean residential houses, workingoffices, office buildings, hotels, etc … determined as having the durability ofcategory I or II. Other buildings mean residential houses, working offices,office buildings, etc … determined as having the durability of category III orIV in accordance with the provisions of the Ministry of Construction.

APPENDIX II

METHODS OF CALCULATION OFDEPRECIATION OF FIXED ASSETS
(issued together with Decision 206/2003/QD-BTC dated 12 December 2003 of theMinister of Finance)

I. STRAIGHT LINE METHOD:

1. Contents of the method:

1) Fixed assets of enterprises shall be depreciated inaccordance with the straight line method as follows:

- Based on the Regulations on management, use anddepreciation of fixed assets issued together with Decision 206/2003/QD-BTC , theenterprise shall determine the useful life of fixed assets;

- The enterprise shall calculate the average yearlydepreciation rate of fixed assets in accordance with the formula set out below:

Average yearly depreciation rate of fixed asset

=

Historical cost of fixed asset

Useful life of fixed asset

- The average monthly depreciation rate shall be equal tothe depreciation cost of the whole year divided by 12 months.

2) Where there is a change in the useful life or historicalcost of a fixed asset, the enterprise is required to re-determine the averagedepreciation rate of the fixed asset by dividing (:) the net book value of thefixed asset by its re-determined useful life (determined as the differencebetween the registered useful life minus the used time).

3) The depreciation cost of a fixed asset in the lastdepreciation year shall be determined as the difference between the historicalcost of the fixed asset and the accumulated depreciation cost calculated to theyear prior to the last depreciation year of that asset.

2. Example of the calculation of depreciation of fixedassets:

Example: Company A purchases a fixed asset (brand-new) atthe price of 119 million dong shown on the invoice. Company A is given adiscount of 5 million dong. Cost for transportation is 3 million, costs forinstallation and trial operation is 3 million.

1) Knowing that the fixed asset has a technical life of 12years and an expected useful life of 10 years (in accordance with theprovisions in Appendix 1 issued together with Decision No.206/2003/QD-BTC ) andthe asset is put into use on 1 January 2004.

Historical cost of the fixed asset = 119 million – 5 million+ 3 million + 3 million = 120 million.

The average yearly depreciation rate = 120 million : 10years = 12 million dong/year

The average monthly depreciation rate = 12 million dong : 12months = 1 million dong/month.

Every year, the enterprise shall charge a depreciation costof 12 million dong for that fixed asset to its business expenses.

2) After 5 years of using the asset, the enterprise upgradesthe fixed asset and incurs a total cost of 30 million dong. The useful life ofthe fixed asset is re-determined to be 6 years (1 year increased as against theinitially registered useful life), the date on which the upgrading is completedand the fixed asset is put into use is 1 January 2009.

Historical cost of the fixed asset = 120 million dong + 30million dong = 150 million dong.

The accumulated depreciation cost charged = 12 million dongx 5 years = 60 million dong.

The net book value of the fixed asset = 150 million dong –60 million dong = 90 million dong.

The average yearly depreciation rate = 90 million dong : 6years = 15 million dong/year.

The average monthly depreciation rate = 15 million dong : 12Months = 1,250,000 dong/month.

From 2009 onward, every month the enterprise shall charge toits business expenses a depreciation cost of 1,250,000 dong in respect of thefixed asset which has just been upgraded.

3. Determination of the depreciation rate in respect offixed assets put into use prior to 1 January 2004:

a. The way of determining the depreciation rate:

- The enterprise shall base on figures shown on theaccounting books and record of the fixed asset to determine the net book valueof the fixed asset.

- The enterprise shall determine the remaining useful lifeof the fixed asset in accordance with the following formula:

T

=

T2 ( 1 -

t1

)

T1

in which:

T : the remaining useful life of the fixed asset.

T1: the useful life of the fixed asset determined inaccordance with the provisions of

Appendix 1 issued together with Decision No. 166/1999/QD-BTC .

T2: the useful life of the fixed asset determined inaccordance with the provisions of

Appendix 1 issued together with Decision No.206/2003/QD-BTC .

t1: the actual period for which the fixed asset has been depreciated.

- The yearly depreciation rate (for the remaining usefullife of the fixed asset) shall be calculated as follows:

The average yearly depreciation rate of the fixed asset

=

The net book value of the fixed asset

The remaining useful life of the fixed asset

- The average monthly depreciation rate shall be equal tothe depreciation cost for the whole year divided by 12 months.

b. Example of the calculation of depreciation of fixedassets:

Example: The enterprise has used a loom with its historicalcost of 600 million dong as from 1 January 2001. The useful life of the loom isdetermined to be 10 years in accordance with the provisions in Appendix 1issued together with Decision No.166/1999/QD-BTC The used time of the loomcalculated to the end of 31 December 2003 is 2 years. The accumulateddepreciation cost is 120 million dong.

- The net book value of the loom is 480 million dong.

- The enterprise determines the useful life of the loom tobe 5 years in accordance with the provisions of Appendix 1 issued together withDecision No.206/2003/QD-BTC .

- The enterprise shall determine the remaining useful lifeof the loom as follows:

Remaining useful life of the loom

=

= 5 years x ( 1 -

2 years

) = 4 years

10 years

- The averageyearly depreciation rate = 480 million dong : 4 years = 120 million dong/year(in accordance with Decision 206/2003/QD-BTC ).

- The average monthly depreciation rate = 120 million dong :12 months = 10 million dong/month.

From 1 January 2004 to the end of 31 December 2007, theenterprise shall charge a depreciation cost of 10 million dong for the loom toits monthly business expenses.

II. THE REDUCING BALANCE METHOD WITH ADJUSTMENT:

1. Contents of the method:

The depreciation rate of fixed assets in accordance with thereducing balance method with adjustment shall be determined as follows:

- Determination of the useful life of fixed assets:

The enterprise shall determine the useful life of fixedassets in accordance with the Regulations on management, use and depreciationof fixed assets issued together with Decision 206/2003/QD-BTC of the Ministryof Finance.

- The enterprise shall determine the depreciation rate offixed assets in the initial years in accordance with the following formula:

Yearly depreciation rate of the fixed asset

=

Net book value of the fixed asset

x

Rapid depreciation rate

in which;

The rapid depreciation rate is determined in accordance withthe following formula:

Rapid depreciation rate (%)

=

Depreciation rate of the fixed asset in accordance with the straight line method

x

Adjustment coefficient

The depreciation rate of fixed assets in accordance with thestraight line method is determined as follows:

Depreciation rate of the fixed asset in accordance with the straight line method (%)

=

1

x

100

Useful life of the fixed asset

The adjustment coefficient shall be determined in accordancewith the useful life of

fixed assets stipulated in the following table:

Useful life of fixed assets

Adjustment coefficient (times)

Up to 4 years (t ≤ 4 years)

1.5

Over 4 years to 6 years (4 years < t ≤ 6 years)

2.0

Over 6 years ( t > 6 years)

2.5

In the lastyears, when the yearly depreciation rate calculated in accordance with thereducing balance method mentioned above is equal to (or lower than) the depreciationrate averagely calculated by dividing the net book value of the fixed asset byits remaining useful life, from that year onward the depreciation rate shall beequal to the net book value of the fixed asset divided by its remaining usefullife.

- The monthly depreciation rate shall be equal to thedepreciation cost for the whole year divided by 12 months.

2. Example of the calculation of depreciation of fixedassets:

Example: Company A purchases a brand-new equipment with thehistorical cost of 10 million dong for production of electronic components.

The useful life of the fixed asset determined in accordancewith the provisions in Appendix 1 (issued together with Decision206/2003/QD-BTC ) is 5 years.

The yearly depreciation rate shall be determined as follows:

- The yearly depreciation rate of the fixed asset inaccordance with the straight line method is 20%.

- The rapid depreciation rate in accordance with thereducing balance method shall be equal to 20% x 2 (adjustment coefficient) =40%.

- The yearly depreciation rate of the above fixed assetshall be specifically calculated in accordance with the following table:

Unit: dong

Ordinal number of year

Net book value of the fixed asset

Method of calculating the yearly depreciation rate of the fixed asset

The yearly depreciation rate

The monthly depreciation rate

Accumulated depreciation cost at the year end

1

10,000,000

10,000,000 x 40%

4,000,000

333,333

4,000,000

2

6,000,000

6,000,000 x 40%

2,400,000

200,000

6,400,000

3

3,600,000

3,600,000 x 40%

1,440,000

120,000

7,840,000

4

2,160,000

2,160,000 : 2

1,080,000

90,000

8,920,000

5

2,160,000

2,160,000 : 2

1,080,000

90,000

10,000,000

In which:

+ The depreciation rate of the fixed asset from the firstyear to the end of the third year shall be equal to the net book value of thefixed asset multiplied by the rapid depreciation rate (40%).

+ From the 4th year onward, the yearly depreciation rateshall be equal to the net book value of the fixed asset (early in the 4th year)divided by its remaining useful life (2.160.000 : 2 = 1.080.000). [Because inthe 4th year, the depreciation rate in accordance with the reducing balancemethod (2,160,000 x 40% = 864,000) is lower than the depreciation rateaveragely calculated by dividing the net book value of the fixed asset by itsremaining useful life (2,160,000 : 2 = 1,080,000)].

III. THE DEPRECIATION METHOD BASED ON QUANTITY OR VOLUME OFPRODUCTS:

Fixed assets of the enterprise shall be depreciated inaccordance with the depreciation method based on quantity or volume of productsas follows:

- Based on the economic-technical file of the fixed asset,the enterprise shall determine the total quantity or volume of products turnedout in accordance with the designed capacity of the fixed asset, referred to asoutput based on the designed capacity.

- Based on its actual production situation, the enterpriseshall determine the quantity or volume of products actually turned out everymonth or every year by that fixed asset.

- The monthly depreciation rate of the fixed asset shall bedetermined in accordance with the following formula:

Monthly depreciation rate of the fixed asset

=

Quantity of products turned out in the month

x

Average depreciation rate for a unit of product

in which:

Average depreciation rate for a unit of product

=

Historical cost of the fixed asset

Output based on the designed capacity

- The yearlydepreciation rate of the fixed asset shall be equal to the total depreciationrate of 12 months in the year, or shall be calculated in accordance with the followingformula:

Yearly depreciation rate of the fixed asset

=

Quantity of products turned out in the year

x

Average depreciation rate for each unit of product

Where thereis a change in the designed capacity or historical cost of the fixed asset, theenterprise is required to re-determine the depreciation rate of the fixedasset.

3. Example of the calculation of depreciation of fixedassets:

Example: Company A purchases a bulldozer (brand-new) withthe historical cost of 450 million dong. The designed capacity of the bulldozeris 30 m3/hour. The output based on the designed capacity of this bulldozer is2,400,000 m3. The volume of products gained in the first year by the bulldozeris:

Month

Volume of products completed (m3)

Month

Volume of products completed (m3)

January

14,000

July

15,000

February

15,000

August

14,000

March

18,000

September

16,000

April

16,000

October

16,000

May

15,000

November

18,000

June

14,000

December

18,000

Thedepreciation rate in accordance with the depreciation method based on quantityor volume of products turned out by this fixed asset shall be determined asfollows:

- The average depreciation rate for 1 m3 of land bulldozed =450 million dong : 2,400,000 m3 = 187.5 dong/m3.

- The depreciation rate of the bulldozer is calculated inaccordance with the following table:

Month

Monthly actual output (m3)

Monthly depreciation cost (dong)

January

14,000

14,000 x 187.5 = 2,625,000

February

15,000

15,000 x 187.5 = 1,812,500

March

18,000

18,000 x 187.5 = 3,375,000

April

16,000

16,000 x 187.5 = 3,000,000

May

15,000

15,000 x 187.5 = 1,812,500

June

14,000

14,000 x 187.5 = 2,625,000

July

15,000

15,000 x 187.5 = 1,812,500

August

14,000

14,000 x 187.5 = 2,625,000

September

16,000

16,000 x 187.5 = 3,000,000

October

16,000

16,000 x 187.5 = 3,000,000

November

18,000

18,000 x 187.5 = 3,375,000

December

18,000

18,000 x 187.5 = 3,375,000

Total depreciation cost of the whole year

33,562,500