INTER-MINISTERIAL CIRCULAR

PROVIDING GUIDELINES ON HIRE OF MANAGEMENT ORGANIZATIONS FOR PURPOSE OF BUSINESS MANAGEMENT OF ENTERPRISES WITH FOREIGN OWNED CAPITAL

Pursuant to the Law on Foreign Investment in Vietnam passed by the National Assembly of the Socialist Republic of Vietnam on 12 November 1996;

Pursuant to Decree 12-CP of the Government dated 18 February 1997 providing for the detailed implementation of the Law on Foreign Investment in Vietnam;

Pursuant to Decree 75-CP of the Government dated 1 November 1995 on the functions, duties and organizational structure of the Ministry of Planning and Investment;

Pursuant to Decree 178-CP of the Government dated 28 October 1994 on the duties, powers and organizational structure of the Ministry of Finance;

The Ministry of Planning and Investment and Ministry of Finance issue this Circular to provide guidelines for the hire of management organizations for the purpose of business management of enterprises with foreign owned capital as follows:

I. APPLICABILITY AND GOVERNING SCOPE

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1.2. The hire of management organizations for the purpose of business management of enterprises means the hire for management and exploitation of works during the course of operation.

1.3. Enterprises with foreign owned capital entitled to hire management organizations must satisfy the following conditions:

- The hire of management organizations must be based on the need for business management of an enterprise and the business efficiency which can result from such hire.

- The hire of management organizations shall only be applicable in the case of enterprises engaged in the fields of hotel industry, leasing of office space and apartments, golf courses, sports or entertainment clubs, hospitals, schools, and several other fields of business which require intensive and professional management skills for which an enterprise requests to hire management.

The hire of a management organization for business management shall not change or adversely affect the operational objectives of a project or the interests of the State of Vietnam as stipulated in the investment licence.

II. MANAGEMENT CONTRACTS

2.1. The hire of a management organization for the purpose of business management of an enterprise shall be carried out by way of a management contract entered into by the enterprise and the management organization which must be decided on by the board of management of the enterprise (in respect of a joint venture enterprise) or by the investor (in respect of an one hundred (100) per cent foreign owned enterprise).

2.2. The term of a management contract shall be agreed between the enterprise and the management organization and stated in the management contract but shall not, in any case, exceed ten (10) years from the date on which the management contract comes into effect. Parties may submit an application for an extension thereof to the investment licence-issuing body for consideration and approval.

Management contracts shall only become enforceable upon approval by the investment licence-issuing body.

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- Name, address, scope and objectives of business activities of the enterprise;

- Name, address and business certificate of the management organization;

- Responsibilities of the enterprise and the management organization;

- Relationship between the general director, deputy general director of the enterprise with the management organization and with the executive director or divisional managers to be appointed by the management organization for direct management during the course of business;

- Principles of financial revenue and expenditure and expenses and use of bank accounts;

- Recruitment and utilization of employees;

- Number of expatriates sent by the management organization and expenses in relation to salaries, accommodation, food, travel, leave, and so forth, of such employees; plan for training Vietnamese employees for replacement of those expatriates;

- Duration of contract; cases of early termination of the contract;

- Use of names or signboards of works;

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- Binding conditions on responsibilities of the management organization for the results of production and business activities of the enterprise;

- Financial obligations of the management organization to the State of Vietnam;

- Procedures for settlement of disputes between the parties.

III. MANAGEMENT FEES

3.1. The management fees to be paid for the management organization shall be agreed between the parties on the basis of:

- Nature, scale and level of works;

- Prestige, business management capability and responsibilities of the management organization;

- Efficiency of the activities of the management organization;

- Market competition.

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Management fees include basic fees, incentive fees, and fees for consultancy, marketing, reservations and use of signboards and names. In principle, the parties may stipulate different methods of calculating management fees of various rates. However, the maximum total management fees calculated by any method shall not, when compared against turnover and gross operating profit, exceed the rates stipulated in the enclosed appendix.

The gross operating profit (GOP) determined for the calculation of incentive fees shall be the profit earned after deduction of operating expenses (not including basic depreciation, asset insurance premiums, interest on any loans payable by the enterprise, and profit tax).

IV. OPERATIONS OF MANAGEMENT ORGANIZATIONS AND PROCEDURES FOR APPROVAL OF MANAGEMENT CONTRACTS

4.1. Management organizations hired by enterprises must be organizations which were established and have registered business operations in the field for which they are hired for management and shall comply with Vietnamese law during the course of their operations.

4.2. Management organizations shall operate under the names, seals and accounts of enterprises. Management organizations shall be assigned work and entitled to receive fees as stipulated in management contracts and shall be responsible to enterprises and before Vietnamese law for the exercise and performance of their rights and obligations as stipulated in management contracts.

4.3. Management organizations shall fulfil their financial obligations to the State of Vietnam in accordance with the prevailing regulations of Vietnamese law. Enterprises shall be responsible for deducting and paying amounts of tax of management organizations to the State of Vietnam on behalf of the management organizations.

4.4. Management contracts shall be submitted to the investment licence-issuing body for consideration and approval. An application file shall comprise:

- Application for approval of the management contract;

- One original set of the management contract in Vietnamese and in a commonly used foreign language; and contract for consultancy, services, use of signboards or names (if any);

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- Documents certifying the legal person status, experience, prestige and management capability of the management organization.

4.5. The time-limit for consideration and approval of management contracts by the investment licence-issuing body shall be thirty (30) days from the date of receipt of full and proper application files. After the above time-limit, if approval of the management contract is refused, the investment licence-issuing body shall notify the enterprise and the management organization in writing, specifying the reasons therefor.

4.6. In any case, enterprises shall be responsible for all activities of management organizations before Vietnamese law with respect to matters related to management activities as stipulated in management contracts. Management organizations shall be directly responsible before Vietnamese law for their activities which do not fall under the scope of management contracts.

4.7. General Director and Deputy General Derector of enterprises shall be responsible for supporting and supervising the activities of management organizations and for proposing to boards of management or investors to deal with breaches of contracts by management organizations.

4.8. If a management organization is found to have breached seriously provisions of Vietnamese law or provisions of the investment licence and management contract during the course of operations, the investment licence-issuing body has the right to issue a decision to terminate the legal validity of the management contract.

4.9. All disputes between management organizations and enterprises and between management organizations and other enterprises in Vietnam shall be settled in accordance with the provisions of Vietnamese law currently in force.

V. ORGANIZATION OF IMPLEMENTATION

5.1. It is not necessary to re-submit to the Ministry of Planning and Investment or any management contracts of enterprises which have been considered and approved by the former State Committee for Co-operation and Investment or the present Ministry of Planning and Investment, unless there are any adjustments, amendments or additions thereto.

All management contracts which were signed before the date on which this Circular comes into effect but which have not yet been approved by the Ministry of Planning and Investment or the investment licence issuing body shall be subject to this Circular.

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5.3. This Circular shall be of full force and effect as of 23 October 1997. All previous regulations in relation to hire of management organizations shall be repealed.

FOR THE MINISTER OF FINANCE
DEPUTY MINISTER




Pham Van Trong

FOR THE MINISTER OF PLANNING AND INVESTMENT
DEPUTY MINISTER



Nguyen Nhac

APPENDIX

GUIDELINES FOR MAXIMUM MANAGEMENT FEES IN A NUMBER OF FIELDS
(Issued with Inter-ministerial Circular 13-TTLB dated 8 October 1997)

1. Business in hotels or apartments (with similar business services to those in hotels): 3% of turnover and 10% of gross operating profits, of which the fees for the use of signboards and names of works shall not exceed 1% of turnover.

2. Business in office space, apartments (without services) or rented villas: 2% of turnover and 5% of gross operating profits.

3. Business in golf courses, sports or entertainment clubs:

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- Where the determination is based on the maximum figure, the total management fees to be paid to a management organization (including both basic fees and incentive fees) shall be converted into turnover and shall not exceed 4%.

- Commission fee for sales of membership cards is the fee paid to a management organization based on the number of membership cards which are issued by that management organization. This fee shall not exceed 5% of the turnover from the sales of membership cards by the management organization.

4. In a number of other fields, subject to the nature of projects and efficiency achieved, the parties may agree on a reasonable fee in accordance with international practice and submit it to the Ministry of Planning and Investment or the investment licence-issuing body for consideration on a case-by-case basis.

5. Where enterprises use the signboards or names of works as stipulated in the above item 1 of a management organization or another organization, such signboards or names must be possessions which have been registered for protection by that organization. The use of signboards and names may be stipulated in management contracts or in a separate contract.