Feel free to download the PDF for your ease of reference: VIETNAM CAPITAL MARKET AND PROJECT FINANCE

Dr. Le Net, LNT & Partners

Although Vietnam’s capital markets were established more than twenty years ago, the participation of Vietnam-based law firms i the markets, both locally and internationally, is still rare. The main reasons for this have been the standardization of the State Securities Committee (SSC), the dominance of state capital, and strict foreign exchange controls.  The central new Government, formed in 2016, declared this year to be the “Enterprise Year” and issued many changes to laws and regulations to help make Vietnam become of the top four most open markets in ASEAN. The Government also accelerated its privatization plan (so-called “equalization”) and reduced interference from official development assistance (ODA) with project financing, as well as with recent legal reforms. The time for Vietnamese lawyers in capital markets and project finance is forthcoming.


The Law on Securities (LOS) governs Vietnam’s debt market for bonds, and the equity market for shares of public companies – joint stock companies (JSC) that have more than 100 shareholders. The largest trading volume in the Ho Chi Minh City Stock Exchange (HOSE) and the Hanoi Stock Exchange (HNX) is from Government bonds, which are invested by financial institutions with very rare involvement from law firms. Shares are traded by listed companies, whose IPO’s are prepared by securities companies rather than law firms, unlike in other countries. Corporate bonds and project bonds are still rare, although recently, there have been a number of offshore bonds available on the market.

The role of law firms is mainly for either IP offshore or pre-IPO onshore dealings between strategic partners with a target state owned enterprise (SOE) before equalization has taken place. So far, only leading international law firms or the top three local law firms have been eligible to participate in this narrow market.

Under the LOS, a public company must be registered at the SSC and its shares must be deposited at the Vietnam Securities Depository (VSD). Acquisitions gaining more than 25% of their total shares will be subject to a mandatory public offering (MPO). Almost all state owned enterprises (SOE) going through equalization will become public companies. In reality, many of the equitized SOEs are not registered with the SSC, and therefore, neither the MPO nor the UPCoM apply to them. To facilitate M&As in those companies, certain complex and often unprecedented restructuring models are required, and leading local law firms are proven to be more adept at this, as local laws are complicated and require practical solutions to overcome them.

Another point to note is that selling state shares in equitized SOEs must be done through the HOSE or the HNX, although information on the target company and its valuation is not always transparent. Certain foreign investment funds are willing to take risks investing in equitized companies as such opportunities rarely exist. Many of them can later transfer to Japanese, Thai or Korean conglomerates, with assistance from top law firms that gain innovative lawyers through the Financial Times or deal firm of the year by IFLR, Chambers, or ALB Thomson Reuters. It is expected that  M&As in public or equitized SOEs will be on the rise as those law firms gain more experience on M&A restructuring and legal due diligence with large SOEs.

Apart from the Vietnam debt and equity market, offshore IPOs are on the rise, as the SSC now provides guidelines for investment and offshore listings.  Other areas that Vietnam needs to develop are in high yield products, securitization, debt structuring, and trusts.  Some good news is that, for the first time, the new Civil Code 2015 introduced the concept of “hưởng dụng” – usus fructus that are similar to trusts. Similarly, the Enterprise Law 2014 also reduces conditions to issue bonds or derivatives, making securisation more feasible.


Vietnam’s economic growth was 6.8 percent in 2015, based on two engines: export and a growth of middle income consumers among its young 90 million person population. Due to strong exports, the Vietnamese Dong currency has proven to be resilient despite the devaluation of the Chinese Reminbi. The State Bank of Vietnam (SBV) also issued new regulations allowing enterprises to invest or lend abroad. However,  obtaining offshore investment registration certificates (OIRC) is still a challenge for Vietnamese entities. Recently, Saigon Coop lost its 1 billion EUR Big C bid because of delays in obtaining an OIRC, and the strict foreign exchange controls for offshore lending or using foreign exchange to fund onshore projects.  To overcome these regulations, local investors may either need to contact foreign or local lenders in order to deposit foreign currency abroad. More deregulations are expected to ease capital inflow and outflow.


The second trend in Vietnamese financial services law firms is the sophistication of project finance. Some top local law firms have been involved in highly regarded transactions such as: the funding of Haiphong International Container Terminal (HICT), the M&A of the Big Co supermarket system, the development of mega thermal power plants, offshore oil rigs for Petro Vietnam, or aircraft finance for VietJet Air to acquire 100 aircrafts from Airbus and now Boeing. In those projects, the security comes second to project feasibility, and the risk of non-completion is now recognized as a major issue facing lenders or bond investors. To address these risks, financial service lawyers must be skillful not only with the  Asia Pacific Lenders Master Agreement (APLMA) loan structure but also with  focusing commercial expertise on construction contracts, as well as delays and cost overruns to counter the non-completion risks present in project finance. In addition, lawyers need to assist clients to obtain extra incentives and support to guarantee cash flow from the project.

For state support projects, investors often request the government’s guarantee. Nowadays the Government often refuses to provide guarantees, after its anticipated debt caused by the guarantee under the Nghi Son Oil Refinery project.  Lawyers need to find other means to support clients such as through incentives and investment protections rather than through direct financial supports from the State.

Until recently, Vietnam still relies on state capital and ODA funding for its industrialization and infrastructure development. However, as the public debt is reaches 80% of the GDP, SOEs becoming inefficient, and the country’s growth rate still high, the Government is expected to equitize its public sector and focus on enhancing infrastructure for the private sector, including with foreign investors. Changes in the Civil Code, Civil Procedural Code, Enterprise Law, Investment Law, and the Decree on Private Public Partnership (PPP) are some major examples. This policy shift will no doubt create more room for large law firms to develop their financial service sectors to meet the ever demanding growth for their clients.


For further information/ insights, please contact:

Dr. Le Net, email:

A Liberalised Framework

This article is our newest publication from “FDI Growth Economies Special Focus (2016)” which will be published in June 2016 by the International Financial Law Review (IFLR). This section is written by Mr. Bui Ngoc Hong – Managing Partner of LNT & Partners

Bui Ngoc Hong of LNT & Partners assesses the impact of Vietnam’s new FDI framework on the country’s growth prospects.

According to the Ministry of Planning and Investment of Vietnam, in 2015 FDI into Vietnam reached $24.11 billion, an increase of 10% year-on-year. The first four months of 2016 witnessed a surge of FDI into the country, with new FDI reaching $6.88 billion. This represents an increase of 85% over the same period last year.

It remains to be seen whether this wave of new investment will last. From a regulatory and policy perspective, one possible explanation is that many legislative improvements have recently been introduced to attract more FDI into the country.

A new framework

Vietnam’s new legal framework for FDI comprises two main elements: domestic laws and Vietnam’s commitments to international treaties. The latter are mainly in the form of free trade agreements (FTAs). With respect to domestic laws, the new Law on Enterprises (LOE) and new Law on Investment (LOI) were implemented on July 1 2015. On December 27 2015, Decree 118/2015/ND-CP became effective, completing the new legal platform for investment activities in Vietnam.

Vietnamese laws have narrowed down the areas where foreign investment is restricted. A foreign investor should generally be entitled to invest in and own their invested share capital in Vietnam in any sector, unless exceptionally
restricted in accordance with: (i) industry-based regulations and international treaties; (ii) laws on state-owned enterprises (SOEs), particularly those on the privatisation of SOEs; and, (iii) securities law in cases of investment in public, listed companies, or securities companies.

The restrictions in industry-based regulations and international treaties are being reduced due to recently concluded FTAs. Regarding the restrictions set out in the laws on SOEs, in October 2015 Vietnam’s Prime Minister instructed 10 state-owned conglomerates to divest their entire state-ownership. It is notable that these so-called mega-SOEs operate in crucial sectors such as insurance, mining, infrastructure and real estate, dairy, plastics, trading, and telecommunications. This development offers one of the biggest opportunities for foreign investors to enter into lucrative sectors, acquiring long-established brands and strategically located lands, together with a highly skilled managerial work-force in these privatised SOEs. This move is a signal of the government’s determination to leave private business to the private sector.

With respect to the restrictions in the securities law, according to Decree 60/2015/ND-CP, a local Vietnamese public company can now include the maximum ratio of foreign ownership in its charter. This means a foreign investor’s proposed investment into a local public company should have the company’s by-law restrictions lifted through the public company’s general meeting of shareholders.

Investment forms for foreign investors 

A foreign investor can choose to conduct their FDI in Vietnam by way of: (i) entering into a contractual arrangement – either a public-private partnership agreement (PPP) or a business co-operation contract (BCC); (ii) forming a joint venture (JV) with local investors, especially in those sectors where foreign ownership is yet to open fully; or, (iii) wholly owning a company (a wholly foreign owned company, or WFOC), in sectors open to foreign investors.

As for contract forms, foreign investors must use a BCC in certain restricted sectors. Foreign investors who would like to test the water before setting up their legal entity for market expansion may also choose a BCC. Meanwhile, the PPP is mainly used for infrastructure projects. This has great potential given that Vietnam is calling for more privately financed infrastructure projects. The PPP is advantageous to foreign investors because, once negotiated and agreed between the investors and the authority, a PPP agreement under Vietnamese law will generally have the same contractually-binding effects and enforceability as a private transaction, despite the negotiated matters being of a public nature.

The other two forms – the JV and WFOC – require foreign investors to own partially or wholly a Vietnam-based company. This foreign ownership can be achieved either by setting up a new company or through the foreign investor’s acquisition of share capital in an existing local company.

If choosing to set up a new company, whether a JV or WFOC, foreign investment is project-based, which must undergo two steps. First it is necessary to obtain an Investment Registration Certificate (IRC) approval for the proposed investment project. Second it is necessary to obtain an Enterprise Registration Certificate (ERC), setting up a company to run the approved project.

If choosing to acquire share capital in an existing local company (via M&A), the procedure is significantly simplified. No IRC is required. The general requirement is that the foreign investor conducts the M&A deal, and has it recorded in the relevant corporate registration documents of the target company (for example, the target’s amended ERC or the shareholders’ book) to reflect the foreign investor’s acquired share capital. Approval for the proposed M&A deal is only required when the target company is registered to engage in business lines conditional to foreign investment, or the target has 51% or more of its charter capital held by either: (i) a company with 51% or more charter capital held by foreign investors; or, (ii) a company with 51% or more of its charter capital held by the company in point (i).

Local status entitlement

This is the new legal regime’s most liberal improvement in favour of foreign investors, especially in those sectors where foreign investment is still subject to restrictions. In particular, under the LOI, a foreign invested enterprise (FIE) in which foreign investors hold, directly or indirectly, at least 51% of the FIE’s charter capital, will be treated as a ‘foreign investor’ in applying investment conditions and investment procedures. The others are treated as a ‘domestic investor’ with local status, and will be entitled to enjoy investment conditions and investment procedures applicable to domestic investors such as the freedom to invest in sectors still restricted to foreign investors.

This recognition of the LOI opens legal ways for foreign investors to enter into virtually any and all business sectors in Vietnam. As long as the foreign investor’s investment is structured to be entitled to local status, a foreign investor can invest, own and control their investment, even in sectors not yet open to foreign investment.

Highly restricted areas
Vietnam has a large potential logistics market, currently valued at approximately $60 billion and with an annual growth rate of 20%. As of 2016, all of Vietnam’s market openings to foreign investors in logistics services have become due. These can be grouped into three categories.

Group one is where foreign ownership is lifted completely, ie setting up a WFOC is allowed. This group includes: warehousing and storage services; freight transport agency services; and, maritime transportation services (except for operating a fleet under the national flag of Vietnam). Group two is where foreign ownership can be up to a majority, but a JV is still required. This group includes road transport services and transportation agency services (except for freight transport agency services). In group three foreign ownership is restricted to 50% or less. It includes: loading and unloading services; towage services in Vietnamese seaports; shipping agency services and maritime transportation services which operate a fleet under the national flag of Vietnam; internal waterway and rail transportation services; and, air transport business services.

Retail sector
Vietnam’s current population is approximately 92 million, more than 60% of which are of working age. Vietnam’s economy is growing fast (the GDP was 6.7% in 2015) and the middle-class is growing rapidly. During the last 10 years, Vietnam has been one of the world’s most buoyant retail markets. The current annual revenue of Vietnam’s retail market is approximately $110 billion. Over recent years, the Vietnamese consumer trend has shifted from traditional to modern shopping channels, offering huge opportunities for the retail sector.

A foreign investor can legally set up their subsidiary in Vietnam in the form of a WFOC to retail almost anything. There are a small number of restricted products such as cigarettes, books and newspapers, pharmaceutical products and drugs, explosives, processed oil and crude oil, and rice. The restrictions to foreign retailers are not in the form of a maximum foreign ownership. Rather, it resides in a tool that is potent to the retail sector: the Vietnam authority’s discretion to permit opening retail outlets– or the socalled Economics Needs Test (ENT). The ENT applies to all FIEs. With the ENT, the establishment of more than one outlet is subject to approval based on the number of existing service suppliers in a particular geographic area, and the stability of the market and geographic scale. These criteria are vague, and difficult to judge. They give the licensing authority a high degree of discretion to permit – or otherwise – a FIE to open retail outlets beyond the first. The success of a retail business depends heavily on the number of outlets, which in this case is subject to approval of the authority.

Under the Trans-Pacific Partnership Agreement (TPP), Vietnam has committed to abolish the ENT within five years from the TPP’s effective date. This is positive news for foreign investors from TPP countries. Even so, during the next five years, a foreign-invested retail company must either accept being subject to ENT restrictions, or use special legal structures for their investment so as to enjoy local status, to win end-customers and build their retail outlets in this buoyant sector.

The pharmaceutical sector
Vietnam is the ASEAN’s third-largest by population. With living conditions improving rapidly, pharmaceuticals is one of the most lucrative sectors in the country. However, foreign investment into pharmaceuticals is welcomed only
in manufacturing, and is highly restricted in pharmaceutical retail. Despite the restrictions, as a result of the LOI’s liberal provisions, a foreign investor in pharmaceuticals can still find ways to achieve their commercial purposes either by using a special legal structure, licence partnerships, or product manufacturing arrangements.

Looking forward
Vietnam has recently made great efforts to improve its legal framework to attract more foreign investments. With the economy expanding and opening to foreign investors, the country seems to have committed to joining and playing by the rules of the global market. The playing field has become almost level, so foreign investments have never been so welcome. The coming years should see much more interesting competition and cooperation among investors.

By Vietnam Law Insight (LNT & Partners)

Disclaimer: This article is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact the author Hong Bui at ( or visit the website: Http://

Foreign Investment under Decree 118 detailing the Law on Investment

Law on investment 2014 has taken effect since 01 July 2015 with significant changes in the investment policies and procedures. Being struggle with a completely new platform, both investors and executive agencies were craving for a detailing decree, which has just been issued on 12 November 2015, after 4 months as of the effective date of the LOI. Decree 118/2015/ND-CP detailing and guiding a number of provisions of the Law on Investment (Decree 118), which is expected to facilitate the investment environment for foreign investors in Vietnam shall enter into effect on 27 December 2015.

The most striking feature of the Decree 118 is the simplification of investment procedure regarding the purchase of shares, capital, and contribution of capital. In particular, foreign investors are not required to obtain Investment Registration Certificate if the investment is conducted via purchase of share, capital, and contribution of capital. In this case, Decree 118 only obligates the economic organization whom foreign investor invested into to adjust the list of members, shareholders at the competent authority, except for the two following circumstances where the purchase of shares, capital, contribution of capital need to be registered by the investors: (i) the target company is operating in a conditional business line for foreign investors; and (ii) the investment result in a consequence that the foreign investor holds at least 51% of the economic organization’s charter capital.

In addition, regarding the obtainment procedure of Investment Registration Certificate and Enterprise Registration Certificate, Decree 118 provides a co-ordination mechanism for the investment registration authority and business registration authority. Under Article 24 Decree 118, foreign investors shall be able to submit both investment registration and business registration dossier to one agency – investment registration authority, who shall afterwards transfer the business registration dossier to the competent authority.  Moreover, the registration authorities are allowed to notify to the investors regarding the shortcomings of the whole dossier once only. The provision potentially prevents the practice that the investors have to amend the dossier over and over.

On the other hand, Decree 118 requires the Ministry of Planning and Investment to co-operate with other Ministries and agencies to publicize the conditional business lines applicable to foreign investors, along with its legal basis and details of the conditions on the national portal. A consolidated list of conditional business lines is estimated to bring convenience and efficiency to the foreign investors in making their investment decision.

To sum up, after 4 months waiting, issuance of the Decree 118 is tagged along with a considerable expectation in clarification of policies and procedures in foreign investment. Although it has not been effective, one cannot deny is that it would help to tidy up the mess left by the gap between the LOI 2005 and the LOI 2014.

By Vietnam Law Insight

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us at or our website

Online Enterprise Registration

Decree No. 78/2015/ND-CP on enterprise  registration (“Decree 78”) issued by the Government, guiding the 2014 Enterprise Law, replacing Decree No. 43/2010/ND-CP on enterprise registration and Decree No. 05/2013/ND-CP amending Decree No. 43/2010/ND-CP on administrative procedures will take effect on 01 November 2015.

Decree 78 stipulates procedures and guidance on dossiers of online enterprise registration, and also regulates the registration of operation of branches and representative offices, as well as notification of establishment of business locations by enterprises.

Individuals and organizations are now able to register their operation online, by using public digital signatures or business registration accounts to apply via the National portal of business registration.

Online enterprise registration dossier includes the same documents as required in the paper dossier, but all are converted into electronic form. An online application file for enterprise registration has equal legal value to a paper file application.

The process of public digital signature and a business registration account is undertaken in a similar sequence and procedure, including the following steps:

  • Step 1, input/ declare the information and implement other required procedures;
  • Step 2, receiving a confirmation email after completing the online application; and
  • Step 3, amending or supplementing the application file if such file is invalid; or receiving a notice via the internet regarding the issuance of Enterprise registration certificate, if the application satisfies all the conditions required.

However, a few more steps need to be conducted in the business registration account, such as registering for a business registration account, and lodging a paper application file enclosing the receipt for the online application with the Business Registration Office to compare with the list of contents with those in the file sent by email.

In general, Decree 78 is expected to create an effective, time-efficient and more transparent platform for enterprise registration; simultaneously supporting the Business Registration Office  to reduce the burdens in receiving and managing the files.

Comments: Perhaps we can specify what would be the costs/benefits of the online registration. It may be needless to say that this will lead to convenience for future investors to register their businesses online, however, what may come as disadvantages? The paper registration and electronic registration may hold the same legal value, however, will there be any interference in terms of file storage or is it all applicable regardless of the industries such businesses may engage in?

By Vietnam Law Insight

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us at

Trans-Pacific Strategic Economic Partnership Agreement

On the 4th of October 2015, the date on which Trans-Pacific Strategic Economic Partnership Agreement (TPP) was concluded might be considered as a landmark in the international economic integration process of Vietnam. Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam – the countries currently party to the agreement include 40% of the world’s GDP and 26% of the world’s trade. The initial statistics have demonstrated its significance and its potential influence on the world economy.

Different to other regular trade agreements which mostly deal with goods and custom duties between member states, TPP, with 30 chapters encompassing a broad range of regulatory and legal issues, making it a much more central part of foreign policy and even domestic law-making. Beside goods trading and customs, sanitary and phytosanitary, government procurement, intellectual property, labor and others trade related issues are also addressed in the TPP. Although TPP has not been effective as it needs to be ratified by the member states, it is expected to significantly impact the member states in three aspects: exportation, investment and institutional reform.

The facilitation of a comprehensive market access to crucial markets in various continents such as America, Asia, and Oceania is estimated to foster the exportation of members. Moreover, challenges in modern trading such as digital economy, state – owned enterprise are also addressed in order to promote innovation, productivity and competitiveness of the members.

An array of investment protections and innovations are encompassed in TPP, so as to ensure an equal treatment to foreign investment and provide a transparent, opened market for investors. The role of international arbitration of investment dispute is also enhanced with strong safeguards to prevent abusive and unreasonable claims.

However, a member state only benefits from TPP’s innovations once the institutional requirements promulgated in TPP are satisfied. TPP shall deeply intervene in the institutional structure of member states in order to create a framework for the regulations applied to all the entities, including enterprises, state-owned enterprises, the Governments and also the citizens. All the requirements in intellectual property, environment, labor and others need to be fulfilled by the member states so as to set up a common ground based on the same features. In one hand, such requirements shall dramatically transform the institutional structure, and shorten the gap between member states of TPP, which is now relatively big. On the other hand, it also lay down challenges for small countries such as Vietnam to improve the weaknesses in the legal system and to keep up with the development pace of the group.

In summary, every trade agreement brings advantages as well as disadvantages to member states. TPP is not an exception, though its potential is worth waiting for. Once Vietnam agrees to join the common ground, there are rules we need to follow in order to take advantages from it. However, one that cannot be denied is that by ratifying TPP, Vietnam has taken a big step in the international economic integration and a transformation of the economy as well as infrastructure is expected to come shortly.

Comments: Perhaps we should address a particular industry that will be most influenced by the ratification and implementation of TPP. This article rather generalizes its impact in the legal system, economic development and investment environment in Vietnam. This may not be useful information as the information provided here does not cover a specific industry. Perhaps we can write an article analyzing the anticipated changes in the investment landscape for strong industries Vietnam has such as Textiles, Garments, Electronics (mobile phones, specifically), among others.

By Vietnam Law Insight

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us at

Revised legal framework benefits foreign investors

From July 1, 2015, with the new Law on Investment (LOI) and new Law on Enterprises (LOE) coming into force, Vietnam changes its legal platform significantly for M&A transactions, especially for those with foreign investment elements. From a foreign buyer’s perspective, the legal framework becomes more transparent, simplified, shortened, and generally favouring those aspiring to become the target company’s controlling shareholder. The extent of improvement, however, may depend very much on how the new conditions for foreign investments are stipulated and implemented.

The new rules are geared towards creating a more transparent business environment for foreign investors

The LOI introduces a new categorisation of foreign invested companies, with different investment conditions and procedures. This is perhaps the most significant change affecting M&A by foreign investment in Vietnam under the LOI and LOE.  That is, enterprises are categorised into two groups, with different investment procedures and investment conditions accorded to each group. The First Group includes any company in which the following conditions exist: (a) 51 per cent or more of its charter capital is held by one or more foreign investors (that is, foreign individuals or offshore entities); or (b) 51 per cent or more of its charter capital is held by an enterprise in (a); or (c) 51 per cent or more of its charter capital is held by foreign investor(s) and enterprise(s) in (a). This First Group is subject to investment procedures and business conditions applicable only to foreign investments and is generally  more restrictive. The Second Group covers the remainder companies, which are now entitled to enjoy investment conditions and procedures as provided for domestic investors.

Three lists of business lines are introduced, changing the overall approach of sharing acquisition transactions. The LOI fosters transparency, especially for foreign investment in Vietnam, by making the investment and business conditions public. For the first time, three new lists of business lines are stipulated: First, the list of prohibited businesses—for which no investment is permitted; second, the list of business investments which are permitted but subject to regulations on operational conditions outlined in the List of Regulated Businesses; and third, the list of businesses in which foreign investments are subject to restrictive conditions prescribed by the Foreign Investment Negative List.

Of the three lists, the list of prohibited businesses and the List of Regulated Busineses apply to both domestic investors and foreign investors. To determine whether it is legally possible to invest, a domestic investor must confirm that their proposed investment does not fall under the list of prohibited businesses; meanwhile, a foreign investor will need to check both the list of prohibited businesses and the Foreign Investment Negative List. Once it is confirmed legally possible to invest, then the List of Regulated Businesses will be checked for possible operational conditions.

Under the former regulations, foreign investment is based on an approved project, manifested in the form of an Investment Certificate. The most concerning issue was that the registrability of an M&A transaction involving foreign buyers, even with as little as 1 per cent foreign ownership, could not be confirmed until an Investment Certificate was issued, which usually took four months on average. This time-consuming and somehow unpredictable process is mainly because the licensing authorities had the right to appraise, thus virtually having a lot discretion in permitting or rejecting the issuance of an Investment Certificate.

Now, with the three lists being made public, the role of the authorities changes: they are not in the position to appraise and should have much less discretion to permit or reject a proposed acquisition. Their role now should be to check and confirm whether or not the proposed acquisition is in line with the three publicised lists, and conduct the requested registration if the proposed investment meets the publicly required conditions. Accordingly, in a given proposed share acquisition, a foreign acquirer will need to check the target company’s business lines to ensure that the target company is not engaged in the prohibited businesses. Next, if  the target company is confirmed to have no involvement in the business lines under the Foreign Investment Negative List, it is legally possible to proceed with the proposed share acquisition. However, if involved, the possibilities to proceed with the proposed acquisition is subject to whether the specific restrictive conditions for the relevant business lines can be satisfied.

The new M&A procedures are simplified and shortened. Under the LOI and LOE, foreign investors’ share acquisitions shall follow one of two types of procedures. Type one: if (a) any of the target company’s business lines falls under the Foreign Investment Negative List, or (b) the foreign ownership resulting from the proposed M&A deal will lead the target company to belong to the First Group,  a more complicated procedure shall apply. Accordingly, the M&A procedures comprise of two steps, these being (i) registering and obtain an approval notice from the business registration agency—which is to take 15 days; and (ii) upon approval, registering the change of ownership  as a result of the share transfer transaction–which is to take three working days. Type two: for other cases, the sole three-working-day step is to register the resulting change of ownership or the increase in chartered capital of the target company. With the new M&A procedures, the paperwork is reduced significantly and the registration time can be shortened by at least two-thirds of the time it took under the former, repealed legislation.

The new voting rules make it cheaper to acquire a controlling shareholding (while also making it more costly to acquire enough shares to block a decision). Along with the new 51 per cent ownership threshold used in categorising different groups of investors, voting thresholds to pass a resolution by the decision-making organs of a company have been lowered under the LOE. Specifically, in a joint stock company, the voting thresholds for passing shareholders’ ordinary resolutions have been lowered to 51 per cent of qualified votes and 65 per cent for certain important matters reqioromg extraordinary resolutions (previously 65 per cent and 75 per cent, respectively). If voted by way of circulation, shareholders’ resolution may also be passed with only 51 per cent approving votes. Accordingly, a shareholder may generally control a joint stock company by controlling only 51 per cent of the voting shares. In a multi-member limited liability company, the statutory voting threshold for members’ ordinary resolutions remains unchanged at 65 per cent and 75 per cent for special resolutions. Nevertheless, subject to its members’ agreement, a lower voting threshold, e.g. 51 per cent or even less, can be effectively stipulated in the company’s charter.

Issuance of the Foreign Investment Negative List remains a hidden factor. For foreign acquirers perhaps the most awaited news now is the issuance of the Foreign Investment Negative List—i.e. the comprehensive list of industries and trades into which investments by foreign investors are restricted. This list helps to determine maximum foreign ownership and other investment conditions applicable only to foreign investors. Until this list is issued, foreign investors’ decisions to acquire shares in many local companies may be delayed or cannot be promptly ascertained. What is more important is the volume of the Foreign Investment Negative List. The more this list is reduced, the easier it will be to attract foreign investment—including foreign acquisitions and vice versa.

It remains to be seen how the “investment and procedure conditions as provided to domestic investors” will be applied to the Second Group. Under the draft decree guiding the LOI, investment conditions applied to foreign investors include, among others, “conditions on the scope of investment activities”. However, even this term is ambiguous, thus it is unsure if it includes “business lines”. Consequently, if the term “conditions on scope of investment activities” is interpreted to cover “business lines”, those under the Second Group should enjoy the same, equal legal status and be permitted to invest into any business lines not prohibited to domestic investors. Accordingly, a foreign invested company with less than 51 per cent foreign ownership can engage in business lines till now only open to domestic investors, such as pharmaceutical retailing. If interpreted negatively to foreign investment, “conditions on scope of investment activities” may be narrowed not to include “business lines”, thus nullifying the so-called “investment and procedure conditions as provided to domestic investors”.

The current payment regulations for M&A transactions are not compatible with the LOI and LOE. The current payment rules for foreign-related M&A transactions are provided by Circular 05/2014/TT-NHNN and Circular 19/2014/TT-NHNN. These rules do not accommodate the relevant changes in the LOI and LOE in which such concepts as “direct investment”, “indirect investment”, and “investment certificate” are no longer used. These circulars must be amended. As a recommendation, the most expedient payment mechanism would be to allow each foreign acquirer to open its own sole investment capital account at a commercial bank in Vietnam, and have the payment from their M&A deals into Vietnam-based companies transferred from that investment capital account to the seller’s account.

To sum up, for the first time, Vietnamese law makers introduce new, more liberal groupings of foreign invested companies, together with different investment conditions and M&A procedures respectively applicable to each group.  The investment conditions have been made more transparent, by publicising in three lists, enabling confirmation of legal possibility for a proposed M&A deal. The new M&A procedures under the LOI and LOE can help save at least two-thirds of the time previously taken. The new voting thresholds enable a majority shareholder to pass decisions in a company with a smaller percentage of approving votes, thus encouraging acquirers to buy more so as to control the target company. Overall, this new, improved legal platform should help M&A transactions in Vietnam run faster and more smoothly.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact our partner: Mr. Bui Ngoc Hong at:

Recap – Seminar: “Law on Investment 2015 in Action”

Today, 14th August, the BBGV Breakfast seminar with the presence of Mr Tuan, Deputy Director of the Legal Department of the Ministry of Planning and Investment, drew a great attention from top-level of inhouse counsels  and lawyers in Hochiminh City.

During 2 hours of the seminar, majors changes in the new Investment Law has been indicated and clarified. Main concerns surrounded the IRC, ERC and how the new law will be effective and helpful for foreign investors. Below are some main points from the Q&A session:

  1. Regarding M&A process and local department of planning and investment (DPI) approval: the timeline of 15 days are for the DPI to approve. The DPI does not need to check with the Ministries except for cases that need to be approved in principle under the LOI.
  2. Regarding business line that does not fall into WTO restriction but under 267 conditional sectors, the conditions are listed on If the process and conditions are not clear please inform MPI to seek guideline.
  3. Regarding the request of Decree 23/2007 that any distribution related project need to obtain MOIT approval, the approval, if any, will be after issuance of the IRC. This will follow the upcoming Decree implementing the LOI.
  4. The principle is that ERC is for establishment of a legal entity. IRC is for investing in a project. Those are not related. IRC will be issued by either DPI or Industrial Zone Authority (IZA).
  5. If investors only wish to change the business line but not the current project, they don’t need to amend IRC not ERC.
  6. Any conditions not listed in 267 shall not be effective.
  7. As to IRC form, item 6 Art 39 (business objective) there is no need for CPC or HS code. HS code is for ERC and due to request of A different ministry. MPI is requesting MOIT to reform . MPI will discuss with MOIT and MOF on HS code with MOIT for final decision.
  8. Those are the guidance from MPI that  are stated in OL 5122 and will be stated in the Decree implementing the LOI. If the local DPI and IZA has different opinion please contact MPI for guidance.

Thank you for such a great event and we’ll keep you updated on new movement of the law.

By Vietnam Law Insight (LNT & Partners)

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact the author: Dr Le Net at us or visit the website: Http://

Satisfy Demand for Securities Investment by Foreign Investors

Content of the new Law

On 26 June 2015 the Government issued Decree No. 60/2015/ND-CP (“Decree 60”) amending and supplementing certain provisions of Decree No. 58/2012/ND-CP, on the detailing and guiding the implementation of selected provisions of this, and the Law on Securities, which is considered as good news to foreign investors, since the long-awaited provisions will allow for majority ownership and control of public companies by foreign investors.

In this Decree, the foreign ownership ratio is extended to the Vietnamese securities market. Currently, a foreign investor may purchase up to 49% of total shares of a public joint stock company (JSC) or a listed company.  Beginning on the 1st of September 2015, this general restriction will be removed and instead, the new restriction will be subject to the WTO commitments or other specific domestic laws (e.g., the 30% cap in the banking sector). If there is a specific restriction under domestic law that has yet to be specified, then the rule of thumb is 49%.

When there is no restriction under domestic law (e.g., for production companies, or distribution companies), then there is no limit for the foreign shareholding ratio. This rule also applies to equitized SOEs, with the aim of attracting more foreign investment in the privatization program.

As for securities companies (or investment banks), those who are eligible to establish 100% foreign owned securities companies are allowed to buy up to 100% equity of local securities companies. Those who are not eligible can acquire up to 51% total shares.

Decree 60 also lifts all restrictions to foreign investors to purchase bonds. With respect to share certificates or derivative products of stocks of JSCs, the restriction will be relaxed as mentioned above. For this purpose, open funds or securities funds that have foreign shareholding more than 51% equity will be deemed as foreign investors. Decree 60 also addresses many other functions of foreign investment in public companies, along with other key aspects related to securities investment for foreigners.

Implications for Foreign Investors

The Decree is expected to act as a catalyst for more foreign investment in the private and State-owned sectors in Vietnam. It is intended to add vitality to the Vietnam securities markets and an extra boost to the equitization of State enterprises, as part of a plan to upgrade Vietnam from “frontier” market classification to “emerging” market classification at MSCI. It is reported that the shares with strongest liquidity on the Vietnamese stock exchanges are shares of issuers for which the 49% foreign equity quota has been used up. As such, the Decree is expected to act as an impetus to further foreign investment in Vietnam’s capital markets, both in equity and in debt markets

The Decree takes effect on September 1, 2015, and replaces Prime Minister Decision No. 55/2009/QD-TTg (15 April 2009) on the ratio of foreign investor’s participating on the Viet Nam securities market.

By Vietnam Law Insight (LNT & Partners)

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Vietnam Opening the Doors for Portfolio Foreign Investment

Following the relaxation of the foreign investment procedure under the new Law on Investment (LOI) and the Law on Enterprise (LOE), the Government has now also relaxed the room for portfolio foreign investment as well as the equitization of state owned enterprise (SOEs).

Furthermore, the Decree provides for the equitization of state owned enterprises (SOEs), and this action is expected to attract more share acquisition in stock markets as well as private equity soon. Currently, a foreign investor may purchase up to 49% of total shares of public joint stock company (JSC) or a listed company.  From 1 September 2015, this general restriction will be removed under Decree 60/2015/NĐ-CP dated 26 June 2015 (Decree 60).

Click here to downloa Decree 60 – Open Doors for Portfolio Foreign Investment

Instead, the new restriction will be subject to the WTO commitments or other specific domestic law (e.g., the 30% cap in the banking sector). If there is a specific restriction under domestic law that has yet to be specified, then the rule of thumb is 49%.

When there is no restriction under domestic law (e.g., for production companies, or distribution companies), then there is no limit for the foreign shareholding ratio. This rule also applies to equitized SOEs, with the aim of attracting more foreign investment in the privatization program.

As for securities companies (or investment banking), those who are eligible to establish 100% foreign owned securities companies are allowed to buy up to 100% equity of local securities companies. Those who are not eligible can acquire up to 51% total shares.

Decree 60 also lifts all restrictions to foreign investors to invest in bonds. With respect to share certificates or derivative products of stocks of JSCs, the restriction will be relaxed as mentioned above. For this purpose, open funds or securities funds that have foreign shareholding more than 51% equity will be deemed as foreign investors.

In addition, Decree 60 addresses the following changes:

  1. Private placement of public companies
  2. Share swap of public companies
  3. Public offering of shares in public companies for swapping shares in non-public companies, or equity in limited liability companies
  4. Private placement filing at the State Securities Commission (SSC) for public companies
  5. Public offering process, use of escrow account for public offering proceeds
  6. Public offering of investment certificates or shares abroad
  7. Redeem shares
  8. Tender offers
  9. Sale of treasury shares
  10. Listing of merged or amalgamated companies
  11. Upcom transaction registration and listing
  12. Real estate capital valuation and contribution to real estate investment fund

While opening the door to, and creating more options for foreign portfolio investment, as along with the deregulation of various procedures at SSC are certainly attractive to foreign investors, it is unclear how other restrictions under different ministries, such as Ministry of Health, Ministry of Education, Ministry of Industry and Trade may impact on the intention of the Government to open up the market.

Note that Art 74.3 LOI allows for the “non-compliant” restriction of business to be valid until 1 July 2016, suggesting there could be some more grounds of clarification and explanation to come.

By Vietnam Law Insight (LNT & Partners)

For more information about this article, please contact the author: Dr. Le Net, LNT & Partners, at the email:

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

New Laws on Investment and Enterprise Come Into Effect from Midnight

As you now all know, the new Law on Enterprise (LOE) and Law on Investment (LOI) will take effect from 0.00AM tomorrow, 1 July 2015 promising to bring many positive changes to Vietnam business environment. 

What enterprises and investors are all now waiting for are the Decrees implementing the LOE and LOI, which have not been issued yet.

While the final draft of the decrees are now being circulated, and the vacatio legis by law would be 45 days after promulgation by the Government, the Ministry of Planning of Investment (MPI) sent and urgent Official Letter No. 4211/BKHĐT-ĐKKD dated 26 June 2015 (OL 4211) on business registration, implementing LOE (please click here to download).

Another Official Letter implementing the LOI are expected to be circulated anytime from now until Midnight (we have been informed that this Official Letter No 4326/BKHĐT-ĐTNN dated 30 June 2015 implementing LOI was issued, and will provide you with updates in the next legal alert).

Under OL4211, notable changes are as follows:

  1. Application of ERC for current foreign invested enterprise (FIE): for enterprises operating under an Investment Certificate (IC) or an Investment License (IL), when amending  the IC or IL, they will apply for the Enterprise Registration Certificate (ERC). The ERC dossier will be similar to the dossier for applying a new ERC, attached with the current IC or IL.
  1. Simplified ERC registration process: Art 24 LOE only requires applicants to file, among others, scope of business, and not the HS Code or CPC to the registration request or establishing an enterprise, be it a limited liability company (LLC) or a joint stock company (JSC). The form under Art 24 LOE is now being drafted by the local department of planning and investment (DPI) and to be released soon.  The CPC will be filled in by the DPI, and there is still a risk that the CPC/HS Code filled by the DPI are not matched by the CPC/HS Code of products to be imported by the enterprise. However, the enterprise’s application will no longer be rejected because the CPC/HS Code is not found or unfit.   Please note that with respect to FIEs, the filing of HS Code and CPC would still be required under form MĐ-6 of Circular 08/2013/TT-BCT dated 22 April 2013 of (Circular 08) of Ministry of Industry and Trade (MOIT).  This requirement is still valid until 1 July 2016, at the latest (LOI, Art 74.3).
  1. Place of business to be notified, not registered: the notice shall be sent within 10 days to the local DPI from the date of the decision to open a new place of business. This regulation does not affect requirements to have specific license for each type of business (e.g. a supermarket license, warehouse license, school license etc).
  1. A change of the scope of business, a JSC private placement, and entry of foreign shareholders to be notified, not registered: these changes are notified at the local DPI, who will then reconfirm within 3 working days from receipt of notice. The DPI reserves the right to reject the notice if the conditions for foreign investors’ entry under WTO assessments or other local laws are not met (for “conditional projects”). Therefore it is advisable that the scope of business of an enterprise must be “clean” from conditions, before a notice of foreign shareholders are sent. After foreign shareholders have been duly notified, the enterprise may change its scope of business. This change may still be subject to scrutiny, but the conditions will be strictly by law (e.g., percentage of foreign shareholding) rather by the authorities’ discretion.
  1. Enterprises can make more than one seals by notice. The new seals will be published on the National Business Registration Portal (NBRP).
  1. Liquidation process to be simplified: the enterprise’s liquidation shall be made within 6 months from the passing of the resolution for its liquidation. Within that 6 months, the tax authority should confirm the enterprise’s fulfillment of tax obligations. Unless the tax authority send a notice of objection, the liquidation process will complete within that time period and the enterprise will be deleted from the NBRP.


Some issues are still unclear under OL4211:

  1. Whether enterprises operating under an IC or IL must surrender its original IC or IL when receiving the ERC, and if so, what would be their new Investment Registration Certificate (IRC) under the new LOI, and what would be the In Principle Approval (IPA), should an IPA be required under the new LOI.
  1. Must a foreign shareholder have a “project” when it acquires shares (i.e., indirect investment) in a local company? It is likely that it is not required, but we might need to confirm this by an official letter implementing the LOI (ad hoc regulation pending Decrees implementing LOI).
  2. What is the real difference between “registration” and “notice” if DPI may have the right to send a negative opinion on a notice filed?

For more information about this article, please contact the author: Dr. Le Net at the email:

By Vietnam Law Insight (LNT & Partners)

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Expands Customs Priority Policy to Brokers and Key Investment Projects

New Circular from the Ministry of Finance Expands Customs Priority Policy to Brokers and Key Investment Projects

The law

On 12th May 2015, Ministry of Finance issued Circular No. 72/2015/TT-BTC that will regulate on the application of priority policies in customs procedures, customs inspection and supervision for exported and imported goods of enterprises (hereinafter referred to as “Circular 72”). Circular 72 will replace Circular No. 86/2013/TT-BTC dated June 27, 2013 (hereinafter referred as “Circular 86”) and Circular No. 133/2013/TT-BTC dated September 24, 2013 of the Ministry of Finance.

Under the new circular, the priority policy has had its subject and scope broadened and expanded, with the conditions for application of priority now less strict, and the procedures simplified in comparison with the previous Circular 86.

The customs priority regime will be expanded to include eligible customs brokers and projects, rather than only for enterprises, as noted in the previous Circular 86. The scope of privileges has expanded beyond just businesses to include various subjects including enterprises, customs brokers and key investment projects agreed by the Prime Minister. The conditions stated for the amount of import or export turnover for enterprises has been reduced from US$200 million annually to US$100 million annually.

What does this mean for businesses?

In terms of procedures, Circular 72 waives the stage of undertaking the Memorandum of Understanding (“MOU”) in the verification process. Instead of separating the appraisal procedure into two stages which are generating the MOU and issuance of the Decision on recognition of prioritized enterprises as stipulated in Circular 86. Circular 72 streamlines the process as the Decision will be signed by the Director of the General Department of Customs within 10 working days since the completion of inspection process, without making the memorandum if enterprises meet the conditions for application of priority policy. Moreover, enterprises will submit the dossiers to the Customs Department of the province where the headquarters of the enterprise is located, instead of the General Department of Customs. Furthermore, the right to customs clearance with incomplete declarations will be granted to enterprises more generally, instead of only applying this in the event that the database system of the customs offices meet malfunction or temporarily stop operation.

Businesses should also note that the time schedule for the processing of dossiers is not clearly stated in this Circular, while Circular 86 explicitly specifies that the time limit for consideration to recognize the prioritized business shall not exceed 45 working days.

Circular 72 will take effect on 26th June 2015.

By Vietnam Law Insight.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Regular Dialogues with Vietnamese Citizens

Vietnamese Prime Minister, Nguyen Tan Dung, has opined a simplification of administrative procedures and issued a new decree to allow ministers, heads of ministerial-level agencies and the chairmen of cities’ and provinces’ People’s Committee to hold regular dialogues with Vietnamese citizens. This dialogue is to take place every 6 months and through it, Vietnamese government and its citizens will be able to communicate on a regular basis. The dialogues will serve as a means to streamline and simplify the administrative procedures, which, in turn, will lead to easier entries into Vietnamese market for foreign invested enterprises.

Government to hold regular public discussions:

베트남 수상 Nguyen Tan Dung은 행정절차의 간소화를 주창하며 모든 정부부서의 장관, 시, 구의 People’s Committee회장이 정기적으로 베트남 시민들과 대화를 나눌 수 있도록 새로운 법령을 냈다. 이러한 대화는 6개월마다 정기적으로 열릴 예정이며 이를 통해 시민과 정부부처의 소통이 원활하게 이루어 질 것으로 기대된다. 이 대화를 통해 행정절차의 어려움을 해소하고 절차의 간소화를 이루어 낼 것으로 전망되어 이후 외투기업의 베트남진출이 보다 쉬워질 것으로 예상된다.

By Vietnam Law Insight.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

New Regulations of Preferences on the Selecting of an Investor

On 17 March 2015, the Decree No.30/2015/ND-CP guiding a number of articles of the Law on Tendering 2013 related to the selection of an investor was issued by the Government (Decree 30).

This Decree, along with the Decree No.15/2015/ND-CP on investment in the form of Public-Private Partnership (PPP) dated 14 February 2015, have formulated a full and basic legal framework on tender and PPP project implementation. Accordingly, a wide range of comprehensive and advantageous regulations on the selection of investor has been stipulated to contribute to the attractiveness of investment capital for infrastructure of Vietnam.

More specifically, the investors may put emphasis on of the regulation of preferences during the selection of investors for PPP projects implementation. The investors are required to satisfy the following conditions to enjoy preferences during the financial–commercial assessment process:

  1. Such investors have already had the approved feasibility study report or project proposal (for group C PPP project).
  2. Such investors must apply the methods of (i) the service price; (ii) state contributed capital; (iii) social benefits and state benefits; or (iv) a combined method.

Accordingly, the investors who may satisfy the above conditions are not required to plus an additional 5% to the price or contributed capital of each mentioned method respectively.

Decree 30 has particular provisions on the procedure required for the selection of investors from the pre-qualification documents stage, to the tender approval stage.

It is clearly that new and transparent regulations on selection of investors and tender process may encourage the foreign investors to invest in infrastructure supply in Vietnam.

Decree 30 will take effect on 5 May 2015.

By Vietnam Law Insight, LNT & Partners

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

The New Obligation of Foreign Direct Investment Enterprises (“FDIE”)

The new obligation of foreign direct investment enterprises (“FDIE”) to use a national information system of offshore investment (“System”)

After five years from the original approval date of the plan for information technology application in activities of competent authorities in period of 2009 – 2010, on 29 January 2015 the Ministry of Planning and Investment promulgated Official Letter No. 579/BKHDT-DTNN, it is time for official application of operation of the System. As such, from 01 March 2015, all FDIE within Vietnam are obliged to use the System to declare certain information prior to submitting hard copies of the dossiers on request of investment certificate issuance. The FDIE must also submit a report of their projects via the System.

More specifically, prior to submitting hard copies dossiers to the investment certificate issuing body, the investor must register information relating to the dossier, the investor, the enterprise and the project in form as provided at the link:

Once registration is successfully completed, the investor shall obtain a registration code. In order to complete procedure for request of investment certificate issuance, the investor is obligated to submit certificate issuing body such registration code accompanied with the hard copy dossier as provided by laws within 48 hours from the moment the registration code is provided to the investor. After the aforementioned time limitation, the registration code shall be automatically cancelled.

In addition, the FDIE shall be provided with an account to submit its online report of the project. The report form is available at this link:

The FDIE then must accordingly submit report of project on a monthly basis (on 18th of each month), a quarterly basis (in the last month of each quarter) and finally on an annual basis.

It is believed that the System is a useful data source about all the FDIE in Vietnam.

By Vietnam Law Insight, LNT & Partners

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Stricter rules and centralised regulator for multi-level sales

On May 14, the government issued Decree 42/2014/ND-CP regulating multi-level sales activities. Decree 42 took effect on July 1, 2014 and replaced Decree 110/2005/ND-CP. To detail certain provisions of Decree 42/2014/ND-CP, on July 30 the Ministry of Industry and Trade issued Circular 24/2014/TT-BCT, which will come into effect from September 15.

State management of multi-level sales businesses will be massively enhanced

Decree 42 and Circular 24 set out stricter and more detailed regulations governing enterprises engaged in multi-level sales (MLS) activities in Vietnam, which are expected to create a sector-wide impact on how enterprises in this business will operate.

The salient details of these new provisions are highlighted in this article, which aim to give an overview of how these regulations may affect enterprises in the sector:

Capital and deposit requirements

MLS enterprises now must have a minimum charter capital of VND10 billion ($465,000). This floor amount did not exist in the former laws and adds a further restriction against entrants keen to enter the MLS field.

A deposit of five per cent (but minimum of VND5 billion) of the enterprise’s charter capital is also necessitated. This deposit is essentially locked for the general life of the enterprise as the amount cannot be utilised during its ordinary course of business. It may, however, be withdrawn with consent of the authorities or in the event of a need to pay back creditors during winding up.

Required certificates

The Certificate of Registration of MLS Activities (MLS Certificate) will now be issued by the Competition Management Agency under the MOIT (VCA) with the aim of centralising the Ministry of Industry and Trade (MOIT)’s authority over MLS enterprises. The VCA now has the broad supervisory power to issue, amend, renew, re-issue and revoke MLS Certificates.

As a business condition, enterprises that wish to apply for an MLS Certificate must have already registered their business lines to include retailing business through MLS. However, it is unclear as to how this provision will apply to existing foreign-invested MLS enterprises whose investment certificate does not include this business line.

An MLS Certificate is only valid for five years. For enterprises already in possession of an existing certificate, they must apply to the VCA for a new certificate in accordance with these new regulations.

The registration of the MLS Certificate has also now become considerably more complex and demanding, requiring a plethora of requirements. These include having to submit a large volume of documents that previously did not need to be submitted.

However, despite the complexity, the laws provide for a more streamlined system as it now takes less time, in theory, for MLS Certificate assessments to be carried out by the authorities (namely, the VCA). Upon being issued the MLS Certificate, the enterprise will need to inform the relevant Department of Industry and Trade (DOIT) in the province or city in which it conducts MLS activities.

MLS Certificates may also be revoked, and the new regulations set down stricter criteria and more grounds on which the certificate can be revoked. The MLS Certificate may also be revoked if the enterprise’s registration certificate is withdrawn or expires, if the application for the certificate contains fraudulent information, or if the enterprise is fined for a prohibited action.

Accountability of management

Under the new regulations, individuals in key or management positions of authority in an MLS enterprise (including the legal representative, members of a limited liability company, shareholders in a joint-stock company, an unlimited liability partner, or owners of a private enterprise) will be held to greater accountability.

If an MLS Certificate is revoked from the enterprise while these individuals are in office or existence, they will be restricted from holding a similar position in any MLS enterprise in the future.

Training courses and seminars

Decree 42 imposes greater obligations on MLS enterprises to notify the relevant DOIT when conducting MLS training courses and MLS seminars covering certain areas. This excludes training courses and seminars organised at the enterprise’s headquarters, local branches, representative offices and business locations. However, the notification must be accompanied by a broad set of documents previously not needed.

MLS enterprises are required to also specify a basic training programme for all participants and grant each participant a certificate. The trainers must obtain trainer certificates issued by a specific training institution.

Trading through the MLS model

The new regulations prescribe goods that are prohibited from being traded under the MLS model. These goods include, among others specifically set out under Decree 42, those set out under the list of goods already banned or restricted from being traded and goods subject to compulsory withdrawals for emergency measures.

In addition, all services or business forms other than sales and purchases of goods are prohibited from being traded under the MLS model (unless the law provides otherwise).

Commission, bonuses and other economic benefits

The new regulations now require bonus-paying programmes to be provided and registered with the MOIT. The total value of the commissions, bonuses and other economic benefits per year cannot exceed 40 per cent of the revenue of the MLS enterprise. Although, it is worth noting that the term, “MLS revenue”, is not defined under these new laws and it remains to be seen how this will apply in practice.

Suspension of operations

The new regulations now provide for a maximum period of 12 consecutive months for an MLS enterprise’s suspension of operations. The previous Decree 110 did not provide any restrictive period.

In such event of suspension, an MLS enterprise must submit the dossier of suspension notification to the VCA and publicise the relevant information at its head office and inform MLS participants.

However, in the event of suspension or termination of operations, the new regulations no longer require the MLS enterprise to liquidate its contracts with their MLS participants (as was previously required by Decree 110).

Periodic reporting obligations

Under the new regulations, MLS enterprises are subject to certain disclosure obligations to the VCA and provincial VCA.

Particularly, before July 15 each year, the MLS enterprise must submit a written and electronic report on the results of its MLS activities for the past six months. Before January 15 each year, a similar report must be submitted, but on the annual results of such activities.

These periodic reports cover the contents stipulated under Circular 24, which include business registration, operations and the financial status of the reporting MLS enterprise.


Decree 42 and the guiding Circular 24 are the first regulations to be issued in respect of MLS activities and enterprises since the MLS model was adopted almost 10 years ago in Vietnam. As the MLS model progressively expands in Vietnam, the management authorities have taken active steps to impose stricter regulations on enterprises engaged these activities – particularly as enforcement of these rules is centrally vested with only one ministerial authority: the MOIT through the VCA.

While costs are expected to be incurred in ensuring compliance with these rules, it is a step in the right direction towards hopefully creating more fairness and stability for MLS enterprises.

By Vietnam Law Insight, LNT & Partners

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Revised investment, enterprise laws to bolster influx of capital

The amended investment and enterprises laws will soon be submitted to Vietnam’s National Assembly and will be adopted in November this year. 

These statutes aim to reduce administrative bureaucracy and mobilise more foreign and local capital into production. For the first time, the laws present a pro-investor approach which will, hopefully, create a new wave of foreign investment into Vietnam. Dr Le Net, partner of LNT & Partners law firm highlights the most important changes in these two laws.

Abolition of Investment Certificates for many foreign invested enterprises

The amended and restated Law on Investment will only require Investment Certificates (IC) for conditional investment projects. Other projects (e.g., production projects) may proceed without an IC. That means foreign investors may establish a company in Vietnam by registering its enterprise and obtaining a Business Registration Certificate (BRC) in the same manner as Vietnamese investors. If implemented properly, many foreign investors will no longer have to prepare feasibility studies and await the opinions of numerous ministries before they can commence operating in Vietnam, thereby removing a critical hurdle in their investment stages.

The possibility of establishing a company without needing a project would promote the concept of a holding company, which has not been widely recognised in Vietnam. It will also make it more possible to establish special purpose vehicles (SPVs) to acquire assets/projects in Vietnam without having to enter into a joint venture or acquiring shares in a local company. This significantly reduces transaction costs.

Abolition of the “ultra vires” doctrine and HS Code requirements

The amended and restated Law on Enterprises (RLOE) will abolish the need to provide HS Codes when obtaining a BRC. This allows an enterprise to have as many business activities as it wishes, provided they are not prohibited or restricted by law. Trading and distribution companies will no longer need to supply thousands of HS Codes for their traded and anticipated products. This will answer the common investor complaints on HS Code requirements and the irrelevant questions being asked by authorities in the licensing stages.

The opening up of a HS Code system and the list of business activities may lead the way to relaxing the ultra vires doctrine – that an enterprise may only bind or be bound if it is engaged in the businesses listed in its BRC. This will provide greater certainty to businesses in respect of their trading partner’s capacity.

Reduction of 65 per cent majority vote to 51 per cent majority vote, and 75 per cent majority vote to 65 per cent majority vote

While this change may not affect existing companies with their current charters, it opens up opportunities to renegotiate the charter for the shareholders’ benefit and attracts more investors to buy-in shares to reach the required control majority.

Derivative actions: booster to private equity

While the LOE introduced the concept of fiduciary duty, it does not implement it as a means of protecting minority shareholders if such duty is violated. For the first time, the RLOE introduces the concept of derivative actions, which allows shareholders holding at least 1 per cent of the total shares to launch derivative actions against board members, directors and controllers from a violation of their duty to put the company’s interests before their own and not to abuse their powers. The cost of derivative action will be borne by the company. This can be considered good news for private equity funds or minority investors, who currently hesitate to participate in equalisation programs of state owned enterprises (SOEs) because the major shareholders will be the government or a relative of the SOE’s incumbent managers.

Corporate bonds: booster of securitisation

The RLOE recognises a company’s right to issue bonds. Unlike previous legislation, which requires the bond issuer to be “profitable”, which may be unfeasible to SPVs, the RLOE only requires the issuer to be solvent (i.e., able to pay its debts when due). This deregulation may create opportunities for securitisation and a project bonds market, and is a step towards the right direction in advancing Vietnam’s capital markets.

More than one legal representative in a company

Foreign investors sometimes express concerns over the concept of “legal representative” of a company in Vietnam, as this is the only person that can bind the acts of the company. Often, dismissal of the legal representative becomes a long-term dispute between shareholders or third parties who become surprised when the director signing the contract is actually not a legal representative. The RLOE envisions that a company may have more than one legal representative and more than one chop, which aims to do away the classic shareholders’ conflict among local enterprises and align the LOE with the rest of the world.

Charter capital will be paid up capital

In the past, the Vietnamese authorities often measure the capacity of a company by its “charter capital”. Understanding this misconception, many companies have been established with a very high declared charter capital which never been paid up. To counter this problem, the RLOE now provides that charter capital must be paid up capital to be fully contributed within 90 days from its establishment. Other than paid up capital, there may be authorised capital but this would not be considered charter capital. Any issue of shares beyond the authorised capital should either comply with the public offerings process (registration at the State Securities Commission) or private placement (notice to the business registration authority).

Obstacles to change – “conditional projects” and delays in consideration

The abolition of the IC requirement does not benefit all foreign investors. There are more than 150 “conditional” projects that are still subject to IC requirements. These include services under the WTO roadmap such as retail and distribution, logistics, and pharmaceutical trading. Unfortunately, foreign investors in these business lines tend to face the greatest licensing issues.

For trading and distribution, all restrictions and conditions should be removed. In order to develop a production base, foreign investors should be allowed to test the market and introduce their distribution network. The restriction of foreign trading and distribution not only compromises the effectiveness of the ASEAN Economy Community (to be implemented in 2015), but also harms effective local distributors in the long-run.

Another bureaucratic problem is that although the law provides 45 days for authorities to consider an application and issue an IC, authorities often do not respect this timeframe and it goes unsanctioned. Business societies and law firms may want to lobby the drafting committees to impose a requirement that if the licensing authority requests an opinion from a central ministry, and no reply is provided within 14 days, the licensing authority may assume the ministry has no objections.

As experience shows in the past seven years (when Vietnam joined the WTO), unless the business community voices their concerns, the drafting committees may face stronger challenges from the ministries for various reasons and may, in the end, forfeit their initial good intentions.

Support from the business community

The reforms to the LOI and LOE will considerably impact the Vietnamese legal community. They will facilitate the establishment of new enterprises, especially those owned by foreign investors, and reduce costs when investors withdraw from the Vietnamese market. In addition, it will preserve the rights and interests of investors, shareholders and other stakeholders.

So far, the drafting committees have only received modest support from VBF through organising seminars. It is now time for business societies and law firms to join support, either by submitting position papers or providing examples of technical barriers to the press and the National Assembly, to enable the drafts to be supplemented and completed. Only then will the target of these two vital laws be achieved.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

New Rules on Remittances of Profits Overseas

Regulations restricting remittances of profit overseas are of considerable concern to foreign investors. Which makes it surprising that no new regulations have been issued to govern this topic since the approval of the Law on Investment back in 2005 – leading to a situation of “new law, old guidance”.

Until now, the Ministry of Finance issued Circular No 186/2010/TT-BTC on November 18 providing guidelines on remittance of profit overseas by foreign organisations and individuals deriving profit from direct investment in Viet Nam. It finally replaces Circular No. 124/2004/TT-BTC issued under the old Law on Foreign Investment back in 2004.

The new circular governs remittances of profits from different forms of direct investment, namely investment in an enterprise, under a contract, to develop a business, or make a capital contribution to an enterprise.

Profits are defined in the circular as lawful profits derived from direct investments under the Law on Investment after fulfilling tax and other financial obligations to the State of Viet Nam in accordance with regulations (Article 2.1). Profits can be annual profits or profits realized upon termination of direct investments in Viet Nam.

Annual profits are defined as profits distributed to or received for the fiscal year based on audited financial statements and income tax declarations, plus or minus other profits and expenses. This distribution is conducted at the end of fiscal year after the enterprise has fully discharged its financial obligations to the State, lodged audited financial statements, and made a corporate income tax declaration for the fiscal year to the tax office with jurisdiction over the enterprise (Articles 3.1 and 4.1).

The total amount of profit received by the foreign investor during the process of its direct investment in Viet Nam, less profits used for re-investment, profits already remitted overseas and profits used to pay other disbursements in Viet Nam, is used to determine the amount of profits to be remitted overseas at the termination of investments in Viet Nam (Article 3.2). The investor must also have fully discharged its obligations under the Law on Tax Management.

In cases in which, based on financial statements of an enterprise in which the foreign investor has invested, accumulated losses remain after carrying forward losses in accordance with the Law on Corporate Income Tax, the foreign investor shall not be allowed to remit profits overseas. This is new point of the circular aimed at restricting some foreign investors from preparing a fraudulent report on losses when remitting profits to a parent company.

Lastly, the new circular provides the standard form which the foreign investor must submit to the tax office at least seven days prior to the intended date of remittance of profits overseas.

The new regulation takes place 45 days after its promulgation and is expected to establish a solid legal framework for the regulation of remittance of profits abroad by foreign investors.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Foreign Distributors Face Hurdles

On January 1, 2009, the restrictions on foreign investment in retail distribution were lifted pursuant to Viet Nam’s commitments to the World Trade Organization. In reality, however, there remain a number of obstacles to foreigners seeking to invest in this sector.

The Law on Investment and Decree No 139/2007/ND-CP provide that a joint venture with 49 per cent or less foreign capital is treated as a domestic enterprise and is established in accordance with investment procedures applicable to such enterprises.

But, on March 18, 2009, the Ministry of Planning issued Official Letter No 1752/BKH-PC which stated that a joint venture with 49 per cent or less foreign capital must obtain an investment certificate, i.e., it is subject to foreign investment procedures.

In theory, the provisions of the Law on Investment should prevail, since Official Letter No 1752 is a document of inferior legal effect. In practice, however, licensing authorities will rely on Official Letter No 1752 when deciding whether to issue investment licenses to joint ventures. Therefore, a distribution company with even 1 per cent foreign capital must be established in accordance with foreign investment procedures, including a requirement that the opinion of the Ministry of Industry and Trade be obtained. The upshot is that it would take up to twice as long to establish a foreign-invested distribution company as it would to establish a similar domestic company.

With respect to the distribution products, a foreign-invested distributor must also have a harmonised system code (HS Code) as listed in the nation’s import tax laws. This requirement can be problematic as HS Codes are limited in scope and do not cover all products which a foreign investor might intend to import and distribute. A foreign investor seeking to distribute a product which does not fall within one of the HS Codes must seek an opinion in writing from the customs department, another costly and time-consuming process.

Financial capacity and experience of the foreign investor are also carefully considered by the licensing authority. One local licensing authority has informally confirmed that it will only approve investment certificates for distributors with charter capital of at least US$200,000.

The ability of the foreign investor to demonstrate experience in distribution services can also be problematic, creating significant obstacles to foreigners seeking to invest in distribution in Viet Nam.

Under Vietnamese law, distribution enterprises are established with the intent to conduct retail activities. Circular No 09/2007/TT-BTM provides that the application for a single retail outlet can be considered and approved by the licensing authority alongside the establishment dossier. However if the investor would like to establish additional retail sales outlets, a separate dossier must be submitted to the licensing authorities.

Under WTO commitments, the establishment of additional retail outlets shall be allowed on the basis of an economic needs test. However, there are currently no detailed regulations as to how the test is defined, what the necessary requirements are to establish economic need, and who the competent authority is. In practice, it’s difficult for investors to meet the ENT condition unless they can locate the additional retail outlet in a business centre. This is because such centres will have already been deemed to have met the ENT requirement when their original establishment license was granted. Otherwise foreign investors have to use franchising or establish many branches to circumvent this obstacle.

A final obstacle is that foreign-invested enterprises are licensed for a duration of only five years. This is a very short term for the investor to recover its investment and discourages long-term investment in Viet Nam.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://

Comments on Decree 139 & Decree 108

Together with a draft decree amending Decree 108/2006/ND-CP guiding the Investment law’s implementation, the Ministry of Planning and Investment (the MPI) is finalising a draft decree (the Draft Decree) amending Decree 139/2007/ND-CP on implementation of the Enterprise Law (Decree 139) which was hinted to take effect from this November.

This article streamlines some issues that foreign investors may need to be aware of in making their investment decisions in the future, particularly in relation to procedures for the foreign investment by way of capital contribution, purchase share, and establishment of enterprises with less than 49% foreign owned capital (herein after referred to as the “Enterprise(s)”).

Presently, there are different provisions applicable to establishment of the Enterprises according to Decree 139 and the Investment Law. Pursuant to Article 9.3.b) of Decree 139, in case of establishing the Enterprises, the investors shall carry out procedures for establishment of an enterprise in accordance with the Enterprise Law. The enterprise shall then register its investment project as same as domestic enterprises.

However, this provision is claimed to be inconsistent with Article 50.1 of the Investment Law stipulating that foreign investors who first invest in Vietnam regardless of percentage of their ownership in the newly established enterprise must have investment projects and carry procedure for registration of investment. In the event of conflict, the legal instrument with higher validity shall apply, and thus Article 9.3.b) should be void. Consequently, in practice the licensing authorities applying Circular 10725/BKH-PC of the MPI request that the Investors establish and register their investment projects which ironically, in turn, contrary to the provision of Decree 139.

Hence, one of the key objectives of the Draft Decree is to resolve the discrepancies with the provisions of the Investment Law. Indeed, the drafters have amended the Draft Decree in compliance with the provision of Investment Law.
According to Article 12 of the Draft Decree, foreign investor who first invest by establishing an enterprise shall need to conduct the investment registration procedures. The enterprise shall then be issued an investment registration certificate which is at the same time its business registration certificate. That means in establishing the Enterprises, foreign investors shall have to prepare documentation, including, among others, a statement of financial capacity of the investor, required for investment project with foreign capital stipulated in the Investment Law. Therefore, on the one hand this revision has fixed the inconsistency between the laws; on the other hand it creates burdens on foreign investors in proving their financial ability which would have not been the case if the provision of Decree 139 was to apply.

Further, under the current draft decree amending Decree 108, the foreign investors contributing capital or purchasing shares to established enterprise must conduct procedures for evaluation of investment conditions as stipulated in article 60 of Draft Decree 108. According to this Article, foreign investors shall be required to submit evidences of their financial capacity instead of submission of the statement of financial capacity as required by Decree 108. In so doing, the investor shall need to prepare a range of financial-related documents, such as a letter of comfort issued by a bank or credit institution attesting the current status of the investor’s bank account, a financial undertaking for the project or financial statements applicable for corporate investors operating for three years or more, to convince the licensing authorities that they will be able to implement the intended project.

One may take a view that making these amendments is actually taking a step backward in attraction of foreign investment in Vietnam. That is because the evaluation requirement will not only impose more cost on the foreign investors but also take longer time for the licensing authorities to assess applications. This concern is real given current workload of the licensing authorities in Hanoi and Hochiminh city. In future, if the draft decrees are approved, the workload of these authorities shall sharply increase meanwhile the human resources cannot be quickly trained to meet the increasing demands. Indeed, the draft decree amending Decree 108 has extended the statutory time-limit for evaluation from 15 days currently to 30 days. However, it should be noted that under the current evaluation process, very rare projects have been issued an investment certificate within the statutory time limit.

Another issue that raises the investors’ concerns in this regard is that these amendments would create room for bureaucratism. Even though the content of evaluation is restricted, there is no restriction that the licensing authority must not expand the scope of their evaluation to the extent required by law.

Further, two related issues that remains conflict between the provisions of Decree 139 and those of Decree 108 are: First, whether the foreign investors have to carry out project registration in the case where the ratio of foreign own capital exceeded 49% because the capital contribution of the foreign investors or the decrease of capital of the Enterprise. Second, whether an enterprise with less than 49% foreign investment will be restricted by WTO’s commitments, such as distribution enterprises are not allowed to establish more than one distribution point or foreign investment enterprises establishing a restaurant must invest in hotel business, etc. Unfortunately, these issues have not yet been addressed by the Draft Decree. Though, in light of above analysis, it appears that the mindset is in case of conflict whichever is more stringent shall be applied.

In conclusion, despite the expectation that the Draft Decree would further facilitate foreign investment in Vietnam, the provisions of Decree 139 were amended to stringent requirements and procedures for foreign investment. The reason behind these amendments was that there are many foreign investors have delayed the implementation of their projects and thus forcing the local authorities to withdraw their investment certificates. Given the time constraint, it is unlikely that the final Draft Decree would be significantly different from the current draft.

Therefore, to save time and cost, it is advisable that foreign investors should carefully select their investment project as well as prepare all required document, particularly those proving their financial capacity, before submitting to the licensing authority.

By Vietnam Law Insight, LNT & Partners.

Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For more information, please contact us or visit the website: Http://