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THE
MINISTRY OF PLANNING AND INVESTMENT -
THE MINISTRY OF FINANCE
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SOCIALIST
REPUBLIC OF VIETNAM
Independence - Freedom - Happiness
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No.
13-TTLB
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Hanoi,
October 8, 1997
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INTER-MINISTERIAL CIRCULAR
PROVIDING
GUIDELINES ON HIRE OF MANAGEMENT ORGANIZATIONS FOR PURPOSE OF BUSINESS
MANAGEMENT OF ENTERPRISES WITH FOREIGN OWNED CAPITAL
Pursuant to the Law on
Foreign Investment in Vietnam passed by the National Assembly of the Socialist
Republic of Vietnam on 12 November 1996;
Pursuant to Decree 12-CP of
the Government dated 18 February 1997 providing for the detailed implementation
of the Law on Foreign Investment in Vietnam;
Pursuant to Decree 75-CP of
the Government dated 1 November 1995 on the functions, duties and
organizational structure of the Ministry of Planning and Investment;
Pursuant to Decree 178-CP of
the Government dated 28 October 1994 on the duties, powers and organizational
structure of the Ministry of Finance;
The Ministry of Planning and
Investment and Ministry of Finance issue this Circular to provide guidelines
for the hire of management organizations for the purpose of business management
of enterprises with foreign owned capital as follows:
I. APPLICABILITY AND
GOVERNING SCOPE
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1.2. The hire of management
organizations for the purpose of business management of enterprises means the
hire for management and exploitation of works during the course of operation.
1.3. Enterprises with foreign
owned capital entitled to hire management organizations must satisfy the
following conditions:
- The hire of management
organizations must be based on the need for business management of an
enterprise and the business efficiency which can result from such hire.
- The hire of management
organizations shall only be applicable in the case of enterprises engaged in
the fields of hotel industry, leasing of office space and apartments, golf
courses, sports or entertainment clubs, hospitals, schools, and several other
fields of business which require intensive and professional management skills
for which an enterprise requests to hire management.
The hire of a management
organization for business management shall not change or adversely affect the
operational objectives of a project or the interests of the State of Vietnam as
stipulated in the investment licence.
II. MANAGEMENT CONTRACTS
2.1. The hire of a management
organization for the purpose of business management of an enterprise shall be
carried out by way of a management contract entered into by the enterprise and
the management organization which must be decided on by the board of management
of the enterprise (in respect of a joint venture enterprise) or by the investor
(in respect of an one hundred (100) per cent foreign owned enterprise).
2.2. The term of a management
contract shall be agreed between the enterprise and the management organization
and stated in the management contract but shall not, in any case, exceed ten
(10) years from the date on which the management contract comes into effect.
Parties may submit an application for an extension thereof to the investment
licence-issuing body for consideration and approval.
Management contracts shall only
become enforceable upon approval by the investment licence-issuing body.
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- Name, address, scope and
objectives of business activities of the enterprise;
- Name, address and business
certificate of the management organization;
- Responsibilities of the
enterprise and the management organization;
- Relationship between the
general director, deputy general director of the enterprise with the management
organization and with the executive director or divisional managers to be
appointed by the management organization for direct management during the
course of business;
- Principles of financial
revenue and expenditure and expenses and use of bank accounts;
- Recruitment and utilization of
employees;
- Number of expatriates sent by
the management organization and expenses in relation to salaries,
accommodation, food, travel, leave, and so forth, of such employees; plan for
training Vietnamese employees for replacement of those expatriates;
- Duration of contract; cases of
early termination of the contract;
- Use of names or signboards of
works;
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- Binding conditions on
responsibilities of the management organization for the results of production
and business activities of the enterprise;
- Financial obligations of the
management organization to the State of Vietnam;
- Procedures for settlement of
disputes between the parties.
III. MANAGEMENT FEES
3.1. The management fees to be
paid for the management organization shall be agreed between the parties on the
basis of:
- Nature, scale and level of
works;
- Prestige, business management
capability and responsibilities of the management organization;
- Efficiency of the activities of
the management organization;
- Market competition.
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Management fees include basic
fees, incentive fees, and fees for consultancy, marketing, reservations and use
of signboards and names. In principle, the parties may stipulate different
methods of calculating management fees of various rates. However, the maximum
total management fees calculated by any method shall not, when compared against
turnover and gross operating profit, exceed the rates stipulated in the
enclosed appendix.
The gross operating profit (GOP)
determined for the calculation of incentive fees shall be the profit earned
after deduction of operating expenses (not including basic depreciation, asset
insurance premiums, interest on any loans payable by the enterprise, and profit
tax).
IV. OPERATIONS OF MANAGEMENT
ORGANIZATIONS AND PROCEDURES FOR APPROVAL OF MANAGEMENT CONTRACTS
4.1. Management organizations
hired by enterprises must be organizations which were established and have
registered business operations in the field for which they are hired for
management and shall comply with Vietnamese law during the course of their
operations.
4.2. Management organizations
shall operate under the names, seals and accounts of enterprises. Management
organizations shall be assigned work and entitled to receive fees as stipulated
in management contracts and shall be responsible to enterprises and before
Vietnamese law for the exercise and performance of their rights and obligations
as stipulated in management contracts.
4.3. Management organizations
shall fulfil their financial obligations to the State of Vietnam in accordance
with the prevailing regulations of Vietnamese law. Enterprises shall be
responsible for deducting and paying amounts of tax of management organizations
to the State of Vietnam on behalf of the management organizations.
4.4. Management contracts shall
be submitted to the investment licence-issuing body for consideration and
approval. An application file shall comprise:
- Application for approval of
the management contract;
- One original set of the
management contract in Vietnamese and in a commonly used foreign language; and
contract for consultancy, services, use of signboards or names (if any);
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- Documents certifying the legal
person status, experience, prestige and management capability of the management
organization.
4.5. The time-limit for
consideration and approval of management contracts by the investment
licence-issuing body shall be thirty (30) days from the date of receipt of full
and proper application files. After the above time-limit, if approval of the
management contract is refused, the investment licence-issuing body shall
notify the enterprise and the management organization in writing, specifying
the reasons therefor.
4.6. In any case, enterprises
shall be responsible for all activities of management organizations before
Vietnamese law with respect to matters related to management activities as
stipulated in management contracts. Management organizations shall be directly
responsible before Vietnamese law for their activities which do not fall under
the scope of management contracts.
4.7. General Director and Deputy
General Derector of enterprises shall be responsible for supporting and supervising
the activities of management organizations and for proposing to boards of
management or investors to deal with breaches of contracts by management
organizations.
4.8. If a management
organization is found to have breached seriously provisions of Vietnamese law
or provisions of the investment licence and management contract during the
course of operations, the investment licence-issuing body has the right to
issue a decision to terminate the legal validity of the management contract.
4.9. All disputes between
management organizations and enterprises and between management organizations
and other enterprises in Vietnam shall be settled in accordance with the
provisions of Vietnamese law currently in force.
V. ORGANIZATION OF
IMPLEMENTATION
5.1. It is not necessary to
re-submit to the Ministry of Planning and Investment or any management
contracts of enterprises which have been considered and approved by the former
State Committee for Co-operation and Investment or the present Ministry of
Planning and Investment, unless there are any adjustments, amendments or
additions thereto.
All management contracts which
were signed before the date on which this Circular comes into effect but which
have not yet been approved by the Ministry of Planning and Investment or the
investment licence issuing body shall be subject to this Circular.
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5.3. This Circular shall be of
full force and effect as of 23 October 1997. All previous regulations in
relation to hire of management organizations shall be repealed.
FOR
THE MINISTER OF FINANCE
DEPUTY MINISTER
Pham Van Trong
FOR
THE MINISTER OF PLANNING AND INVESTMENT
DEPUTY MINISTER
Nguyen Nhac
APPENDIX
GUIDELINES
FOR MAXIMUM MANAGEMENT FEES IN A NUMBER OF FIELDS
(Issued with Inter-ministerial Circular 13-TTLB dated 8 October 1997)
1. Business in hotels or
apartments (with similar business services to those in hotels): 3% of turnover
and 10% of gross operating profits, of which the fees for the use of signboards
and names of works shall not exceed 1% of turnover.
2. Business in office space,
apartments (without services) or rented villas: 2% of turnover and 5% of gross
operating profits.
3. Business in golf courses,
sports or entertainment clubs:
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- Where the determination is
based on the maximum figure, the total management fees to be paid to a
management organization (including both basic fees and incentive fees) shall be
converted into turnover and shall not exceed 4%.
- Commission fee for sales of
membership cards is the fee paid to a management organization based on the
number of membership cards which are issued by that management organization.
This fee shall not exceed 5% of the turnover from the sales of membership cards
by the management organization.
4. In a number of other fields,
subject to the nature of projects and efficiency achieved, the parties may
agree on a reasonable fee in accordance with international practice and submit
it to the Ministry of Planning and Investment or the investment licence-issuing
body for consideration on a case-by-case basis.
5. Where enterprises use the
signboards or names of works as stipulated in the above item 1 of a management
organization or another organization, such signboards or names must be
possessions which have been registered for protection by that organization. The
use of signboards and names may be stipulated in management contracts or in a
separate contract.