Doing Business in Vietnam
On July 1st 2015 the Law on Investment (New LI) and Law on Enterprise take effective. The reformed LI ought to create an improved and more effective legal framework for investors and secondary equate local and foreign entrepreneurs.
With an average growth about 6.21% Vietnam was in the last years one of the most fast-growing national economies worldwide. The reformed LI ought to support the continuous ambitious national agendas.
As a matter of course especially local entrepreneurs effected this boom. However in the following the main focus lays on foreign investors. Which changes and improvements can be expected?
The New LI was passed by the national assembly on November 26th 2014. The discussions and drafts were relatively amenable, legal and business consultants as well as chairmen of foreign federations like EUROCHAM or AMCHAM were invited to give an opinion. The adopted version had accepted important proposals. This is remarkable and shows the government's increasing readiness to open towards suggestions and to review and revise own concepts where necessary.
The new laws
Investors are entitled to make investments in the business lines that are not banned in the law on investment. Moreover, foreign investors have to comply with multilateral and bilateral treaties in which Vietnam and the nations the investors bearing nationality are members.
Foreign investors may decide to select a proper investment form appropriate to their own business activities, comprising:
(i) Investment in establishment of a business organization;
(ii) Making investment by contributing capital, buying shares, or buying capital contributions of business organizations;
(iii) Investment under Public-Private-Partnerships contracts (PPP Contracts);
(iv) Investment under BCC (Business Co-operation Contracts).
All Vietnamese and foreign, natural and legal persons can, sole or corporately, invest in Vietnam. From now on foreign investors can establish in company with Vietnamese individuals joint ventures which wasn't possible under former law.
Legal form of a company
Now foreign investors have the same possibilities like the Vietnamese entrepreneurs to choose the type of company:
- limited liability company with a sole shareholder
- limited liability company with at least two shareholders
- joint stock company
- private enterprise
Establishing of a trading company
The Vietnamese law distinguishes between companies producing or providing services and trading companies. The former legislation prohibited enterprises consisting in foreign direct investment and pure trading companies. Against it the new laws enables the foreign investors to establish trading companies. In this context the law can be interpreted in such a way that established companies with foreign direct investment can also apply for an enlargement of their license so that they will be allowed to conduct pure trading operations.
The Ministry of Industry and Trade would be responsible to review the pure trading companies.
1. Investment in establishment of a business organization
With this investment form, before establishment of a business organization, the foreign investors must perform procedures to apply for granting investment registration certificates. Then, the Investors apply for establishment of an enterprise to perform the investment projects.
Investment projects comprise two groups: (a) Projects required to be obtained approval of investment policies, and (b) Project not required to be obtained approval of investment policies.
Projects which are important and may affect to security and defense and social security shall be subject to those required to be obtained approval of investment policies.
Projects not subject to those which are required to be obtained approval of investment policies are not required to be obtained approval of investment policies.
2. Making investment by contributing capital, buying shares, or buying capital contributions of business organizations
Foreign investors may contribute capital to business organizations in Vietnam in order to do business.
3. Investment under Public-Private-Partnerships contracts
Investors and project management companies shall sign PPP contracts with competent state authorities to execute an investment project to build new infrastructural works, to improve, upgrade, expand, manage, and operate infrastructural works, or to provide public services.
4. Investment under Business Co-operation Contracts
Business cooperation contracts signed between a Vietnamese investor with a foreign investor, or between foreign investors to execute investment project.
Parties to a business cooperation contract shall establish a steering board to execute BBC. Functions, tasks, powers of the steering board shall be agreed by the parties.
More autonomy in respect to decisions
Interventions in decisions by the government were reduced. The law allows enterprises liberties in following domains which are in former days strongly regulated and involved government authorities:
• no pressure to use local productions and services, loosening of Local- Content-Rules;
• cancellation of the requirement to export a determined rate of products and services;
• abolition of the limitation of imported supplies depending on export rates;
• no local content rules.
Time frame of investment projects
Foreign investment projects are still limited to 50 years. Local investments still are not limited.
Employment of foreign employees
The employment of foreign employees requires a work permit.
Administrative appeals and legal processes
Local as well as foreign investors have the possibility to file an administrative appeal against unlawful acts or decisions of authorities and public servants. According to administrative law investors can also take legal action against unlawful acts or decisions of authorities and public servants.
Resolutions of litigations
The disputes can be resolved by Courts and Arbitration.
Recognition of awards from foreign courts and arbitration courts
In general the awards from foreign arbitration courts are enforceable if they are recognized and permitted for execution by the Vietnamese court.
In principle in Vietnam recognition and execution should be affirmed in following cases:
(a) for awards from countries which are member of relevant international conventions or which concluded contract with Vietnam; or
(b) on the basis of reciprocity of awards from other countries.
Since 1995 Vietnam is a member of the New York Conventions from 1958, therefore awards from arbitrators of every member country of this convention are enforceable in Vietnam.
Arbitrator's awards coming from countries which are not members of the New York Convention and did not concluded bilateral contracts with Vietnam could although be recognized and executed on the reciprocal basis. However, for lack of clear regulations for these cases also in the new law, such Arbitrator's Awards are de facto often not recognized and hence are not enforceable.
Although the effectiveness of the laws depending from the awaited decrees, the reform seems to be appropriate to create a more attractive investment climate.
Thereby this legislation is also a balancing act between, on the one hand, opening and creating an entrepreneurial leeway for investors of any and, on the other hand, the ambition to hold up strong control mechanism.
One of the main objectives of the new laws was the simplification and acceleration of the administration. This target was not really reached, the procedures still seem to be rather pedestrian and long-winded. Amendment keeps to be desirable. However, this factor should not play a major role for an investment decision.
It keeps to be desirable that the following decrees also being a vernacular adjustment of the general conditions will be formulate concretely. Because of the ambiguity in the past vague laws and decrees often led to failed or delayed decisions by the implementing authorities. The more definite the public servant on site knows what to do in the individual case the more effective he can act. Of course this doesn't mean that he will actually act this way, but clear guidelines and decision-making-aid support this process.
Another huge challenge for the government will be the sensitization of the numerous public servants being involved in the processes which are important for the investors. A customer service for investors- that is be a program which would make Vietnam more attractive as a "Destination for the New Millennium". Thereby this slogan succeeding in the tourism, should aim at investors. Their capital is more important and less transitory than for example the tourism in time of Sars and bird flue.