Circular No. 179/2012/TT-BTC dated October 24, 2012 of the Ministry of Finance on the recording, assessment, and settlement of the exchange differences in enterprises

THE MINISTRY OF FINANCE

Circular No. 179/2012/TT-BTC of October 24, 2012, providing the recording, assessment and handling of exchange rate differences in enterprises

Pursuant to the 2005 Law on Enterprises;

Pursuant to the Government’s Decree No. 118/2008/ND-CP of November 27, 2008, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

At the proposal of the director of the Corporate Finance Department,

The Minister of Finance promulgates this Circular to provide for the recording, assessment and handling of exchange rate differences in enterprises as follows:

Part A

GENERAL PROVISIONS

Article 1. Subjects of application and scope of regulation

1. Subjects of application:

This Circular applies to enterprises lawfully established and operating in Vietnam. This Circular does not apply to credit institutions established and operating under the Law on Credit Institutions.

For enterprises established under the agreements concluded between the Government of the Socialist Republic of Vietnam and the governments of other countries, if these agreements contain provisions on the handling of exchange rate differences which are different from those guided in this Circular, such agreements prevail.

2. Scope of regulation:

This Circular guides the recording, assessment and handling of exchange rate differences and the conversion of financial statements on enterprises’ overseas activities and overseas establishments into the accounting monetary unit used by Vietnamese enterprises.

The determination of incomes and deductible expenditures upon determination of incomes liable to enterprise income tax from exchange rate differences in enterprises complies with legal documents on enterprise income tax.

Article 2. Interpretation of terms

The terms referred to in this Circular are construed as follows:

1. Foreign currency means a monetary unit other than the accounting monetary unit of an enterprise.

2. Foreign currency operations means operations of collection and payment of amounts in foreign currency and for price calculation.

3. Exchange rate means the rate of exchange between two monetary units.

4. Exchange rate difference means the difference resulting from an actual exchange or conversion of the same amount of a foreign currency into the accounting monetary unit at different exchange rates.

5. Monetary items of foreign currency origin means available cash and cash-equivalent amounts, receivables or payables in specific or determinable cash amounts, including:

- Cash or cash-equivalent amounts in foreign currency.

- Receivables and payables of foreign currency origin, except for:

+ Amounts in foreign currency prepaid to sellers and prepaid expenditures in foreign currency.

+ Revenues in foreign currency received in advance and prepaid expenditures in foreign currency.

- Foreign-currency deposits and collaterals in cash or equivalent which may be received back and foreign-currency deposits and collaterals in cash or equivalent which must be refunded.

- Loans, lent amounts or savings deposits in foreign currency.

6. Overseas activities means branches, subsidiary companies, affiliated companies, joint-venture companies, business cooperation parties and other business cooperation activities of the reporting enterprise that are carried out in another country outside the Vietnamese territory.

7. Overseas establishment means an overseas entity that carries out activities independent from the reporting enterprise.

Article 3. Exchange rate for converting foreign currency into Vietnam dong

1. Payment of monetary items of foreign currency origin arising in a fiscal year shall be made at the actual exchange rate at the time foreign-currency transactions arise which is applied by the commercial bank at which the enterprise makes such transactions in accordance with law.

2. Re-assessment of the foreign currency balance at the end of an accounting period shall be conducted using the buying rate announced by the commercial bank at which the enterprise opens its account at the time of making financial statements.

Article 4. For foreign currencies of which the rates of conversion into Vietnam dong are not announced by the State Bank of Vietnam

1. In case an enterprise opens its account at a commercial bank that announces the exchange rates of such foreign currencies, conversion shall be made at the rate applied by this commercial bank at the time of re-assessing the end-period balance of monetary items of foreign currency origin.

2. In case an enterprise opens its accounts at different commercial banks that announce the exchange rates of such foreign currencies, conversion shall be made at the average rate applied by these commercial banks at the time of re-assessing the end-period balance of monetary items of foreign currency origin.

3. In case the commercial bank at which an enterprise opens its account does not announce the exchange rates of such foreign currencies, conversion shall be made on the basis of the exchange rates of some major foreign currencies announced by the State Bank of Vietnam at the average transaction exchange rate of the banks at the time of re-assessing the end-period balance of monetary items of foreign currency origin.

Part B

SPECIFIC PROVISIONS

Article 5. Handling of exchange rate differences in the stage of construction investment for forming fixed assets of newly established enterprises that have not yet commenced their operation

In the stage of construction investment for forming fixed assets of newly established enterprises that have not yet commenced their operation, the exchange rate differences arising upon the payment of monetary items of foreign currency origin for construction investment and the exchange rate differences arising upon the re-assessment of monetary items of foreign currency origin at the end of a fiscal year shall be cumulatively and separately shown on the balance sheets. When fixed assets are completely constructed and put into use, the exchange rate differences arising in the stage of construction investment (after offsetting the positive against the negative differences) shall be gradually distributed into financial revenue or financial expenditure within 5 years after the work has been put to use.

Article 6. Handling of exchange rate differences in the stage of production and business of enterprises

In the stage of production and business, including construction investment for forming fixed assets of an operating enterprise, the exchange rate differences arising from foreign-currency transactions of monetary items of foreign currency origin shall be accounted as financial revenue or financial expenditure in a fiscal year.

Article 7. Handling of exchange rate differences upon enterprise dissolution or liquidation

Upon the dissolution or liquidation of an enterprise, the exchange rate differences arising from foreign-currency transactions of monetary items of foreign currency origin shall be accounted as liquidation incomes or expenditures of the enterprise.

Article 8. Handling of exchange rate differences resulting from the re-assessment of the foreign-currency balance at the end of an accounting period (quarterly, biannual or annual)

1. At the end of an accounting period, the enterprise shall re-assess the balance of cash, saving deposits, money in transfer, receivables and payables of foreign currency origin converted into Vietnam dong at the exchange rate specified in Article 3 or 4 of this Circular. The exchange rate differences resulting from the re-assessment of the end-period balance, after offsetting the positive against the negative differences, shall be accounted as financial revenue or financial expenditure in the period.

2. The enterprise may neither distribute profits nor pay dividends from the positive exchange rate differences resulting from the re-assessment of the end-period foreign-currency balance of monetary items of foreign currency origin.

Article 9. Handling of exchange rate differences upon consolidation of financial statements of overseas activities and overseas establishments and financial statements of enterprises

1. The exchange rate differences resulting from the conversion of financial statements on overseas activities into the accounting monetary unit used by Vietnamese enterprises shall be accounted as financial revenue or financial expenditure of enterprises.

2. The exchange rate differences resulting from the conversion of financial statements of overseas establishments into the accounting monetary unit used by Vietnamese enterprises shall be cumulatively and separately shown on the balance sheets till the overseas establishments are liquidated and then the exchange rate differences shall be accounted as financial revenue or financial expenditure of enterprises.

The accounting of the exchange rate differences listed in Articles 5 thru 9 above complies with the current accounting regime.

Part C

TRANSITIONAL PROVISIONS

Article 10. Transitional provisions

For enterprises that have re-assessed the foreign-currency balance payable at the year end under the Finance Ministry’s Circular No. 201/2009/TT-BTC of October 15, 2009, whose positive exchange rate differences have not yet been fully distributed into expenses in the year, the undistributed balance shall be further distributed into their financial expenditures within the remaining years after the effective date of this Circular.

Part D

ORGANIZATION OF IMPLEMENTATION

Article 11. Implementation provisions

This Circular takes effect on December 10, 2012, applies from the 2012 fiscal year and replaces the Finance Ministry’s Circular No. 201/2009/TT-BTC of October 15, 2009, guiding the handling of exchange rate differences in enterprises.

Any difficulties or problems arising in the course of implementation should be promptly reported to the Ministry of Finance for consideration and settlement.-

For the Minister of Finance
Deputy Minister
TRAN VAN HIEU