Following the issuance of the 2020 Law on Investment (2020 LoI) which entered into force on 1 January 2021, the Government issued Decree No. 31/2021/ND-CP on 26 March 2021, guiding the implementation of the 2020 LoI (Decree 31) which entered into force as per the same date. Decree 31 was welcomed as difficulties that might have arisen after the entering into force of the 2021 LoI could finally be addressed.
In this update we will set out the most remarkable points of which are new, or which have changed in comparison with the draft decree guiding the implementation of the 2020 LoI and replacing Decree No. 118/2015/ND-CP (Decree 118) which was released at the end of October 2020.
Similar to Decree 118, Decree 31 contains the regulations on conditions for business investment, business lines and market access conditions applicable to foreign investors, business investment guarantees, investment supports, investment procedures, etc.
Further to this, it adds regulations on offshore business investment activities, which used to be governed by Decree 83/2015/ND-CP (Decree 83), except for:
- offshore business investment activities in the oil and gas industry;
- investment in the form of purchase or sale of securities or other valuable papers; and
- investment via securities investment funds or other intermediary financial institutions in a foreign country.
Decree 31 introduces simpler and clearer definitions, and adds some new interpretations of for example the following descriptions:
- other areas having an impact on national security and defence;
- business lines for which Vietnam has not yet made any commitments on market access; and
- document evidencing the legal status of the investor.
To clarify one of the requirements for obtaining an M&A approval when contributing capital, purchasing shares or capital contribution in economic organisations in Vietnam as specified in Article 26.2(c) of the 2020 LoI, Decree 31 provides more details on the description other areas having an impact on national security and defence as areas defined under the laws on national security and defence as well as business lines for which Vietnam has not yet made any commitments on market access .
In comparison to the Draft Decree, Decree 31 limits the scope of the Government’s guarantee for implementation of investment projects as follows:
- Under the Draft Decree, the Government shall provide guarantee or support for balancing foreign currency. However, under Decree 31, it is provided that the Government shall partly support for balancing foreign currency on the basis of foreign exchange management policy and the ability to balance foreign currency from time to time.
- Decree 31 no longer provides for the guarantee for performance of contractual obligations by a competent State agency and State enterprise.
Notwithstanding, Decree 31 still provides for other Government’s guarantee forms as decided by the Prime Minister. This provision gives the decision-making power to the Government depending on the socio-economic conditions and demand for investment attraction from time to time.
Decree 31 also no longer contains explicit provisions on procedures for application of the aforesaid forms of business investment guarantees. Accordingly, the Prime Minister shall, on a case-by-case basis, consider and decide to apply appropriate forms of the Government’s guarantee for implementation of a project.
Decree 31 contains 2 lists of business sectors where market access is restricted for foreign investors. The first list contains business sectors where market access is not yet allowed for foreign investors (Prohibited List), and the list of business sectors where market access is conditional (Conditional List). The lists are included in Appendix I of Decree 31.
Besides the 58 specific business sectors listed in the Conditional List, it provides one new item being business sectors that are subject to the pilot mechanism of the National Assembly, the Standing Committee of the National Assembly, the Government, and the Prime Minister .
The Ministry of Planning and Investment will coordinate with other ministries market access conditions that will be published on the National Portal on Investment . This centralised portal is expected to save investors time and costs when they want to learn about investment requirements in Vietnam.
Similar to the Draft Decree, Decree 31 stipulates that with regard to business sectors for which Vietnam has not yet made any commitment under international treaties on investment and for which there are no provisions on market access restrictions applicable to foreign investor , the foreign investor can apply the market access condition in the same way as a domestic investor.
Decree 31 further stipulates that when there are new regulations which have provisions on market access conditions applicable to foreign investors, the foreign investors conducting investment activities shall:
- continue investment activities which were permitted on application of the above principle before the effective date of new regulations; and
- satisfy the market access conditions pursuant to the new regulations for investment activities conducted after the effective date of the new regulations.
Pursuant to Decree 31, restriction on foreign ownership ratio will be determined in accordance with:
a. International Treaties:
i. where various foreign investors contribute capital, purchase share or capital contribution to economic organisation and are subject to one or more international treaties on investment, the total ownership ratio of all foreign investors in that economic organisation for a specific business sector or for such investors must not exceed the highest threshold provided for by an international treaty.
ii. where the economic organisation has various business lines which are subject to different foreign ownership restriction under international treaties, the total foreign ownership restriction must not exceed the lowest threshold.
b. Securities Law: where the economic organisation is a public company, securities company, fund management company or securities investment company.
Pursuant to the Draft Decree, the investor will be entitled to postponement of performance of the obligation to provide an escrow deposit if there is a bank guarantee provided by a credit institution licensed to operate in Vietnam. Important to note is that such postponement provision no longer exists under Decree 31. Instead, if an investor has made an advance payment amount for compensation, support and resettlement to the competent authority equal to or greater than the amount of escrow deposit, such investor shall not be required to provide an escrow deposit. On the contrary, if such advance amount is lower than the amount of the escrow deposit, the investor shall provide an escrow deposit or submit the bank guarantee certificate equal to the difference. The investor is required to do this in case the implementation schedule of the investment project is behind the schedule prescribed.
Furthermore, Decree 31 adds a provision on the escrow deposit obligation when the project investment capital is increased. In that case the investor shall provide an additional amount of escrow deposit or bank guarantee corresponding to the increased investment capital as prescribed in the (amended) investment policy or investment registration certificate.
On another note, Decree 31 adds the following 2 documents that shall be submitted to register capital contribution or purchase of shares or capital contribution:
a. written agreement on the capital contribution or purchase of shares or capital contribution between the investor and the economic organisation; and
b. declaration of land use rights certificate of the economic organisation in case the economic organisation has a land use right certificate for land on an island or on a coastal or border commune, ward or town or in another area which affects national defence and security.
Investors should be aware of this requirement to prepare documents as appropriate.
Under the 2015 Civil Code, a facade transaction is understood as a transaction established by the parties to conceal another transaction. A facade transaction is a reason for the licensing authorities to terminate the operation of an investment project. Under the Draft Decree, a written certification of the competent authorities on a facade transaction, would be sufficient for the licensing authorities to terminate the operation of an investment project. Decree 31, however, stipulates that the determination of a facade transaction shall be based on a decision of a court or an arbitrator.
The licensing authorities, other organisations and individuals have the right to request a competent court to take a decision on a facade transaction during the performance of an investor's investment project to wholly or partially terminate the operation of an investment project.
Pursuant to the 2020 LoI, the foreign ownership threshold in an economic organisation with foreign investment capital (FIE) is reduced from 51% to more than 50% of the charter capital. Therefore, the issue that would need to be clarified is that whether the FIE, where foreign investors hold controlling shares or capital contribution of more than 50% but less than 51% will satisfy the investment conditions applicable to a foreign investor or not, given the change of status from a domestic enterprise into the FIE under the 2020 LoI. Decree 31 provides the following solution: the FIE specified in Article 23.1 (a)-(c) of the 2020 LoI shall:
a. not be required to satisfy the conditions and carry out relevant investment procedures appliable to foreign investors in case the establishment of economic organisation or investment in the form of capital contribution, purchase of share or capital contribution was implemented before the effective date of the 2020 LoI.
b. satisfy the conditions and carry out investment relevant procedures appliable to foreign investors in case of for example but not limited to the amendment of investment project, change of business lines after the effective date of the 2020 LoI.
Decree 31 provides a strict provision on procedures related to investment activities. For example, in case the investor submits the dossier, and the investment registration authority provides a written notice on amendments, such investor shall amend, supplement documents within the time-limit prescribed in the notice. If the investor fails to amend or supplement the dossier within the notified time limit, the investment registration authority could suspend the application and will notify the investor in writing.
It is also interesting to note that Decree 31 introduces the investor's mechanism for solving problems and preventing disputes between the State and the investor. This provision is added based on the recent Resolution 50/NQ-TW of the Politburo on foreign investment policy towards 2030.
Decree 31 abolishes the requirement to submit a complete paper application dossier for procedures to issue or to amend the IRC in case of online submission which was required under Decree 118 and also still under the Draft Decree. This move to going digital and thus reducing the administrative burden for the investor will be welcomed by investors.
Mark Oakley / Managing Partner
Phuong Huynh / Senior Associate
This legal update is not an advice and should not be treated as such.
 See our updates for more information: Decrees and Circulars Guiding the Implementation of 2019 Law on Securities and 2019 Law on Securities Expected to Develop Vietnam’s Securities Market .
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