return icon Vietnamnet.vn

Amended investment law eases pathway to carrying out big business in Vietnam

Together with the Law on Enterprises, the new Law on Investment took effect on January 1, with the latter aiming at creating a favourable legal framework to support and promote investment activities and economic development, 

while also making sure that previous overlaps and inconsistencies are reduced.

amended investment law eases pathway to carrying out big business in vietnam

Amended investment law eases pathway to carrying out big business in Vietnam. 

 

 

The new Law on Investment 2020 officially came into effect at the beginning of this month, as Vietnam is currently part of 14 bi- and multilateral free trade agreements, each with their own commitments to open markets. However, the new law, in addition to the important task of simplifying administrative procedures on investment and business to minimise costs for investors, must also meet requirements of state management, especially when it comes to foreign investment.

Considering these requirements, lawyer Le Dinh Vinh, director of Vietthink Co., Ltd. said, “The new investment rules must solve the legal unification issues”, as the previous overlaps of laws have been “a rather painful story”, with many projects at the same time being subject to the laws on investment, enterprises, land, environment, housing, planning, and so forth.

The Vietnam Chamber of Commerce and Industry (VCCI) previously commented on the issue and proposed to amend more than 10 overlapping articles in between these laws.

For instance, Article 9 of the new Law on Investment now stipulates five market access conditions for foreign investors. These conditions include the ratio of foreign investors’ ownership in charter capital in enterprises and economic organisations, the allowed form of investment, the scope and geographical area, the investor’s required capacity in several industries, and participating partners.

The new law also revises the nature of foreign-invested enterprises (FIEs) to be considered as domestic ones when investing in other businesses. The permissible threshold for foreign investors (in FIEs that qualify as domestic ones) has slightly decreased to less than 50 per cent compared to the previous law, in which this threshold was placed at 51 per cent.

Innovative changes

The Law on Investment 2020 has made an important step forward as 12 conditional business lines have been reviewed and abolished, 19 occupations amended, and six more sectors added, including essential industries like the clean water business.

However, according to lawyer Vinh, this also poses “challenges for the Vietnamese state management agencies as the country has joined many new-generation free trade agreements (FTAs), each with a series of commitments to open markets on different levels.”

For the first time in Vietnam, the Law on Investment 2020 is establishing the principle of equality in market access between domestic and foreign investors, except for those industries where legal restrictions are in place.

“This stems from Vietnam’s aspiration of international integration which requires us to implement the commitments in FTAs,” Vinh said.

Nguyen Van Phi, marketer at Taiwanese MiTac Vietnam Co., Ltd., told VIR that the new law pays more attention to equality between enterprises, besides simplifying procedures for FIEs. “The positive changes in the new law will help FIEs access better markets,” said Phi, as he expressed his hopes that “the new Law on Investment will offer more incentives for foreign investors and enable a smoother business environment, particularly during the pandemic.”

Execution matters

Vietnam has made great efforts to improve the legal framework for doing business. The government has also issued a draft decree guiding the implementation of the law as well as more details on how foreign investors can be treated as domestic ones.

Nguyen Thanh Hai, lawyer at Baker McKenzie Vietnam, commented that though the new law is more transparent, its implementation could still be challenging.

“In November, US investors and businesses wrote a nearly 60-page document on the draft decree. It addresses major issues attracting the attention of foreign investors, such as investment protection and the conditions for overseas enterprises to apply simplified procedures – both of which present huge problems,” Hai noted.

He referred to the conditions for investment registration procedures, in which the conditions will be far easier if the enterprise has a maximum ownership rate of 50 instead of 51 per cent previously. Though the 1-per-cent change is small, it is very important for foreign firms. However, it remains to be seen whether businesses that currently own 50.9 per cent have to reduce their ownership rate to less than 50 per cent to enjoy the same conditions as a domestic enterprise or must follow procedures like a foreign one.

In another example, the investment registration procedures for rooftop solar systems attract the interest of many foreign investors, including US ones, particularly since the prime minister signed Decision No.13/2020/QD-TTg to encourage solar power development in Vietnam, which allows private investors in projects under 1MW. This policy applies to both domestic and foreign businesses. However, the process of issuing investment certificates for foreign enterprises takes three months, much longer than for domestic ones.

In many cases, when foreign companies register a business that is related to generating and selling electricity, they must still wait for departments and agencies to consult with relevant ministries, such as the Ministry of Industry and Trade. “Although the law is very transparent, collecting comments from other agencies and ministries take too long and is thus lessening opportunities for foreign investors,” Hai argued.

Following the changes of the Vietnamese legal system, especially with regards to economic laws, attorney Tran Huu Huynh, chairman of the Vietnam International Arbitration Centre, has seen comments saying that the current laws are not very transparent, uniform, or reasonable.

Huynh, who has criticised many laws and is also one of the members of the drafting committee of the Law on Enterprises 1999, as well as the Law on Investment 2005, found that the business segment especially suffers from inconsistencies and a lack of transparency. Vietnam uses a law implementation index as a criterion for international integration. But according to the VCCI, the implementation of laws is always weaker than the legislative part.

However, Huynh thought that this situation is increasingly being improved in the direction towards faster improvement, larger scale, and more pronounced efficiency.

“I think there are three basic factors that make me believe that law enforcement is getting better,” he said. “First is Vietnam’s innovation policy that aims at increasing competitiveness. Second, our nation’s approach to integration, with the investment and business environment being reformed following the demands of the people and enterprises. And lastly, the legislative part which will be accelerated and improved with the ever-increasing maturation of experts, business community, and associations.”

Vu Khanh Din - Head of Legal, Tasco Group

amended investment law eases pathway to carrying out big business in vietnam

The laws on enterprises and securities broaden the concept of company insiders, including family member, persons in charge of corporate governance, and secretaries; cross-ownership in groups; as well as empower small shareholders and increase transparency and disclosure of information about the company. These changes will show the gradual approach to corporate governance principles in accordance with best practices in the world.

As a result, public and listed companies will have to increase transparency and always ensure compliance with the regulations, which will create favourable conditions for domestic and foreign investors.

Also, rights of small shareholders are increased. The enterprise law allows a shareholder or a group of shareholders holding 5 per cent at any time to require certain information and initiate lawsuits against the company or its affiliates if damage is caused. This will lift the responsibilities of board members and other corporate insiders.

Doan Vu Hoai Nam - Associate, ASL Law

amended investment law eases pathway to carrying out big business in vietnam

Although foreign direct investment (FDI) in Vietnam has increased in recent years, it still focuses mainly on processing and manufacturing industries, which do not require highly-skilled labourers. With the goal of attracting qualified FDI sources, the revised Law on Investment has focused on issuing preferential policies for high-tech enterprises, startups, and research and development centres, enabling a better production of new materials, energy, and IT products.

Overseas investors who have the desire to open a company in Vietnam mainly tend to establish limited liability companies.

The amended Law on Enterprises stipulates that one- or multi-member limited companies whose member is an organisation shall not require the establishment of a board of inspection. This will help the company reduce cumbersome administration procedures and ease doing business in general in this country. VIR

Tran Nguyen

Summary of new points of amended Law on Investment 2020

Summary of new points of amended Law on Investment 2020

After more than six years in effect, the Law on Investment has been officially amended with a number of new articles to improve the country’s appeal to higher-quality foreign investment flows.

Amended law alters funding landscape

Amended law alters funding landscape

The Vietnamese National Assembly has adopted the new Law on Investment, with new rules in favour of foreign investment, including from the US, which is expected to surge in Vietnam in the time to come.

MORE NEWS

Fashion shows to spread quintessence of Vietnamese culture and heritage

The series is the brainchild of former supermodel Ha Vy and director Hoang Cong Cuong, who is the mastermind of several big events in Vietnam including the opening ceremony of the Southeast Asian Games (SEA Games) 31 in Hanoi in May.

Low-carbon rice production helps Vietnam meet emission target

Rice, which is Vietnam’s most important crop and grown on more than half of its agricultural land area, accounts for 48 per cent of the agriculture sector’s GHG emissions and over 75 per cent of methane emissions.

VIETNAM BUSINESS NEWS SEPTEMBER 26

Number of air passengers down 14% in September

Vietnam needs highly skilled labour force to compete

The vocational training system of Vietnam needs reforming to create highly-skilled human resources that meet the requirements of the labour market in increasingly integrated international market, experts said.

Lengthy visa process a setback for FDI firms

The visa process does not always go smoothly. Sometimes, it moves so slowly that some specialists cannot enter Vietnam on schedule, leading to production disruptions.

Petrol and oil price stabilisation fund requires thorough appraisal

The Government needs to carefully evaluate the effectiveness of the petrol and oil price stabilisation fund in keeping the commodity’s retail prices stable before deciding to maintain or eliminate the tool, experts said.

Embedded finance the next big thing: summit

Embedded finance is the next big thing in the financial services industry as it has integrated seamlessly into the local fintech landscape in recent years, experts said at a meeting last Friday in HCM City.

Entertainment and cultural events of the week (September 26-October 2)

Upcoming entertainment and cultural events in Vietnam's major cities on September 26-October 2.

VIETNAM NEWS HEADLINES SEPTEMBER 26

PM orders urgent measures against Storm Noru

Beauties wow in traditional costume contest at Miss Grand Vietnam

Vietnamese beauties boasted of their charm in a traditional costume segment of the ongoing Miss Grand Vietnam 2022 taking place on September 23.

State Bank’ rate hike necessary to defend VND, control inflation: ADB Country Director

ADB Country Director Andrew Jeffries has talked on the recent interest rate hike by the State Bank of Vietnam in the context of the Fed, ECB and a number of countries raising their rates to curb inflation.

Prop-tech has potential but faces challenges

Many prop-tech startups are facing challenges, though it is a new market with potential in Vietnam.

Prime Minister asked to stabilise rice price

India's restriction on rice exports is said to have an impact on the volume and price of Vietnamese rice exports.

Vietnamese artworks to go under the hammer in France

The auction’s highlight is Les Rapides de Cho Bo, a six-panel lacquer screen with gold highlights, painted in 1942 by Le Quoc Loc. The artwork is estimated to fetch €400,000 ($396,000), the highest price of the lot.

A pearl in mountainous province

Referred to as the “Halong Bay of the northwest region”, Nong Dung Lake has recently been attracting tourists as an ecotourism destination due to its emerald water and poetic scenery.
back_to_top