Vietnam continues to refine and amend it economic and administrative procedures and structures to meet ongoing global commitments for integration, and to progress the advancement of the domestic economy. The Law on Investment 2014 and Law on Enterprise 2014 are the key legal documents presently regulating both domestic and foreign investment, along with corporate structures and operations, and both are to be amended at an upcoming session of the National Assembly. The third draft of proposed changes to these Laws was recently released for comment, and we have detailed below some of the key changes arising to these Laws.
Vietnamese Enterprise & Investment Law – September 2019 Update: Proposed Changes (3rd Draft) to Current Law on Investment and Law on Enterprises
Bang Nguyen and Hung Le, Licensing Officers in the Ho Chi Minh City office of Domicile Corporate Services, were key contributors to this article.
Proposed Changes to the Law on Investment 2014
1. Business Investment Conditions and Business Lines
The Draft law proposes to clarify the requirements for business investment conditions and the applicable forms of business investment conditions.
The new Draft also adds a new legal norm in addition to the current "conditional business investment sectors", being "conditional access to the market for foreign investors". This norm allows for more clarity by detailing the criteria that State authorities are to use when deciding whether to allow investment.
The Draft further removes a category of business lines that are prohibited from investment, removes investment conditions for some business lines, and also adds a number of business lines into the category of conditional investment business lines.
2. Parties Eligible for Investment Incentives
In addition to the to the current incentive conditions covering geographical areas of operation, capital and the number of labourers, the new Draft introduces additional revenue and labour targets. The current Law permits incentives for investment projects with a capital of VND 6,000 billion or more, disbursing a minimum of VND 6,000 billion within 3 years from the date of being granted the first Investment Registration Certificate (or decision on investment policy is issued). The 3rd Draft proposes that projects, beside satisfying “a capital scale of VND 6,000 billion or more, disbursing a minimum of VND 6,000 billion within 3 years from the date of being granted the first Investment Registration Certificate (or decision on investment policy is issued)”, must have a total turnover of at least ten trillion VND per year no later than three years from the first year when a turnover is generated or employ over three thousand employees.
Investors already are entitled to investment incentives may also be denied the right to enjoy incentives if, in the course of their operations, there is a declaration of fraud or when they no longer meet the conditions for applying for incentives.
3. Business Lines Eligible for Investment Incentives
The Draft adds three business lines eligible for incentives: "manufacturing and trading products formed from the results of science and technology’’, "Higher education" and "production of goods or provision of services that create or join value chains or clusters of innovative start-up projects".
4. Regulations for PPP Contracts
The Draft Law on Investment no longer specifically regulates the form of investment through PPP (Public Private Partnership) contracts.
5. Investments in Creative Start-ups
The Draft defines investment activities in "establishing creative start-ups and creative start-up funds" where procedures for the grant of investment registration certificates are not required.
6. Prime Ministerial Approval
The Draft proposes to amend Article 31 by eliminating a number of investment projects that must be submitted to the Prime Minister for approval, including projects with investment capital of VND 5,000 billion and above, and for projects for which investment and business conditions are specified in international treaties and relevant laws. This last category includes projects from foreign investors in the field of shipping, business and telecommunication service enterprises with network and press infrastructure, the establishment science and technology organizations, and 100% foreign-owned science and technology enterprises.
7. Offshore Investment
The Draft provides regulations prohibiting investment abroad in a number of business lines. This change, however, will have limited effect inbound investment into Vietnam.
8. Procedures for Registration of Capital Contributions
The Draft proposes to abolish the procedure for registration of capital contributions where it does not increase the foreign investor's ownership ratio in an enterprise. Under the current Law, in all cases where foreign investors contribute capital, purchase shares, or purchase capital contributions of business organizations operating in conditional business investment sectors then foreign investors must carry out procedures for registration regardless of the ratio.
Proposed Changes to the Law on Enterprises 2014
1. Legal Representatives
The Draft provides that where an enterprise has more than one Legal Representatives, any of the company's Legal Representatives can be the representative in law, and have corporate competence at the request of a court, arbitration or a third party, unless otherwise provided for in the company's charter or with a decision on the division of rights and obligations for specific representative(s).
2. Rights to Initiate Lawsuits Expanded
The right for shareholders to initiate lawsuits against members of the Board of Directors, the Director or the General Director has been expanded, with the draft removing the requirement for ordinary shares to have been owned continuously for 6 months. Under the current Law on Enterprises, a shareholder or a group of shareholders that own at least 1% of common shares, which they have held continuous ownership of for at least 6 months, have the right to sue for civil liability when there is a breach of law.
3. Rights of Ordinary Shareholders
According to the Law on Enterprise 2014, a shareholder or a group of shareholders owning 10% or more of ordinary shares, or a smaller percentage if defined in the Company's Charter, for a consecutive period of 6 months, have certain rights under Clause 2, Article 114. The Draft proposes that a shareholder or a group of shareholders that own 1% or more of ordinary shares, or a smaller percentage if defined in the company's charter, without ownership time restriction, will be able to:
“a) Nominate candidates for the Board of Directors and the Control Board;
b) Examine and copy minutes of meetings and Resolutions of the Board of Directors, mid-year and annual financial statements based upon Vietnam’s Accounting System, and reports of the Control Board;
c) Request convention of the General Meeting of Shareholders in the cases mentioned in Clause 3 of the Article; and
d) Request the Control Board to inspect issues related to the company’s administration where necessary.
4. One-Member Limited Liability Companies Owned by an Organization
Changes for one-member limited liability companies owned by an organisation under the 3rd Draft include:
• No longer requiring Supervisors or a Supervisory Board in the operating model, and
• Having at least one Legal Representative who holds (on of) the titles of Chairman of the Members' Council, Chairman of the Company, or the General Director / Director. The current Law on Enterprises does not require the Legal Representative to hold these titles.
5. Removal of Requirements to Update Certain Changes to Roles
Enterprises will no longer be required to declare with the business registration agency changes to Members of the Board of Directors for Joint-Stock Companies, Members of Supervisory Boards or Supervisor, or the Director or General Director.
6. Enterprise Seals
The Draft proposes that companies are no longer required fulfillment of obligations with Enterprise Seals that “before using, enterprises are obliged to notify the seal sample to the business registration agency for public posting and declaration on the National Business Registration Portal”.
7. Time Limits for Capital Contributions
The Draft has clearer regulations on the time requirements for undertaking capital contributions in a limited liability company with two or more members. According to the Draft, if a member contributes capital in assets, the time spent on importing and implementation of administrative procedures to transfer ownership of such property shall not be included in the capital contribution term.
8. Contributions or Transfers of Capital via the Capital Account
Current regulations stipulate that the activities of purchasing, selling, transferring shares, capital contributions, receiving dividends and transferring profits abroad for foreign investors must be made via the “capital account”. However, the Draft states that payment will be made via accounts in accordance with the Ordinance on Foreign Exchange Control. The content of the Draft is in accordance with recent changes to foreign exchange regulations in Vietnam.