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

Dr. Le Net, LNT & Partners

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


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

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

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

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

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


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


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

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

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


For further information/ insights, please contact:

Dr. Le Net, email:

Opportunities for foreign investment in Vietnam state-owned enterprises

by @JohnGrimley from Hong Kong

Dr Net Le, Partner at LNT & Partners in Vietnam and Head of the firm’s Arbitration and Financial Services Practices was among the panelists addressing the issue of state-owned enterprises amid the transformation of command economies at The Inter-Pacific Bar Association’s (IPBA) 25th Annual Meeting and Conference in Hong Kong.  After Dr Le’s presentation, I had an opportunity to interview him in-depth about what specific opportunities exist in Vietnam for foreign investors in state-owned enterprises  (SOE’s), and how those investors might safely navigate Vietnam’s legal, regulatory, political and financial landscape to make those investments successfully.

John Grimley:  “This is John Grimley and I’m editor and publisher of Asia Law Portal. I’m here in Hong Kong with Net Le, a partner in LNT partners in Vietnam, a law firm that’s focused on representing foreign investors in their activities in Vietnam. We’re here at the Inter-Pacific Bar Association annual conference and Net participated on a panel discussion about opportunities for foreign investors in acquisitions or investment positions in state-owned enterprises in Vietnam, which is a very interesting opportunity for foreign investors from all around the world, and I wanted to ask Net”:

“What is the current state of play in Vietnam with state-owned enterprisesWhat does the government want? What is it looking for? What is available to foreign investors? Net, what do you know?”

Net Le:  “Thanks John, it’s a pleasure to be interviewed by Asia Law Portal. As you know, Vietnam used to be a communist country and is now moving toward a free market economy.  In the past, the government thought that state-owned enterprise should play a major role in helping the economy to achieve its social-political purposes. But, nowadays the government is convinced that this is not the most efficient way of doing the work and it’s not very good at helping the government to achieve its’ social-political purpose. Therefore, they think of equitizing those companies.

They classify the state-owned enterprises into three categories. The first is company 91, which is the national corporation, like Petrol Vietnam, like Energy of Vietnam, like Vietnam Airlines, like Vietnam Railways, Vietnam Post and Telecom, etcetra. Those like the monopoly companies of Vietnam handling infrastructure works.  The second type of company is company 90, which is a state-owned enterprise that is established by the province. The third type of company is independent state-owned enterprise.

A vibrant example [of a company 90] is Vinamilk. That company is producing milk. They’re not the monopoly milk producer in Vietnam, but they are the best milk producer in Vietnam and they are blue-chip in the stock market. It’s the best player in the stock market and Vinamilk is held 40% by a government company called State Capitol Investment Company, or SCIC. Of the rest, 49% is held by foreign investors and in between them are some domestic investors. The government sees that Vinamilk has performed extremely well after equitization, or as you call it, privatization, in that its total assets have increased 60 times and it generates 30% of total profits of SCIC, even though SCIC is handling not only one company, it’s handling thousands of companies. Vinamilk alone is 30% of their total profit. They receive a lot of money which they would never receive if they ran Vinamilk by themselves. So, that is the example of why the government should have equitization. And that’s the difference between Vietnam and China. China does not talk about equitization or privatization and their state-owned enterprise getting bigger and bigger. Sometimes president Xi Jinping says that they are run out of control, and now president Xi would like to tackle the corruption and then enhance the management.  And, I think that is also one viable way to run state-owned enterprise, is to restructure the management.

But, in Vietnam restructuring the management is not that viable and not that easy. Therefore, the government would like to restructure by restructuring the ownership, so they will sell those companies to foreigners. And now they’re talking about selling blue-chip companies to foreigners. They’re saying that this year they’re going to sell 280 companies. Not selling 100%, but at least they will sell some percentage in it. Well, actually last year there was an equitization of Vietnam airlines and unfortunately only 1.2% of the total shares were released. Therefore the buyers were only Vietnamese. There were some foreign individuals but there were no foreign organizations or foreign funds. They’re not interested in it because perhaps they think that the piece of the pie is too small to buy in. So this year the government had to push it further and sell more of the stake of those companies, like Vietnam airlines.”

John Grimley:  “To date, what other countries have had companies that have participated in purchasing stakes in Vietnamese state-owned enterprises?”

Net Le:  “The companies that buy the most Vietnamese state-owned enterprises are the Japanese. There are two big deals in purchasing state-owned enterprises. Number one is Mizuho Bank purchasing 15% of Vietcom Bank at the price of 500 million US dollars at the stock price of 34,000 Dong per share and the other one is Bank of Tokyo Mitsubishi UFJ – [which] purchased 20% of the shares of Vietnam Commercial and Industry Bank, which is Vientinbank, 20% at the price of over 750 million US dollars and at the price of 32,000 Dong per share. Apart from that, companies like Fraser & Neave, they hold approximately 15% of shares in Vinamilk. And interestingly enough, Fraser & Neave, a Singaporean company, they did have a milk company in Vietnam, but it didn’t make a profit, and then guess who bought it? Vienamilk bought it. They sold the company to Vienamilk, but then, they own Vienamilk shares, so they make more money.”

John Grimley:  “What sectors are available for potential stakes to be purchased?”

Net Le:  “There will be infrastructure sectors, like telecommunications for sure, electricity, transportation and many others. Even for oil and gas, Petrovietnam, they may sell quite a few downstream projects to foreigners. I am aware that they might think of selling shares in the oil refinery to one of the Russian investors. And, also the other infrastructure like the Hanoi airport, another local company like VietJetAir, a private airline, they want to buy Terminal One. And just after they announced the intention, Vietnam Airlines sent another letter saying they also want to buy Terminal One, so now it’s getting more competitive and exciting.”

John Grimley:  “What would you say to any foreign investor that might be interested in purchasing a stake in a Vietnamese state-owned enterprise? What is the advantage of purchasing such a small stake?”

Net Le:  “Of course purchasing small stakes doesn’t allow you to do a lot of things in a state-owned enterprise and maybe you might get frustrated because even if you hold a 20% or 15% of the shares of the company, you don’t hold the position of chairman. You may have two seats on the board and the way the bank is running may still be the same as before equitization. However, if you have a 1% stake, you can launch a derivative action if you find out the management of the company is not as it should be under OECD standard of good corporate governance.  You can ask for opening the books and to investigate what’s going on and what’s wrong with the management of the company. And, if you hold 10% share in the company, you can call for an AGM, an annual general meeting, the shareholder’s meeting. Or, you can request [other] such things.

If you mobilize a few people who hold 1% then you can make a challenge before the governance of the board and if anything is illegal or reduces your rights, you can invalidate the shareholders meeting minutes and the resolution. So, yes, some protection is there, like in other countries. And, also, if you don’t look at the rights in a strictly legal way, I think by getting to know the company and being the first mover into those companies, you can send a signal to your competitors that you’re already there and if there is a new share issue then you’ll probably have priority of first right of refusal, depending on how you negotiate with the state-owned enterprise.

And actually, the state-owned enterprise, when they sell their shares, they want to find a strategic partner. By saying strategic partner, I’m talking about shareholders that have specific technology and brand that can bring value to the Vietnamese company. They may hold 20% or more of the shares of those companies. By participating in those companies, you establish a channel of communication with the government and your probability to become a strategic partner is also increased. So, if you don’t look at it as a purely economic reason, there might be a political or long-term reason why you should buy the small stake in the company.”

John Grimley: “Some investors who may be interested in this opportunity, many of them are perhaps likely to be first time potential investors into the Vietnamese economy. How would you advise them to protect themselves against risk when entering the market?”

Net Le: “When entering the market, of course if you want to buy some shares in a company, like a decent amount, like 5% or 10%, you should do a due diligence and not merely a legal due diligence where you look at the corporate books of the company and check the legality and also the potential liability and risks in those contracts or assets of the company.

More importantly, you have to do the personal due diligence that by which I mean you have to know very well who is in charge of the company, who is the chairman, whether he can be a good leader who can lead the company to future of success. Whether he is motivated by his own interest or he or she is only in it for the interest of the shareholders. I’ll give you the example of Vinamilk – Vinamilk has a very good leader, Madam Lien. She was actually appointed by SCIC and she is a government person, but everybody trusts her. Even recently there were potential conflicts in the shareholder’s meeting in Vinamilk because SCIC wants to replace her and other shareholders don’t want that, especially foreign shareholders. SCIC invited each of the foreign shareholders to come in and have a meeting and convince to amend the charter to put in a clause saying that a member of the board will be automatically removed if the shareholder who appointed that member removes him or her. But they know exactly what it means. They want to, if that is implemented, then Madam Lien will be removed, because she is over 60 years old, and she, under Vietnamese law, has a compulsory retirement, so they don’t agree and it’s amazing all of them put together, 19%, 10%, 5%, all together they covered up 49%, so they can defeat it.

And with the audits, they defeated the 40% of the government shares. And of course the SCIC 40%, they cannot get approval and pass a resolution, but still they can ditto, so that is also a dangerous situation. So when you look at the company, when you purchase shares in the company, you have to look at the person in change, and whether he or she has a good motivation to build up for the company. That’s very important. Then, you have to look at the brand of that company, and see if they are transparent enough, do they use “big fours auditor”, the books look good, and they regularly report their information. That is a good sign that you could invest in those companies.”

John Grimley:  “As we look forward, of course any investor, is going to be interested in what are the prospects for the overall performance in the Vietnamese economy going forward. What is the current status of the Vietnamese economy, and what are the prospects for the future?”

Net Le:  “In the first quarter of this year, Vietnam’s economy grew by 6.8% or over 7%. It’s quite impressive, the same level of China. I read a report yesterday, that Vietnam has become the number 3 trading partner of South Korea, after the US and China. And of course, the reason is because of Samsung, because Samsung invested 10 billion dollars in Vietnam. That means they have to produce mobile phones to the world; they have to import a lot of chips, and display and panel from Korea to Vietnam. And right now they export every month over 10 billion US dollars, value of export. That means they invest, they counted for 17 – 20% of total export value of the whole country. So that’s the reason why Vietnam became the number 3 trading partner of Korea.”

John Grimley: “What is the Vietnamese government position on investment? Are they very desirous of having foreign investment in the country?”

Net Le: “Yes. I think if you compare it with other countries.  Whereas for example in Thailand you may have compulsory ownership of local people up to 49% or 51%. In Vietnam, many sectors are open 100% to foreigners. There are some restrictions for bank and finance, where you can hold up to 30%, but in the future that rule may be relaxed. For a public company, I mean the company that has at least 100 shareholders, the room is 49%, but that room is soon to be relaxed as well.

So, the Vietnam government now realized that FDI (foreign direct investment), accounts for 75% of GDP, and for sure they are more efficient than state-owned enterprise.  They pay tax, if they still have tax holiday, then they still employ a lot of people and if they localize their products, that means their products can be exported for the whole world. So when you are talking about localization, Samsung mobile phones are not just about localization of mobile phones for Vietnamese people: That is the Vietnamization of mobile phones for the whole world. So that is a total different story, and the government knows about that, and the government would like to learn from China, and step in the way of China to become a manufacturer of the world.

So for manufacturing I think Vietnam would likely follow the steps of China to become a manufacturing base of the world. For manufacturing, of course you need electricity, you need water, you need steel, you need anything related to manufacturing, so that created the opportunities for foreigners to come and to buy shares in state-owned enterprises, and of course when Vietnamese workers have money, the first thing they  think is a house and the second they think is a car. So that is also another possibility — to build roads, infrastructure, and anything for those people.”

John Grimley:  “Tell me about LNT Partners and how the firm got its start and how the firm might be able to help foreign investors seeking stake in SOE in Vietnam.”

Net Le:  “LNT partners last year won the deal firm of the year by Asia Legal Business Thomson Reuters.  We are also highly recommended by International Financial Law Review 1000, by Chambers and Partners and Legal 500. We are a well-established law firm with the head office in Ho Chi Minh City and the branch office in Hanoi. We have 8 partners and soon to have 9 partners. We have 40 fee earners, so that is a good size of a local law firms. We have 5 practice groups and we represent the government in the East-West Highway project, and in the Thu Tiem Tunnel, also international arbitration.

We represent the investors in the Suai Raw Stretching project; we work with the construction company, and the design company in the metro line number 2.  We represent Petro Vietnam in the refinery extension project of Dung Quất Refinery, also another thermal power plant of Petro Vietnam. We also work with a division of Petro Vietnam in project finance of an FPSO floating production and storage oil tanker in Singapore [for placement] offshore in Vietnam. [We also] advise Petro Vietnam on drilling overseas for developing oil rigs.

We are experienced in representing both government, SOE’s and foreign investors who would like to participate in purchasing those companies. We could establish an effective communication channel to those SOEs and build a trust relationship in order to facilitate the purchasing of the shares of the state-owned enterprises.  We are constantly writing articles and participating in law advisor, law amendment, in legal drafting committee, towards the end that Vietnam will be recognized as a market economy — toward the end that we highly equitize the presence of foreign investors [in Vietnamese] enterprise.

We also don’t hesitate to represent the foreign investors against the government, at the administrative court. And we win over the tax authority in a lot of cases, for the clients, because we believe that the economy should be run by the private sector and not the public sector. They are more efficient in doing that and of course they should pay tax to a fair amount, what is in the law, and the government should also collect tax and they should impose effective rules to prevent monopoly and also against transfer pricing. But that also means that the government has to go hand in hand with the investors, and not play a dominant role to the investors.  That is what we truly believe.”

John Grimley:  “For any prospective investors who are listening, how can they reach you for more information?”

Net Le:  “We have a blog: and we welcome investors to visit that website. We also have a website:  Come visit us.  Our office is in Bitexco Financial Tower, Level 21 in District 1, Ho Chi Minh City, and the branch office in Hanoi. So we look forward to meeting foreign investors and try to assist them to achieve their objectives in Vietnam. We hope to contribute a small part to the success in Vietnam.”

John Grimley:  “I want to say thank you very much for joining us, Net, from the IPBA annual conference in Hong Kong. I’m John Grimley for Asia Law Portal. Thank you very much.”

Net Le:  “Thank you very much, my pleasure.”

2cda4ceFor more information: Vietnam Law Insight is located at: and LNT & Partners website is located at:

@JohnGrimley is Editor & Publisher of Asia Law Portal

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://

Vietnam Structuring an Appropriate Transfer Pricing Policy

Compared to other countries, the Vietnamese tax authorities do not have extensive experience on dealing with transfer pricing.

However, transfer pricing recently has become one of the main concerns of the National Assembly (i.e. the Vietnamese Parliament) due to three factors.

The first factor is the increase of foreign investment in Vietnam, which according to official sources reached USD 30 billion in June 2008. The second is due to tax incentives and the rather underdeveloped tax regime in Vietnam. Last but not least, in preparation of Vietnam’s accession to the World Trade Organisation on 11 January 2007, the government liberalized the market and abolished trade barriers, such as the regulations on minimum prices for imported products.

These deregulations created various opportunities for multinational companies to do tax planning, whereby a correct transfer pricing policy is becoming more and more vital.

In 2007, the Ministry of Finance (MOF) reported that the tax collected from foreign invested enterprises (FIE) in 2006 missed its projected target by USD 122 million. Many sectors, such as automotive or pharmaceuticals, where the market price in Vietnam is higher than elsewhere in the Asian region, have actually reported losses. The MOF suspected that a large volume of business profits were shifted abroad due to transfer pricing issues. The fact that the British Virgin Islands (BVI), a tax haven, is among the top 5 “biggest foreign investors” in Vietnam is only one example.

As the Government suspects profit shifting by FIEs, transfer pricing becomes a challenge for multinational companies. However, transfer pricing regulations in Vietnam are not very clear, and therefore what might appear to be a correct transfer price on the date of conducting a transaction might later, in case of an audit, result in heavy tax penalty.

The Government is trying to catch up. The MOF has published transfer pricing examples and clarified its position on key topics. Circular 117/2005/TT-BTC dated 19 December 2005 (Circular 117) contains guidelines on how to calculate market prices in business transactions between affiliated parties.

By Vietnam Law Insight, LNT & Partners.

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

New Rules on Remittances of Profits Overseas

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

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

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

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

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

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

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

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

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

By Vietnam Law Insight, LNT & Partners.

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

What is the Solution for M&A Procedures of Foreign Investors in Domestic Companies?

The Government has recently finalised its long-anticipated considerations to amending Decree No.108/2006/ND-CP which was promulgated almost six years ago in September 2006 in a bid to further clarify provisions under the Law on Investment. Most of these amendments have already been submitted to the Government by the Ministry of Planning and Investment (“MPI”), with only three unconfirmed matters remaining, awaiting the scrutiny of the Government.

However, this is no call for celebration yet. Stormy waters still lie ahead for foreign investors and domestic companies as one of these three matters may pave the way to tighter controls and stricter management over foreign capital and share transfers in domestic companies.

The relevant governing laws

The procedures for these transfers (or “acquisitions”) had been touched upon by numerous legal instruments including the Law on Enterprises, Law on Investment, Decree No. 108/2006/ND-CP and Decision No. 88/2009/QD-TTg.

However, in the past, no detailed, uniform procedures for such acquisitions have been comprehensively covered by any legal instrument. At some point in time, there existed numerous guidelines from various licensing authorities within Vietnam, thereby creating difficulties for any investors wishing to engage in these acquisitions.

The most recent Government regulation overseeing the acquisitions, Decree No. 102/2010/ND-CP (“Decree 102”), was issued with a view to regulate and offer a uniform approach to the procedures. On the face of the law, it seems to be a victory for foreign investors and domestic companies alike as an interpretation of this decree reveals an absence of any requirement on part of the domestic company to obtain an investment certificate following the acquisitions. In fact, we were recently presented with an opportunity to view official dispatches of the MPI (the “Report”), which confirmed this absence.

The reality in the application of Decree 102

However, numerous commentators have observed a potential conflict in the wording of Decree 102 and the Law on Investment. As a result of this lack of textual clarity in Decree 102, licensing authorities are, again, divided on the correct procedural requirements of carrying out the transfer. Foreign investors and domestic companies are, again, left in the dark as to what is precisely required in executing the procedures for these acquisitions.

This conflict has yet to be resolved, with different licensing authorities still continuing to act upon different interpretations of the law. For example:

  • The licensing authorities in Ho Chi Minh City require domestic companies to obtain an investment certificate after the acquisition such that the company will operate under two licenses – the enterprise registration certificate and the investment certificate.
  • The licensing authorities in Hanoi require all members or shareholders of the domestic company (including foreign investors) to engage in procedures to obtain an investment certificate. In doing so, the members or shareholders of the company will be granted an investment certificate while having their enterprise registration certificate revoked.
  • The licensing authorities in Ba Ria–Vung Tau Province and Binh Duong Province abolish the need for an investment certificate for domestic companies altogether if the transferred capital or shares do not exceed 49% of the domestic company’s charter capital.

The basis for this requirement

In its Report, the MPI highlighted the need for an investment certificate, citing that such requirements lay consistent with international customs on selected industries such as banking, insurance and real estate. Furthermore, it will ensure that there exist a codified set of procedures which would ultimately save the day on the face issues arising through a lack of specified guidelines.

However, it is debatable that perhaps the MPI should have given further foresight in providing its reasons. Particularly, the face of the Report seemed to overlook numerous key considerations:

  • First, the laws in countries of developed economies such as Singapore, Australia, USA and UK do not generally provide for any requirement to obtain an investment certificate of the kind potentially required in Vietnam. Particularly, Singapore provides no specific provisions for foreign investors in establishing a new company or purchasing shares of a private Singaporean company.
  • Second, the conformity to international customs that the MPI highlights apply to selected industries which are traditionally regulated to a high degree. Therefore, it is not necessarily appropriate to apply them universally to all industries.
  • Third, it seems that the requirement does not draw advantages for the transferring parties, not the State of Vietnam. In fact, both the parties and the licensing authorities fall victim to an increased burden and administrative workload as a result of its requirement.
  • Fourth, Decree 102 does not provide for this requirement so its removal will abolish any potential legal conflicts now and in the future.

What is the solution?

Without a doubt, investors aim to seek the simplest, shortest and cheapest way possible in order to carry out and maximise their investment. As such, one can only expect disappointment from foreign investors and domestic companies alike if the amendments of Decree 108/2006/ND-CP continue to implement this investment certificate requirement.

Therefore, now is a crucial time for the Government to reconsider its position, particularly given Vietnam’s national policy in promoting foreign investment into the country. Otherwise, consistency in the laws will need to be maintained in order to create a clear and systematic process for the transferring parties and licensing authorities.

At the moment, however, potential foreign investors can only wait in anticipation that the Government opts to takes one step forward in the right direction without the two steps back.

(Please note that the scope of this article covers only transfers between foreign investors and domestic companies established and operating in ordinary domains and sectors)

By Vietnam Law Insight, LNT & Partners.

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


Foreign Distributors Face Hurdles

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

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

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

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

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

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

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

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

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

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

By Vietnam Law Insight, LNT & Partners.

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

Comments on Decree 139 & Decree 108

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

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

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

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

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

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

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

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

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

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

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

By Vietnam Law Insight, LNT & Partners.

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