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

Legal briefing October, 2015

Please click here to download our report: Legal Briefing October _ LNTpartners

I. Decree number 84/2015/ND-CP on investment monitoring and evaluation (“Decree 84”)

Sector: Investment_ Enterprise

Effective date: 20 November 2015


Decree 84 clarifies implemented subjects and stipulates the principles of monitoring and evaluation of investment activities. In addition, Decree 78 expands its scope of application, including objects and sorts of monitored investment.

  • As of the effective date, not only investment projects, but also investment programs would be monitored and evaluated;
  • Various kinds of monitored and evaluated investment are supplemented, such as: PPP investment projects; a list of investment programs and projects using State capital- without limiting the minimum capital rate; the offshore direct investment and community evaluation now stipulated in this Decree;
  • The responsibilities of monitoring become an initial part beside the regulations on content of such activities, which are allocated to the investors, authorities and related specialized agencies; and
  • Separated chapters regarding cost and capability of organizations and individuals performing monitoring consultants in evaluation of investment projects are newly stipulated;


This Decree provides new and innovative detailed guidelines for monitoring and evaluating investment, in comparison to the old Decree No. 113/2009/ND-CP on investment monitoring and evaluation.

Such clearer regulations can practically increase the responsibilities of investors and relevant authorities; also guarantee the effectiveness of monitoring and evaluation activities.

II. Decree No. 83/2015/ND-CP on stipulation of outbound investment (Decree 83)

Sector: Investment_ Enterprise

Effective date: 25 September 2015


Following the Law on Investment 2014, Decree 83 has been issued to provide detailed guidance for outbound investment activities as follows:

  • Each investment project is granted a project number, which shall be also outbound investment certificate number;
  • Appraisal process is removed. Project registration procedure is divided into 2 types: projects subject to outbound investment policy of the Prime Minister (PM) and projects not subject to outbound investment policy of the PM. Procedure for projects required outbound investment policy of the PM is similar to appraisal process under the Law on Investment 2005. Projects not subject to outbound investment policy shall require confirmation of SBV if their capitals transferring to foreign countries are: (i) in foreign currencies, and (ii) equal to 20 billion VND;
  • Investors are entitled to transfer money, assets to foreign countries to establish investment project before receiving Investment Registration Certificate. However, the value of such money and assets is restricted to be less than 5% of project capital or 300.000 USD (whichever is smaller); and
  • Investors have to report about the implementation of projects quarterly and to more authorities.


Procedure of registration is simplified and investors can transfer capital and assets to foreign countries before receiving IRC. This shall allow investment projects to be implemented more quickly and effectively.

However, investors are now obliged to frequently report the implementation of the project in writing as well as through online update. This might create more responsibilities for the investors.

III. Decree No. 78/2015/ND- CP dated 14 September 2015 on Enterprise Registration (Decree 78)

Sector: Investment_ Enterprise

Effective date: 1 November 2015


Decree 78 provides guidelines for enterprise registration procedures under the Law on Enterprise 2014. Some notable points of the Decree are as follows:

  • Online registration is now available. As such, the entire procedures for registering the formation of an enterprise or the changes in enterprise information may be carried out at the National Business Registration Portal (
  • The timeline for enterprise formation registration and for registration of changes in enterprise information is significantly reduced (from 5 to 3 working days).
  • The registrar agency must not request the enterprise to submit additional documents other than registration documents prescribed by laws.


Decree 78 is expected to significantly remove the administrative burdens from the backs of the investors and enterprises and improve the investment climate of Vietnam

IV. Decree No. 76/2015/ND-CP providing detailed regulations on the implementation of a number of articles of the law on real estate business (Decree 76)

Sector: Real estate

Effective date: 01 November 2015


Below are some salient points of Decree 76:

  • Legal capital required for real estate trading is minimum VND20 billion for all types of projects. Financial statement or bank acknowledgement is no longer required to prove the financial capacity with respect to the fulfilment of legal capital;
  • Model contracts for key real estate transactions are enclosed in the Decree for the parties to follow; and
  • Regarding transfer of the entirety or part of the project, procedures and detailed forms for application dossier and timeline for the approval process are specified.


Procedures for registration of the real estate business and project transfer are simplified and less time-consuming

The model contracts, while causing no restriction to freedom of contract, will help reduce disputes in the market.

V. Decree No. 82/2015/ND-CP dated 24 September 2015 regarding visa exemption for Vietnamese people residing overseas and foreigners who are spouses, children of Vietnamese people residing overseas or of Vietnamese citizens (Decree 82)

Sector: Civil

Effective date:15 November 2015


Decree 82 provides detailed guidance for procedures of issuance of visa exemption certificates and its conditions:

  • Regarding conditions for visa exemption, the applicant’s visa or equivalent document must be valid for at least one year;
  • Regarding the format of certificate, it shall be granted in the passport or a detached certificate in some certain circumstances;
  • The competence and processing procedures of authorities are more detailed than before. For example, processing procedure of overseas authority is separated from the Immigration Administration; and
  • The duration of certificate of temporary residence for people using certificates of visa exemption is extended to 6 months.


Although the processing time stays the same as Decision 135/2007/QD-TTg on the promulgation of the regulation on visa exemption for Vietnamese residing overseas, the procedure is now much clearer for applicants to follow.

The extension of certificate of temporary residence from 90 days to 6 months is considered to be a big support for Vietnamese people residing overseas to come back home country.

VI. Decision No. 41/2015/QD-TTg on selling shares in blocks (Decision 41)

Sector: Governmental management/ Corporate

Effective date: 15 September 2015


Decision 41 deals with withdrawal of state capital of unlisted public companies from joint-stock companies that have not been listed or registered on Upcom (Hanoi Stock Exchange), the ownership of which is represented by Ministries, ministerial agencies, Governmental agencies , People’s Committees of central-affiliated cities and provinces, state-owned corporations, and companies whose 100% charter capital is held by the State. The striking features of Decision 41 can be summarized as follow:

  • the sales of shares in blocks must be implemented via Stock Exchange by audit method with the following information: number and price of each block, status of investors attending audit, solutions in case of an unsuccessful audit. Each block must not be less than 5% of the company’s charter capital;
  • Starting price of the block, which is determined by a valuation organization, equals to the starting price of a share multiplied by the quantity of shares in a block; and
  • According to the Decision to approve the plan for selling shares in blocks issued by a competent authority and regulations on selling shares in blocks, the owner’s representative agency, the Chairperson of the Board of members, the President of the enterprise shall request the representative to cooperate with Stock Exchange in formulating the enterprise’s own statute on selling shares in blocks.


Decision 41 sets out a clear procedure and conditions for the withdrawal of the state in joint-stock companies, which is considered to be a concession of the Government in intervening into the market. As a result, a free market without control of the Government is constructed step-by-step.

VII. Decree 79/2015/ND-CP on  penalties for administrative violations against regulations on vocational training (Decree 79)

Sector: Administrative

Effective date: 01 November 2015


Decree 79 provides detailed regulations of administrative fines upon the violations related to: vocational school establishment; organization of vocational education quality control; vocational education organizations, student recruitment, program syllabus, class size, bridge programs and educational association in vocational education; test, examination; issue and utilization of certificates, degrees.

  • The limitation for the maximum fine is maintained at 75,000,000 VND for individuals, 150,000,000 VND for organizations;
  • There are not many changes in the rate of fines imposed on the violation of regulations, except for some certain violations in registration of vocational activities, maintenance of ratio of full-time teachers/ lecturers, and others; and
  • Beside a number actions which are newly added to the scope of administrative fine application, Decree 79 provides more remedial measures applicable to the violators, such as transferring illegal benefits obtained from the violations, cancellation of the decisions on admission, returning collected amounts to learners.


Financial penalties seem not to be strong enough to prevent individuals and organizations from violating regulations on vocational training. Hence, Decree 79 imposes more intensive preventative measures to violators to enhance the protection for the rights of learners as well as vocational education organization.

VIII. Circular No. 139/2015/ TT –  BTC providing guidance on guarantee for foreign loans on lent by the Government (Circular 139)

Sector: Banking and finance

Effective date: 01 November 2015


Circular 139 provides detailed guidance on the procedures for guarantee of loans, settlement of secured assets, and responsibilities of relevant Parties concerning the  foreign loans on-lent by the Government with the following remarkable regulations:

  • The execution of a guarantee contract depends on the involvement of the Ministry of Finance (MOF). If the MOF directly undertakes on-lending, a credit institution satisfying certain conditions set out by this Circular shall be nominated by the obligor to act on behalf of the Ministry of Finance (MOF) to perform loan guarantee operations. Upon approval by the MOF, a Security Service Agreement shall be executed between the MOF, the obligor and the credit institution.  If the MOF authorizes an on-lending agency to perform on-lending, the loan guarantee contract shall be signed between such agency and the obligor under the scope of on-lending authorization between the MOF and the agency;
  • The total value of secured assets must be equivalent to 100% of the loan; and
  • A loan guarantee contract must be registered with competent authority by the obligor regardless of the secured assets not required to be registered by the laws. If the obligor fails to register, either the disbursement process might be suspended or the total loans might be immediately recovered before the due date.


Decree 78/2010/ND-CP on on-lending of the Government’s foreign loans took effect as of 2010 with only one article on the loan security causing numerous issues during its implementation. On the other hand, Circular 139 offers solutions for this issue by forming a detailed legal basis for guarantee for foreign loans on-lent by the Government.

IX. Circular No. 15/2015/TT-NHNN guiding foreign currency transactions on foreign currency market for credit institution permitted to make foreign currency transactions (Circular 15)

Sector: Banking and Finance

Effective date: 05 October 2015


Circular 15 replaces a numbers of decisions providing guidance on foreign exchange transaction to regulate the exchange rates, terms, means and documents of the transaction, form of the transacting agreement as well as the responsibility of the authorized credit institutions and departments belonging to the State Bank of Vietnam concerning the foreign exchange transactions.

The most important point of the new Circular is the stipulation on the latest payment date of foreign exchange transactions. Particularly, regarding the spot transaction in swap transaction, the parties could agree on the payment date which is subject to be within two days from the transacting date. Meanwhile, regarding the forward transaction in the swap transaction, the payment date must not be later than the last date of transacting term which lasts from 3 to 365 days from the transacting date.


Circular 15 shall deter the foreign exchange hoard in financial market.

X. Decree No. 85/2015/ND-CP providing detailed regulation on a number of articles of the Labor Code on policies for female employees (Decree 85)

Sector: Labor

Effective date: 15 November 2015


Decree 85 provides in details state policies on female employees, which requires employers employing multiple female employees to conduct necessary works with the purpose of improving the working conditions, healthcare and also supporting female employees in taking care of their children.

In return, employers may enjoy notable policies as follows:

  • Employers investing in building nurseries, kindergartens and healthcare facilities which meet statutory requirements may be entitled to enjoy incentives under the current policies encouraging socialization in education, occupational training and medical health as provided by the laws, e.g. exemption of land lease fees or corporate income tax incentives (tax rate, tax exemption and reduction);
  • Employers may also be entitled to incentives as stipulated in the Law on Residential Housing if investing in constructing residential housing for employees; and
  • Additional expenses for female employees may be included in deductible expenses for income tax purposes as provided by the laws.


Decree 85 shows the effort of the Government in encouraging employers to practically ensure and improve working conditions for female employees, through which employers may receive preferential support from the State of Vietnam, by ways of. tax incentives, upon satisfaction of certain conditions stipulated by the laws.


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:

Mergers & Acquisitions 2015

In our Mergers & Acquisition 2015 Roundtable we spoke with 12 experts from around the world to discuss a broad range of topics including: a “new era of opportunities” for Greece; the problem with “gun jumping”; and a bold prediction that 2015 could end up being a record year for announced global M&A deals. Featured regions are: Greece, Japan, Belgium, Ukraine, Switzerland, Luxembourg, Vietnam, Pakistan and USA.
  • LE NET
All questions

1) Can you talk us through the current M&A landscape in your jurisdiction?

2) Have there been any recent regulatory changes or interesting developments?

3) Are you noticing any trends in terms of deal size, volume and/or sectors?

4) What are some of the key issues related to integrating finance organisations?

5) What key risks should finance executives consider in the planning of integration?

6) What are the key risk areas in an M&A transaction, and what common mistakes do companies make during a transaction?

7) Can you outline any applicable anti-corruption legislation in your jurisdiction? What are the potential sanctions and how stringently have they been enforced?

8) Royal Dutch Shell’s acquisition of BG Group was the biggest M&A deal announced in the first half of 2015.  Do you share the same concerns as US regulators in regards to monopoly trends?

9) What is the current status of risk reduction and cost synergy in mergers & acquisitions?

10) M&A typically involves a substantial amount of due diligence from the buyer.  Given the current climate what aspects of due diligence should be focused on in relation to technology/intellectual property?

11) What factors can lead to a dilution EPS (Earnings per Share) in an acquisition?

12) What types of issues can impact the marketing and sales organisation during M&A transaction, and what are the current leading practices to address these key issues?

13) What key trends do you expect to see over the coming year and in an ideal world what would you like to see implemented or changed?

You can also read the full Report at:

1) Can You Talk Us Through The Current M&A Landscape In Your Jurisdiction?

2015 is being again an extremely busy year on the M&A side in Luxembourg, with even more activity than the previous year.  One cannot set aside that there was a concern about the Lux Leaks but eventually investors kept faith in Luxembourg.  This combined with the financial crisis exit brought many deals on the table.

For example, in July 2015, KBL European Private Bankers, headquartered in Luxembourg, acquired Brown Shipley, an independent company operating on the financial planning in the UK.  In May 2015, the Swiss group ExecuJet Aviation Group AG was acquired by Luxaviation, the most important business aviation group in Europe, hence becoming the second most important business aviation group in the world.

Vietnam is one of the largest recipients of M&A from Japan, Korea, Singapore and, to a lesser extent, the US and European Union.  After the first wave of investments in 2011 – 2013[1], Vietnam now faces competition from Indonesia, the Philippines and Myanmar.  Meanwhile, China is reforming its Foreign Investment Law and streamlining the procedures for foreign investment.[2]

At the Spring Economic Forum at Nghe An, Vietnam in April 2015, JETRO issued a survey from over 400 Japanese investors in Vietnam, which revealed that the main concern is the lack of transparency within the law, followed by an underdeveloped support industry.[3]  Meanwhile, Bloomberg recently described Vietnam as Asia’s next economic tiger, supported by the potential of its low labour cost, young population and sizable local market.[4]  Vietnam is now the US’s largest trading partner in the ASEAN region.  However, while Vietnam is already among the top 8 trading partners of Korea, it ranked as Japan’s 14th largest, below Malaysia and Thailand.[5]

The question now is what the Vietnamese government can do to address foreign investors’ concerns and how such investors can overcome the difficulties in Vietnam to take advantage of Bloomberg’s aforementioned economic potential.  I would like addresses the recent changes that will have positive impacts in Vietnam, and a strong message that now is the time to accelerate M&A investment to Vietnam.

In line with general market optimism in Japan since the introduction of “Abenomics,” M&A activities in Japan have been on the rise since 2012, both in terms of number of deals and transaction value.  The depreciation of the Japanese yen, a result of “Abenomics,” continues to make Japanese companies attractive acquisition targets for foreign companies and private equity funds.

In terms of outbound transactions (where the acquirer is a Japanese entity and the target is a foreign entity), many Japanese companies, driven by a sense of crisis as a result of the shrinking domestic market, are pursuing growth opportunities by acquiring suitable foreign targets.  As such, the volume of outbound transactions has also remained buoyant despite the depreciation of the Japanese yen.

All in all, the current M&A landscape in Japan remains upbeat.

A clear distinction should be made between 2014 and 2015 in relation to the Greek M&A landscape.  During 2014 the increase in deal volume was a clear marker of the investors’ renewed interest in Greece.  However, since December 2014, the well-known, political and economic developments, including negotiations with the institutions, Grexit risk and the newly announced elections (scheduled for September 2014) have made both foreign and domestic investors extremely reluctant.  We are looking forward and are confident that, once the situation is stabilised, a new era of opportunities will commence.
The M&A activity in Ukraine remains practically dormant.  Given the political instability, there is little interest from foreign investors in acquiring Ukrainian assets.  Also some of those foreign investors who have previously acquired Ukrainian assets are looking to divest them.  This scenario attracts Ukrainian buyers who try to benefit from the situation and often acquire such assets with very significant discounts.  There is also a significant increase of M&A transactions related to distressed assets.  It is expected that aggressive foreign buyers will likely follow the suit and try to enter the market with the purpose of acquiring undervalued assets in Ukraine but this has not yet become a massive trend.

Belgium’s strongest industrial sectors are the food and beverage industry (chocolate, beer, biscuits), manufacturing (automotive, carpet industry), transport and logistics (logistical centre of Europe, highly developed transport network and presence of international hubs of major logistics companies), the services industry (financial institutions, consultancy) and the TMT sector (characterised by a lot of start-up companies and an excellent network infrastructure).

Belgium is a country with a lot of small and medium-sized companies, many of which are family-owned.  These shareholders often prefer to have a majority share, or be at least a ‘reference’ shareholder, in order to be able to keep the control over their company.  When, at a certain point in time, these reference shareholders are no longer able to make the necessary investments to support their company’s growth, they often prefer to sell their participation rather than to see it become diluted in the context of a capital increase, where another shareholder takes over control of the company.  As a result, there are generally a lot of interesting investment opportunities for both industrial and financial investors.

There continues to be increased M&A activity in Switzerland.  Large caps and in particular listed companies have been highly acquisitive, especially in the TMT and Life Sciences industries.  A number of large strategic transactions closed in 2015, e.g. the asset swaps between GlaxoSmithKline and Novartis, the disposal of SIG, the disposal of Kuoni’s travel agency business and the merger of Holcim and Lafarge.  There is higher appetite for outbound transactions, i.e. Swiss companies acquiring abroad, compared to divestments of Swiss businesses.  Key target markets for many Swiss companies are the US, Germany and China.  Outlook in the SME segment is however prudent due to the strong Swiss Franc.

So far global M&A activity has made a phenomenal start to 2015, with the much awaited rush of deals finally starting to happen.  The $2.30 trillion invested represents the highest recorded value of announced deals globally since H1 2007, when a record $2.60 trillion was invested.

Announced private equity deals as a sub-sector of overall M&A activity totalled $267bn.  However this figure is still 57% lower than the record breaking 2007 time period, the biggest difference in 2015 being the amount of “secondaries” taking place compared to previous years, with these deals representing 22% of all PE deals by value.

The current landscape is busy with many larger transactions being completed exceeding $100million.
Cross-border M&A activities are increasing relatively to new direct investment activities.  The Government is also pursuing an aggressive plan to equitise hundreds of State enterprises, which may create opportunities for investors in a number of attractive sectors.  On the other hand, the trend of merger and consolidation of financial institutions continue as they try to cope with the increasingly competitive market.

2) Have There Been Any Recent Regulatory Changes Or Interesting Developments?

No big regulatory changes in New York, this area has already been through it all.

The Listed Companies (Substantial Acquisition of Voting Shares and Take-overs) Ordinance 2002 (“2002 Ordinance”), has recently been repealed by the Securities Act 2015.  Under the 2002 Ordinance, a Mandatory Tender Offer was required to be made where the shares being acquired of a listed company exceeded 25% or more.  However under the new Securities Act 2015 the thresholds triggering a Mandatory Tender Offer is the acquisition of more than 30% shares.  Further while the 2002 Ordinance has been repealed, the Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Regulations 2008 issued pursuant to the 2002 Ordinance continue to be in force.

The Competition Act 2010 (Competition Act) has introduced certain new concepts for which there are no precedents in Pakistan.  The Competition Act prohibits the abuse of dominant position, prohibits certain agreements, requires approvals for mergers and acquisitions and prohibits deceptive marketing practices.

Under the provisions of section 11 of the Competition Act, no undertaking can enter into a merger or acquire shares or assets of another undertaking whereby competition is substantially lessened and a dominant position is created or strengthened in the relevant market.  Where an undertaking intends to acquire the shares or assets of another undertaking or two or more undertakings intend to merge the whole or part of their businesses, and such acquisition or merger meets the pre-merger notification thresholds stipulated in the regulations prescribed by the Competition Commission of Pakistan (Competition Commission), such undertaking or undertakings are required to apply for clearance from the Competition Commission of the intended merger/acquisition.  Under the Competition (Merger Control) Regulations 2007, a merger is deemed to have occurred if, among other things, one or more persons or other undertakings who or which control one or more undertakings acquire direct or indirect control of the whole or part of one or more other undertakings.

Any agreement containing exclusivity or non-compete provisions would have to be considered under section 4 of the Competition Act which prohibits agreements which have the object or effect of preventing, restricting or reducing or distorting competition within the relevant market.  If the relevant agreement falls under the ambit of section 4 of the Competition Act, it would require exemption from the Competition Commission prior to the agreement being executed or becoming effective.  The Competition Commission normally grants an exemption within 2-4 weeks of an application being made.  Such exemption is normally granted for a specific period and is renewable at the discretion of the Competition Commission.

We are not aware of any recent legal or regulatory change of the Luxembourg takeover bids or, of the squeeze-out law and of the Luxembourg law dated 10 August 1915 concerning commercial companies, as amended from time to time, which would impact M&A transactions in Luxembourg.
The regulatory changes in the financial and especially banking industry (e.g. capital reserve requirements and increasing compliance costs) have triggered significant M&A activities on the sell- and buy-side.  Another area to watch is the restriction on visas and work permits which might have an effect on M&A in Switzerland as the Swiss industry is highly dependent on the supply of qualified immigrants.
In line with the AEC integration schedule, the Government is introducing a number of dramatic changes to the legal framework for investment, securities and real estate.  The changes amongst others simplify investment procedures and M&A processes, reduce the difference in the treatment of foreign investors and local investors in M&A transactions, allow foreigners’ ownership of personal real properties in Vietnam, and lift the 49% foreign equity cap for most companies listed on the stock exchanges.
The recent amendments to the Companies Act of Japan, which introduced, among other things, squeeze-out procedures, have been lauded as a boost to Japanese M&A practice.  Prior to the amendments, squeeze-outs in Japan were required to be conducted through the use of a certain class of shares, resulting in a complicated and time-consuming process.  The amendments, which came into effect on 1 May 2015, allow for a “special controlling shareholder” of a company (i.e., a shareholder that controls 90% or more of the company) to compulsorily acquire the shares of the remaining shareholders in the company for cash consideration.  The new squeeze-out procedure is expected to simplify and accelerate the squeeze-out process in Japan.

In 2013 Vietnam amended its Constitution; and now officially recognises that the private sector has an equal role in the economy as the public sector.  Many laws have been revised or restated to reflect this principle, most notably the LOI and the LOE.  Both laws will become effective from 1 July 2015, and decrees implementing those laws are underway.

As to the LOI, the most important change in the law is the definition of “foreign investor” or what is deemed to be a foreign investor, and the process of approving M&A transactions.  In the past, companies that held directly or indirectly more than 49% of total capital by foreign investors might be deemed foreign investors.  Now only enterprises held directly by foreign investors (F0) with at least 51% of the total capital, or held by company/ies (F1) where foreign investors directly hold at least 51% total capital are deemed to be foreign investors.  In other words, Japanese investors may establish a local holding company of various structures, to hold the majority of a Vietnamese operating company, whilst at the same time avoid being triggered by the conditions of investment that are applicable to foreign investors.  This “form over substance” approach of Vietnam is different from the “substance over form” approach that China utilises to control offshore held companies and offshore M&A transactions.

In the past, foreign investors have had to obtain an Investment Certificate (“IC”) – now referred to as an Investment Registration Certificate (“IRC”), and as a closing condition for an M&A transaction.  The new law stipulates that only registration at the company registrar (normally the local DPI) is required for foreign investors, or those deemed to be foreign investors.  The registrar will issue an approval for the M&A within 15 days from filing.  This reform is to catch up with China’s recent streamlining of the investment procedure.

As for the application process, Vietnam will introduce a national portal, in which information on the IRC application, as well as the conditions under which it can be made online.  Mega projects or projects using public land or natural resources shall have to obtain principle approval (“PA”) before applying for the IRC, meaning the application process can last from 30 days to 90 days.  Other projects however will be issued with the IC within 15 working days.  There are 29 areas that belong to a “restrictive list” of investment where internal approval from the relevant ministries should be sought, including distribution and logistics services, but those restrictions have been subject to criticism from investors and expected to be relaxed before 1 July 2015.  The IRC is now issued by a local industrial zones authority (“IZA”) or the department of planning and investment (DPI) instead of the People’s Committee, significantly reducing the time frame of IC issuance.  The DPI/IZA responsibilities are now only to review the documents, and not the due diligence of the investors.  It is expected that with straightforward conditions in the application dossier, the DPI shall refrain from asking relevant authorities before issuing the IC.

Meanwhile the MPI has issued Official Letter 4326 /BKHĐT-ĐTNN (OL 4326) for ad hoc guidance to implement the new LOI, as well as the forms to be used from 1 July 2015 to obtain the Investment Registration Certificate (IRC) and its amendments; they key points are:

i.) Online application for IRC: investors can file IRC application online at the National Investment Portal [NIP], and submit a paper dossier within 15 days from the online filing.  In the event that the dossier is accepted, the investors will be given a temporary account to check the application status.  Any incorrect or incomplete application must be notified within three days from receipt by the licensing authority.

ii.) Project Code: the project code is a 10 digit code to be issued to the applied project (Project) during its operation.

iii.) Forms issued: among the forms submitted, please noted that CPC Code and VSIC Code (for business line) is still required when submitting to obtain the IRC.  Separate forms are also available for amendments to the project.

iv.) M&A approval: the form for M&A approval is on form I.6 attached to OL 4326.  This form is simplified, and the explanation to satisfy conditions for M&A is rather brief and must strictly follow the WTO Commitment.  It is unclear how other restrictions under local laws could be satisfied or would need to be satisfied (e.g. ENT for distribution companies).

v.) Forms of decisions and IRCs: OL 4326 also provides new forms of IRCs, Principle Approvals and other decisions for authorities to use.

No noticeable regulatory changes occurred in the past few years in relation to M&A.  A number of tax measures, however, may have had a slight impact on the M&A market.  The Act of 29 March 2012 introduced a 25.75% capital gains tax on the sale of shares by a Belgian company if the shares are sold within one year from their acquisition.  The tax does not apply to physical persons selling shares.  In addition, as from 1 January 2013, a tax of 0.412 % is levied on capital gains resulting from share sales, even if the shares were held for more than one year.  These capital gains were previously entirely exempt.  The tax, however, only applies to large companies and not to small or medium-sized enterprises.
During the last years, there have been extensive regulatory changes and reforms in many fields, aiming mostly into creating a more competitive environment in Greece.  Indicatively, the new Investment Law aims to increase liquidity, speed up regulatory procedures for investment projects and ensure transparency; moreover, the laws that have transposed the UCITS/AIFM Directives have also introduced new investment tools in Greece.  In parallel, the new Civil Procedure Code and the introduction of mediation aims to a modernised and more effective dispute resolution mechanism.  Reforms take place continuously on many other fields of law, including, but not limited to, corporate, labour, fiscal etc.
There has been some significant progress with legislative reforms and initiatives in Ukraine.  However, we are yet to see how these reforms will be implemented in practice.
One of the recent developments is the requirement for all Ukrainian companies to disclose information regarding their ultimate beneficial owners.  The law defines ultimate beneficial owners as individuals who, irrespective of formal ownership of Ukrainian company, may influence the management and business activities of the company.  Information about UBOs is publicly available and may be easily accessed online.There are also important developments in the area of transfer pricing.  It has recently been clearly stated that transfer pricing rules do not apply to value added tax and transactions between related Ukrainian tax residents.

3) Are You Noticing Any Trends In Terms Of Deal Size, Volume And/Or Sectors?

In 2014, there were approximately 190 Belgian M&A transactions (both domestic and cross-border).  This represents a slight increase compared to the period 2011-2013, with approximately 170 M&A deals per year.  Whereas in the first years after the 2008 economic and financial crisis, buyers were most often industrial players and private equity deals were hampered by a lack of available cash and the reluctance of financial institutions to provide funding, it appears that in the last 12 months the deal appetite of Belgian companies has somewhat increased and confidence in the private M&A market is starting to grow again.

Whereas auctions previously were quite rare (only half of the transactions with a value over €100m were auctions), currently three out of four such transactions are auctions.  There seems to be a positive correlation between transactional value and the use of auctions.

The top sectors where most private M&A deals are traditionally concluded are those of logistics, life sciences, technology/IT and food.  The most noticeable transaction of 2014-2015 was the acquisition by Perrigo of Omega Pharma, the Belgian leader in OTC cosmetics and pharmaceutical products, for $3.6 billion.

2015 has seen the return of the M&A “Mega” deal.  37 deals greater than $10bn in value have been announced so far this year.  Corporate buyers have finally been prepared to part with significant amounts of cash in order to consolidate their market positions and take advantage of growth opportunities.  All but one of the $10bn+ deals this year have been between two corporate entities.  Based on the location of the target company, North America and Western Europe remain the “powerhouse” regions for deal activity, but in the last 18 months the Far East & Asia Pacific region is getting much closer in terms of its companies being targeted for deals.
As mentioned above, the deal size has been larger, assuming the extensive due diligence and financing costs.
The overall deal size during 2014 amounted to approximately €5.1 bn.  Although there has been an increase in the overall volume, there has also been a significant decrease in the average deal size.  In terms of sectors, real estate has been leading the M&A transactions, followed by some announced privatisation deals like the privatisation of regional airports, which has, however, been put on hold.  Shipping and industry has been active as well.
We have personally witnessed a recent certain attractiveness of companies carrying on their business in the technology and digital sector.

We notice a strong interest from Japan and Korea, as well as Singapore, to invest in Vietnam.  According to Savills, M&A in real estates have gone up by US$7 billion this year.[1]  In retail sector, we have seen the landing of major players such as Aeon, Ministop, Family Mart, Guardian, Seven 7 and more through M&A.  In food, beverage and entertainment, we see the M&A from leading Japanese brands such as Saporo, Suntory, MOF; as well as many Korean brands, Lotte Cinema, CGV, Angel in Us, to name a few.  As Vietnam is among the countries that have “golden population”, which average ages between 25-30, and the middle class will grow by 40% until 2020, there will be many market opportunities for new comers that satisfy the demand of the new middle class, including healthcare, education, real estates, retail and entertainment.

The banking sector has seen a fair share of mergers and acquisitions in recent years, especially with the exit of a number of foreign banks whose Pakistan branches have been merged into Pakistani banks.

In terms of sectors, M&A activity in the medical and life-science sectors have seen an uptrend in recent years.  Due to Japan’s ageing society, which has resulted in increasing demand for health-related services, Japanese companies have over the years developed highly advanced medical and life-science technology.

The IT sector in Japan continues to hold tremendous promise as Japanese companies, from industry leaders to start-ups, are showing increasing interest in IT development.  This has resulted in a recent increase in M&A activity in the IT sector.

As regards deal size, mid-sized inbound M&A transactions have been quite common in recent years, especially deals involving private equity funds as acquirers.  The outbound activities of Japanese companies in recent years are focused mainly on targets in the Asian region, and typically involved mid to small-sized deals, with the exception of a few transactions of considerable size involving U.S. and European targets.

Large caps have strong balance sheets and are willing to make large transactions.  This includes transformational deals.  Key drivers of M&A are the acquisition of technology and closing of products gaps followed by the acquisition of market share.  Another important driver for mature, lower growth businesses is to acquire growth outside of the current core business.
It seems that the deal size somewhat increased over the last two years.  We have even seen interests in acquiring a controlling interest in listed or public companies, types of transactions that didn’t previously exist in Vietnam.  The most active sectors we have seen include real estate, retail, finance, energy, and consumer goods manufacturing.

4) What Are Some Of The Key Issues Related To Integrating Finance Organisations?

The Luxembourg takeover bids law shall neither apply to takeover bids for securities issued by companies, the object of which is the collective investment of capital provided by the public, which operate on the principle of risk-spreading, nor to takeover bids for securities issued by the Member States’ central banks.

Such integration shall further require a deep due diligence process which would be complicated by confidentiality obligations of the target company.  Such integration of finance organisations shall also require a complete preparation from a regulatory perspective to ensure that all required obligations will be satisfied to avoid a “bad start” of the investor with the relevant supervision authorities.

Integration of finance organisations need to consider a range of issues from how to extend required financial controls to the newly acquired entity, how to keep talent in the finance organisation motivated despite increasing uncertainty and higher workloads during an integration.  It is important to ensure financial data flows are being maintained and there are also tax, treasury and legal considerations to be worked through as part of integration planning.

Along with promoting FDI, the government has pushed forward an equitisation program for state owned enterprises (SOEs), with an ambition to sell at least US$3.5 billion of assets in over 180 SOEs within this year.  The attractions of SOEs are the land they control, and due to their status, their market value has not had the opportunity to be fully realised.  Many SOEs are now on the list, including Vietnam Airlines, Vinatex (textile corporation), and the Saigon Beer Company.  In the past, the strategic partners must acquire shares at a discount through the IPO.  Now strategic partners may negotiate directly with the SOEs and their owners to an agreed price.  Moreover, newly equitised SOEs will be listed immediately after an IPO event, instantly providing further market-lead value appreciation opportunities for foreign investors.  It is also widely expected that the 49% ownership capacity for foreign investors with respect to listed and public companies will be relaxed.  The remaining issue will be to obtain transparent information from the Ministry of Finance and the State Capital Investment Corporation (SCIC) to participate in this process.[1] The equitisation process is an alternative approach to Vietnamese SOE’s compared to that of China, which has mainly focused on restructuring in the SOE management.

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 equitisation of state owned enterprise (SOEs).

Furthermore, the Decree provides for the equitisation 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).

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 equitised SOEs, with the aim of attracting more foreign investment in the privatisation 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:
i. Private placement of public companies
ii. Share swap of public companies
iii. Public offering of shares in public companies for swapping shares in non-public
companies, or equity in limited liability companies
iv. Private placement filing at the State Securities Commission (SSC) for public companies
v. Public offering process, use of escrow account for public offering proceeds
vi. Public offering of investment certificates or shares abroad
vii. Redeem shares
viii. Tender offers
ix. Sale of treasury shares
x. Listing of merged or amalgamated companies
xi. Upcom transaction registration and listing
xii. Real estate capital valuation and contribution to real estate investment fund

Banks in Pakistan are regulated by the State Bank of Pakistan.  The legislation governing banks includes the Banking Companies Ordinance and the Prudential Regulations issued from time to time by the State Bank of Pakistan.  The key points in transactions involving banks is that the prior approval of the State Bank of Pakistan is required for any proposed acquisition.  Further prior approval of the State Bank of Pakistan must be sought and obtained before prospective acquirers can conduct due diligence on a bank.

In respect of amalgamation, under the provisions of the banking legislation in Pakistan, a scheme setting out transfer arrangements is required to be put in place and approved by resolutions passed by the shareholders of the merging entities (a majority in number representing two thirds in value) respectively.  The scheme, once approved, is required to be submitted to the State Bank of Pakistan for sanction.

A recent hot topic has been the consolidation of regional banks in Japan.  Financial policymakers seem to hold the view that there are too many regional banks in Japan.  Accordingly, some market watchers expect to see a number of Japanese regional banks being consolidated between themselves or with bigger financial groups in Japan, or being acquired by foreign financial institutions in the coming years.  One of the key issues in this regard is how effectively the operational systems of the acquirer and the target company can be effectively integrated.  Since many Japanese regional banks have their own major operational systems, integration of the regional banking system with different operational systems may prove costly and time-consuming.  In addition, depending on the market share of the relevant regional bank, certain anti-trust regulations may also be triggered.
Transitioning IT software and systems is a key issue especially when there is only a segment of a conglomerate being acquired.

5) What Key Risks Should Finance Executives Consider In The Planning Of Integration?

While opening the door to, and creating more options for foreign portfolio investment, 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.

Very often, the financing in an M&A transaction is assured partly by an external bank financing which is implemented afterwards closing.

The client very often sees the implementation of such bank financing as a straight forward post-closing transaction.  Actually, the lenders shall always notably require a full package of security documents guaranteeing their loans.  The implication of lawyers for the lenders and of lawyers for the borrower often renders the process difficult.

Hence we always recommend the client set up a clear term sheet with the lenders from the early stages of the M&A transaction and to clearly present to the lenders the structure and envisaged business to ensure a smooth process of the bank financing in due time.

Finance executives should consider three categories of integration risks.  Firstly, there are risks that the integration negatively impacts daily business.  For example, if the finance systems integration is not executed properly, it impacts the quality of the financial information available.  Secondly, there are often risks that the integration is not delivering the promised deal value.  Finance executives are often accountable for achieving the synergy target and it falls to the finance function to track synergies.  The third area of risk is that integration decisions have negative financial consequences.  For example for many companies with a European principal structure, moving headcount incorrectly may have substantial tax implications.
See response to question 4.

6) What Are The Key Risk Areas In An M&A Transaction, And What Common Mistakes Do Companies Make During A Transaction?

A perfect knowledge of the target company is probably the most important point in our view to be considered.  The performance of a due diligence process is very important not only in determining the value for the target company and hence of the purchase price for the latter, but also to identify any potential issues that may arise in the integration.

When certain issues are identified at the stage of the due diligence, this allows the parties to discuss them at an early stage of the negotiations and then to allocate the risks between the parties accordingly, mainly through an adjustment of the purchase price, an extension of the warranty, indemnity protection, escrow arrangements or otherwise.

A common mistake made by parties to a transaction is to sign a letter of intent without duly consulting their legal counsel.  As a result, letters of intent are often not sufficiently binding (from a seller’s perspective) or too detailed and binding (from the buyer’s perspective).  Parties also tend to forget to establish a clear framework for the negotiations, in which certain important elements are already agreed upon (e.g. price adjustment mechanisms, earn out, data room disclosure, etc.).  These elements are often very important to the parties, and if they are not dealt with at the start of the transaction, they may become deal breakers.

In addition, parties sometimes tend to underestimate the time and resources that are required to successfully complete a transaction.  This translates into incomplete data rooms, insufficient manpower to follow up on the Q&A process or lack of appropriate legal and financial counsel.

Deloitte’s research shows that the majority of merger failures are due to poorly executed integrations.  The reasons for failed mergers are 70% due to integration errors and only 30% due to transaction errors.  Common integration errors are, for example, lack of executive alignment on merger rationale, inadequate integration planning, merger synergies not being driven through quickly enough, lack of a formal and fast decision making process and too much time spent on organisational politics.  Other key mistakes are a loss of focus on everyday operations and that customers are forgotten.  On the transaction side errors include inadequate due diligence, weak analysis of the target and lack of strategic, financial or cultural fit.

There is a recent trend among many Japanese companies to set up M&A budgets of a certain amount and to allocate specific resources for M&A purposes.  Some Japanese companies tend to think that full utilisation of their M&A budgets is encouraged.  Accordingly, such “trigger-happy” companies may face the risk of acquiring unsuitable targets or paying for targets that are excessively valued.

Another common mistake that Japanese buyers sometimes make in an acquisition is failure to adequately protect themselves through appropriate representations/warranties and indemnity clauses based on key findings in due diligence reviews of target companies.

Key risk area’s in M&A is the integration of finance and G&A, also trending out projections when new management is coming on board.

M&A deals are considered by many observers and potential participants to be exciting and to bring rich rewards to those involved.  The reality is that many deals do not ultimately provide an increased level of shareholder value.  This is consistently linked to the following factors:

– The reality being that often the perceived synergies between the buyer and the target are not as great as initially thought
– The buyer has ended up paying more for the target than the value of the synergies the target brings to the buyer
– The deal itself can become a major distraction to both parties and take far longer to conclude than originally envisaged.
– Post deal integration of the target is more problematic or fails to happen.

As Vietnam’s increasingly outward looking economy and Competition Law develop, the country’s merger control regulations should not be overlooked – not least because of the hefty penalties that they attract.  A fine of up to 10%of a company’s total revenue in a financial year may be imposed for a breach of merger controls, including requirements on notification.  Other severe penalties include forced demerger or withdrawal of a company’s business certificate.

It is also worth remembering that investors who have just completed transactions are not out of the woods yet.  Competition authorities can still penalise companies up to two years from the date of the breach and prospective or existing investors must be aware of how these merger controls affect them and how to deal with potential non-compliance risks.

The term, “economic concentrations”, under the Competition Law includes company mergers, consolidations and acquisitions, as well creations of joint ventures.  The law imposes certain merger controls on these economic concentrations that investors should be aware of, especially when dealing with larger transactions.

These merger controls focus on the consideration of the economic concentration’s “combined market share”.  The market share of a company is calculated by referencing its percentage of turnover from sales or inwards purchases against total turnover from sales or inwards purchases by all companies in the business of the same type of goods in the relevant market for a month, quarter or year.  The combined market share is defined as the total market share in relevant markets of all companies participating in an economic concentration.  The job of looking at the extent of the combined market share falls to the Vietnam Competition Authority (VCA) when assessing whether an economic concentration will be subject to notification or prohibition under the Competition Law.

This makes it crucial for investors, before entering into an economic concentration, to calculate the resulting combined market share to evaluate potential risks of offending Vietnam’s merger control regime.  This prudence will allow investors to determine whether VCA notification of the transaction is required.

The data necessary to determine market share can be obtained from government agencies, such as the General Statistics Office, the ministries of Finance and Information and Communications or the State Bank, depending on the respective industry.  Reputable market research can also be used.

To prevent an under or overstatement of this market share figure, investors also need to identify the “relevant market”, because market share will be calculated on an assessment of the relevant product market and geographical area.  For example, the market share of a company may be more than 95% for the Ho Chi Minh City area, but only 5% for the whole country.

With respect to notification requirements, there are generally no restrictions against an economic concentration if the resulting combined market share in the relevant market will be below 30%, or if the resulting economic concentration is considered a small or medium-sized enterprise (SME).

If the combined market share falls between 30-50%, the VCA must be notified of the proposed transaction before the parties can execute it.  The parties can only proceed with the transaction once the VCA approves it.

Economic concentrations that result in a combined market share of more than 50% will be prohibited, unless the VCA grants an exemption.  Such an exemption can be granted if one or more companies in the economic concentration will be at risk of dissolution or bankruptcy or if the economic concentration will contribute to the country’s socio-economic development or technical and technological progress.  However, these exemptions are not guaranteed and will be at the authorities’ discretion.

The key risk areas are as follows:

– inadequate due diligence by the buyer and, as a result, acquisitions of unwanted liabilities the buyer did not know about;
– relying on warranties/indemnities provided by an offshore company with no substance which acts as a seller.  In this case these must be supplemented by a parent company guarantee or other adequate security;
– inadequate disclosure of information by the seller which results in a potential liability due to warranty/indemnity claims.  Sellers often start working on preparing a disclosure schedule at the very end of the negotiation process.  In addition, any delay with preparing a disclosure schedule can hold up or even frustrate the deal if the potential buyer sees the issues it was completely unaware of;
– inadequate representation of the parties.  In an attempt to save of legal fees, Ukrainian business owners often prefer to use their existing in-house lawyers in order to negotiate a cross-border M&A deal.  This may complicate and delay the process due to unfamiliarity of in-house lawyers with the concepts used in Western style transaction documents.

When a foreign investor acquires a local company, there can be a gap in deal expectations, culture, management practice and negotiation style, amongst others.  Managing such a gap is critical to the success of a deal.  Sorting out how to deal with a legal due diligence is also key as foreign investors will need to be advised what findings, while not satisfactory, are relatively common in the local market and how to handle such findings.
From the legal advisor’s perspective the key issue during an M&A transaction is to keep the balance between identifying and handling legal risks and assisting in making the transaction.  From the principals’ point of view, the risks differentiate, depending on the side: the Buyer faces the risk of acquiring an asset which has regulatory limitations, as well as, encumbrances and present or potential liabilities – in addition the tax structure must be carefully selected.  The Seller’s risk involves securing payment (either paid upon completion or deferred one) and giving too many reps & warranties.  Both sides also face the commercial risk of the price (paying too much versus not getting paid enough for the asset sold).  A common counterparties mistake is not to have clearly agreed their commercial understanding – this complicates negotiations – after all the devil is in the details!

7) Can You Outline Any Applicable Anti-Corruption Legislation In Your Jurisdiction? What Are The Potential Sanctions And How Stringently Have They Been Enforced?

Switzerland is ranked as one of the countries with the lowest level of corruption in the Corruption Perception Index as published by Transparency International.  Between 2000 and 2006 anti-corruption laws were tightened in Switzerland.  New is, among other things that the bribery of foreign public officials is now regarded as a criminal offence and that not only individuals, but also companies can be prosecuted for corruption.  Typically, most enforcement actions in Switzerland stem from the US DoJ in those instances where government officials were bribed.  This has been the case in a number of recent high profile cases involving some well-known companies.  Recently the Swiss Attorney General initiated a corruption investigation of FIFA.  This could indicate a tougher enforcement regime.

Ukrainian anti-corruption legislation has improved significantly over the last year.  A series of laws and regulations were adopted in addition to the core law “On Fundamentals of Preventing and Combating Corruption”.  There are also specific provisions on the topic in the Criminal Code and the Code of Administrative Offences.  Amended legislation provides for increased sanctions – for example, taking a bribe may be punished with imprisonment of up to 12 years and confiscation of property.

Also, the new government body was established – National Anti-Corruption Bureau of Ukraine.  It is a law enforcement agency with broad authority, which is responsible for fighting corruption in Ukraine.

Vietnam’s anti-corruption legislation applies to persons defined as “public officials” or “persons with position, power.” The current threshold for establishing a criminal bribe is VND 2 million (approximately USD92) when the payment of cash or other material benefit is received or paid to induce the recipient to do or not to do something for the benefit of the payor in connection to the recipient’s official duties.  Enforcement in practice tends to focus on large-value, high profile corruption cases.
The law on anti-corruption is in place since 2001.  The Criminal Code also has the crime of corruption and bribery.  A bribe is considered as an action to take benefits in exchange for exercising power.  This law has been enforced strongly in some areas but less so in other areas.  The two areas that face corruption issues are the judicial and the police system.  In other areas, corruption is rare.
The main anti-corruption legislation in Japan is the Unfair Competition Prevention Act (Act No. 47 of 1993, as amended; the “UCPA”).  Bribery of foreign public officials is criminally punishable under the UCPA.  Violators may be imprisoned for up to five years or fined up to JPY5 million (article 21, paragraph 2 of the UCPA).  Bribery of domestic public officials is criminally punishable under the Penal Code (Act No. 45 of 1907, as amended; the “Penal Code”).  Foreign companies can be prosecuted for foreign bribery because the UCPA does not differentiate between domestic companies and foreign companies.  Based on the Penal Code of Japan, a crime committed in Japan should be punishable.  For this purpose, a crime will generally be deemed to have been committed in Japan if all or part of the relevant act was conducted in Japan or all or part of the consequences of the crime occurred in Japan.
Recent anti-corruption legislative changes provide severe penalties in case of bribery of any governmental, parliament, regional or municipality official (imprisonment for a period of 5-20 years and monetary penalty between €15,000 – €150,000).  Public employee bribery penalties differ (imprisonment for a period of 1-5 years and monetary penalty between €5,000 – €50,000) and in case of repeated acts, or bribes of significant value, the penalty is more strict (imprisonment for a period of 5-15 years and monetary penalty between €15,000 – €150,000).  Although the above changes are recent, monitoring and preventing corruption is a key issue.

Pakistan Penal Code 1860 (PPC 1860) is a general penal code, which prescribes offences and punishments for such offences, and extends to the whole of Pakistan and applies to any offence committed by any citizen of Pakistan or any person in the service of Pakistan and outside Pakistan (public servant as defined therein) and any person on any ship or aircraft registered in Pakistan.

Prevention of Corruption Act 1947 (PCA) which is an Act to more effectively prevent bribery and corruption.  It extends to the whole of Pakistan and applies to all citizens of Pakistan and persons in the service of the Government, wherever they may be.  Under the PCA the expression “public servant” is as defined in section 21 of the PPC 1860 and includes an employee of any corporation or other body or organisation set up, controlled or administered by or under the authority of the Federal Government.

The Government Servants (Conduct) Rules 1964 under which a government servant is prohibited from accepting (without the prior permission of the government) any gift the receipt of which will place him under any form of official obligation to the donor.  If however due to exceptional circumstances such gift cannot be refused, the government servant may accept such gift and inform the Cabinet Division accordingly.  The gift must then be kept for official use by the department or organisation.  A government servant cannot, except with the previous sanction of the government, engage in any trade or undertake any employment or work, other than his official duties.

National Accountability Ordinance 1999 (NAB Ordinance) relates to the prevention of corrupt practices, misuse or abuse of power or authority, misappropriation of property, taking of kickbacks, commissions and for matters connected and ancillary or incidental thereto.  The NAB Ordinance is applicable to persons who are or have been in the service of Pakistan and to any “holder of public office” as defined under the NAB Ordinance, wherever they may be.  The NAB Ordinance also deals with and provides for penalties for offering or paying bribes or making facilitation payments to employees of private or public listed companies.  Under the NAB Ordinance the term ‘person’ includes in the case of a company or corporate body, the sponsors, chairman, chief executive, managing director, elected directors, by whatever name called, and guarantors of the company or corporate body, or anyone exercising direction or control of the affairs of such company or corporate body, and in the case of any firm, partnership or sole proprietorship the partners, proprietor or any person having interest in the said firm, partnership or proprietorship concern or direction or control thereof.  The penalties under the NAB Ordinance include rigorous imprisonment for a term which may extend to 14 years and fine.  The amount of fine shall in no case be less than the gain derived by the accused.

Civil Servants Act 1973 provides for the appointment of persons to, and conditions of persons in, the service of Pakistan and is applicable to all civil servants wherever they may be.

Under the Government Servants (Efficiency and Discipline) Rules, 1973 “misconduct” is defined as conduct prejudicial to good order or service discipline or contrary to Government Servants (Conduct) Rules, 1964 or unbecoming of an officer and includes any act on the part of a Government servant to bring for attempt to bring political or other outside influence directly or indirectly to bear on the Government or any Government officer in respect of any matter relating to the appointment, promotion, transfer, punishment, retirement or other conditions of service of a Government servant.  A government servant may be penalised by demotion or withholding for a specific period promotion or increment or by recovery from pay of the Government servant of the whole or any part of any pecuniary loss caused to Government by negligence or breach of orders or compulsory retirement or removal/dismissal from service.

Federal Investigation Agency Act 1974 (FIA Act) is applicable to all citizens of Pakistan and public servants, wherever they may be.  A public servant under the FIA Act is as defined in Section 21 of the PPC 1860, and includes an employee of any corporation or other body or organization set up controlled or administered by or under the authority of the Federal Government.  The FIA Act makes references to other anti-corruption legislations (wherein punishments and penalties for corrupt practices are provided for) and does not specifically provide for punishment and penalty in the case of corrupt practices.

In the context of takeover bids, the Luxembourg law provides the general rules and principles applicable with respect to a takeover bid and aims at ensuring an adequate level of protection for the holders of securities.  As a general principle, the law provides that all holders of the securities of an offeree company of the same class shall be afforded equivalent treatment.  In that respect, the offer document shall include certain mandatory mentions including notably in case of mandatory bid the method employed for determining the consideration.  Shares may be bought outside of the takeover bid process, but subject to certain notification obligations that are imposed notably by the applicable transparency regulations and the Luxembourg squeeze-out law.

General anti-corruption legal provisions shall also remain applicable.  Criminal and civil liabilities shall be applicable on such matters.

8) Royal Dutch Shell’s Acquisition Of BG Group Was The Biggest M&A Deal Announced In The First Half Of 2015.  Do You Share The Same Concerns As US Regulators In Regards To Monopoly Trends?

Of the Top 50 deals by value that have been announced in H1 2015, 29 are effectively “horizontal mergers”.  This figure remains the same as H1 2014, but represents a 52% increase on those announced in H1 2013.

Therefore it is understandable that regulators in particular countries may have concerns that consumer choice may become more limited as a result of such deals and would thereby enable the newly enlarged entity to potentially abuse its position in terms of pricing of goods and services offered.

Taken at face value such deals should theoretically enable larger companies to maximise their economies of scale.  Whilst regulators are right to scrutinise such deals, in order to protect the consumers, careful thought should be applied to those that are allowed and those that are rejected.

Anti-trust concern in Vietnam is plausible, but Competition Law is not very active so far.  While it is cautious to make an anti-trust notice to the Competition Administration of Vietnam (CAV).
We indeed acknowledge certain concerns in this respect though as regards the Luxembourg jurisdiction, applicable legal provisions notably stemming from the EU should avoid such monopolies.

9) What Is The Current Status Of Risk Reduction And Cost Synergy In Mergers & Acquisitions?

There is increased scrutiny by Boards on whether or not management achieves the promised synergies.  Many recent Swiss deals are focused on growth synergies rather than cost synergies.  Where cost synergies are important, there is heightened awareness of the need for thorough synergy planning and tracking.  Similarly strong risk management processes are being adopted to identify and mitigate key integration risks.
An interesting example of M&A about risk reduction and cost synergy is in the retail sector.  The restriction of foreigners to participate in retail sector was removed in 2009.  However, foreigners are still keen to find and work with a local partner.  This is rather the knowledge of the local market that needs to be explored and worked by cooperation.  On the course of cooperation, difference in vision and culture may negatively impact on the risk reduction and cost synergy.  Eventually however, if both parties respect each other, these difficulties can be overcome.
We would raise in this respect that cross-border mergers inside the EU have been largely facilitated by European Regulation and Directive allowing a reconciliation of multi-jurisdictional legal environments.  Such regulations have created a unified legal framework ensuring a cross-border universal transfer of the assets of the merged company and the implementation of the merger according to common principles with the EU Member States.  This ascertained the mergers within the EU and rendered them less costly.

As a result of the economic crisis, potential buyers tend to start with a high-level due diligence to ascertain whether the target meets the acquisition requirements and to reduce the initial costs.  If the results of the high-level due diligence are satisfactory, a more extensive confirmatory due diligence is conducted.

Whereas financial experts used to look at the past track record of a company to determine its value and decide whether or not to proceed with the transaction, most buyers are interested in the future potential of the target and the synergies that can be created following the acquisition.  This results often in a more thorough due diligence, that does not only focus on financial and legal aspects, but also on the business, HR and ICT of the company.  Although this is a more expensive and time-consuming effort, it allows the potential buyer to get a clear and realistic view of potential synergies and make an early start with the post-acquisition integration process.

10) M&A Typically Involves A Substantial Amount Of Due Diligence From The Buyer.  Given The Current Climate What Aspects Of Due Diligence Should Be Focused On In Relation To Technology/Intellectual Property?

With respect to technology/intellectual property, the first thing to focus is whether the trademark or patents are properly registered and still valid, whether any license has been registered with the National Office of Intellectual Property.  Furthermore, it is necessary to see if the royalty under each license agreement is under arm’s length price, as the current regulation on anti-transfer pricing is now on the rise.
One of the noticeable trends is an increased focus of potential buyers on data privacy compliance, in particular in the technology sector.  As more and more technologies involve the collection, processing and use of (large amounts of) personal data, it is important to carry out a thorough and detailed due diligence of the target’s data processing practices (data flows, purposes of processing and use, access to data, cross-border transfers, privacy policies, information practices, security measures, etc.).  In relation to intellectual property, the use of open source or third party software in technology of the target should be subject to careful analysis, in order to avoid any third party claims.

Due diligence in relation to technology/IP issues requires particular thoroughness and accuracy.  Special attention should be paid to the documents confirming seller’s ownership of technology/IP and previous underlying documents for IP rights acquisition.  It may be also necessary to carry out the analysis of legal risks related to the use of copyright works or industrial property as these rights have complicated nature.  A properly conducted due diligence will help to determine possible risks and commercial value of the transaction in order to avoid acquisition of worthless technology/IP.

In addition, this will help to avoid a situation where, after acquiring shares of a Ukrainian financial institution operating under a well-known name, a foreign buyer discovered that the name of that institution was registered as a trademark and was still owned by the previous shareholder – this situation illustrates very well the need for a detailed and highly professional due diligence.

Due diligence should be a systematic and integral part of any M&A transaction.  It is especially important when looking at a target company that has patents or intellectual property that is behind the buyer’s core motivation for doing the deal.  Key areas that should be ascertained in relation to the IP at a very early stage in the Due diligence include;

Ownership – does the target actually own the technology / IP it purports to own?

Limitations of use – are there any pre-existing agreements that prevent the use of the company’s IP in other markets or business areas?

Infringement claims – are there any outstanding or pending claims that might bring rise to a law suit?

IT due diligence can incorporate many different areas of focus, however these options should be narrowed during the scoping phase to ensure that the due diligence effort is relevant to the deal context and delivers most benefit for the deal value and business model.  Questions for diligence to address can be grouped into three areas:

– Confirming if IT contains risks to the current cost base and whether it can support the planned business model
– Identifying opportunities to improve IT performance and reduce IT and business operational costs
– Confirming the need and impact of data migration

In our view, though there is no particular impediment for a hostile bid in Luxembourg, we always recommend the bidder to co-operate with the management board of the target company, to authorise a smooth and complete due diligence process.

Review of licensing issues typically form an important part of legal due diligence.  Specifically, the identities of licensor and licensee, royalty amount and conditions of license (such as the conditions under which a license may be terminated) are key issues.  Where a license has been granted to the target company by its parent (which is often the seller) or affiliate, it is also important to determine how such license will be treated after the target is acquired.  Issues relating to cross licenses should also be carefully considered.  In particular, buyers should look into whether the target company will still be legally entitled to the benefit of material cross licenses once they exit the seller group.

Additionally, a buyer should make sure to review joint research agreements entered into between the target and third parties to determine the target’s right in respect of research results.

Further, due diligence should focus on whether the target has had disputes with its employees or former employees in relation to such employees’ inventions created in the course of the employees’ work (Shokumu-Hatsumei).  Under the Patent Act of Japan (Act No. 121 of April 1959, as amended), such an invention belongs to the relevant employee, and can only be transferred to the employer based on an agreement between them, under which the employer pays an appropriate amount of compensation to the employee for the invention.

11) What Factors Can Lead To A Dilution EPS (Earnings Per Share) In An Acquisition?

Dilution EPS in acquisition can occurred because of the following factors:

i.         Related party transaction: if a subsidiary of a shareholder being supplier to the company, and charge excessively high fee, there is a risk that benefit from the company has been retrieved by the related party subsidiary.
ii.       Unprofitable assets: some assets cost a lot of funds to support and maintained.
iii.      Potential liability, especially tax liability.

The dilution or accretion of a buyer’s EPS as a result of an acquisition is one way in which the buyer can define the potential risk / rewards to its shareholders for pursuing the acquisition.  Logically it might well be argued that if a dilution of the buyers EPS is going to happen as a result of the deal then the deal should not proceed, but this should not be the only measure upon which the acquisition strategy should be determined.  EPS should be looked at in the “round” when considering the long term strategic benefits of the deal for the purchaser.

Dilution of the buyers EPS could occur as a result of the target company in the deal having negative net incomes or a higher PE ratio than the acquiring company.  How the acquiror chooses to finance the deal could also impact negatively on its EPS.  So if, for example, it were to finance the deal by bringing in new debt or by raising its existing debt levels then higher interest expenses would be reflected in the profits of the combined entity.  If the acquiror were to satisfy the deal using its own cash reserves, this too could impact profits as lower levels of interest would be generated.  Also if the perceived synergies between the two companies could not be achieved, this would impact upon the EPS in the longer term.

The acquisition costs and applicable taxes are mainly the factors that could lead to a dilution EPS.  This shall be controlled through a complete preparation of the transaction and a complete due diligence of the target company.

12) What Types Of Issues Can Impact The Marketing And Sales Organisation During M&A Transaction, And What Are The Current Leading Practices To Address These Key Issues?

A common issue is that of “gun-jumping,” – such as when the potential buyer and target exchange competitively-sensitive information such as pricing or product plans, customer information and the like before completion of the transaction – which could trigger certain anti-trust regulations.  One way to avoid such risks is to refrain from any exchange of sensitive information at least until the clearance of merger filing.  An additional way to address gun-jumping concerns is the setting up of “clean rooms” to store competitively-sensitive and ensuring that such information is handled only by personnel who are not part of the transacting parties’ business teams.
Marketing and sales should be predetermined along with an iron clad plan for the transition, many times on an acquisition the acquired companies marketing department would be eliminated.
Competitors can take advantage of the uncertainty an M&A transaction brings, which may lead to loss of customers.  This risk can be mitigated by clearly communicating the deal rationale and integration roadmap from a customer perspective.  Identifying key personnel and putting a retention plan into action will mitigate the loss of talent.  Distributors may delay ordering anticipating a distributor rationalisation.  Again a clear communication plan will alleviate this risk.  Another risk to be addressed as a priority is customer facing staff not giving the right message or inconsistent messages to customers.  Customer facing staff needs to be informed and provided with detailed guidance for what they can and can’t say to customers.  Many deals are built on significant growth synergies; however adjusting incentive schemes, systems integration and back office consolidation may be required and can impact timelines of achieving revenue synergies.
During the M&A transactions, the seller is bound by an exclusivity period until the Share Purchase Agreement is signed by the parties.  Moreover the parties are bound by confidentiality agreement and therefore leakage of information that may impact the marketing and sale of shares may be minimised.  From the time the Share Purchase Agreement was signed until the completion of the conditions precedent stated in the Share Purchase Agreement.

13) What Key Trends Do You Expect To See Over The Coming Year And In An Ideal World What Would You Like To See Implemented Or Changed?

There will most likely be continued high level of M&A activity for a little while longer.  Companies having undergone transformational deals will however need to pause and digest what has been acquired.  They may well conduct smaller acquisitions but are less likely to engage in further transformational ones.  Another trend that is likely to continue is the heightened focus on proper integration.  I have seen a great interest by corporates in building and upskilling their teams’ integration capabilities.  It is good news for the success of a deal if integration efforts are taken more seriously.

We expect the M&A activities level to increase significantly once (a) there is more certainty regarding the conflict in the Eastern part of Ukraine and (b) Ukrainian government negotiates a deal with its creditors.  Obviously there are other important factors such as structural reforms moving ahead, evidence of success in fighting corruption, etc.

Most economists agree that Ukrainian assets are currently significantly undervalued, and this is likely to result in a mini M&A boom once the fundamental risks stated above are addressed.

Referring to the reconciliation of the legal environments within the EU, such a reconciliation at the level of the world would render the M&A deals more attractive and less frightening in our view, especially for “non-big” companies.
M&A activities and direct investment will very likely increase significantly in Vietnam, especially after the sub-law regulations implementing the new investment law, enterprise law and real estate business law have been fully issued and AEC integration takes shape.  From 2016, corporate and investment procedures are anticipated to be drastically simplified and the difference in the treatment of foreign investors and local investors to be significantly reduced.  Nevertheless, the approval requirements and procedures for sizable investment projects in infrastructure, real estate and energy probably will remain complex and burdensome.  Many of our clients wish that the Government would take more aggressive steps to simplify the procedures for those sizable projects.

The Japanese government has in recent years introduced several policies targeted at developing a start-up culture in Japan, in hopes of encouraging innovation.  Additionally, the government is also expected to roll out more policy initiatives to encourage big companies to move to, as well as encourage the establishment of start-ups in, the regional areas of Japan.  Hopefully, this will result in more M&A activities involving regional companies in the near future.

In addition, Stewardship and Corporate Governance Codes were recently introduced in Japan, to encourage more communication between Japanese companies and their shareholders, and more responsibility taken by Japanese companies toward shareholders.  Some high-profile hostile takeovers in Japan about a decade ago had led to the institution of takeover defence mechanisms by many Japanese companies, and engendered wariness toward foreign shareholders.  The introduction of the Stewardship and Corporate Governance Codes in Japan have gone some way in dispelling unwarranted scepticism that some Japanese companies held toward foreign shareholders, and hopefully, this trend will continue.

I believe the financing arena will change along with the characterisation of the deal due to anticipated interest rate volatility.
Despite the ongoing Greek debt saga and the revision of global growth forecasts, the appetite for M&A deals remains strong and appears to be unsated at this time.  Corporate buyers have shown increased levels of activity over the last 12 months, reflecting the need for them to increase shareholder value.  Whilst Private Equity buyers have been active compared to previous years it is common knowledge that the industry as a whole is sitting on a reported $1.3trillion of “Dry Powder” which has to be invested.  This inevitably means that deal values are rising as there is strong competition for the best performing companies from both corporate and private equity buyers.  Add in to this mix the rise of secondaries by private equity firms and it’s no surprise to find that the average value of globally announced deals per month in the first seven months of 2015 is greater than the average monthly value seen in 2007.  On this basis 2015 could end up being a record year for announced global M&A deals.
I strongly believe that, upon stabilisation of the political situation, right after the elections to be held on 20 September, Greece will enter into a new era, full of opportunities.  I expect that investors will start to monitor more actively potential acquisition targets, and once they feel that Greece offers again a stable and effective business environment, there will be a boost in the M&A activities in comparison to the previous months.  In order for this to happen, all Greek market players (institutional or not) should put their best effort so that an attractive and competitive business environment is created and sustained.
We hope M&A in “conditional projects” to be removed.  There are more than 250 business areas where the M&A are subject to approval from relevant ministries.  The LOI stated that any restriction to business must be presented in the National Portal of Foreign Investment or otherwise rendered invalid.  However, please 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.

Salary Budget of Enterprises shall be Significantly Increased from 01 January, 2015

The new Law on Social Insurance No. 58/2014/QH13 issued on 20 November 2014 (the “LoSI”) shall take effect from 01 January 2016. There are three key items of the LoSI which are delayed until 01 January 2018 as follows: (i) social insurance (the “SI”) shall be applicable to labor contract having term from 1 month and less than 3 months (i.e. short term or seasonal labor contract); (ii) the SI shall be applicable to foreign employees working in Vietnam with work permit or practicing licenses issued by competent authorities in Vietnam; and (iii) the monthly salary on which social insurance premiums are based will be the salary plus salary-based allowance and other amounts as prescribed in the laws on labor.

The LoSI proposes the new policies on formula of calculation of payable social insurance. Accordingly, since 01 January 2016, for employees who pay social insurance premiums according to the employer-decided salary regime, their monthly salary on which social insurance premiums are based has been their salary plus salary-based allowance as prescribed in the laws on labor.

In reality, we understand that most of enterprises in Vietnam are paying social insurance premiums according to the base salary which is significantly lower than the actual salary paid to employees (i.e. base salary and salary-based allowance).

In light of this, upon taking force of the LoSI, it is likely that salary budget of enterprises shall be significantly increased. In order to avoid such negative implication imposed by the LoSI, a number of methods are being reviewed and considered by employers such as (i) separation of the labor contract into (1) labor contract and (2) seasonal labor contract and/or service contract or (ii) increase of regular bonus and decrease of salary. However, it is suggested that each of the aforementioned methods still has disadvantages which may lead to violation of the laws on labor and other unwelcome implications.

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 Thuy Nguyen at ( or visit the website:Http://

Updates on the Vietnam Law on Investment and Law on Enterprises

Following the Law on Enterprises time-lagissued in November 2014 and the Law on Investment No. 67/2014/QH13 issued on 26 November 2014 (collectively referred to as the “Laws”) which have become effective as of 01 July 2015, the Government is conducting final step to issue Decrees providing detailed guidelines for implementation of the Laws.

Fortunately, the Government has just issued a new Decree on business registration which can be considered as an overriding Decree for Decree No. 43/2010 on business registration. Upon taking effect of this Decree, certain items related to administrative procedures in business registration which is being temperately regulated in Official Dispatches No. 4211/BKHĐT-ĐKKD issued by the Ministry of Planning and Investment (the “MPI”) shall be replaced by guidelines of such Decree. However, as a matter of practice, the MPI shall issue a new Circular providing all forms which shall be applicable to business registration.

In addition, the Government has issued the Resolution No. 59/NQ-CP dated on 07 August 2015, providing an action plan for application of the Laws. One of the most important items of this Resolution is that the Government planned the new Decrees providing detailed guidelines for the Laws to be issued within September 2015.

Referring to the most updated draft of the above-mentioned Decrees, it is understood that the new Decree providing detailed guidelines for the Law on Enterprises mainly revolves around (i) social enterprises, seal of enterprises and cross ownership only. Thus, it is suggested that a number of issues related to the Law on Enterprises which are not addressed in such Decree may create difficulties for enterprises and investors.

In the meantime, the MPI is finalizing the final draft of the new Decree providing detailed guidelines for the Law on Investment. Further to the report submitted to the Government dated on 26 August 2015, it is believed that the draft of such Decree has been revised in a way that it can bring more favorable business environment to foreign enterprises and investors. Following the concept of issuance of the laws in Vietnam as mentioned above, a new Circular or Decision providing all forms applicable for investment registration shall be issued after issuance of such Decree.

Last but not least, a list of conditional business lines applicable to foreign investors has been finalized, after collecting opinions from relevant Ministries. This list has been also submitted to the Government on 03 September 2015 for a final examination of the Government.

Despite the anticipated benefits from the Laws, there might be a time-lag before foreign investors and enterprises may actually enjoy the favorable policies set out by the Laws.

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 Thuy Nguyen at ( or visit the website: Http://

The First Double Taxation Avoidance Agreement between Vietnam and USA

On 7 July 2015, The Socialist Republic of Vietnam (Vietnam) and The United States of America (US) signed the first income tax treaty – Double Taxation Avoidance Agreement (DTAA or the Treaty) – and adopted a Protocol between the two countries for the avoidance of double taxation and prevention of fiscal evasion of taxes on income. This Treaty will take effect after being ratified by each country and exchanged the instrument of ratification by the two jurisdictions. According to Deputy Minister Do Hoang Anh Tuan, Ministry of Finance, the ratification period will take approximately one year.

DTAA aims to eliminate the double taxation of income or gains arising in one contracting state and paid to the other contracting state and prevent the fiscal evasion regarding income taxes of any persons or companies from the contracting states.

For Vietnam, the applicable taxes shall include personal income tax and business income tax, likewise, the applicable taxes in the US are the Federal income taxes imposed by the Internal Revenue Code and the Federal taxes imposed on the investment income of foreign private foundations.

The DTAA also provides a number of key provisions on how to avoid the double tax.

  1. The broader definition of “resident status of a contracting state” and “permanent establishment”

The Treaty provides similar manners to determine a resident of a country to Vietnam’s provisions. Notably, the term of “residence of an individual” is also defined as the established and maintained place of the pension fund or organization that his incomes or gains are derived from.

Under the Treaty, permanent establishment consists of building sites, construction, exploration, assembly or installation of project, supervisory activities which last more than 06 months in a contracting state. The definition is expanded to encompass the place of providing consultancy services for the same and connected project within a contracting state for a period or periods computing more than 06 months within any by an enterprise of the other contracting state.

2. The maximum allowable tax rates of dividends, interests and royalties

The Treaty regulates the maximum allowable tax rates of dividends, interests and royalties as follow:

  • The maximum tax rate on dividends is 5% if the beneficiary is a Vietnamese company owning directly at least 25% of the voting stock of an American distributing company or an American company owning directly at least 25% of the capital of a Vietnamese distributing company. Such dividends are taxed in the country of which the distributing company is considered as resident. All other cases are taxed 15% of the gross amount of dividends.
  • The Treaty also provides that dividends paid by an American Regulated Investment Company (RIC) have maximum tax rate at of 15%. However, the dividends paid by an American Real Estate Investment Trust (REIT) or Vietnamese Real Estate Investment Fund (VREIF) are subject to a maximum tax rate of 15% if only the specific thresholds are met.
  • Article 11 of the Treaty provides that the maximum allowable tax rate of interest is at 10% of the gross amount. However, if interest payments are determined with references to receipts, sales, income, profits or other cash flow of the debtor, to any change in the value of any property of the debtor or to any dividends, partnership distribution or similar payment made by the debtor, the maximum rate can increase up to 15%.
  • Under the Treaty, royalties are sourced to the residence of the payer. The payments specified in the Article 12.3(a) of the Treaty are taxable at a maximum rate of 5%. Royalties paid for the use of or the right to use any copyright of literary, artistic, scientific or other work or any patent, trademark, design or model, plan, secret formula or process will be subject to a maximum allowable 10% tax rate.


Effect of eliminating double taxation in Vietnam

Individuals or companies who are considered as Vietnamese residents are granted the benefits of a credit for income taxes paid on income, profits and gains in the US. Moreover, Vietnamese companies owning at least 10% of the voting rights of a company which is a resident of the US can obtain an indirect tax credit in the US.

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://

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://

Corporate Income Tax Provides Boost High Tech Sector

Circular No.96/2015/TT-BTC dated 22 June 2015 guiding changes prescribed in Decree 12/2015/ND-CP and amending three circulars of corporate income tax (“CIT”) including 78/2014/TT-BTC, 119/2014/TT-BTC and 151/2014/TT-BTC.


Content of the new Law

This Circular provides considerable changes in CIT incentives, and tax deductible expenses which could bring more advantages to corporations in general and companies in the high technology sector.

The method to apply and extend CIT incentives is amended in order to be aligned with the new Law on Investment. Accordingly, new investment project stated in the list of industrial support products prioritized for development are subject to 15 years of 10% CIT rate, 4 years of CIT exemption and 9 years of CIT reduction, provided that such products support the sectors of either high technology as stated in the Law on Technology, or garment, textile footwear, information technology automobile production, and are not able to be produced in Vietnam as at 01 Januray 2015 or meet the EU quality standards if these products are domestically produced.

In addition, investment projects which were not, in general, entitled to any CIT incentives previously or located in areas where such are not encouraged in the past, will be allowed to apply for the  new and favourable CIT incentives regime in the remainder of phases from the tax year 2015.

The circular also modifies regulations of tax deductible expenses. Consequently, the caps on business trip per-diems are abolished; documents to prove expenses arising from renting individual’s assets is now simpler; certain expenses related to staff training are fully deductible for tax declaration; and the calculation method applied to non-deductible interests on debt corresponding to the portion of charter capital not yet contributed is regulated in detail.

Some other changes and supplements related to losses carried forward to the next year of real easte conveyance, tax-exempted income and dossier of CIT declaration and payment are prescribed in detail in this circular.

Implications for Business

From the aforementioned points, the circular is expected to support corporations in circumstances of new investment law. In order to assist companies in applying such circular, the Ministry of Finance issued dispatch 2512/TCT-CS to briefly summarize the new contents in this Circular.

The simpler application to calculate the CIT and the lifting of caps on trip expenses for tax are to bring a business-friendly environment for corporations when it comes to tax expense management. As a result, this is expected to lead to more active investment in Vietnam, and contribute to the country’s investment climate.

The Circular 96/2015/TT-BTC will come into effect from 6 August 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://

New Law on Investment Effective on 1st July

The new Law on Investment (LOI) has become effective as of 1st July. The final draft Governmental Decree implementing the LOI, as well as the draft Circular implementing the Decree is now being prepared by the Ministry of Planning and Investment (MPI) for issuance.

CV 4326 BKHDT-DTNN huong dan tam thoi 30-6-2015

Meanwhile the MPI has issued Official Letter 4326 /BKHĐT-ĐTNN (OL 4326) for ad hoc guidance to implement the new LOI, as well as the forms to be used from 1 July 2015 to obtain the Investment Registration Certificate (IRC) and its amendments; they key points are:

  1. Online application for IRC: investors can file IRC application online at the National Investment Portal [NIP], and submit a paper dossier within 15 days from the online filing. In the event that the dossier is accepted, the investors will be given a temporary account to check the application status. Any incorrect or incomplete application must be notified within 3 days from receipt by the licensing authority.
  2. Project Code: the project code is a 10 digit code to be issued to the applied project (Project) during its operation.
  3. Forms issued: among the forms submitted, please noted that CPC Code and VSIC Code (for business line) is still required when submitting to obtain the IRC. Separate forms are also available for amendments to the project.
  4. M&A approval: the form for M&A approval is on form I.6 attached to OL 4326. This form is simplified, and the explanation to satisfy conditions for M&A is rather brief and must strictly follow the WTO Commitment. It is unclear how other restrictions under local laws could be satisfied or would need to be satisfied (e.g. ENT for distribution companies).
  5. Forms of decisions and IRCs: OL 4326 also provides new forms of IRCs, Principle Approvals and other decisions for authorities to use.

While it is a progressive move forward, there are issues still to be clarified (as noted in our previous alert on OL 4211). Any questions are encouraged to be addressed to the Foreign Investment Agency (FIA) for guidance.

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://

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://

New Advertising Confirmation: One Procedure and One Form

New Circular on Advertising Products, Goods and Services under the Governing Authority of Ministry Of Health

The Law

On 25 May 2015, the Ministry of Health of Vietnam issued Circular No. 09/2015/TT-BYT on confirmation of advertisement information about products, goods and services under the governing authority of the Ministry of Health (“Circular 09”). Particularly, products, goods and services subject to advertising confirmation procedures under Circular 09 comprising of (if under the governing scope of the MOH) cosmetics, food, food additives, anti-insect chemistry and preparations used in household and medical areas, medical equipment, milk and nutritional products, medical examinations and treatment services.

Accordingly, Circular 09 sets out the general conditions, application requirements, procedures, validity of and authorities of department under MOH relating to confirmation of advertising of the above listed products, goods and services.

Circular 09 shall take effect from 16 July 2015 and replaces provisions on drug advertising under Circular No. 13/2009/TT-BYT and Circular No. 45/2011/TT-BYT, provisions on cosmetic advertising under Circular  No. 06/2011/TT-BYT and Circular No. 08/2013/TT-BYT on advertising of foods under MOH’s authority.  Receipt of advertising dossiers that have been issued prior to the effective date of Circular 09 shall remain its validity until their expiry dates.

Impact on Businesses

Circular 09’s key impact is that it will allow for one procedure and one form of application for advertising confirmation for all products, goods and services. The applicants will submit the application dossier to the respective MOH’s departments governing their advertised products and receive a standardized “certificate of confirmation of advertisement”.

Under Circular 09, advertising activities of special products, goods, and services governed by MOH are stipulated in the manner of consistency and harmonization with Law on Advertising and its guiding legislations (i.e. Decree 181/2013/ND-CP). This strong link reduces overlap between specialized regulations, i.e. regulations on pharmacy, food safety, medical examination and treatment services, and advertising regulations.

The changes undertaken in Circular 09 will help to streamline the advertising procedure for the aforementioned business activities. It is expected to have positive effects for the advertising activities in the consumer health industry, with less regulatory restraint, there may be a boost in the advertising demand for these products.

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://

Vietnam, FDI and the TPP ISDS: a Tentative Look

The Trans-Pacific Partnership Agreement (“TPP”) is a multilateral agreement currently being negotiated that, when finally agreed, will encompass approximately 40% of the worlds GDP under a new generation of multilateral economic governance that is focusing on competition policy, labour rights, international investment law and the harmonization of other areas of law and aimed at boosting trade, investment and economic growth between members, who at the advanced negotiation stage include Japan, the USA, Vietnam, Australia, Singapore, Brunei, Malaysia, New Zealand, Chile and Peru, with Canada and Mexico interested in joining. One of the most controversial aspects of the negotiations is that they are largely being held behind closed doors – with only limited information on draft chapters being released through memorandums, or via the medium of Wikileaks, hence why this short article is a tentative look – a detailed analysis at this stage is not possible until the final draft is released or leaked, which will not be for some time yet. This lack of transparency has helped foster strong opposition to the agreement before even considering the provisions contained within. This article considers some implications of the TPP’s Investor-State Dispute Settlement (“ISDS”) for investors of inward and outward FDI in Vietnam.

Opposing views mean uncertainty for ISDS in TPP

The ISDS provisions of the TPP have both strong support, and strong disapproval. The strong support comes primarily from the Japanese and US governments and firms that see the ISDS as crucial to the success of the TPP, and the need to protect their investment interests particularly in the SE Asian parties to the agreement. On the opposing side, with a particularly vitriol response is Australia, which has undergone a unique policy shift among developed countries and chosen to accommodate anti-ISDS voices, arguing that it ISDS is a threat to domestic rule of law and has an undermining effect on national judiciary systems. In light of this, Australia has become a proponent to abandoning the ISDS mechanism in the TPP. While the inclusion of an ISDS is still highly likely to be included as part of the agreement – with the USA pressuring opponent parties to endorse the ISDS – and arguing that there won’t be a TPP without it, there is still uncertainty around how the final draft of the TPP will be structured.

ISDS could bring new forms of investment to Vietnam

The inclusion of ISDS into the TPP agreement could have the effect further reducing the risk associated with foreign investment, which could encourage companies from developed countries party to the TPP such as those in the US, to engage in “discretionary” outsourcing, this refers to foreign investment that does not require a foreign presence to be successful (while “non-discretionary” investment outsourcing refers to investment that requires outsourcing to a foreign jurisdiction to be financially viable) , and to ensure performance, would usually be kept in the home country jurisdiction where investment is less risk averse. Such investment can include high quality manufacturing, research and development and others. This discretionary investment could further raise investor confidence in Vietnam as a destination for high tech, R&D and other forms of investment.

Vietnamese outward investment could be boosted

2014 was regarded as a bumper year for Vietnamese outward FDI, with approximately US$1 billion going to 129 projects around the world. While the biggest recipients of Vietnamese FDI have been Myanmar and Cambodia, the US and Singapore were also destinations, both of whom are parties to the TPP negotiations. This suggests that Vietnamese firms would be able to benefit from the ISDS mechanisms. While the US and Singapore have highly developed legal frameworks for the enforcement of foreign arbitral awards; both countries and Vietnam are indeed party to the New York Convention, this could seek to enhance Vietnamese enterprises’ access to a neutral ISDS mechanism. The wide scope of the Japanese and American positions on ISDS covering all major contracts between foreign investors and the host state, if agreed, could protect many forms of Vietnamese FDI to the US and Singapore.

A potential Appellate structure could enhance ISDS for investors

Although not confirmed as yet, the US has taken a leading role in the TPP negotiations in calling for an Appellate structure to the TPP ISDS. Such a mechanism has been widely promoted in US-led international investment agreements, and is included in the US model BIT as a review mechanism. Furthermore, the International Centre for Settlement of Investment Disputes (“ICSID”) secretariat has also considered reform to include an Appellate structure for reviewing arbitral awards. Such a mechanism in the TPP ISDS could have two implications for investors. Firstly, such a structure could harmonize the interpretation of the TPP treaty text, and allow for the correction of awards from the many private commercial arbitration institutions from different jurisdictions that contain different rules of interpretation, and provide a more legitimate investment framework for investors. Indeed, the basis behind the ICSID Appellate structure was to achieve the aforementioned.


This short look at some of the potential implications on both inward and outward investors in Vietnam suggests that there will be benefits to the international framework for investment in the region that will have the effect of boosting investor confidence between TPP members, on the back of a re-energized ISDS mechanism. With suggests that such negotiations are at an “advanced stage”, it is likely that more aspects of the agreement will be made public in the months to follow.


  • Sappideen, R. Ling Ling, He. ‘Investor-state Arbitration: The Roadmap from the Multilateral Agreement on Investment to the Trans-Pacific Partnership Agreement’, 40 Fed. L. Rev. 207 2012
  • Cai, Congyan. ‘Trans-Pacific Partnership and the Multilateralization of International Investment Law’, 6 J. E. Asia & Int’l. L. 385 2013
  • Ikenson, D. ‘A Compromise to Advance the Trade Agenda: Purge Negotiations of Investor-State Dispute Settlement’, 57 Free Trade Bulletin 2014
  • Mayer Brown JSM ‘A Guide to doing business in Vietnam’ 2015
  • Mayer Brown JSM ‘Will Vietnam Sink or Swim Amid a Proliferation of FTA?’ International Trade Asia, 2015
  • Accessed 7/4/15
  • Accessed 7/4/15

By Joseph McDonnell – 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 Regulation on Automobile Transportation Activities

Circular 10/2015/TT-BGTVT dated 15 April 2015 regulating on the responsibilities and handling of violations relating to automobile transportation activities. (Click here for the full Circular in Vietnamese)

Circular 10/2015/TT-BGTVT dated 15 April 2015 on stipulating the responsibilities and penalties with regard to the abovementioned; (“Circular 10”) is in replacement of Circular 55/2013/TT-BGTVT dated 26 December 2013 (“Circular 55”) on the same matter and will take effect on 01 June 2015.

In addition to the 4 main applicable subjects stipulated under Circular 55 including directorate applicable to the roads of Vietnam which are transport services of provinces and centrally-affiliated cities; transport business unit by vehicles, business units of bus station, freight car stations and rest stops, it appears that the commodity owners, longshoreman and establishments providing journey monitoring services are also governed under the jurisdiction of Circular 10.  Some certain noticeable points of Circular 10 are mentioned as follows:

Obligations of organizations engaging in the passenger transport business

By providing the specific responsibilities of organizations engaging in the passenger transport business, this Circular 10 is expected to help established businesses understand clearly how they must comply according to their responding scope of services. Of note, Circular 10 provides and explains the responsibilities of organizations providing equipment for journey monitoring which includes the requirement on the development of data explorer software under QCVN 31:2014/BGTVT.

With respect to establishments that are engaging in the passenger transport business under contracts or transport for tourists, it is required that such organisations are responsible for (i) signing one transport contract for each correlative journey; (ii) registering for and notifying the municipal Department of Transport of terms and provisions of transport contracts in case of using automobiles with the capacity of more than 10 (ten) passengers for transportation. Furthermore, the duties of organisations having business activities in bus stations, freight automobile stations, and rest stops are also stipulated in detail in Article 10, and favour the rights and interests of passengers.

Various types of penalties for different violations

With the principle suggesting that the penalties under Circular 10 only apply when organisations and individuals violate the responsibilities of the organisation, the management of businesses in road transport by cars, and road transportation supporting services, would not be remedied from the warning notice of the first violation or violate for the second time within 1 year, it seems that Circular 10 creates the condition in which the organizations and individuals can deal with, and remedy,  their breaches by themselves first before having the provided penalties applied to them under the laws.

Determining the types of penalties that may be applied for the breached organizations and individuals under Circular 10 is very clear. More specifically, the highest punishment applied to the breaching organisations that are providing equipment for journey monitoring is revocation of organisations’ licenses for satisfying requirements for monitoring journey equipment on a permanent basis. The lawmakers also supplement this with further punishments for transport business establishments. In particular, apart from suspending their transport operation routes for up to 03 months, such establishments would be suspended from conducting any business for up to 03 months in case of violation of provisions stipulated in Article 22.5 of Circular 10.

By Vietnam Law Insight.

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