Circular No. 203/2009/TT-BTC dated October 20, 2009, of the Ministry of Finance guiding the regime of management, use and depreciation of fixed assets

THE MINISTRY OF FINANCE

Circular No. 203/2009/TT-BTC of October 20, 2009, guiding the regime of management, use and depreciation of fixed assets

Pursuant to the 2008 Law on Enterprise Income Tax;

Pursuant to the Government’s Decree No. 124/2008/ND-CP of December 11, 2009, detailing and guiding the implementation of a number of articles of the Law on Enterprise Income Tax;

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

The Ministry of Finance guides the regime of management, use and depreciation of fixed assets of enterprises as follows:

Part A

GENERAL PROVISIONS

Article 1. Subjects and scope of application:

1. This Circular applies to enterprises established and operating in Vietnam in accordance with law.

Depreciation costs of fixed assets calculated under this Circular may be used for determining deductible expenses for calculation of enterprise income tax.

2. The depreciation and calculation of depreciation costs stipulated in this Circular shall be applied to each fixed asset of enterprises.

Article 2. Terms used in this Circular are interpreted as follows:

1. Tangible fixed assets means of production mainly in material forms 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, means of transport, etc.

2. Intangible fixed assets means assets without material form which represent an invested amount of value and meet the standards of intangible fixed assets and are engaged in many business cycles such as certain expenses directly related to land use, issuance right, patent, copyright, etc.

3. Financial leasing fixed assets means fixed assets that an enterprise leases from a financial leasing company. Upon termination of the leasing term, the lessee may choose to purchase the leased assets or continue to lease the assets under the conditions agreed in the financial leasing contract. The total rent paid for an asset stated in the financial leasing contract must be at least equivalent to the value of such asset at the time the contract is signed.

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

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

5. Historical cost of fixed asset:

- Historical cost of a tangible fixed asset means the total expenses that an enterprise has to incur to acquire such asset, calculated up to the time when the tangible fixed asset is made ready for use.

- Historical cost of an intangible fixed asset means the total expenses that an enterprise has to incur to acquire such asset, calculated up to the time when the intangible fixed asset is put into use as expected.

6. Reasonable value of fixed asset means the value of an asset which can be exchanged between parties with full knowledge in an equal value exchange.

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

8. Wear and tear of fixed asset means the gradual devaluation of a fixed asset due to its involvement in business and production activities, natural corrosion, technical advancement, etc., in the course of operation of the fixed asset.

9. Value of accumulated wear and tear of fixed asset means the total value of wear and tear of a fixed asset up to the time of reporting.

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

11. Accumulated depreciation of fixed asset means the total amount of depreciation costs of a fixed asset which have been included in production and business expenses over the business period of the fixed asset, calculated up to the time of reporting.

12. Residual value of fixed asset means the difference between the historical cost of a fixed asset and the accumulated depreciation cost (or the value of accumulated wear and tear) of the fixed asset, calculated up to the time of reporting.

13. Repair of fixed asset means the renovation, maintenance and repair of a fixed asset when it is broken down in the course of operation in order to recover its operation capacity back to the initial standard operation conditions of fixed assets.

14. Upgrading of fixed asset means the reformation, construction and installation of, and provision of additional equipment to, a fixed asset in order to improve its capacity, the quality of its products, utility and performance as against its initial capacity, or to extend the useful life of the fixed asset; or the application of new technological processes which decrease operation expenses of the fixed asset compared with previous expenses.

Part B

PROVISIONS ON MANAGEMENT OF FIXED ASSETS

Article 3. Standards and identification of fixed assets:

1. Means of production which are tangible assets with an independent structure or a system of separate asset parts which are linked together to perform one or a number of particular functions and which could not operate properly if any part of the system is missing, shall be considered fixed assets if they concurrently satisfy three standards below:

a/ Future economic interests shall certainly be obtained from the use of such assets;

b/ Their useful life exceeds one year;

c/ Their historical cost must be determined reliably and equal to VND 10,000,000 (ten million) or more.

In case a system consisting of many separate asset parts linked together in which each part has a different useful life and the system could still perform its main operating function in case of absence of a certain part 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 three standards of fixed assets.

For animals working and/or generating products, each animal shall be considered a tangible fixed asset if it concurrently satisfies three standards of fixed assets.

For gardens of perennial trees, each garden or each tree shall be considered a tangible fixed asset if it concurrently satisfies three standards of fixed assets.

2. Standards and identification of intangible fixed assets:

Any actual cost incurred by an enterprise which satisfies concurrently three standards specified at Point 1 of this Article and does not form a tangible fixed asset shall be considered an intangible fixed asset.

Expenses which do not concurrently satisfy three standards specified at Point 1, Article 3 of this Circular shall be directly included in or gradually allocated to business expenses of the enterprise.

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

a/ The enterprise has a technical feasibility study ensuring the completion of intangible fixed assets for putting 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;

e/ The enterprise has sufficient technical and financial resources and other resources to complete the stages of development, sale or use of such intangible fixed assets;

f/ 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 as prescribed.

Expenses for establishment of an enterprise, training of employees or advertisement incurred before the establishment of the enterprise, expenses in the research stage, expenses for relocation to another place and commercial goodwill are not intangible fixed assets and shall be gradually allocated to business expenses over a maximum period of 3 years from the time when the enterprise commences operation.

Article 4. Determination of historical costs of fixed assets:

1. Determination of historical costs of tangible fixed assets:

a/ Tangible fixed assets purchased:

The historical cost of a purchased tangible fixed asset (brand-new or used) consists of the actual purchase price payable plus (+) taxes (excluding taxes to be refunded) and relevant expenses calculated up to the time when such fixed asset is made ready for use such as interest on loans invested in the fixed asset; freight and stevedoring expenses; expenses for upgrading the fixed asset; expenses for installation and trial operation of the fixed asset; registration fee and other directly related expenses.

In case a tangible fixed asset is purchased on the basis of deferred payment or installments, the historical cost of the purchased fixed asset includes 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 up to the time when such fixed asset is made ready for use such as freight and stevedoring expenses; expenses for upgrading the fixed asset; expenses for installation and trial operation of the fixed asset; and registration fee (if any).

In case of purchasing tangible fixed assets being houses and architectural structures attached with land use rights, the value of land use rights shall be separately determined and recognized as intangible fixed asset, while the historical costs of tangible fixed assets being houses and architectural structures are the actually paid purchase price plus (+) expenses directly related to the putting of the tangible fixed assets into use.

If after purchasing tangible fixed assets being houses and architectural structures attached with land use rights, an enterprise dismantles or destroys them for constructing new ones, the value of land use rights shall be separately determined and recognized as intangible fixed asset; the historical costs of newly constructed fixed assets are the finalized prices of the constructed works in accordance to the current Regulation on management of investment and construction. Dismantled or destroyed assets shall be handled and accounted in accordance with the current regulations on liquidation of fixed assets.

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 is 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 directly related expenses calculated up to the time when such fixed asset is made ready for use such as freight and stevedoring expenses; expenses for upgrading the fixed asset; expenses for installation or trial operation; and registration fee (if any).

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 residual value of the exchanged tangible fixed asset.

c/ Tangible fixed assets constructed or produced by an enterprise itself:

The historical cost of a tangible fixed asset which is constructed by an enterprise itself is the finalized price of the construction work when it is put into use. If the fixed asset has been put into use but its price has not yet been finalized, the enterprise shall account the asset’s historical cost using the temporarily calculated price and adjust this price after the price of the construction work is finalized.

The historical cost of a tangible fixed asset is the actual production cost of the fixed asset plus (+) expenses for installation and trial operation and other directly related expenses calculated up to the time when such fixed asset is put into a ready-for-use state (except for internal profits, the value of recovered products in the process of trial operation, unreasonable expenses such as wasted materials, labor costs or other expenses in excess of the prescribed norms of expenses regulated for the construction or production).

d/ Historical cost of a tangible fixed asset formed from construction investment:

The historical cost of a tangible fixed asset formed from capital construction under the mode of tendering is the finalized price of the construction work in accordance with the current Regulation on management of investment and construction plus (+) registration fee and other directly related expenses. If the fixed asset formed from construction investment has been put into use but its price has not yet been finalized, the enterprise shall account the asset’s historical cost using the temporarily calculated price and adjust it after the price of the construction work is finalized.

For fixed assets which are animals working and/or generating products, or gardens of perennial trees, the historical cost includes all actual expenses paid for the animals or gardens of perennial trees from the time when they are formed to the time when they are put into use.

e/ Tangible fixed assets donated, presented as gifts or discovered as excessive payment:

The historical cost of a tangible fixed asset which is granted, donated, presented as gift or discovered as excessive payment is the value according to the actual assessment of the fixed asset delivery and receipt council or a professional valuation organization.

f/ Tangible fixed assets allocated or transferred from elsewhere:

The historical cost of a tangible fixed asset which is allocated or transferred from elsewhere includes the residual value of such fixed asset stated in the accounting books of the allocating or transferring unit, or the value according to the actual assessment of a professional valuation organization in accordance with law plus (+) directly related expenses incurred by the recipient of the asset, calculated up to the time when such fixed asset is put into a ready-for-use state such as expenses for hiring the valuation organization, expenses for fixed asset upgrading, installation and trial operation, etc.

g/ Tangible fixed assets received as capital contribution or returned from contributed capital:

The historical cost of a tangible fixed asset which is received as capital contribution or returned from contributed capital is the value unanimously approved by founding members and shareholders; or agreed upon by the enterprise and capital contributor; or determined by a professional valuation organization in accordance with law and approved by founding members and shareholders.

2. Determination of historical cost of intangible fixed assets:

a/ Intangible fixed assets purchased:

The historical cost of a purchased intangible fixed asset is the actual purchase price payable plus (+) taxes (excluding taxes to be refunded) and directly related expenses calculated up to the time when such intangible fixed asset is put into use.

In case an intangible fixed asset is purchased on the basis of deferred payment or installments, the historical cost of the intangible fixed asset is the purchase price paid on the basis of a prompt payment at the time of purchase (excluding interests on deferred payments).

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 includes 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 directly related expenses calculated up 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 is the residual value of the exchanged intangible fixed asset.

c/ Intangible fixed assets granted, donated or presented as gifts or transferred from elsewhere:

The historical cost of an intangible fixed asset which is granted, donated or presented as gift or transferred from elsewhere is the initial reasonable value plus (+) directly related expenses calculated up to the time when the asset is put into use.

The historical cost of an intangible fixed asset which is transferred from elsewhere is the historical cost recorded in the accounting books of the transferring enterprise. The receiving enterprise shall account the historical cost, value of wear and tear and residual value of the asset according to regulations.

d/ Intangible fixed assets generated from internal activities of enterprises:

The historical cost of an intangible fixed asset generated from internal activities of an enterprise is expenses directly related to the 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, issuance right, list of customers; expenses arising in the research stage and similar items which fail to satisfy the standards of intangible fixed assets and are not so recognized shall be accounted as business expenses in the period.

e/ Intangible fixed assets being land use rights:

- For an enterprise that is allocated land with land use levy payment: The historical cost of a fixed asset which is the assigned land use rights is the whole payment made to obtain the lawful land use rights plus (+) compensated amounts for ground clearance, expenses for leveling the ground, registration fee (excluding expenses paid for the construction of works on the land); or the value of land use rights contributed as capital.

- For an enterprise that leases land, the land rent shall be gradually allocated to its business expenses and shall not be recognized as intangible fixed asset, specifically:

+ If the enterprise leases land and pays the land rent in lump sum for the whole lease term, the land rent shall be gradually allocated to its business expenses according to the number of years of the lease.

+ If the enterprise leases land and pays the land rent on an annual basis, the land rent amount paid annually shall be accounted as business expenses in the period.

f/ Historical cost of intangible fixed assets being copyright, industrial property rights or rights to plant varieties as prescribed in the Law on Intellectual Property is the total of actual expenses incurred by the enterprise to obtain such copyright, industrial property rights or rights to plant varieties under the law on intellectual property.

g/ Historical of fixed assets being computer software:

The historical cost of a fixed asset being computer software is the total of expenses incurred by the enterprise to obtain the computer software in case the software is a component which can be separated from the relevant hardware or the layout design of semiconductor integrated circuits under the law on intellectual property.

3. Financial leasing fixed assets:

The historical cost of a financial leasing fixed asset recorded at the lessee is the value of the leased asset at the time when the lease of such asset commences or the current value of the minimum rent payment (if the value of the leased asset is higher than the current value of the minimum rent payment) plus (+) initial expenses arising in direct relation to the financial leasing.

4. The historical costs of fixed assets of enterprises may only be changed in the following cases:

a/ Revaluation of fixed assets in the following cases:

- Under decision of a competent state agency.

- Reorganization of the enterprise, change of ownership of the enterprise, transformation of the enterprise: separation, splitting, merger, consolidation, equitization, sale, contracting, lease, transformation of limited liability company into joint-stock company and vice versa.

- Use of assets for outward investment.

b/ Upgrading of fixed assets.

c/ Removal of one or a number of parts of the fixed asset which is/are managed according to the standards of a tangible fixed asset;

Upon change of the historical cost of a fixed asset, the enterprise shall make a minutes clearly stating the bases for such change and re-determine the items on historical cost, residual book value, accumulated depreciation of the fixed asset and the useful life of the fixed asset, and practice the accounting in accordance with current regulations.

Article 5. Principles on management of fixed assets:

1. Each fixed asset of an enterprise must have a separate set of file (including a written record of handover and receipt of the fixed asset, contract, invoice for purchase of the fixed asset and other relevant documents). Each fixed asset must be classified, numbered and given a separate card, and be monitored in detail according to its category, and shown in the log-book of fixed assets.

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

Residual book value of fixed asset = Historical cost of fixed asset - Accumulated depreciation of fixed asset

3. For fixed assets which are no longer needed, awaiting liquidation but not yet fully depreciated, an enterprise shall mange, monitor and preserve them according to current regulations and depreciate them under this Circular.

4. An enterprise shall manage fixed assets which have been fully depreciated but are still engaged in business activities in the same manner as normal fixed assets.

Article 6. Classification of fixed assets in enterprises:

Based on the use purposes of fixed assets, enterprises shall classify fixed assets according to the following criteria:

1. Fixed assets used for business include those managed and used by the enterprise for its business purposes.

a/ Tangible fixed assets shall be classified as follows:

Category 1: Buildings and architectural structures include fixed assets of an enterprise which are formed after a construction process such as offices, warehouses, fences, water towers, ground yards, decorative works associated with buildings, roads, bridges, railways, airport runways, piers, harbors and quays.

Category 2: Machinery and equipment include all kinds of machinery and equipment used for business activities of an enterprise such as specialized machinery, working equipment, petroleum drilling rigs, cranes, technological lines and individual machinery.

Category 3: Means of transport and equipment for transmission include all kinds of means of transport, including means of transport for railway, waterway, road and airway, pipelines and equipment for transmission such as information system, electricity system, water pipeline and conveyor belts.

Category 4: Equipment and instruments for management include equipment and instruments used for management of business activities of an enterprise such as computers for administration, electronic equipment, equipment and tools for measurement, quality control equipment, dehumidifiers, vacuum cleaners, termite and woodworm killers.

Category 5: Gardens of perennial trees, animals working and/or generating products include gardens of perennial trees such as coffee, tea or rubber trees; orchards, lawns and green trees, etc.; animals working and/or generating products such as herds of elephants, horses, buffaloes and cows.

Category 6: Other kinds of fixed assets include all other fixed assets which are not listed in the above five types, such as pictures, paintings and artworks.

b/ Intangible fixed assets: land use rights; issuance right; patent; literary, artistic and scientific works; products or results of performances; phonograms, video recordings, broadcast, encrypted program-carrying satellite signals; industrial designs, layout designs of semiconductor integrated circuits, trade secrets, marks, trade names, geographical indications, plant varieties and propagating materials.

2. Fixed assets used for welfare, non-business activities, national security and defense include fixed assets managed and used by an enterprise for purposes of welfare, administration, national security and defense within the enterprise. Those fixed assets are also classified under Clause 1 above.

3. Fixed assets which are maintained, kept or stored for others means fixed assets that an enterprise maintains or keeps for other units or the State under regulations of competent state agencies.

4. Based on the management requirements of each enterprise, an enterprise itself shall make a detailed classification of its fixed assets in each category as appropriate.

Article 7. Upgrading and repair of 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 may not include these costs in its business expenses in the period.

2. Costs for repair of a fixed asset shall not be added to the historical cost of the fixed asset but may be directly included in or gradually allocated to business expenses for a maximum of 3 years.

For a number of fixed assets whose repair costs are incurred on a cyclic basis, an enterprise may advance costs for repair of fixed assets into its annual business expenses. If the actual repair costs are larger than the advanced amount, the difference may be added to reasonable expenses. If the actual repair costs are smaller than the advanced amount, the difference may be accounted as a decrease in business expenses of the period.

3. Costs related to an 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 operation state, shall be added to the historical cost of the fixed asset. Other expenses related to the intangible fixed asset arising after the initial recognition shall be included in production and business expenses.

Article 8. Lease, pledge, mortgage, sale or liquidation of fixed assets:

1. All activities of lease, pledge, mortgage, sale and liquidation of fixed assets must comply with the current provisions of law.

2. For leased fixed assets:

a/ Operating lease fixed assets:

- The lessee shall manage and use fixed assets in accordance with the terms of the lease contract. The fixed asset rent shall be included in business expenses of the period.

- The lesser as an owner of the fixed assets shall monitor and manage the leased fixed assets.

b/ Financial lease fixed assets:

- The lessee shall monitor, manage and use the leased fixed assets in the same manner as its own fixed assets, and fulfill all obligations committed in the lease contract.

- The lesser as an investor shall monitor and properly comply with the terms of the financial lease contract.

c/ In case the asset lease (operating lease or financial lease) contract stipulates that the lessee has the responsibility to repair the asset during the lease term, the repair cost may be included or gradually allocated to business expenses for a maximum of 3 years.

4. For the sale and sublease of fixed assets:

- If an enterprise sells or subleases an operating lease fixed asset, it shall perform the same responsibilities as prescribed for the lessee of the operating lease fixed asset. Any difference arising when the agreed sale price or the sublease amount of the fixed asset is lower or higher than the reasonable value shall be promptly included in the enterprise’s income in the period or gradually allocated to its expenses according to regulations.

- If an enterprise sells or subleases a financial lease fixed asset, it shall perform the same responsibilities as prescribed for the lessee of the financial lease fixed asset. The difference between the income from the sale of the asset and the residual book value of the asset shall be included in the enterprise’s income according to regulations.

Part C

PROVISIONS ON DEPRECIATION OF FIXED ASSETS

Article 9. Principles on depreciation of fixed assets:

1. All fixed assets of an enterprise must be depreciated, excluding the following:

- Fixed assets which have been fully depreciated but are still used in production and business activities.

- Lost fixed assets which have not yet been fully depreciated.

- Other fixed assets which are managed but not owned by the enterprise (except financial leasing fixed assets).

- Fixed assets which are not managed, monitored and included in the enterprise’s accounting books.

- Fixed assets used in welfare activities serving the enterprise’s laborers (excluding fixed assets serving laborers working in the enterprise, such as mid-shift rest houses, mid-shift refectories, change houses, toilets, clean water tanks, garages, healthcare rooms or clinics, vehicles transporting laborers to and from work, job training establishments, laborers’ houses built by the enterprise itself).

- Fixed assets which are houses and residential land in case the enterprise purchases houses and residential land for which land use rights have been allocated by the State to the enterprise for long-term use; depreciation costs are not required to be calculated for the value of such land use rights.

- Fixed assets formed from non-refundable aid transferred by competent agencies to the enterprise for scientific research purposes.

- Intangible fixed assets being land use rights.

2. Depreciation costs of fixed assets specified at Point 2.2, Section IV, Part C of the Ministry of Finance’s Circular No. 130/2008/TT-BTC of December 26, 2008, guiding the implementation of a number of articles of Law No. 14/2008/QH12 on Enterprise Income Tax, and guiding the implementation of the Government’s Decree No. 124/2008/ND-CP of December 11, 2008, detailing the implementation of a number of articles of the Law on Enterprise Income Tax, are not allowed to be included in reasonable expenses when calculating enterprise income tax.

3. If the fixed assets used in welfare activities serving the enterprise’s laborers specified in Clause 1, Article 9 of this Circular are engaged in production and business activities, the enterprise shall base itself on the time and use of these fixed assets to calculate and include depreciation costs in its expenses and notify it to the managing tax agency for monitoring and management.

4. For fixed assets which have not been fully depreciated and are irreparably damaged, the enterprise shall identify causes and compensation responsibilities of collectives or individuals at fault. Any difference between the residual value of the assets and the compensated sum of money and the recovered value (if any) shall be covered by the enterprise with its financial provisions. If its financial provisions are insufficient, the enterprise may include the deficit in its reasonable expenses when determining enterprise income tax.

5. An enterprise which leases operating fixed assets shall calculate depreciation costs of the leased fixed assets.

6. The lessee of financial leasing fixed assets shall calculate depreciation costs in respect of financial leasing fixed assets in the same manner as it does for its own fixed assets in accordance with the current regulations. In case at the outset of the leasing of assets, the lessee of the financial leasing fixed assets guarantees in the lease contract that it shall not buy the leased assets, the lessee may calculate depreciation costs in respect of the financial lease fixed assets over the leasing period stated in the lease contract.

7. In case of re-valuating a fully depreciated fixed asset for contribution as capital or transfer to another enterprise upon separation, splitting, consolidation, merger or transformation of enterprise, these fixed assets shall be valued by a professional valuation organization and their assessed value must not be lower than 20% of their historical cost. The time of starting to calculate depreciation costs of these assets is the time when the enterprises officially receive the assets for putting into use and the depreciation period is between 3 and 5 years. Specific time shall be decided by the enterprise but must be registered with a tax agency before implementation.

8. For enterprises with 100% state capital that determine their value for equitization according to the discount cash flow method, any positive difference in the state capital between the actual value and book value shall not be recognized as intangible fixed asset and shall be gradually allocated to production and business expenses of the period not exceeding 10 years. The time of starting to allocate it to expenses is the time an enterprise is officially transformed into a joint-stock company (obtaining a business registration certificate).

9. The calculation of depreciation costs or stoppage of calculation of depreciation costs of fixed assets shall be commenced from the date (according to the number of days of the month) on which fixed assets increase or decrease. Enterprises shall account fixed asset increase or decrease under the current regulations on business accounting.

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

1. For brand-new fixed assets (unused fixed assets), the enterprise shall base itself on the frame of useful life of fixed assets provided in Appendix I to this Circular to determine the useful life of fixed assets.

2. For used fixed assets, their useful life shall be determined as follows:

Useful life of fixed asset = Reasonable value of fixed asset / Sale price of the brand-new fixed asset of the same type (or of equivalent type on the market) x Useful life of the brand-new fixed asset of the same type determined in accordance with Appendix 1 to this Circular.

In which:

The reasonable value of fixed asset is the actual purchase price or actual exchange price (in case of purchase or exchange), the residual value of fixed asset or the value assessed by a professional valuation organization (in case the fixed asset is donated, presented as gift, allocated or transferred from elsewhere) and other cases.

3. Change of useful life of fixed assets:

a/ In case an enterprise wishes to determine the useful life of a fixed asset, brand-new or  used, differently from the frame of useful life provided in Appendix 1 to this Circular, the enterprise shall make a plan on the change of the useful life of a fixed asset, clearly explaining the three following matters:

- Technical life of the fixed asset as designed;

- Current conditions of the fixed asset (used time, generation and actual conditions of the assets);

- Impacts of the increase or decrease in depreciation costs of the fixed asset on production and business results and payment of debts to credit institutions.

b/ Competence to approve plans on change of useful life of fixed assets:

- The Ministry of Finance is competent to approve plans of state companies, including parents companies of state economic groups and corporations; subsidiary companies with 100% state-owned charter capital; joint stock companies with 51% or more of charter capital owned by the State within state economic groups and corporations.

- Provincial-level Finance Departments are competent to approve plans of independent state companies attached to ministries or provincial-level People’s Committees and enterprises of other economic sectors headquartered in their localities.

Within 20 days after their plans on change of useful life of fixed assets are approved, enterprises shall register them with managing tax agencies for monitoring and management.

c/ Enterprises may change the useful life of each fixed asset only once. The prolonged useful life of a fixed asset must neither exceed its technical life nor change business results of an enterprise from profit into loss or vice versa in the year of decision on the change. When an enterprise changes the useful life of a fixed asset in contravention of regulations, the Ministry of Finance or the managing tax agency of the enterprise shall request it to comply with regulations.

4. In case there arise impacting factors (e.g. upgrading or removal of one or some parts of the fixed asset) with a view to prolonging or shortening the designated useful life of a fixed asset, the enterprise shall re-determine the useful life of the fixed asset based on the three above-mentioned standards and concurrently make a written record clearly stating the bases which lead to the change in the useful life of the fixed asset, and submit it to competent authorities specified at Point b, Clause 3, Article 10 of this Circular for decision.

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

1. The useful life of intangible fixed assets shall be determined by enterprises themselves, however the maximum useful life must not exceed 20 years.

2. The useful life of intangible fixed assets being fixed-term land use rights is the duration during which the use of land is permitted according to regulations.

3. The useful life of intangible fixed assets being copyright, intellectual property rights and rights to plant varieties is the period of protection indicated in protection titles according to regulations (excluding the extended time of protection).

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

1. For investment projects in the form of Build – Operate – Transfer (BOT), the useful life of their fixed assets shall be determined to start from the time when the fixed assets are put into use to the time of termination of such projects.

2. For a business cooperation contract (BCC) with the participation of a foreign party, under which the foreign party shall transfer the project to the State of Vietnam without compensation upon termination of the contract, the useful life of the fixed assets to be transferred shall be determined to start from the time when such fixed assets are put into use to the time of termination of the project.

3. For a production line of military nature and directly serving national defense or security tasks in defense or security firms, pursuant to this Circular, the Ministry of National Defense or the Ministry of Public Security shall decide on the frame of useful life of these assets.

Article 13. Methods of depreciation of fixed assets:

1. The contents of the straight line method; the declining balance method and the units-of-production depreciation method are provided in Appendix 2 to this Circular.

2. Based on the ability to meet the conditions stipulated for each fixed asset depreciation method, enterprises are allowed to select depreciation methods suitable for each kind of its fixed assets.

a/ Straight line method:

Fixed assets engaged in business activities may be depreciated according to the straight line method.

Enterprises operating and gaining high economic efficiency are allowed to conduct rapid depreciation of their fixed assets in order to quickly renew technologies. Fixed assets engaged in business activities and eligible for rapid depreciation include machinery, equipment; measuring and experimental instruments; equipment and means of transport; tools used for management; and working animals and gardens of perennial trees. When conducting rapid depreciation, enterprises shall ensure that they get profits in their business. In case enterprise conduct rapid depreciation over two times the prescribed frame of use life of fixed assets provided in Appendix I to this Circular, the depreciation cost exceeding the rapid depreciation level (over two times) may not be included in their reasonable expenses upon calculating enterprise income tax of the period.

- Declining balance method:

The declining balance method applies to enterprises with technologies requiring rapid renewal and development.

Fixed assets engaged in business activities and depreciated according to the declining balance method must concurrently meet the following conditions:

+ Being brand-new (unused);

+ Being machinery and equipment; measuring and experimental instruments;

c/ Units-of-production depreciation method:

Fixed assets engaged in business activities and depreciated according to this method include machinery and equipment which concurrently meet the following conditions:

- They are directly related to the production of products;

- The total quantity or volume of products turned out on the basis of the designed capacity of fixed assets is determinable;

- The average actual use capacity during the months of the fiscal year is not lower than 50% of the designed capacity.

3. An enterprise shall register with its managing tax agency the fixed asset depreciation method that it has selected before applying such depreciation method. In case the depreciation method selected by the enterprise fails to meet the prescribed conditions, the tax agency shall, within 30 days after receiving the enterprise’s registration of the fixed asset depreciation method (counted based on the postmark), notify this in writing to the enterprise for the latter to change its depreciation method as appropriate.

4. The depreciation method selected and registered by the enterprise to apply to each fixed asset must be applied consistently in the course of using such fixed asset, except when there is a change in the method of using it for generating more benefits to the enterprise or there is a significant change in the method of estimating economic benefits generated for the enterprise.

In special cases requiring change of the depreciation method, the enterprise shall clearly explain the change of the method of using the fixed asset or estimating economic benefits generated for the enterprise with respect to the fixed asset for which the depreciation needs to be changed and it may not change the depreciation method for each fixed asset for more than twice during the course of using it and shall send a written report thereon to its managing tax agency.

Part D

ORGANIZATION OF IMPLEMENTATION

Article 14. This Circular takes effect on January 1, 2010, and replaces Decision No. 206/2003/QD-BTC of December 12, 2003, of the Minister of Finance, issuing the regime of management, use and depreciation of fixed assets.

Article 15. Business individuals with fixed assets who fully comply with this Circular’s provisions on management of fixed assets may depreciate their fixed assets in order to determine deductible reasonable expenses upon calculating personal income tax.

Article 16. Units under the Ministry of Finance shall, within the ambit of their functions and duties, implement and guide enterprises in properly implementing, this Circular.

For the Minister of Finance
Deputy Minister
TRAN VAN HIEU

Appendix 1

FRAME OF USEFUL LIFE OF FIXED ASSETS

(To the Ministry of Finance’s Circular No. 203/2009/TT-BTC of October 20, 2009)

Notes:

(1) Permanent buildings are houses, working offices, office buildings, hotels, etc, determined as having a durability of category I or II.

(2) Other buildings are houses, working offices, office buildings, etc, determined as having a durability of category III or IV according to regulations of the Ministry of Construction.

Appendix 2

METHODS OF DEPRECIATION OF FIXED ASSETS

(To the Ministry of Finance’s Circular No. 203/2009/TT-BTC of October 20, 2009)

I. Straight line method:

1. Contents of the method:

Fixed assets of an enterprise shall be depreciated according to the straight line method as follows:

- The average yearly depreciation rate of a fixed asset shall be determined according to the formula below:

Average yearly                Historical cost of fixed asset
  depreciation rate    =    ——————————————
     of fixed asset                     Useful life of fixed asset

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

2. In case 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 residual book value of the fixed asset by its re-determined useful life or remaining useful life (determined as the difference between the registered useful life and the used time).

3. The depreciation cost of a fixed asset in the last year of depreciation 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.

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

Example: Company A purchases a fixed asset (brand-new) at the price of VND 119 million shown on the invoice. Company A is given a discount of VND 5 million. The transportation freight is VND 3 million and the cost of installation and trial operation is VND 3 million.

a/ Knowing that the fixed asset has a technical life of 12 years and an expected useful life of 10 years (in accordance with Appendix 1 to Circular No. 203/2009/TT-BTC), and it is put into use on January 1, 2009.

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

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

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

Annually, the enterprise shall include a depreciation cost of VND 12 million for that fixed asset in its business expenses.

2. After 5 years of using the asset, the enterprise upgrades the fixed asset and incurs a total cost of VND 30 million. 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 January 1, 2014.

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

The accumulated depreciation cost  = VND 12 million  x 5 years = VND 60 million.

The residual book value of the fixed asset = VND 150 million – VND 60 million  = VND 90 million.

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

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

From 2014 onward, every month the enterprise shall include in its business expenses a depreciation cost of VND 1,250,000 for the newly upgraded fixed asset.

5. Determination of the depreciation rate for fixed assets put into use prior to January 1, 2009:

a/ The way of determining the depreciation rate:

- The enterprise shall base on figures on the accounting books and records of the fixed asset to determine the residual book value of the fixed asset.

- The enterprise shall determine the remaining useful life of the fixed asset according to the formula below:

t1
T = T2 (1  -    —— )
                                 T1

In which:

T : residual useful life of the fixed asset.

T1: useful life of the fixed asset determined in accordance with Appendix 1 to Circular No. 203/2009/TT-BTC.

T2: useful life of the fixed asset determined in accordance with Appendix 1 to Circular No. 203/2009/TT-BTC.

t1: 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:

Average yearly              Residual book value of the fixed asset
  depreciation rate    =    —————————————————
  of the fixed asset            Remaining useful life of the fixed asset

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

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

Example: An enterprise has used a loom with a historical cost of VND 600 million since January 1, 2007. The useful life of the loom is determined to be 10 years in accordance with Appendix 1 to Circular No. 203/2009/TT-BTC. The used time of the loom calculated through December 31, 2008, is 2 years. The accumulated depreciation cost is VND 120 million.

- The residual book value of the loom is VND 480 million.

- The enterprise determines the useful life of the loom to be 5 years in accordance with Appendix 1 to Circular No. 203/2009/TT-BTC.

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

Remaining                                         2 years
useful life = 5 years x (1 - ————— ) = 4 years
  of the loom                                       10 years

- The average yearly depreciation rate = VND 480 million  : 4 years = VND 120 million/year (in accordance with Circular No. 203/2009/QD-BTC).

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

From January 1, 2009, through December 31, 2012, the enterprise shall include a depreciation cost of VND 10 million for the loom in its monthly business expenses.

II. The declining balance method:

1. Contents of the method:

The depreciation rate of fixed assets according to the declining balance method shall be determined as follows:

- Determination of the useful life of fixed assets:

The enterprise shall determine the useful life of fixed assets under Circular No. 203/2009/TT-BTC of the Ministry of Finance.

- The enterprise shall determine the depreciation rate of fixed assets in the initial years according to the formula below:

Yearly                       Residual book                 Rapid
depreciation rate of = value of x depreciation
      the fixed asset                 the fixed asset                   rate

In which:

The rapid depreciation rate is determined according to the formula below:

Rapid                     Depreciation rate of                Adjustment
  depreciation    =   the fixed asset according to    x      coefficient
     rate (%)                the straight line method

The depreciation rate of fixed assets according to the straight line method is determined as follows:

Depreciation rate of the fixed                            1
asset according to the straight = ———————————— x 100
        line method (%)                    Useful life of the fixed asset

The adjustment coefficient shall be determined according to the useful life of fixed assets in the following table:

In the last years, when the yearly depreciation rate calculated according to the declining balance method mentioned above is equal to (or lower than) the average depreciation rate calculated by dividing the residual book value of the fixed asset by its remaining useful life, from that year onward the depreciation rate is equal to the residual book value of the fixed asset divided by its remaining useful life.

- The monthly depreciation rate is 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 a historical cost of VND 10 million for the production of electronic components.  The useful life of the fixed asset determined in accordance with Appendix 1 (to Circular No. 203/2009/TT-BTC) is 5 years.

The yearly depreciation rate shall be determined as follows:

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

- The rapid depreciation rate according to the declining balance method is equal to 20% x 2 (adjustment coefficient) = 40%.

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

Unit of calculation: VND

In which:

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

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

III. The units-of-production depreciation method:

1. Contents of the method:

Fixed assets of an enterprise shall be depreciated according to the units-of-production depreciation method 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 according to the designed capacity of the fixed asset, referred to as designed capacity-based output.

- 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 enterprise shall determine the monthly depreciation rate of the fixed asset according to the formula below:

Monthly                       Quantity of                       Average
depreciation rate = products turned out x depreciation rate for
of the fixed asset in the month a unit of product

In which:

Average                       Historical cost of the fixed asset
depreciation rate for = ———————————————
   a unit of product                 Designed capacity-based output

- The yearly depreciation rate of the fixed asset is equal to the total depreciation rate of 12 months in the year, or shall be calculated according to the formula below:

Yearly                       Quantity of                        Average
depreciation rate = products turned out x depreciation rate for
  of the fixed asset                in the year               each unit of product

In case there is a change in the designed capacity or historical cost of the fixed asset, the enterprise shall 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 a historical cost of VND 450 million. The designed capacity of the bulldozer is 30 m3/hour. The designed capacity-based output of this bulldozer is 2,400,000 m3. The volume of products gained in the first year by the bulldozer is:

The depreciation rate according to the units-of-production depreciation method for this fixed asset shall be determined as follows:

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

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

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THE END