PROPOSED CHANGES TO IMPROVE INVESTMENT CLIMATE IN VIETNAM

LEGAL UPDATE

The 3rd draft of the law amending and supplementing several articles of the Law on Investment (LoI) and the Law on Enterprises (LoE) (Draft) has been published for public comments since June 2019. However, this is likely not to be the final draft since the Government has agreed to split the Draft into 2 separate drafts: Draft Amend LoI and Draft Amend LoE. This has been decided as there are many changes proposed in each law and the split is expected to ease the adoption. The new drafts are currently being prepared and will be presented to the National Assembly for their adoption. Notwithstanding, we would like to set out below some of the key changes proposed under the third Draft for your information. Similar to the previous drafts, the changes proposed in this Draft are also considered not to affect an investment project detrimentally. On the contrary, the proposed changes are expected to create a more favourable investment climate; attracting more inward investments and encouraging more outward investments.

1. Business Investment and Market Access Conditions

This Draft proposes to clarify the definitions of business investment conditions and market access conditions applicable to foreign investors. Business investment conditions are the conditions applicable to any economic organisation engaging in the business lines falling within the List of conditional business sectors as stipulated in Appendix 4 of the LoI. Furthermore, the Draft also proposes to clarify that conditional business investment sectors are the sectors in which the conduct of investment and business activities must satisfy conditions for protection of national defence, national security, society order and security, society morality, community health, including conditions under the form of permits, certificates of satisfaction of conditions, professional practice certificates, written confirmations, etc. Market access conditions applicable to foreign investors are the conditions applicable only to foreign investors who invest in the business sectors which are subject to market access conditions as stipulated in Clause 1, Article 8a of the LoI (Conditional Market Access Business Sectors).

Accordingly, the market access conditions are proposed to be stipulated directly in the LoI as opposed to being stipulated in the guiding decree as currently applicable, including conditions on charter capital ownership ratio, form of investment, scope of investment, capacity of investors and partners, and other conditions as stipulated in the laws, ordinances, decrees and international treaties on investment. The list of Conditional Market Access Business Sectors shall be promulgated by the Government based on the economics and society development situation, the provisions of the laws, ordinances and international treaties on investment.

These amendments are aimed at ensuring the explicitness and enforceability in the application of the provisions of the laws, especially in relation to the provision on investment procedures in case of capital contribution, acquisition of shares, or acquisition of capital contribution as stipulated in Article 26 of the LoI.

2. Prohibited and Conditional Business Sectors

2.1 General

This Draft proposes to add 1 business line to the list of prohibited business sectors: debt collection services; remove 17 business lines from the list of conditional business sectors, such as massage services, arbitration services, debt trading services, assessment services, commercial franchising, logistical services, food trading under the Ministry of Health’s speciality administration, lodging services. Besides, 6 other conditional business lines are proposed to be amended under this Draft. It also proposes to add 3 new business lines, including fishing vessel registration and imported newspapers publication services, insurance brokerage services.

2.2 Criteria Proposed Removals and Amendments

The Draft contains criteria that are used to decide which business lines are removed or amended. The business lines proposed to be removed are the ones:

- which do not directly relate to or affect national defence and security, social order and security, social ethics, community health;

- which have been administrated by the national regulations and standards;

- of which the results’ quality will be selected and decided by customers; or

- are for public interest and able to be selected and controlled via auctions or orders of the Government.

The business lines proposed to be amended are aimed at narrowing the scope of application; or being consistent with other relevant laws.

3. Investment Incentives

The Draft proposes to supplement the principles for application of investment incentives as follows:

- The investment incentives are only applicable for a specific period based on the results of the project implementation;

- The investor must satisfy conditions for being entitled to incentives during the applicable period; and

- If an investment project satisfies the conditions for different levels of investment incentives, such project will enjoy the highest level of investment incentive to which it is entitled.

These supplements are aimed to ensure the efficiency of an investment incentive policy and to further facilitate investment activities.

The Draft also removes the investment projects for construction of commercial residential housing from the list of investment industries entitled to investment incentives. On the other hand, the Draft adds some new sectors into the list such as university education, production and business activities by science and technology enterprises with respect to products formed from the results of science and technology, production of goods and supply of services which create or participate in value chains or industrial clusters, and investment projects of creative start-up enterprises.

4. Investment Procedures

4.1 Law on Securities

This Draft proposes an amendment to clarify that the Law on Securities shall prevail in governing the conditions and procedures for contributing capital, purchasing and selling shares in a public company, as well as the ownership ratio cap applicable to foreign investors in a public company.

4.2 M&A Approval

Regarding the requirement of obtaining an M&A approval when contributing capital, acquiring shares or capital contribution in economic organisations in Vietnam, under the current LoI, the investor must obtain M&A approval in the following circumstances when:

- the target economic organisation operates in sectors subject to investment and business conditions (re-defined in the Draft as market access conditions) applicable to foreign investors; and

- the capital contribution or acquisition of shares or acquisition of capital contribution results in the fact that the foreign investor or deemed foreign investor holds 51% or more of the charter capital of the target economic organisation.

The Draft proposes to remove the need for an M&A approval if the relevant M&A transaction does not result in an increase of the foreign investors’ ownership ratio in the target economic organisation, even if such target economic organisation operates in the business sectors subject to market access conditions applicable to foreign investors. Furthermore, following the clarification of the business investment conditions and market access conditions applicable to foreign investors , the M&A approval seems not to be required in case the M&A transaction does not fall within the 2nd circumstance set out above and the target economic organisation operates in the business sectors not subject to market access conditions applicable to foreign investors, even if such business sectors are subject to business investment conditions.

4.3 Investment Registration Certificate

It is proposed to directly stipulate the conditions for issuance of the Investment Registration Certificate (IRC) in the LoI with several amendments and supplements (to the provisions of the guiding decree in force). Accordingly, a foreign investor may be granted an IRC for its investment project if the following conditions are satisfied:

- the project must not fall within the list of prohibited business sectors;

- the project complies with the national plans, area plans, provincial plans, and urban plans, if any;

- the project satisfies the conditions on land and labour use, if any; and

- the investor satisfies the market access conditions applicable to foreign investors.

Furthermore, foreign investors shall no longer be required to have an investment project and obtain IRC before establishing an innovative start-up enterprise or start-up fund. This is proposed to facilitate foreign investments in innovative start-up enterprises which are expected to develop new business models based on exploitation of intellectual property, scientific and technological achievements.

5. Offshore Investment

Similar to the previous drafts, this Draft also proposes to add a provision to the LoI on the business sectors in which offshore investment is prohibited or conditional. Accordingly, the prohibited offshore investment sectors include the prohibited investment business sectors, the sectors having the prohibited exported technology or products, and the prohibited offshore investment sectors stipulated by the international treaties of which Vietnam is a member. The conditional offshore investment sectors include bank, insurance, security, science and technology, newspaper, broadcasting, television and real estate business.

This Draft also proposes to narrow the circumstances requiring amendment to the offshore investment registration certificate (Offshore IRC). The complete elimination of the procedures for issuance of Offshore IRC is still under discussion as various divergent opinions exist.

6. Elimination of Unnecessary Procedures

Under the Draft, an enterprise shall no longer be required to notify the competent authority of the sample seal before use, report on change of information on managers of the enterprise, and some other unnecessary requirements.

7. Legal Representative

The Draft clarifies that in the event an enterprise has more than one legal representative, each of them shall have competent authority to act on behalf of the enterprise before the Court, arbitration or any third party, unless otherwise prescribed by the charter or a decision on partition of rights and obligations of legal representatives.

8. Organisational Structure of Single-Member Limited Liability Companies

Under the Draft, an Organisational Structure of SingleMember Limited Liability Companies (SMLLC) wholly owned by an organisation shall no longer be required to have an Inspector or a Committee of Inspection. An SMLLC may establish a Committee of Inspection in correspondence with its administrative requirements or hire a consultancy company to conduct the inspection function.

9. Minority Shareholders of Joint Stock Companies

Pursuant to the current LoE, a shareholder or a group of shareholders of a joint stock company owning 10% or more of the total ordinary shares for a period of 6 consecutive months shall have certain rights in relation to enterprise governance, unless the charter provides for a lower ratio. This Draft proposes to amend this ratio to 1% or lower if prescribed by the charter and abrogate the restriction on minimum period of owning shares, which are favourable to minority shareholders.

For more information, please contact:

Mark Oakley / Managing Partner

mark.oakley@acsvlegal.com

Phuong Huynh / Associate

phuong.huynh@acsvlegal.com

© 2019 ACS Legal Vietnam Company Limited – All rights reserved

This legal update is not an advice and should not be treated as such.

Open in pdf: Update on Proposed Changes to improve Investment Climate in VIetnam