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

BBGV Breakfast Seminar: Law on Investment 2015 in Action

Event details

The BBGV is hosting a Breakfast Seminar about: Law on Investment 2015 in Action.

LNT & Partners proudly supports and speaks at this event.

Please join Mr Tuan, Deputy Director of the Legal Department of the Ministry of Planning and Investment and Dr Net from LNT & Partners as they provide information on the new provision in the investment law; how it can affect your business structure and discuss whether the new provisions provide an improved investment climate for foreign owned companies.

Date and Time: Friday 14th August 2015, from 7:30AM to 9:00AM

Venue: Cat Ba Room, InterContinental Asiana Saigon, HCMC

The new Law on Investment became effective in July 2015, purported to make landscape reform to Vietnam business environment for foreign investors. How this new law will affect the business in practice and benefit your business? How would current projects already invested in Vietnam co-op with the new law? What would be the procedure for foreign investors to establish or acquire a company in Vietnam? How about the HS Code requirement in the Investment Registration Certificate?

These Questions will be answered by Mr Quach Ngoc Tuan, Deputy Director of the Legal Department of the Ministry of Planning and Investment (MPI) and Dr Le Net, partner at LNT & Partners.

Entrance Fees: – BBGV Members: VND 500,000 – Non-members: VND 600,000

RSVP to Nga at nga.nguyen@bbgv.org or call 08 3829 8430

Reservations not cancelled within 48 hours of the event will be charged as will no-shows and invoiced.

About the Speakers

Mr Quach Ngoc Tuan

Mr Quach Ngoc Tuan is the Deputy Director of the Legal Department of the Ministry of Planning and Investment (MPI).  He was the key person in the drafting committee of the Law on Investment, as well as the Decree implementing the new Law on Investment. Before joining MPI, Mr Tuan worked at the People’s Court of Ninh Binh Province.

Dr Le Net

Dr Net 1

Le Net is a partner at LNT & Partners, in charge of infrastructure, international arbitration and financial services. He has more 18 years of experience, and was a leading counsel in ICC arbitrations and awarded Lawyer of the Year in 2012 by the Ministry of Justice’s Law Journal.  Net was behind many complex cross-border infrastructure, M&A, banking and finance transactions.  Net is also an arbitrator of Vietnam International Arbitration Centre, and a member of Vietnam Bar Federation’s National Council.

Net co-founded LNT & Partners, one of the major leading Vietnam law firms, being the only Vietnam law firm ranked in FT 25 Innovative Lawyers 2015 by Financial Times, and Vietnam Deal Firm of the Year in 2014 by ALB Thomson Reuters.

Final LNT breakfast seminar

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://LNTpartners.com