Quyết định 206/2003/QD-BTC

DECISION

ON ISSUANCE OF THE REGULATIONS ON MANAGEMENT, 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 of ministries and ministerial equivalent agencies;
- Pursuant to Government Decree No.77/2003/ND-CP dated 1 July 2003, stipulating functions, duties, powers and organizational structure of the Ministry of Finance;
- With a view to enhancing the management, use and depreciation of fixed assets by enterprises; to enabling enterprises to charge in full and in a correct manner the depreciation costs of their fixed assets; to replacing machinery and equipment and applying advanced technologies and modern techniques in line with business 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 on management, use and depreciation of fixed assets”.

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

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

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

Article 3: The Director of the Legislation Department, the Ministry’s Office Manager, the Director of the Business Finance Department, the General Director of Taxation, heads of units belonging to or under the control of the Ministry of Finance shall, within their respective functions and powers, be responsible for developing, guiding and examining the implementation of this Decision.

REGULATIONS

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

Section I: GENERAL PROVISIONS

Article 1: Subjects for and scope of application:

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

Other enterprises shall only be obliged to apply the provisions related to determination of the depreciation costs of fixed assets for calculation of BIT.

2. The management, use and depreciation stipulated in the Regulations 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 in material forms (an asset has its independent structure or a system comprising many assets linked together to perform one or a number of particular functions) which meet the standards of tangible fixed assets and which, while engaged in many business cycles, still maintain their initial material form such as buildings, architectural structures, machinery, equipment,…

2. Intangible fixed assets mean assets without material forms, which meet the standards of intangible fixed assets and represent an amount of value related to many business cycles such as expenses directly relating to land use right, issuance right, patent, copyright,…

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

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

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

5. Historical cost of fixed assets:

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

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

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

7. Useful life of fixed assets mean the duration for which the enterprise expects to use fixed assets in business and production activities, or the duration which, according to the existing regulations, is determined on the basis of the quantity or volume of products expected to be produced from the use of such fixed assets in normal conditions in line with economic-technical parameters of the fixed assets and with other factors related to the operation of the fixed assets.

8. Wear and tear of fixed assets mean the gradual devaluation of fixed assets due to their involvement in business and production activities, natural corrosion, technical advancement etc…during the course of operation of fixed assets.

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

10. Depreciation of fixed assets means the calculation and systematic allocation of the historical costs of fixed assets to business and production expenses during the period of using such fixed assets.

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

12. Book value of fixed assets mean the difference between the historical cost of fixed assets and the accumulated depreciation cost (or the value of accumulated wear and tear) of fixed assets, calculated at the time of reporting.

13. Repair of fixed assets means the renovation, maintenance and repair of fixed assets when they are broken down during the course of operation 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 as against the initial capacity, quality and performance of fixed assets, or to extend the useful life of fixed assets; or the application of new technology which decreases operation expenses of fixed assets compared with previous expenses.

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 fixed asset with independent structure or a system of separate parts which have been combined together to perform one or a number of particular functions and which could not operate properly if any part of the asset is lacking, shall be considered fixed assets if they concurrently satisfy the four standards below:

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

b) The historical cost of fixed assets must be determined reliably;

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

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

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

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

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

2. Standards and awareness of intangible fixed assets:

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

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

a) The enterprise has a technical feasibility study ensuring the completion of intangible fixed assets for bringing them into use as expected, or for sale;

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

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

d) The intangible fixed assets must generate future economic interests;

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

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

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

Expenses for establishment of the enterprise, training of employees or advertisement incurred before the establishment of the enterprise, expenses in the research stage, expenses for relocation to another place, commercial goodwill shall not be intangible fixed assets and shall be allocated to business expenses over a maximum period of no more than 3 years from the time when 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 actual purchase price payable plus (+) taxes (excluding taxes to be refunded) and relevant expenses calculated to the time when such fixed assets are put into operation such as interest on loans invested in fixed assets; freight charges, stevedoring fees; fees for upgrading fixed assets; fees for installation and trial operation of fixed assets; registration fess;…

Where tangible fixed assets are purchased on the basis of deferred payment or instalments, the historical cost of purchased fixed assets shall include the purchase price paid on the prompt payment basis at the time of purchase plus (+) taxes (excluding taxes to be refunded) and relevant expenses calculated to the time when such fixed assets are put into operation such 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 basis and the purchase price paid on the prompt payment basis shall be included in financial expenses at the time of payment, except that the difference is charged to historical cost of tangible fixed assets in accordance with the provisions on capitalisation of interest on loans.

b) Tangible fixed assets purchased in the form of an exchange:

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

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

c. Tangible fixed assets constructed or produced by the enterprise itself:

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

d. The historical cost of a tangible fixed asset formed from capital construction under the mode of tendering shall be the finalisation price of the construction project in accordance with the current regulations on management of investment and construction plus (+) registration fee and other relevant fees.

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

dd. Tangible fixed assets granted or transferred…

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

In particular, the historical cost of a tangible fixed asset transferred among dependent member units of the same enterprise shall be the original cost shown on the accounting books of the transferor in line with the record of that fixed asset. The recipient of the tangible fixed asset shall base on historical cost, accumulated depreciation costs, the net book value and the record of that fixed asset to record in the accounting books. Costs related to the transfer of the fixed asset among dependent member units shall not be added to the original cost, but be allocated to business expenses in the period.

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

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

2. Determination of historical cost of intangible fixed assets:

a. Intangible fixed assets purchased:

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

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

b. Intangible fixed assets purchased in the form of an exchange:

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

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

c. Intangible fixed assets generated from internal activities of enterprises:

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

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

d. Intangible fixed assets granted, donated or presented:

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

dd. Land use right:

The historical cost of a fixed asset which is the land use right (including fixed-term land use right and long-term land use right) shall be the payment made to obtain the lawful land use right plus (+) compensatory payments for clearance of site, expenses for levelling the ground, registration fee,…(excluding expenses paid for construction of projects on the land); or the value of the land use right from capital contribution.

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

e. Issuance right, copyright, patent:

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

g. Trademarks of goods:

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

h. Computer software:

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

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

4. The historical cost of fixed assets without invoices or source documents of business individuals or households establishing private enterprises, limited liability companies or joint stock companies shall be the reasonable value that the enterprises themselves determine at the time of registration of their business, and the enterprises shall be responsible before the law for the accuracy of that value.

Where the value of fixed asset determined by the enterprise is 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 fixed assets for calculation of business income tax (BIT). After the enterprise re-determines the reasonable value of fixed assets, if the value of fixed assets still does not conform to the actual market price, the tax office shall have the right to request the enterprise to re-determine the value of fixed assets through the local assessment council or an organisation having the function to valuate assets in accordance with the provisions of the law.

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

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

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

Article 5: Rules on management of fixed assets:

Each fixed asset of the enterprise must have a separate set of file (the set of file shall include a minutes on handover and reception of the fixed asset, contract, invoice for purchase of the fixed asset and other relevant documents). Each fixed asset must be classified, statistically compiled, numbered and given a separate card, and be monitored in detail according to its category, and shown in the log-book of fixed assets.

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

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

The enterprise is required to manage fixed assets which have been fully depreciated but still engaged in business activities in the same manner as other normal fixed assets.

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

Article 6: Classification of fixed assets in enterprises:

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

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

a. Tangible fixed assets shall be classified as follows:

Category 1: Buildings and architectural structures mean fixed assets of the enterprise which are formed after a construction process such as offices, warehouses, fences, water towers, ground, decorative works associated with buildings, roads, bridges, railroads, harbours, quays.

Category 2: Machinery and equipment mean all kinds of machinery and equipment used for business activities of the enterprise such as specialised machinery, working equipment, technological lines, individual machinery,…

Category 3: Means of transportation, equipment for transmission mean all kinds of means of transportation including means of transportation for railway, waterway, road, airway, pipeline and equipment for transmission such as information system, electricity system, water pipeline, conveyers,…

Category 4: Equipment and instruments for management mean equipment and instruments used for management of business activities of enterprises such as computers for administration, electronic equipment, equipment and tools for measurement, quality-control equipment, dehumidifiers, vacuum cleaners, 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 or rubber 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 fixed assets which are not listed in 5 mentioned-above types, such as pictures, artworks,…

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

2. Fixed assets used for welfare, administration, national security and defence mean fixed assets owned by enterprises and used for purposes of welfare, administration, national security and defence within enterprises. Those fixed assets are also classified in accordance with the provisions of clause 1 of this Article.

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

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

Article 7: Upgrading and repairing fixed assets:

1. Costs incurred by an enterprise to upgrade a fixed asset shall be added to the historical cost of that fixed asset; the enterprise is not allowed to charge the costs to its business expenses in the period.

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

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

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

3. Costs in relation to the intangible fixed asset arising after the initial recognition, which are valuated certainly as increasing the economic interests of the intangible fixed asset compared with its initial economic interests, shall be added to the historical cost of the fixed asset. Other expenses in relation to the intangible fixed asset arising after the initial 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 and disposal 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 use fixed 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 be required 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 fixed asset in the same manner as its own fixed asset, and fulfil all obligations committed in the financial lease contract.

- The lessor as an investor must monitor and carry out properly 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 lease fixed asset, the enterprise is required to carry out the same responsibilities as regulated for the lessee of the operating lease fixed asset. The difference arising when the agreed sale price or the sublease amount of fixed asset is lower or higher than the reasonable value shall be promptly charged to the enterprise’s income in the period or gradually allocated to its expenses as regulated.

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

5. The fixed asset handover and reception council, the fixed asset liquidation council, the fixed asset sale council of the enterprise shall be established according to the decision of the enterprise and shall include mandatory members who are director and chief accountant of the enterprise, a technical expert who has good knowledge of the fixed asset (the expert within or 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 or according to the current regulations on financial management, the enterprise shall invite representatives of the financial body directly managing the enterprise and the agency managing technical-economic industries (if any) to participate in these councils.

Section III. PROVISIONS ON DEPRECIATION AND USE OF DEPRECIATION FUND

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

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

The enterprise shall not be allowed to calculate depreciation costs of fixed assets which have been fully depreciated but still engaged in its business activities.

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

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

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

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

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

- Other fixed assets not engaged in business activities.

The enterprise shall manage and monitor the above fixed assets in the same manner as it does in respect of fixed assets used for business, 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 of fixed assets by their useful life which is provided for in Appendix 1 issued together with Decision 206/2003/QD-BTC dated 12 December 2003 of the Minister of Finance.

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

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

4. The lessee of financial lease fixed assets must calculate depreciation costs in respect of financial lease fixed assets in the same manner as it does for its own fixed assets in accordance with the current regulations. Where at the outset of the leasing of assets, the lessee of the financial lease fixed assets guarantees in the lease contract that he shall not buy the leased assets, the lessee shall be allowed to calculate depreciation costs in respect of the financial lease fixed assets over the leasing period stated in the lease contract.

5. The calculation of depreciation costs or stoppage of calculation of depreciation costs in respect of fixed assets shall be commenced from the date (in accordance with the ordinal number of day of the month) on which fixed assets increase, decrease or stop to be engaged in business activities.

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

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

1. With respect to brand-new fixed assets (unused fixed assets), the enterprise must base on the frame of useful life of fixed assets stipulated in Appendix 1 issued together with Decision 206/2003/QD-BTC stated 12 December 2003 of the Minister of Finance to determine the useful life of fixed assets.

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

in which:

The reasonable value of fixed asset shall be the actual purchase price or actual exchange price (in case of purchase or exchange), the remaining value of fixed asset (in case where the fixed asset is granted or transferred), the value according to the assessment of the fixed asset handover and reception council (in case where the fixed asset is given, donated or received as a capital contribution).

3. In cases where an enterprise wishes to determine the useful life of fixed assets differently from the frame of useful life as provided for in Appendix 1 issued together with Decision 206/2003/QD-BTC dated 12 December 2003 of the Minister of Finance, the enterprise is required to make out a report, explaining clearly the bases for determining the useful life of that fixed asset and submit it to the Ministry of Finance for consideration and decision based on the three following standards:

- Technical life of fixed assets as designed;

- Current conditions of fixed assets (used time of fixed assets, 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 view to extending or shortening the determined useful life of fixed assets, the enterprise shall re-determine the useful life of fixed assets based on 3 standards provided for in clause 3 of this Article, concurrently shall draw up a minutes clearly stating the bases which lead to the change in the useful life of fixed assets.

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

The useful life of intangible fixed assets shall be determined by enterprises themselves, however the maximum useful life shall not exceed 20 years. In particular, the useful life of the fixed-term land use right is the duration for which the enterprise is allowed to use land in accordance with the regulations.

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

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

- With respect to a business cooperation contract (BCC) with the participation by foreign parties, after termination of the contract the foreign parties shall transfer the project to the State of Vietnam without compensation, the useful life of the fixed assets to be transferred shall be determined from the time when such fixed assets are put into use until the end of the project.

Article 13: Depreciation methods in respect of fixed assets:

1. The contents of the straight line method; the reducing balance method with adjustment; the depreciation method based on quantity or volume of products are stipulated in Appendix 2 issued together with Decision 206/2003/QD-BTC dated 12 December 2003 of the Minister of Finance.

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

- Straight line method:

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

Enterprises operating and gaining high economic efficiency shall be allowed to conduct a rapid depreciation of their fixed assets in order to quickly renew technologies, however the rapid depreciation rate shall not exceed two times the depreciation rate provided for in accordance with the straight line method. Fixed assets engaged in business activities and entitled to a rapid depreciation shall include machinery, equipment; measuring and experimental instruments; equipment and means of transport; tools used for management; livestock, gardens of perennial trees. When conducting the rapid depreciation, enterprises must ensure that they get profits in their business.

- Reducing balance method with adjustment:

Fixed assets engaged in business activities and depreciated in accordance with the reducing balance method with adjustment must concurrently meet the following conditions:

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

+ Being machinery, equipment; measuring and experimental instruments;

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

- Depreciation method based on quantity or volume of products:

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

+ Directly relating to the production of products;

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

designed capacity of fixed assets can be determined.

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

lower than the designed capacity.

3. The enterprise is required to register with the relevant tax office the depreciation method that it has selected before applying such depreciation method. Where the depreciation method selected by the enterprise is not consistent with the regulated conditions, the tax office shall have responsibility to notify this to the enterprise for the latter to change its depreciation method accordingly.

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

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

The enterprise must use the amount from depreciation of fixed 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 year 2004 onward.

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

Fixed assets depreciated in accordance with the provisions of Decision 2000/QD-BTC dated 31 December 2002 of the Ministry of Finance on pilot application of the depreciation regime in accordance with the reducing balance method with adjustment shall continue to be depreciated in accordance with that method provided for in these Regulations.

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

Article 17: Units belonging to and under the control of the Ministry of Finance shall, within their respective functions and duties, be responsible for implementing, and guiding enterprises to properly implement, these Regulations.

APPENDIX I

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

Notes:

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

APPENDIX II

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

I. STRAIGHT LINE METHOD:

1. Contents of the method:

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

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

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

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

2) Where there is a change in the useful life or historical cost of a fixed asset, the enterprise is required to re-determine the average depreciation rate of the fixed asset by dividing (:) the net book value of the fixed asset by its re-determined useful life (determined as the difference between the registered useful life minus the used time).

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

2. Example of the calculation of depreciation of fixed assets:

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

1)  Knowing that the fixed asset has a technical life of 12 years and an expected useful life of 10 years (in accordance with the provisions in Appendix 1 issued together with Decision No.206/2003/QD-BTC) and the 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 : 10 years = 12 million dong/year

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

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

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

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

The accumulated depreciation cost charged = 12 million dong x 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 : 6 years = 15 million dong/year.

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

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

3. Determination of the depreciation rate in respect of fixed 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 the accounting books and record of the fixed asset to determine the net book value of the fixed asset.

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

in which:

T : the remaining useful life of the fixed asset.

T1: the useful life of the fixed asset determined in accordance with the provisions of

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

T2: the useful life of the fixed asset determined in accordance 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 useful life of the fixed asset) shall be calculated as follows:

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

b. Example of the calculation of depreciation of fixed assets:

Example: The enterprise has used a loom with its historical cost of 600 million dong as from 1 January 2001. The useful life of the loom is determined to be 10 years in accordance with the provisions in Appendix 1 issued together with Decision No.166/1999/QD-BTC The used time of the loom calculated to the end of 31 December 2003 is 2 years. The accumulated depreciation 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 to be 5 years in accordance with the provisions of Appendix 1 issued together with Decision No.206/2003/QD-BTC.

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

- The average yearly 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, the enterprise shall charge a depreciation cost of 10 million dong for the loom to its monthly business expenses.

II. THE REDUCING BALANCE METHOD WITH ADJUSTMENT:

1. Contents of the method:

The depreciation rate of fixed assets in accordance with the reducing 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 fixed assets in accordance with the Regulations on management, use and depreciation of fixed assets issued together with Decision 206/2003/QD-BTC of the Ministry of Finance.

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

in which;

The rapid depreciation rate is determined in accordance with the following formula:

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

The adjustment coefficient shall be determined in accordance with the useful life of

fixed assets stipulated in the following table:

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

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

2. Example of the calculation of depreciation of fixed assets:

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

The useful life of the fixed asset determined in accordance with the provisions in Appendix 1 (issued together with Decision 206/2003/QD-BTC) is 5 years.

The yearly depreciation rate shall be determined as follows:

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

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

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

Unit: dong

In which:

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

+ From the 4th year onward, the yearly depreciation rate shall 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 in the 4th year, the depreciation rate in accordance with the reducing balance method (2,160,000 x 40% = 864,000) is lower than the depreciation rate averagely calculated by dividing the net book value of the fixed asset by its remaining useful life (2,160,000 : 2 = 1,080,000)].

III. THE DEPRECIATION METHOD BASED ON QUANTITY OR VOLUME OF PRODUCTS:

Fixed assets of the enterprise shall be depreciated in accordance with the depreciation method based on quantity or volume of products as follows:

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

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

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

in which:

- The yearly depreciation rate of the fixed asset shall be equal to the total depreciation rate of 12 months in the year, or shall be calculated in accordance with the following formula:

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

3. Example of the calculation of depreciation of fixed assets:

Example: Company A purchases a bulldozer (brand-new) with the historical cost of 450 million dong. The designed capacity of the bulldozer is 30 m3/hour. The output based on the designed capacity of this bulldozer is 2,400,000 m3. The volume of products gained in the first year by the bulldozer is:

The depreciation rate in accordance with the depreciation method based on quantity or volume of products turned out by this fixed asset shall be determined as follows:

- 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 in accordance with the following table: