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CLIENT ALERT VIETNAM Issue:
May 2020
MANAGING CHANGE
Draft new Law on Investment and Law on Enterprises
www.roedl.de/vietnam | www.roedl.com/vietnam
CLIENT ALERT VIETNAM Issue:
May 2020
MANAGING CHANGE
Read in this issue:
Draft new Law on Investment and Law on Enterprises
– Key issues
– Draft new Law on Investment (“LoI”)
– Draft new Law on ENTEPRISES (“Loe”)
– ConclusionCLIENT ALERT VIETNAM
MAY 2020
Draft new Law on Investment
and Law on Enterprises
Five years after passing the Law on Investment 2014 and the Law on Enterprises 2014, Vietnamese
legislative bodies are still in pursuit of legal reforms to accommodate an attractive business and
investment environment in the emerging economy. Two key domestic legal instruments, new Law on
Investment and new Law on Enterprises, are in draft law process with new proposed changes to
surmount existing hurdles, overlaps and inconsistencies in application of these current laws. This
update is to highlight significant changes related to the legal frameworks of these draft laws governing
investment and business activities of foreign invested enterprises based in Vietnam.
Key issues
1. Six additional conditional business lines:
DRAFT NEW LAW ON INVESTMENT (“LOI”)
– Data centre service business;
CONDITIONS ON INVESTMENT AND BUS- – Import press distribution service business;
INESS APPLICABLE TO FOREIGN INVESTORS – Fishing vessel registry;
– Electronic identification and authentication
The draft LoI provides further clarification re- services;
garding the distinction of two main conditions – Training crew members of fishing ships;
applicable to foreign investors upon conducting – Providing architectural services.
investment and business activities in Vietnam.
2. Twelve business lines being abolished from
– The first are market access conditions
the list of conditional business lines:
imposed on sectors where market access is
not yet allowed or sectors where market
access is conditional to foreign investor, – Service activities of commercial arbitration
including (i) limitation on foreign ownership organizations;
ratio, (ii) investment form, (iii) scope of – Debt trading services (but added to the list of
investment activities, (iv) capacity of investor prohibited business lines);
and Vietnamese partner, and (v) other – Manufacturing and repairing of liquefied
conditions stipulated under Vietnamese laws petroleum gas bottles;
and international treaties. A list of sectors – Franchising;
having market access restrictions will be – Logistics business;
issued by the government. – Urban planning consultancy services pro-
– The second are business conditions imposed vided by foreign organizations and indiv-
on certain sectors regulated by domestic iduals;
specialized laws without discrimination bet- – Specialized food business;
ween foreign investors and locals, including – Production of helmets for motorcyclists and
permits, eligibility certificates, practicing mopeds;
licenses, and confirmation letters that will be – Providing advertising product introduction
applied after foreign investors access the services to the public;
market. – Providing training and retraining in knowledge
about real estate brokerage, operating real
Under the proposed new draft of the estate trading floors;
LoI, there are twelve business lines being – Providing training and retraining in apartment
removed from the list of conditional business, building’s professional knowledge and skills;
while six business lines are being added to the – Cremation service management and oper-
list: ation of cremation facilities.
3CLIENT ALERT VIETNAM
MAY 2020
INVESTMENT INCENTIVES AND SUPPORT – an auction of land use rights in accordance
with land laws (applicable to land parcels
In addition to the current list of sectors to which
eligible for auction under the land laws);
investment incentives shall be given, the draft
– an in-principle approval granted by the
LoI introduces new ones:
National Assembly, the government, or the
provincial people’s committee (contingent
– Manufacturing of products as a result of
upon the scale and the sector of investment
research & development;
projects);
– College education;
– a tendering process in accordance with
– Distribution chains of products made by
bidding laws, if the project does not fall into
small-medium enterprises (SMEs), Technical
any of the previous two circumstances.
supporting facilities for SMEs, Incubation
establishments for SMEs, Co-working spaces
Under the draft LoI, in-principle
for SMEs to serve innovations and start a
approval shall be applied for selection of
business. (These sectors have recently been
investors in the following cases:
provided under Decree 37/2020/ND-CP as of
15 May 2020);
– The investor already has a legitimate land use
– Manufacturing of goods or services provision
right (except where the state retrieves the
creating and participating in a value chain or
land use right for auction purposes in accor-
sector clusters;
dance with land laws);
– Innovative startups.
– The investor implements a manufacturing,
innovative or research and development
Notably, the draft LoI also creates an
(R&D) project located in an industrial zone,
exceptional incentive regime for two types of
functional area inside an economic zone,
projects having huge socio-economic impact,
high-tech zone, or civil airport;
namely:
– When the auction/bidding period has expired,
there is only one investor registering to
– Establishment of new R&D or innovation
participate in the auction/bidding; or the
centres or expansion of existing centres with
auction/bidding is not successful; or
an investment capital of at least VND 6
– Other cases where the law does not require
trillion;
auction of land use rights or bidding process
– Business lines eligible for exceptional
to select investors.
investment incentives with a total investment
capital of at least VND 30 trillion and at least
M&A APPROVAL
VND 10 trillion being disbursed within three
years. Under the current Law on Investment, a foreign
investor is required to obtain merger and
The government is vested with the acquisition (M&A) approval from the relevant
authority to decide the type of investment, form provincial Department of Planning and
of new economic organization and incentives Investment if they intend to subscribe or
policy applicable on the condition that such acquire equity from an existing company if (i)
exceptional preferential rate must not exceed the target engages in foreign investment-
50 percent of the highest preferential level, and restricted sector, or (ii) the capital contribution
the duration of the exceptional preferential or the equity acquisition results in 51 percent or
treatment will not exceed twice the longest more foreign ownership of the charter capital of
investment incentives duration. the target company.
The draft LoI proposes further In this regard, such existing
changes as to foreign direct investment in form regulations are interpreted and implemented
of establishment of SMEs in innovative start-up inconsistently by licensing authorities in
and innovative start-up investment fund, there- different provinces. For example, in Ho Chi
by foreign investors will not need to obtain an Minh City, M&A approval is applied even in case
investment registration certificate. of additional capital disbursement by an
existing foreign investor to its wholly foreign
INVESTMENT PROJECT RELATED TO LAND- invested subsidiary which has been set up
USE already in Vietnam and without change in
foreign ownership ratio.
With respect to land-use investment projects,
Under the draft LoI, the specific
the draft LoI provides three methods for the
circumstances where M&A approval is required
selection of financers:
4CLIENT ALERT VIETNAM
MAY 2020
include: (i) an increase of foreign ownership in a New provisions to encourage companies in
target company engaging in sectors with Vietnam to raise capital from foreign investors
restricted foreign market access; (ii) an increase in form of NVDR. The draft LoE provides that
of foreign ownership in a target company from when ordinary shares are deposited to issue
less than 51 percent to 51 percent or more of the NVDR, owners of such NVDR shall have full
charter capital; (iii) an increase of foreign rights and obligations with respect to such
ownership in a target company with foreign ordinary shares, except for voting rights. In
ownership of the charter capital already other words, when investors invest in NVDR,
amounting to 51 percent or more; or (iv) the they will receive the same financial benefits,
target company is utilizing land located within including dividends, right issues or warrants, as
areas with an effect on national security, such ordinary shareholders, but without voting rights.
as sea islands, borderlands, coastal areas etc. In addition, voting for ordinary shares that are
deposited to issue NVDR shall comply with the
MISCELLANEOUS CHANGES: company’s charter and the provision under the
Law on Securities, as applicable.
Further to the afore-analyzed substantial
changes therein, draft LoI also addresses the 2. Protection of minor shareholders
following changes and improvements:
Draft LoE provides a new regulation for the
– Late period for commencement as reason for purpose of balance of interests between major
the termination of a land-use investment shareholders and minor shareholders in a JSC.
project will be expanded to 24 months Shareholders and groups of shareholders
(instead of 12 months), to ensure the owning at least 5 percent of the ordinary shares
consistency with relevant provisions in the in a company shall have the right to:
land law;
– For the purpose of tax computation and – review and extract the minutes book and
determination of undercapitalization to resolutions of the management board, and
terminate an investment project, the mid-year and annual financial reports in the
competent authorities are granted the power form prescribed under the Vietnamese
to conduct valuation on investment capital of accounting system;
investors; – request convention of the general meeting of
– Reduced monthly investment reporting shareholders in one of three circumstances,
regimes. including when the board commits a serious
breach of the rights of shareholders or the
DRAFT NEW LAW ON ENTEPRISES (“LOE”) obligations of managers or makes a decision
which falls outside its delegated authority;
CORPORATE SEAL SPECIMEN the term of the management board has
Draft LoE grants enterprises the autonomy to expired for more than six months and a new
decide about corporate seal specimen based board has not been elected to replace it and
upon its charter or internal by-laws. other cases as stipulated in the charter of the
Consequently, procedures on notification of company;
seal specimen will be unnecessary. – request the controllers’ board to inspect each
issue related to the company’s administration
LIMITED LIABILITY COMPANY (LLC) where necessary and
The members’ council (of multi-member LLC) or – In addition to the right to initiate a legal action
the owner (of single-member LLC) will be against members of the board or the directors
granted the power to decide on the private bond in certain cases regulated in the existing LoE,
placement in accordance with provisions ap- shareholders and groups of shareholders
plying to a non-public joint-stock company. owning at least 1 percent of the ordinary
Detailed regulations on this matter will be shares in a company shall have the right to:
promulgated by the government. review, search, extract the necessary infor-
mation to exercise their rights during the
JOINT STOCK COMPANY (JSC) proceedings and by decisions of the court or
the arbitration.
1. Non-voting depositary receipt (NVDR)
5CLIENT ALERT VIETNAM
MAY 2020
CONCLUSION CONTACT FOR MORE INFORMATION
We are still avidly awaiting the update on draft new Stefan Ewers, LL.M. (Melbourne)
LoI and LoE from Vietnamese lawmakers. While Partner
these draft laws are under discussion prior to (Vietnam)
official enactment, proposals for aforementioned Head of Ho Chi Minh City Office
changes are bringing a positive development to Phone: +84 2873 072 788
investment and corporate regimes applicable to stefan.ewers@roedl.com
foreign investors. Due to the law not envisaging
any flexible changes on short notice, Roedl &
Partner are in the best effort to assist clients to
gain new insights in any legal changes to facilitate
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Imprint for general information purposes only. It is not intended as
legal, tax or business administration advice and cannot be
relied upon as individual advice. When compiling this
Client Alert, May 2020 Newsletter and the information included herein, Rödl & Partner
used every endeavor to observe due diligence as best as
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