Circular No. 07/2006/TT-NHNN dated September 07, 2006 of the State Bank providing guidance on purchase and subleasing activity in form of finance leasing in accordance with the Provisions of the Decree No. 16/2001/ND-CP dated May 02, 2001 and the Decree No. 65/2005/ND-CP dated May 19, 2005 of the Government

CIRCULAR

PROVIDING GUIDANCE ON PURCHASE AND SUBLEASING ACTIVITY IN FORM OF FINANCE LEASING IN ACCORDANCE WITH THE PROVISIONS OF THE DECREE NO. 16/2001/ND-CP DATED 02/5/2001 AND THE DECREE NO. 65/2005/ND-CP DATED 19/5/2005 OF THE GOVERNMENT

Pursuant to Article 42 of the Decree No.16/2001/ND-CP dated 02/5/2001 of the Government on the organization and operation of finance leasing companies, Article 3 of the Decree No. 65/2005/ND-CP dated 19/5/2005 of the Government providing for the amendment, supplement of several articles of the Decree No.16/2001/ND-CP dated 02/5/2001 of the Government on the organization and operation of finance leasing companies, the State Bank of Vietnam would like to provide guidance on some contents concerning the purchase and subleasing activity in form of finance leasing in accordance with the provisions in these Decrees as follows:

1. Interpretation

In this Circular, the following terms shall be construed as follows:

1.1. “Purchase and subleasing in form of finance leasing” (hereinafter referred to as purchase and subleasing) means a finance leasing company purchases assets that belong to the lessee’s ownership and leases those very assets to the lessee in form of finance leasing so that the lessee continues to use and serve its activities. In a purchase and subleasing transaction, the lessee shall be concurrently the supplier of leasing assets.

1.2. “Purchaser and sublessor” (hereinafter referred to as the lessor) is finance leasing companies that are permitted to establish and operate in Vietnam.

1.3. “Seller and sublessee” (hereinafter referred to as the lessee) is organizations and individuals provided for in point 1.1 paragraph 1, Circular No. 06/2005/TT-NHNN dated 12/10/2005 of the Governor of the State Bank providing guidance on the implementation of several contents in the Decree No.16/2001/ND-CP dated 02/5/2001 of the Government on the organization and operation of finance leasing companies and the Decree No. 65/2005/ND-CP dated 19/5/2005 of the Government providing for the amendment, supplement of several articles of the Decree No.16/2001/ND-CP dated 02/5/2001 of the Government on the organization and operation of finance leasing companies. The lessee shall directly sell its assets to the finance leasing company and sublease those assets in form of finance leasing for continuous use and serving its activities.

1.4. “Assets to be purchased and subleased’ (hereinafter referred to as leasing assets) are machines, equipments, transport means and other movable assets that the lessee sells to the lessor and then subleases in form of finance leasing for continuous use and serving its activities.

1.5. “Purchasing price of leasing assets” means the amount payable by the lessor to the lessee when it purchases leasing assets. The purchasing price of leasing assets shall be determined in line with provisions of applicable laws on assets trading.

1.6. “Contract of assets purchase” is a written agreement between the lessor and the lessee about the leasing assets trading.

2. Principles of purchase and subleasing

2.1. The purchase and subleasing transaction shall be performed through a contract of assets purchase and a finance leasing contract between the lessor and the lessee. The assets purchase contract shall take effect from the effective time of the finance leasing contract.

2.2. In the purchase and subleasing transaction, the lessor shall hold the leasing assets’ ownership and sublease them to the lessee in form of finance leasing in line with applicable laws on finance leasing. The transfer of the assets’ ownership from the lessee to the lessor shall be performed in accordance with provisions of applicable laws. The registration of leasing assets’ ownership shall be performed in accordance with provisions in paragraph 7 Article 1 of the Decree No. 65/2005/ND-CP dated 19/5/2005 of the Government providing for the amendment, supplement of several articles of the Decree No.16/2001/ND-CP dated 02/5/2001 of the Government on the organization and operation of finance leasing companies.

2.3. The lessor shall select leasing assets and the lessee who is capable of debt repayment to carry out the purchase and subleasing transaction safely and efficiently

3. Conditions of leasing assets:

3.1. They must belong to the legal ownership of the lessee;

3.2. They are not assets being in use to ensure the performance of other obligations

3.3. There is not any dispute relating to the assets

3.4. They are operating normally

4. Contract of assets purchase shall contain following main contents: name, address of the parties; purpose of assets purchase; assets description; purchasing price of assets; payment mode; time limit, place, mode of contract implementation; rights and obligations of the parties; responsibilities due to contract violation; penalty for the contract violation.

Besides, the parties may agree about other contents in line with provisions of applicable laws on assets trading.

4.2. The finance leasing contract shall be performed in accordance with the provisions in the Decree No.16/2001/ND-CP dated 02/5/2001 of the Government on the organization and operation of finance leasing companies, the Decree No. 65/2005/ND-CP dated 19/5/2005 of the Government providing for the amendment, supplement of several articles of the Decree No.16/2001/ND-CP dated 02/5/2001 of the Government on the organization and operation of finance leasing companies and other related legal documents.

5. Currency used in the purchase and subleasing transaction

Currency used in the purchase and subleasing transaction shall be Vietnamese Dong. For purchase and subleasing transactions, which are performed in foreign currency, the lessor and the lessee must comply with guidance of the State Bank and provisions of current laws on foreign exchange control.

6. Rights and obligations of the lessor and the lessee

6.1. Rights and obligations of the lessor

a. To request the lessee to fully supply information and documents relating to leasing assets

b. To request the lessee to issue a legal sale invoice, hand over all origins of documents on the ownerships and other invoices, vouchers concerning related rights and interests of leasing assets

c. To request the lessee to make compensation for damages resulting from disputes relating to the ownership of the leasing assets

d. To make payment of the amount agreed upon in the assets purchase contract to the lessee

dd. To correctly and fully comply with articles as agreed upon in the assets purchase contract and finance leasing contract

6.2. Rights and obligations of the lessee

a. To receive money from the sale of assets that the lessor pays under the price as agreed upon in the assets purchase contract

b. To fully, accurately and honestly supply all information, reporting documents upon request of the lessor

c. To issue a legal sale invoice, hand over all origins of documents on the ownerships and other invoices, vouchers concerning related rights and interests of leasing assets to the lessor upon its request

d. To make compensation for damages resulting from disputes relating to the ownership of leasing assets

dd. To correctly and fully comply with articles as agreed upon in the assets purchase contract and finance leasing contract

6.3. Besides rights and obligations as stipulated in point 6.1 and 6.2 of this paragraph, the lessor and the lessee also have other rights and obligations stipulated in the Law on credit institutions, the Decree No.16/2001/ND-CP dated 02/5/2001 of the Government on the organization and operation of finance leasing companies, the Decree No. 65/2005/ND-CP dated 19/5/2005 of the Government providing for the amendment, supplement of several articles of the Decree No.16/2001/ND-CP dated 02/5/2001 of the Government on the organization and operation of finance leasing companies and other provisions of related laws.

7. Tax for purchase and subleasing transaction:

Tax imposed on the purchase and subleasing transaction shall be performed in accordance with the guidance of the Ministry of Finance.

8. Dealing with violations

Organizations, individuals that commit violations act for this Circular shall, depending on the nature, seriousness of violation acts, be dealt with in accordance with provisions of applicable laws

9. Implementing organization

9.1. Finance leasing companies shall issue internal regulations on the implementation of the purchase and subleasing transaction in line with this Circular and current laws;

9.2. The State Bank’s Inspectorate shall organize the inspection, supervision for the implementation of the purchase and subleasing transaction; carry out settlement under its competence and petition the State Bank’s Governor for dealing with cases of violating this Circular

10. This Circular shall be effective after 15 days since its publication in the Official Gazette.

11. The Director of Administrative Department, Director of Banks and Non-Banking Credit Institution Department, Heads of units of the State Bank of Vietnam, Managers of the State Bank branches in provinces, cities under the central Government’s management, Chairman of the Board of Directors, General Directors (Directors) of Finance Leasing Companies shall be responsible for the implementation of this Circular.