Global Business Law Seminar on 17th February, TOKYO

GLOBAL BUSINESS LAW SEMINAR: “OPEN LECTURE ON VIETNAMESE LAW”
17th February 2016

Vietnam is now enhancing its attractiveness as an investment destination because of the economic integration of ASEAN and its participation in the TPP Agreement. Vietnam occupies a geopolitically important location, linking East Asia and West Asia by sea and land routes. Not only Japanese firms but also Chinese and Korean firms are keen to enter into this market in order to utilize fruits from the TPP Agreement.

To help Japanese investors in getting insight in Vietnamese Law, Ms. Hoang Nguyen Ha Quyen and Dr. Nguyen Anh TuanPartner at LNT & Partners gave a presentation at Global Business Law Seminar organized by Hitotsubashi University on 17th February 2016 in Tokyo, Japan. The presentation focuses on the Law on Enterprise and the Law on investment implemented in July 2015 from academic and practical viewpoints.

About the Speakers

Ms. Hoang Nguyen Ha Quyen

quyen.hoang_

Ms. Quyen co-heads LNT & Partners’ Corporate practice group. She advises in matters of corporate and commercial compliance, mergers and acquisitions, contract drafting and negotiation, investment, labor, and intellectual property. She has been ranked by Chambers and Partners as a Corporate/M&A expert.

Dr. Nguyen Anh Tuan

tuan.nguyen

Dr. Tuan leads LNT & Partners’ Bio-Pharmaceutical specialty group. He is recognized by the legal community as one of the few qualified competition law experts in Vietnam who has an in-depth understanding of international antitrust regulations and their application under the Vietnamese Competition Law.

By Vietnam Law Insight (LNT & Partners)

“Vietnam Law on Investment and Law on Enterprises” seminar on 8th October, TOKYO

“Vietnam Law on Investment and Law on Enterprises – From Adoption to Implementation”, on 8th October in Tokyo.

As you may know, It has been almost a year since the date new Law on Investment and Law on Enterprises approved by the Vietnam National Assembly and almost 3 months since theirs officially effective date on July 1st, 2015. The new LoI and LoE has brought a significant chance for foreign investors to invest into Vietnam. Therefore, LNT & Partners, together with Hitotsubashi University ICS, Oh-Ebashi LPC & Partners and Mori Hamada & Matsumoto law firm, will organize a seminar in this October in Tokyo to update you on the new law.

Information: (Please CLICK HERE for full agenda)
Date and Time: Thursday, 8th October, 2015
Time: 17:00 – 20:00, followed by a networking.
Venue: 1 Floor of  Gakujutsu Sogo Center, 2-1-2 Hitotsubashi, Chiyoda, Tokyo.
Japanese: http://www.hit-u.ac.jp/hall/file/menu-016/file_01.pdf
English:   http://www.ics.hit-u.ac.jp/campus/directions-maps
Fee: Charge-free
Language: English
Register: Required. Maximum of 50 attendants
Organizer: Hitotsubashi University ICS
Supporters: Oh-Ebashi LPC & Partners, Mori Hamada & Matsumoto and LNT & Partners.

Speakers include:

  1. Mr Quach Ngoc Tuan, Deputy Director of the Legal Department, Ministry of Planning and Investment (MPI)
  2. Mr. Phan Duc Hieu, Director of Business Environment And Competitiveness Department, Vietnam Central Institute for Economic Management (CIEM)
  3. Mr. Bui Ngoc Hong, Partner, LNT & Partners
  4. Ms. Kayoko Naito, Partner, Oh-Ebashi LPC & Partners
  5. Mr. Shigehiko Ishimoto, Partner, Mori Hamada & Matsumoto

If you are interested in attending the seminar, please reply to let us know by 30th September, register to Ms Trang Dang at: Phuongtrang.dang@LNTpartners.com

As the number of seats is limited (50 in total), so I’d appreciated if you could confirm in your earliest convenience so I can secure a position for you. We apologize in advance for this space limitation

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 (thuy.nguyen@lntpartners.com) or visit the website: Http://LNTpartners.com

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: Net.le@LNTpartners.com

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://LNTpartners.com

Solutions to mitigate M&A pitfalls

Recently Vietnam has become a favourite merger and acquisition (M&A) destination among foreign investors, particularly from Japan, Korea  and Singapore. Popular sectors include real estate, food and beverages, retail, and to a lesser degree, manufacturing.

Vietnam has become a favourite merger and acquisition destination among foreign investors. However, one problem at present is that negotiations are often lengthy and closing deals can be difficult. This article reviews the major obstacles and pitfalls facing M&A transactions, based on a recent case study, and proposes solutions that could make the process easier and more efficient.

Law on Enterprises and Law on Investment – Effects on closing conditions

Under the Law on Enterprises (LOE), an equity acquisition is considered complete at the time the investor receives their share certificates and is entered into the shareholder registry.

Under the Law on Investment (LOI), the time at which a foreign investor is eligible to manage an acquired local company (officially under the definition of foreign direct investment (FDI) is when they are issued an investment certificate (IC). Obtaining an IC is often a cumbersome process and requires the signature of a provincial leader. The process can take months and needs to be well-advised and strategically carried out to avoid delay. That is one reason why Vietnam is currently behind other countries in terms of competitiveness. It is also a reason why major M&A transactions still occur offshore – investors take over a holding company that holds the acquired company’s shares. This loses  tax revenue and is not effective when the target company is already an FDI enterprise.

When the company to be acquired is a Vietnamese firm, an offshore transaction does not avoid the IC required to complete the transaction. One solution would be to use a local holding company. Recently however the government issued regulations prohibiting the establishment of a local ‘holding company’. However, because there is no official definition of ‘holding’, foreigners are not restricted from setting up such an entity and it could in fact be used to streamline the acquisition process.

The pitfalls of due diligence

Legal due diligence (LDD) in Vietnam differs from other countries in that foreign investment is restricted in certain sectors. The starting point of an LDD process would be to check whether the buyer is excluded from some areas of the target company’s business. If so, the recommendation would be to clarify or remove those areas of business or use the holding structure as advised above.

Another issue could be the nature of the target company. Family businesses, for example, may use double book transactions and may not have their books audited before the transaction. It is therefore important that a buyer only trust audited financial statements and that any other ‘profit’ shown in a separate transaction book be considered with scepticism.

There are two risks that cannot be avoided through LDD in Vietnam. The first is the ‘non-litigation’ risk. There is no central database in Vietnam where one can look up who is suing whom. Therefore, most LDD reports simply state that the ‘target is not aware of any legal action pending’, which is a weak position. The second is tax risk. Under the Law on Tax Management, there is no time limitation on tax recovery. That means in theory a target company could be subject to tax arrears indefinitely. In fact, there have been cases where an LDD takes place and a company is acquired, only to have tax authorities return for arrears years later, and the due amount including penalties is actually higher than the purchase price. If the sellers have left the country then the company is the only entity availably responsible for payment. One solution to this would be to request that tax authorities clarify any outstanding issues, or to withhold part of the payment until taxes have been finalised. Having said that, it does not fully mitigate risk. This is also the reason many buyers opt for asset deals rather than equity deals. This can be more practical with a pure M&A transaction, rather than private equity where asset deals are not an option.

Risks during negotiation

Contract negotiations may be short or long, depending on how skilled both sides’ lawyers are and how detailed the memorandum of understanding (MoU) or term sheet is. More often, negotiations are drawn out because the MoU or term sheet was not drafted or lacks detail. Asides from fixing a purchase price, these preliminary documents are very important to limiting the expectations of both parties and familiarising them with concepts such as right of refusal, a drag-along or tag-along clause, a non-compete clause, or reserved matters, which are often a source of tension.

Co-operation between lawyers from both sides in good faith and towards a win-win solution is vital. There is nothing more frustrating than an embattled negotiation, where one party has a presumed feeling that he/she has been treated unfairly by the other party, or that the lawyers have done nothing to protect their clients. If lawyers are apathetic with their clients, then both parties lose and the only winner is the law firm.

During negotiations, it is standard for both sides to have lawyers. In a case where only one side has lawyers, the other side may not understand basic concepts such as rep and warranties and put options, and may start feeling paranoid about the contract as a whole. That said, many sellers hesitate to engage lawyers because of the high cost, but this only prolongs negotiations and leads to frustration. If the seller doesn’t employ a lawyer, it is important for the buyer’s lawyers to use plain English or tone down their language so that their client can achieve their objectives. Regardless, it is much better that the seller has a lawyer for negotiations, and if not, suspends negotiations until one can be employed. Another option is for the buyer’s lawyers to clearly explain any and all points of contention.

What often happens is that foreign lawyers blame local lawyers for being uncooperative or not understanding the basics of M&A. But more often I encounter foreign lawyers that underestimate local lawyers or have colonial attitudes. Such attitudes lead to bullying and might be useful in some frontier markets, but not in Vietnam, especially when the other side are prominent local lawyers who have been involved in many international transactions. Both sides have to be realistic and have a win-win attitude. This is easier said than done, but small steps such as not arguing over ‘face-saving’ issues and avoiding the use of unsubstantiated threats can help to build trust between both lawyers and the involved parties.

Post-closing issues

Closing a deal does not mean it is time to pop open the champagne. Apart from tax risks (mentioned above) there are also situations where a put option or convertible bond applies, and these issues need to be worked out. Recently there was a pending case at the Vietnam International Arbitration Centre between a buyer who wanted to enforce the put option and the seller who denied the validity of the option. A battle commenced where one side argued a strict interpretation of the words ‘shareholder agreement’ and the other side who defined it as the intention of the parties before the M&A transaction occurred. The solution, in either case, is to have a well-drafted contract and that both sides have a red-line and hedge against or insure that red-line.

There are numerous obstacles to M&A transactions in Vietnam, as in all emerging countries. But with an experienced advisory team, it is easier to build trust with the counter-party.

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://LNTpartners.com

Revised investment, enterprise laws to bolster influx of capital

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

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

Abolition of Investment Certificates for many foreign invested enterprises

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

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

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

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

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

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

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

Derivative actions: booster to private equity

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

Corporate bonds: booster of securitisation

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

More than one legal representative in a company

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

Charter capital will be paid up capital

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

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

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

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

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

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

Support from the business community

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

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

By Vietnam Law Insight, LNT & Partners.

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

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://LNTpartners.com