Circular No. 45/2013/TT-BTC dated April 25, 2013 of the Ministry of Finance guiding the management, use and depreciation of fixed assets

THE MINISTRY OF FINANCE

Circular No. 45/2013/TT-BTC of April 25, 2013, guiding the management, use and depreciation of fixed assets

Pursuant to November 29, 2005 Law No.60/2005/QH11 on Enterprises;

Pursuant to June 3, 2008 Law No.14/2008/QH12 on Enterprise Income Tax;

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

Pursuant to the Government’s Decree No. 122/2011/ND-CP of December 27, 2011, amending and supplementing Decree No. 124/2008/ND-CP of December 11, 2008;

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 Department of Enterprise Finance;

The Minister of Finance promulgates the Circular to guide the management, use and depreciation of fixed assets.

Chapter I

GENERAL PROVISIONS

Article 1. Subjects and scope of application

1. This Circular applies to enterprises lawfully established and operating in Vietnam.

2. The calculation of depreciation under this Circular applies to each fixed asset of enterprises.

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

1. Tangible fixed assets are primary means of labor in physical forms, which satisfy the standards of tangible fixed assets, are involved in many business cycles but still retain their original physical forms, such as buildings, architectural objects, machinery, equipment, means of transport, etc.

2. Intangible fixed assets are assets not in physical forms, which represent an invested value and satisfy the standards of an intangible fixed asset, are involved in many business cycles, such as some costs directly related to used land; costs of issuance right, patent, copyright, etc.

3. Financial leased fixed assets are fixed assets which an enterprise leases from a financial leasing company. At the end of the leasing term, the lessee has the option to purchase the leased assets or continue the lease under the terms agreed in the financial leasing contract. The total rental for an asset type specified in the financial leasing contract must be at least equal to the value of that asset at the time of signing the contract.

All leased fixed assets that do not satisfy the above-mentioned requirements are considered operating leased fixed assets.

4. Similar fixed assets are those with similar utilities in the same business area and with equivalent values.

5. Historical cost of fixed assets

- Historical cost of tangible fixed assets includes all costs that an enterprise has to pay to have the tangible fixed assets by the time of putting the assets into a state ready for use.

- Historical cost of intangible assets includes all costs that an enterprise has to pay to have the intangible assets by the time of putting the assets into use as expected.

6. Reasonable value of fixed assets is the value of assets which can be exchanged between knowledgeable parties in the parity exchange.

7. Wear and tear of fixed assets is the incremental decrease in the use value and value of fixed assets due to involvement in production and business activities, natural erosion, technical advances, etc. during the operation of fixed assets.

8. Accumulated wear and tear of fixed assets is the total of worn-out value of fixed assets by the reporting time.

9. Depreciation of fixed assets is the calculation and allocation of the historical cost of fixed assets to production and business costs in a systematic manner during the period of depreciation of fixed assets.

10. Period of depreciation of fixed assets is the period of time required for an enterprise to depreciate fixed assets to recover fixed asset investment capital.

11. Accumulated depreciation of fixed assets is the total depreciation deducted into production and business costs over the business cycles of fixed assets by the reporting time.

12. Residual value of fixed assets is the difference between the historical cost and accumulated depreciation (or the value of accumulated wear and tear) of fixed assets by the reporting time.

13. Repair of fixed assets is the maintenance, replacement and repair of damages arising during the operation to restore operational capacity according to the original standard operating state of fixed assets.

14. Upgrading of fixed assets is the renovation, construction and installation, and addition of fixed assets to increase capacity, product quality, utilities of fixed assets compared with the original level, or to prolong the useful time of fixed assets; or introduce new production technology processes that help reduce the operating costs of fixed assets.

Chapter II

MANAGEMENT OF FIXED ASSETS

Article 3. Standards and identification of fixed assets

1. Means of labor are tangible assets with an independent structure, or a system of many linked individual asset parts to perform one or a certain number of functions, which, if lacking any of these parts, can not work, and, if simultaneously satisfying the following three standards, can be regarded as fixed assets:

a/ Economic benefit will be gained with certainty in the future from the use of such assets;

b/ Having the useful time of over 1 year;

c/ The historical cost of such assets must be determined reliably, and is valued at VND 30,000,000 (thirty million) or more.

When a system consists of many individual asset parts linked together, in which each part has a different useful time and which, if lacking any of these parts, can still perform its main operating function but, due to requirements on management and use of fixed assets, each part needs to be separately managed, each part, if simultaneously satisfying the three standards of fixed assets, can be regarded as independent tangible fixed assets.

For animals working and/or giving products, each of the animals simultaneously satisfying three standards of fixed assets is regarded as a tangible fixed asset.

For perennial gardens, each piece of garden, or each tree simultaneously satisfying three standards of fixed assets is regarded as a tangible fixed asset.

2. Standards and identification of intangible assets:

All actual costs incurred by an enterprise simultaneously satisfying all three standards specified in Clause 1 of this Article, without forming a tangible fixed asset, are regarded as intangible fixed assets.

The costs not simultaneously satisfying all three standards specified in Clause 1, Article 3 of this Circular, must be directly accounted as or incrementally allocated to the business costs of enterprises.

Particularly, costs incurred in the implementation phase can be recorded as intangible fixed assets generated within an enterprise if they simultaneously satisfy the following seven conditions:

a/ Their technical feasibility ensures the completion and putting of the intangible assets into use as expected or for sale;

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

c/ The enterprise is able to use or sell these intangible assets;

d/ These intangible assets must generate economic benefits in the future;

dd/ The enterprise has sufficient technical and financial resources and other resources to complete the stages of deployment, sale or use of those intangible assets;

e/ The enterprise is able to identify with certainty all costs in the deployment phase to create such intangible assets;

g/ It is estimated to have adequate standards on useful time and value prescribed for intangible fixed assets.

3. The cost of establishment of an enterprise, cost of staff training, advertising cost incurred prior to the enterprise establishment, costs of the research stage, relocation, purchase for possession and use of technical materials, patents, technology transfer licenses, trademarks, business advantages, are not intangible fixed assets but are incrementally allocated to the business costs of enterprises over a period of up to 3 years according to the Law on Enterprise Income Tax.

4. Joint-stock companies converted from state companies under the Government’s Decrees promulgated before the Government’s Decree No. 59/2011/ND-CP of July 18, 2011, on the conversion of enterprises with 100% state capital into joint-stock companies, and having business advantages included in the enterprise value when determining the enterprise value for equitization by the method of assets and approved by a competent authority as prescribed, may allocate the value of business advantages under the Ministry of Finance’s Circular No. 138/2012/TT-BTC of August 20, 2012, guiding the allocation of the value of business advantages for joint-stock companies converted from state companies.

Article 4. Determination of the historical cost of fixed assets

1. Determining the historical cost of tangible fixed assets:

a/ Tangible fixed assets from procurement

The historical cost of tangible fixed assets from procurement (both new and old purchases) is the actually paid purchase price plus (+) taxes (excluding refunded taxes) and directly related costs paid by the time of putting the fixed assets into a state of ready for use such as interest incurred during the procurement; transportation, loading and unloading costs; costs of upgrading, installation and trial operation; registration fee and other directly related expenses.

For tangible fixed assets purchased with deferred or installment payments, the historical cost of these assets is the purchase price promptly paid at the time of purchase plus (+) taxes (excluding refunded tax amounts) and directly related costs paid by the time of putting the fixed assets into a state of ready for use, such as costs of transportation, loading and unloading, upgrading, installation, trial operation; and registration fee (if any).

For purchased tangible fixed assets being buildings and architectural objects associated with land use rights, the value of land use rights must be separately determined and recorded as intangible fixed asset if fully meeting the standards specified at Point dd, Clause 2 of this Article, while the historical cost of tangible fixed assets being buildings and architectural objects is the actually paid purchase price plus (+) costs directly related to the putting of tangible fixed assets into use.

After purchasing tangible fixed assets being buildings and archectural objects associated with land use rights, if the enterprise dismantles or demolishes them for new construction, the value of land use rights must be separately determined and recorded as intangible fixed asset if fully meeting the standards specified at Point dd, Clause 2 of this Article; while the historical cost of newly built fixed assets is determined to be the finalized price of the construction as per current regulations on the management of investment and construction. These dismantled or demolished assets must be recorded and accounted under current regulations on liquidation of fixed assets.

b/ Tangible fixed assets purchased in the form of exchange

The historical cost of a fixed asset purchased in the form of exchange with an unsimilar tangible fixed asset or another asset is the reasonable value of the tangible fixed asset reveived or the reasonable value of the fixed asset put up for exchange (plus the additional payables or minus the receivables) plus (+) taxes (excluding refunded taxes), directly related costs paid by the time of putting the asset into a state of ready for use such as costs of transportation, loading and unloading, upgrading, installation and trial operation; and registration fee (if any).

The historical cost of a tangible fixed asset purchased in the form of exchange with a similar one or may be formed due to its sale in exchange for ownership of a similar asset is the residual value of the tangible fixed asset put up for exchange.

c/ Self-built or self-produced tangible fixed assets

The historical cost of self-built tangible fixed assets is the finalized value of works when being put into use. For fixed assets already put into use but not yet finalized, enterprises shall account their historical cost according to the temporarily calculated price and adjust it after the completed works are finalized.

The historical cost of self-produced tangible fixed assets is the actual cost of tangible fixed assets plus (+) costs of installation and trial operation and other directly related costs by the time of putting these assets into a state of ready for use (excluding internal profits, value of products recovered during trial operation and production, unreasonable costs such as waste materials, labor or other costs beyond the norms prescribed in construction or production).

d/ The historical cost of tangible fixed assets formed from construction investment

The historical cost of fixed assets formed from capital construction investment according to the method of contractor appointment is the finalized price of the construction as per current regulations on management of investment and construction plus (+) registration fee and other directly related costs. In case the fixed assets formed from construction investment are put into use but have not been finalized, the enterprise shall account their historical cost according to the temporarily calculated price and adjust it after the completed works are finalized.

The historical cost of fixed assets being animals working and/or giving products or perennial gardens includes all costs actually paid for these animals or gardens from the time of formation to the time of putting into operation and use.

dd/ Tangible fixed assets that are financed, offered, donated or detected to be excessive

The historical cost of tangible fixed assets formed from financing, offer, donation or detected to be excessive is the value actually evaluated by the delivery and receipt council or a professional valuation organization.

e/ Tangible fixed assets allocated or transferred

The historical cost of tangible fixed assets allocated or transferred is the residual value of the fixed assets on accounting books of allocating or transferring units or the value according to the actual evaluation of a professional valuation organization as prescribed by law, plus (+) directly related costs which the asset-receiving party has to pay by the time the fixed assets are put into a state of ready for use, such as costs of hiring the valuation organization, upgrading, installation, trial operation, etc.

g/ Tangible fixed assets received and received back as contributed capital

The historical cost of fixed assets received or received back as contributed capital is the value unanimously agreed by the founding members or shareholders; or agreed between the enterprise and capital contributors; or evaluated by a professional valuation organization as prescribed by law and approved by founding members or shareholders

2. Determining the historical cost of intangible fixed assets

a/ Intangible fixed assets from procurement

The historical cost of intangible fixed assets from procurement is the actually paid purchase price plus (+) taxes (excluding refunded taxes) and directly related costs paid by the time of putting the assets into use.

The historical cost of intangible fixed assets purchased with deferred or installment payments is the purchase price promptly incurred by the time of purchase (excluding interest on deferred payment).

b/ Intangible fixed assets purchased in the form of exchange

The historical cost of an intangible fixed asset purchased in the form of exchange with an unsimilar intangible fixed asset or another asset is the reasonable value of the intangible fixed asset received or the reasonable value of the asset used for exchange (plus payables or minus receivables) plus (+) taxes (excluding refunded taxes) and directly related costs incurred by the time of putting the asset into use as expected.

The historical cost of an intangible fixed asset purchased in the form of exchange with a similar intangible fixed asset or formed from the sale in exchange for ownership of a similar asset is the residual value of the intangible fixed asset used for exchange.

c/ Intangible fixed assets allocated, offered, donated or transferred

The historical cost of an intangible fixed asset allocated, offered or donated is the initial reasonable value plus (+) directly related costs incurred for putting the asset into use.

The historical cost of a fixed asset transferred is the historical cost recorded in the accounting books of the transferring enterprise. The enterprise receiving the transferred asset shall account the historical cost, wear and tear value and residual value of the asset as prescribed.

d/ Intangible fixed assets created from within enterprises

The historical cost of intangible fixed assets created from within an enterprise is the directly related costs incurred from the phase of construction or trial production to the time of putting those assets into use as expected.

Particularly for costs incurred internally for an enterprise to have trademarks, issuance right, customer lists, costs incurred in the research stage and similar items not meeting the standards for recognition as intangible fixed assets, they may be accounted into the business costs in the period.

dd/ Intangible fixed assets being land use rights

- Intangible fixed assets being land use rights include:

+ Land use rights assigned by the State with land use levy collection or received from lawful transfers (including land use rights with definite or indefinite terms).

+ The rights to use land leased before the effective date of the 2003 Land Law for which the land rental has been paid for the entire leasing time or paid in advance for many years but the remaining land lease term for which the land rental has been paid is at least five years, and land use rights certificates have been granted by a competent agency.

The historical cost of fixed assets being land use rights is determined to be the total amount paid to have the lawful land use rights plus (+) costs of site clearance, ground leveling, and registration fee (excluding costs incurred for building works on land); or the value of land use rights received as contributed capital.

- Land use rights not recognized as intangible fixed assets include:

+ Land use rights assigned by the State without land use levy collection.

+ For land lease for which the land rental has been paid in lump sum for the entire lease term (the land lease time after the effective date of the 2003 Land Law without being granted a certificate of land use rights), the land rental may be incrementally allocated to the business costs over the number of years of land lease.

+ For land lease for which the land rental is paid annually, the rental may be accounted into the business costs in the period corresponding to the annually paid rental.

- For real estate companies’ assets being houses and land for sale or trading, enterprises may not account them as fixed assets and may not depreciate them.

e/ The historical cost of intangible fixed assets being copyright, industrial property rights or rights to plant varieties prescribed in the Law on Intellectual Property is the total costs that an enterprise has paid to have these rights in accordance with the law on intellectual property.

g/ The historical cost of fixed assets being software programs

The historical cost of fixed assets being software programs is determined to be the total actual costs that an enterprise has paid to have software programs in case these programs can be separated from related hardware and layout designs of semiconductor integrated circuits in accordance with the law on intellectual property.

3. Financial leased fixed assets

The historical cost of financial leased fixed assets reflected at the lessee is the value of leased assets at the time of starting the lease plus (+) direct costs incurred initially related to the financial leasing.

4. The historical cost of an enterprise’s fixed assets may be only changed in the following cases

a/ Re-valuating the fixed assets in the following cases

- Under decisions of competent state agencies.

- Enterprise reorganization, enterprise ownership change and enterprise transformation: division, split, merger, consolidation, equitization; sale, contracting, lease, conversion of limited liability company into joint stock company or of joint stock company into limited liability company.

- Use of assets for investment outside the enterprise.

b/ Upgrading fixed assets.

c/ Dismantling one or a number of parts of fixed assets which is/are managed according to the standards of a tangible fixed asset.

When changing the historical cost of fixed assets, an enterprise shall make a written record specifying the grounds for change and re-determining the historical cost, the book residual value, accumulated depreciation, and useful time of fixed assets, and conduct accounting as prescribed.

Article 5. Principles of management of fixed assets

1. Every fixed asset in an enterprise must have a separate dossier (including the written record of delivery and receipt of fixed asset, contracts, invoices of purchase of fixed asset, and other related documents and papers). Each fixed asset must be classified, numbered with a separate card, monitored in detail and reflected in the monitoring book of fixed assets.

2. Each fixed asset must be managed by its historical cost, accumulated wear and tear, and book residual value:

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

4. Enterprises shall manage fixed assets which have been fully depreciated but still are involved in business activities, as normal fixed assets.

Article 6. Classification of enterprises’ fixed assets

Based on the use purposes of fixed assets, an enterprise shall classify its fixed assets by the following indicators:

1. Fixed assets used for business purposes, which are those managed and used by enterprises for their business purposes.

a/ Tangible fixed assets are classified as follows:

Type 1: Buildings and architectural objects being fixed assets formed after the construction process, such as working office, warehousing, fence, water tower, storage yard, buildings’ decorative works, road, bridge, railway, airfield, pier, wharf, dock and slipway.

Type 2: Machinery and equipment being all machinery and equipment used in the business activities of an enterprise, such as specialized machinery, working equipment, drilling platforms in the oil and gas field, cranes, technological lines and individual machines.

Type 3: Means of transport and transmission equipment being means of transport of different types including railway, waterway, road, air vehicle and pipeline, and transmission equipment such as communication system, electrical system, water pipes, and conveyors.

Type 4: Management equipment and tools being equipment and tools used in the management of an enterprise’s business activities such as computers for management, electronic devices, measuring and quality control devices and instruments, dehumidifiers, vacuum cleaners, and anti-termite devices.

Type 5: Perennial gardens, animals working and/or giving products being perennial gardens such as coffee plantations, tea plantations, rubber plantations, orchards, lawn, vegetational carpet, etc., and animals working and/or giving products, such as herd of elephants, horses, buffaloes, cows, etc.

Type 6: Other types of fixed assets being all other fixed assets not listed in the above five types, such as paintings, pictures, art works, etc.

b/ Intangible fixed assets being land use rights as defined at Point dd, Clause 2, Article 4 of this Circular, issuance right, patents, literary, artistic and scientific works, products, results of art performances, video and audio recordings, broadcasts, satellite signals carrying encrypted programs, industrial designs, layout designs of semiconductor integrated circuits, business secrets, marks, trade names and geographical indications, plant varieties and propagating materials.

2. Fixed assets used for welfare, non-business, security or national defense purposes are those managed and used by enterprises for welfare, non-business, security and national defense purposes in the enterprises. These fixed assets are also classified under Point 1 above.

3. Fixed assets preserved, kept or stored for others are those which enterprises preserve or keep for other units or keep for the State as prescribed by competent state agencies.

4. Depending on its management requirements, an enterprise shall classify in greater detail its fixed assets in each type as appropriate.

Article 7. Investment, upgrading and repair of fixed assets

1. The costs which an enterprise has paid for the upgrading of fixed assets are reflected as an increase in the historical cost of such fixed assets. These costs must not be accounted into the business and production costs in the period.

2. The repair costs of fixed assets must not be accounted as an increase in the historical cost of such fixed assets but are directly accounted or incrementally allocated to the business costs in the period for no more than 3 years.

For fixed assets requiring cyclical repair, an enterprise may deduct by estimation in advance the repair cost into its annual cost. If the actual cost of repair of fixed assets is greater than the deduction by estimation, the enterprise may include this difference in the reasonable costs. If the actual cost of repair of fixed assets is smaller than the deduction, the enterprise may account this difference as a decrease in the business costs in the period.

3. The costs related to intangible fixed assets generated after initial recognition and evaluated with certainty, thus increasing the economic benefits of the intangible fixed assets compared to the initial activity, may be reflected by an increase of their historical cost. Other costs related to intangible assets generated after initial recognition may be accounted into the business and production costs.

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

1. All activities of leasing, pledging, mortgaging, selling or liquidating fixed assets must comply with current law.

2. For leased fixed assets

a/ Operating-leased fixed assets

- The lessee enterprise shall manage and use fixed assets under the leasing contract. The leasing cost of fixed assets may be accounted into the business costs in the period.

- The lessor enterprise, as the owner, shall monitor and manage the leased fixed assets.

b/ Financial-leased fixed assets

- The lessee enterprise shall monitor, manage and use the leased fixed assets as its own and fulfill the obligations committed in the leasing contract.

- The lessor enterprise, as an investor, shall monitor and implement the provisions of the leasing contract.

c/ In case the contract on asset leasing (including operating leasing and financial leasing) stipulates that the lessee shall repair the assets during the leasing term, the repair costs of the leased fixed assets may be accounted into the business costs or incrementally allocated to the business costs for no more than 3 years.

Chapter III

DEPRECIATION OF FIXED ASSETS

Article 9. Principles of depreciation of fixed assets

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

- Fixed assets fully depreciated but still used in production and business activities.

- Fixed assets not yet fully depreciated but lost.

- Other fixed assets managed but not owned by the enterprise (excluding financial-leased fixed assets).

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

- Fixed assets used in welfare activities to serve the enterprise’s employees (excluding those serving employees working at the enterprise such as mid-shift rest house, mid-shift canteen, dressing house, toilet, clean water tank, garage, health room or station, employees’ shuttle bus, training facilities, vocational training and housing for employees built by the enterprise).

- Fixed assets from non-refundable aid which are handed over from competent agencies to the enerprise for scientific research.

- Intangible fixed assets being long-term land use rights with land use levy payment, or being lawful long-term land use rights received from transfer.

2. The depreciation costs of fixed assets may be included in the reasonable costs when calculating enterprise income tax in accordance with legal documents on enterprise income tax.

3. In case the fixed assets used in welfare activities to serve an enterprise’s employees mentioned in Clause 1, Article 9 of this Circular are involved in production and business activities, the enterprise shall base on the time and nature of use of these fixed assets to depreciate these fixed assets and account the depreciation costs into its business costs and notify such to the managing tax agency for monitoring and management.

4. For fixed assets which have not yet been fully depreciated but are lost or irreparably damaged, an enterprise shall determine the cause and responsibility for compensation of the organization or individual causing the loss or damage. For the difference between the residual value of the assets and the compensated amount of the organization or individual causing the loss or damage, the compensation paid by the insurer and the recovered value (if any), the enterprise shall offset it with its financial provision. In case its financial provision is not sufficient for offsetting, the enterprise may account the deficit into its reasonable costs when determining the enterprise income tax

5. Enterprises that lease fixed assets for operation shall depreciate the leased fixed assets.

6. Lessees of fixed assets in the form of financial leasing (referred to as financial-leased fixed assets) shall depreciate the leased fixed assets as their own assets under current regulations. In case right at the starting time of financial lease of assets, the lessee commits not to purchase the leased assets in the financial leasing contract, the lessee may depreciate the financial-leased fixed assets according to the leasing term stated in the contract.

7. In case of re-valuation of fully depreciated fixed assets for capital contribution or transfer upon division, split, consolidation or merger, these assets must be evaluated by professional evaluation organizations but such value must not be lower than 20% of their historical cost. The time of starting the depreciation of these assets is the time the enterprise officially takes over the assets and put them into use, and the period of depreciation is between 3 and 5 years. The enterprise may decide on a specific period but shall notify it to tax authorities before implementation.

For enterprises undergoing equitization, the time of starting the depreciation of the above fixed assets is the time the enterprises are granted the business registration certificates and converted into joint-stock companies.

8. For enterprises with 100% state capital evaluating their value for equitization by the method of discounted cash flow (DCF), the positive difference of state capital between the actual value and the book value is not recognized as intangible fixed asset but incrementally allocated to the production costs in the period for no more than 10 years. The starting time of incremental allocation to the costs is the time the enterprise is officially converted into a joint-stock company (obtaining the business registration certificate).

9. The depreciation or stoppage of depreciation of fixed assets starts from the date (according to the number of days of a month) on which the fixed assets increase or decrease. Enterprises shall account the increase or decrease of fixed assets under current regulations on the enterprise accounting system.

10. For completed and commissioned capital construction works which enterprises have accounted as an increase of fixed assets according to their temporarily calculated prices pending their finalization, after their finalization is completed, if there is a difference between the temporarily calculated value and the finalized value, the enterprises shall adjust the historical cost of these fixed assets according to the finalized value approved by competent authorities. The enterprises are not required to adjust the rate of depreciation deducted from the time the fixed assets are completed, handed over and commissioned to the time of approval of their finalization. The depreciation costs after the finalization time are determined on the basis of the approved finalized value of fixed assets minus (-) the amount depreciated by the time of approval of the fixed assets’ finalization and divided (:) by the remaining time of depreciation of the fixed assets as prescribed.

11. For fixed assets which enterprises are monitoring, managing and depreciating under Circular No. 203/2009/TT-BTC but now fail to satisfy the standards of the historical cost of fixed assets prescribed in Article 2 of this Circular, the residual value of these assets may be allocated to the enterprises’ business and production costs for no more than 3 years counting from the effective date of this Circular.

Article 10. Determination of the period of depreciation of tangible fixed assets

1. For new (not used) fixed assets, enterprises shall depend on the time frame of depreciation of fixed assets provided in Appendix 1 to this Circular to determine the period of their depreciation.

2. For used fixed assets, the period of their depreciation is determined as follows:

In which: The reasonable value of fixed assets is the purchase price or actually exchanged value (in case of sale and purchase or exchange), the residual value of the fixed assets or the value assessed by an organization with the valuation function (in case of being given, offered, donated, allocated or transferred), and other cases.

3. Change of the period of depreciation of fixed assets:

a/ In case an enterprise wishes to determine the period of depreciation of new or used fixed assets different from the time frame of depreciation provided in Appendix 1 to this Circular, it shall prepare a plan on the change on the basis of clear explanation of the following contents:

- Technical useful life of fixed assets according to their design;

- Present condition of fixed assets (time of use of fixed assets, asset generation and actual condition of assets);

- The impact of the increase or decrease in the depreciation of fixed assets on production and business results and sources of capital for payment to credit institutions.

- For assets formed from BOT and BCC investment projects, the enterprise shall supplement the contracts signed with the investors.

b/ Competence to approve the plans on change of the period of depreciation of fixed assets:

- The Ministry of Finance shall approve the plans prepared by:

+ Parent companies of economic groups, corporations and companies in which the State holds 51% or more of charter capital and which are established under decisions of ministries, sectors or the Prime Minister;

+ Subsidiaries in which their parent companies of economic groups or corporations hold 51% or more of charter capital.

- Provincial-level Finance Departments shall approve the plans prepared by corporations and independent companies established under decisions of provincial-level People’s Committees, and enterprises of other economic sectors having their head offices located in their localities.

On the basis of the approved plan on the change of the period of depreciation of fixed assets, within 20 days after the plan is approved, an enterprise shall notify it to the managing tax agency for monitoring and management.

c/ Enterprises may change the period of depreciation only once for each asset. The extension of the period of depreciation of a fixed asset must not exceed the technical useful life of the fixed asset and does not change the enterprise’s business results from profit to loss or vice versa in the year of making decision on the change. If an enterprise changes the period of depreciation of fixed assets in contravention of regulations, the Ministry of Finance and the managing tax agency shall request the enterprise to re-determine the change according to regulations.

4. In case impact factors (such as upgrading or removal of one or several parts of fixed assets) extend or shorten the previously determined use time of fixed assets, an enterprise shall re-determine the period of depreciation of fixed assets according to the three standards mentioned above at the time of completion of arising operations and make a written record specifying the grounds for changing the period of depreciation for submission to competent authorities for decision under Point b, Clause 3 of this Article.

Article 11. Determination of the period of depreciation of intangible fixed assets

1. Enterprises may determine by themselves the period of depreciation of intangible fixed assets, which must not exceed 20 years.

2. For intangible fixed assets which are the value of land use rights with a definite term or the value of leased land use rights, the period of depreciation is the time during which enterprises are permitted to use land.

3. For intangible fixed assets which are copyright, intellectual property rights or rights to plant varieties, the period of depreciation is the term of protection stated on the titles of protection according to regulations (excluding the extended term of protection).

Article 12. Determination of the period of depreciation of fixed assets in special cases

1. For investment projects in the form of Build-Operate-Transfer (BOT) and Business Cooperation Contract (BCC), the period of depreciation of fixed assets must be determined from the time of putting fixed assets into use until the end of the project. In case the above projects generate irregular revenue in the years of project implementation and the calculation of depreciation on the above principles affects the business results of enterprises, they shall report to the Ministry of Finance for consideration and decision the increase or decrease in depreciation as prescribed in Clause 3, Article 10 of this Circular.

2. For production lines with military particularities and directly involved in the performance of national defense and security tasks in national defense and security companies, in pursuance to this Circular, the Ministry of National Defense and the Ministry of Public Security shall decide the time frame for depreciation of these assets.

Article 13. Methods of depreciation of fixed assets

1. Methods of depreciation:

a/ Straight-line depreciation method;

b/ Adjusted reducing balance method;

c/ Method of depreciation based on units or volume of production.

2. Based on the capacity to meet the applicable conditions prescribed for each method of depreciation of fixed assets, enterprises may choose methods of depreciation suitable to each type of their fixed assets:

a/ The straight-line depreciation method is the method of depreciation using a stable rate of each year into the enterprise’s business and production costs of its fixed assets involved in business activities.

Enterprises operating with high economic efficiency may accelerate their depreciation, but not more than 2 times the depreciation rate used by the straight-line method for rapid technology renewal. Fixed assets involved in business activities and allowed for accelerated depreciation are machinery and equipment; experimental and measuring instruments; equipment and means of transport, management tools; animals and perennial gardens. When conducting accelerated depreciation, enterprises shall ensure profitable business. In case an enterprise accelerates the depreciation by more than 2 times the rate specified in the time frame for use of fixed assets provided in Appendix 1 to this Circular, it is not allowed to include the excessively accelerated depreciation (more than 2 times) in the reasonable costs upon calculating income tax in the period.

b/ Adjusted reducing balance method:

This method applies to enterprises in the fields in which technology requires rapid change and development.

Fixed assets involved in business activities which are depreciated according to the adjusted reducing balance method must simultaneously meet the following conditions:

- Being new (not used) fixed assets;

- Being machinery and equipment; experiment and measuring instruments.

c/ Method of depreciation based on units or volume of production:

Fixed assets involved in business activities which are depreciated according to this method are types of machinery and equipment simultaneously meeting the following conditions:

- Directly related to production;

- The total units or volume of products can be determined according to design capacity of fixed assets;

- The average actual capacity per month in the fiscal year is not below 100% of design capacity.

The contents of the methods of depreciation are specified in Appendix 2 to this Circular.

3. Enterprises may decide on the methods and period of depreciation of fixed assets in accordance with this Circular and notify them to their managing tax agencies before implementation.

4. Methods of depreciation applicable to each fixed asset which an enterprise has chosen and notified to its managing tax agency must be implemented consistently during the process of use of fixed assets. In special cases of changing the method of depreciation, an enterprise shall clearly explain the changed way of using the fixed assets in order to bring economic benefits to the enterprise. For each fixed asset, an enterprise may change only once the method of depreciation during the process of using such asset, and shall notify in writing the change to its managing tax agency.

Chapter IV

ORGANIZATION OF IMPLEMENTATION

Article 14. Effect

1. This Circular takes effect on June 10, 2013, and applies from the fiscal year 2013.

2. This Circular replaces the Minister of Finance’s Circular No. 203/2009/TT-BTC of October 20, 2009, guiding the management, use and depreciation of fixed assets. From the tax year 2013, Item k, Point 2.2, Clause 2, Article 6 of the Minister of Finance’s Circular No. 123/2012/TT-BTC of July 27, 2012, guiding number of articles of the Law on Enterprise Income Tax is applied with the following amendments and supplements:

“k/ Long-term land use rights may not be amortized and allocated to the deductible costs when determining taxable income; land use rights with definite terms, if accompanied by adequate invoices and documents and complying with the procedures as prescribed by law, and involved in production and business activities, may be incrementally allocated to the deductible costs according to the term permitted for land use specified in the certificate of land use rights, except land use rights allocated with definite terms with land use levy collection which are allowed to be amortized into the  reasonable costs when calculating enterprise income tax”.

3. Business individuals having fixed assets and fully complying with this Circular’s provisions on the management of fixed assets may depreciate fixed assets to determine deductible reasonable costs when calculating personal income tax.

4. Any problems arising in the process of implementation should be promptly reported to the Ministry of Finance for settlement.-

For the Minster of Finance
Deputy Minister
TRAN VAN HIEU

Appendix 1

TIME FRAME OF DEPRECIATION OF FIXED ASSETS

(To the Ministry of Finance’s Circular No. 45/2013/TT-BTC of April 25, 2013)

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