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.

1498p8 amended law alters funding landscape
The new Law on Investment required a rework to fit the investment environment of a rapidly-growing nation, Photo: Le Toan

Huynh Cong Tam, senior associate at US-backed law firm Russin & Vecchi, analyses the new law, which reflects Vietnam’s great efforts to boost its appeal for this type of funding.

The Law on Investment 2014 will be replaced after being in effect for five years, during which time it has helped to shape the current positive investment environment. On June 17, the Vietnamese National Assembly passed the new Law on Investment No.61/2020/QH14, effective from January 1 next year.

During its term, the investment environment was more supportive of investors. Foreign investment in which United States investors have been highly visible was significantly benefited. In 2019 alone, total foreign direct investment reached an impressive milestone. In that year, total foreign investment capital registered in Vietnam (through registered capital for new projects, additional capital for expanded projects, and capital for mergers and acquisitions) reached $38.02 billion, the highest ever annual level.

According to the Foreign Investment Agency under the Ministry of Planning and Investment, despite the COVID-19 pandemic, as of May 20 the total registered investment capital by non-nationals reached $13.89 billion, equal to 83 per cent of the same period in 2019. Nearly half of the total capital contributed ($6.7 billion) is for new direct investment projects.

Overseas investors poured money into 18 fields in 2020, of which the processing and manufacturing industries led with total investment capital of $6.88 billion, accounting for 49.5 per cent of the total. Electricity production, especially renewable energy, and distribution ranked second with total investment capital of $3.92 billion.

While the majority of foreign investors still come from Asia, those from the United States also increased their activity in Vietnam. According to a recent report from the Ministry of Foreign Affairs, since the Vietnam-US Bilateral Trade Agreement came into effect in 2001, direct funding by US investors increased rapidly at an average annual increase of 27 per cent per year (compared to about 3 per cent per year from 1996-2001).

During the first four months of 2020, the total value of the investment capital from US groups reached $94.08 million. This figure does not reflect the real picture as many US investors have put money into Vietnam through investment vehicles incorporated in other countries. US businesses have accelerated their long-term investments in Vietnam.

With the rapid evolution of activities, the Law on Investment 2014 has not been able to keep up. The new Law on Investment creates a legal framework to attract further foreign investment, especially after Vietnam signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the EU-Vietnam Free Trade Agreement.

Another motivation of the new Law on Investment is that Vietnam needs to complete its legal framework in order to enhance its competitiveness vis-à-vis other countries in the region and to attract the investment capital that is trending away from China.

The new Law on Investment maintains the fundamental principle that domestic and foreign investors can continue to carry out investment in industries and trades which are not prohibited. In that connection, the new Law on Investment reduces to 22 the conditional sectors. For the conditional sectors, investors are required to meet specific statutory conditions.

The new Law on Investment also includes greater transparency; for example, it provides specific timelines for competent authorities to review and approve investment dossiers of the investors, principles and conditions applicable to land use rights auctions, and bidding for projects.

It also clarifies regulations which have been unclear and/or have caused difficulties and obstacles in the implementation process, such as certain regulations on procedures, capital, and onshore and offshore activities.

The new Law on Investment also simplifies some procedures. For example, it abolishes the requirement that projects with a capital of VND5 trillion ($217.4 million) or more be “pre-approved” by the prime minister; licensing of golf course projects is now under the authority of provincial peoples’ committees (instead of the prime minister’s authority as was the case under the Law on Investment 2014).

 

Although there were suggestions to abolish the requirement that a foreign investor has a project and obtains an investment registration certificate (IRC) before it could establish an enterprise to carry out the project, the new Law on Investment retains the IRC requirement.

However, and for the first time, the new Law on Investment will allow certain foreign investors to form a company without first obtaining an IRC. Small or medium-sized innovative startup companies or investment funds will benefit. These new provisions are expected to create a favourable legal mechanism for foreign investors to set up innovative startup businesses in fintech, shared technology businesses, and other creative startup projects.

The new law also introduces a new concept called “market access conditions for foreign investors”. Accordingly, the Vietnamese government is permitted to promulgate a list of industries and trades in which they will receive restricted market access. Such a list will specify business activities without market access and business activities with conditional market access.

Lawmakers expect the list to help Vietnam to improve the quality and efficiency of foreign investment. As it is new, the specific “market access conditions for foreign investors”, however, needs time to be created. Vietnam’s commitments under several international treaties will create the necessary guidelines.

One condition is not new. It is regulated by other laws but now appears in the new Law on Investment. Foreign investors wanting to form a company, contribute capital, purchase shares of companies which have a land use rights certificate and/or are located on border areas and communes, wards and townships, coastal communes, or areas which affect national defence, will need an investment policy approval before proceeding with the company formation or the proposed acquisition.

This is intended to manage activities which may interfere with national defence and security. It will permit the Vietnamese government to prevent the transfer of projects to foreign investors in sensitive circumstances.

The new Law on Investment is also expected to resolve difficulties of real estate companies relating to procedures of auction, bidding, and policy decisions for projects involving land use rights as well as to remove overlapping and inconsistent regulations in the application process among relevant laws/regulations.

Specifically, the new law requires that the selection of an investor to implement projects through auction of land use rights, and bidding for selection must be carried out after a policy decision for a relevant project has been made. In some specific cases, in respect of projects subject to the procedures of policy decisions, the new Law on Investment provides a flexibility by allowing competent authorities issue an investment policy decision and also approve the investor to implement a project without the need for going through the process of auction of land use rights or bidding for selection later.

As a matter of procedure, the implementation of these new regulations requires the government and ministries to provide detailed guidance. In addition, provisions under relevant laws, such as the Law on Housing and the Law on Real Estate Business, will need to be amended in consistency with relevant regulations of the new Law on Investment.

Other forms of support have also introduced special investment incentives; tax incentives; support for development of certain projects which will have a large impact on socio-economic development; support for training and development of human resources; and certain types of credit support.

These changes are welcomed by both investors and the public. The new Law on Investment is expected to increase the level of overseas investment and to add momentum to Vietnam’s economic growth. VIR

Huynh Cong Tam

Delving into specifics of amended business laws

Delving into specifics of amended business laws

Businesses and investors are expected to access new positive changes when the amended Law on Investment and the amended Law on Enterprises take effect from January 1 next year.

Amended investment law to relieve funding burdens

Amended investment law to relieve funding burdens

With the strategic plan to attract qualified FDI into Vietnam in the light of the Politburo’s Resolution No.50-NQ/TW, the drafted amendment of the Law on Investment 2014 simplifies licensing procedures for setting up a foreign-invested entity.

 
 

Other News

.
Debt burden risks budget stability
Debt burden risks budget stability
BUSINESSicon  29/05/2021 

Vietnam has had outstanding economic development in recent decades, even through the pandemic so far. 

Paint makers’ fresh coat of progress
Paint makers’ fresh coat of progress
BUSINESSicon  29/05/2021 

Having one of the fastest-growing paint and coating industries in the Southeast Asian region, Vietnam is mainly dominated by international paint and coating groups, but it is now witnessing a refresh as local makers attempt to gain some traction.

'Black-credit' lenders pose serious threat to borrowers
'Black-credit' lenders pose serious threat to borrowers
FEATUREicon  28/05/2021 

Experts have repeatedly rung the alarm bell over black credit, which is causing serious consequences to families and society.

PDP8 delay to unlock more cost-effective renewables
PDP8 delay to unlock more cost-effective renewables
BUSINESSicon  28/05/2021 

The past 12 months have been a period of intense activity for Vietnam’s power sector.

Inefficient State-invested projects must be removed from list: PM
Inefficient State-invested projects must be removed from list: PM
BUSINESSicon  27/05/2021 

The Cabinet leader recently issued a directive urging relevant agencies and localities to accelerate public investment disbursement and improve the quality of the mid-term public investment plan between 2021 and 2025.

Great investment opportunities in cold storage
Great investment opportunities in cold storage
BUSINESSicon  27/05/2021 

The rise of online shopping is driving demand for cold storage facilities, a segment that is severely short of supply around the world.

Vietnam to spend $124.5 billion on public investment over next five years
Vietnam to spend $124.5 billion on public investment over next five years
BUSINESSicon  27/05/2021 

Vietnam plans to outlay 2.87 quadrillion VND (124.5 billion USD) on public investment in the 2021-2025 period, up 120 trillion VND compared to the previous estimate.

Moody's affirms credit ratings for four Vietnamese banks
Moody's affirms credit ratings for four Vietnamese banks
BUSINESSicon  27/05/2021 

Credit rating agency Moody's on May 26 affirmed its long-term domestic and foreign currency deposit and issuer ratings of four Vietnamese banks.

Vietnam’s energy giant sets ambitious revenue of $1.2 billion
Vietnam’s energy giant sets ambitious revenue of $1.2 billion
BUSINESSicon  28/05/2021 

The PetroVietnam Power Corporation (PV Power) aims to earn VND28.4 trillion of revenue (US$1.2 billion) and pre-tax profit of nearly VND1.55 trillion this year.

Tax tweak puts strain on apparel makers
Tax tweak puts strain on apparel makers
BUSINESSicon  27/05/2021 

On-spot exports are now not subject to duty exemption, possibly derailing the recovery of textile and footwear companies.

Electricity prices still not falling despite oversupply
Electricity prices still not falling despite oversupply
FEATUREicon  27/05/2021 

The Electricity of Vietnam’s (EVN) latest report showed that the Covid-19 pandemic has led to a decrease in electricity demand. The real electricity output in 2020 was 247 billion kwh and the additional charge growth rate was 3 percent.

Goods face strict customs inspections as smugglers continue to violate laws
Goods face strict customs inspections as smugglers continue to violate laws
FEATUREicon  27/05/2021 

The General Department of Customs (GDC) said that risks in transit services continue to exist as smugglers try to carry prohibited goods into Vietnam.

Economist proposes measures to support enterprises in tough times
Economist proposes measures to support enterprises in tough times
FEATUREicon  28/05/2021 

Pham The Anh, chief economist at the Vietnam Institute for Economic Policy Research (VEPR), believes that social security support must be given to people who have had to shut down their business or have lost jobs because of lockdowns.

San Diu ethnic farmer grows the most expensive litchis in Vietnam
San Diu ethnic farmer grows the most expensive litchis in Vietnam
FEATUREicon  28/05/2021 

Tran Van Hanh, who lives in Chao hamlet, Luc Ngan district, Bac Giang province, one of the two largest litchi growing areas in Vietnam, owns an orchard that grows the most expensive litchis in the country.

Vietnam's post-pandemic economy
Vietnam's post-pandemic economy
FEATUREicon  27/05/2021 

As the Covid-19 pandemic persists, Vietnam's economy will still face many difficulties, but the country has the potential to increase productivity and develop at a higher rate than many other countries.

Oddest bank in Vietnam: No CEO, chairman takes office for two hours
Oddest bank in Vietnam: No CEO, chairman takes office for two hours
BUSINESSicon  27/05/2021 

The nearly decade-long war for power at the Vietnam Export Import Commercial Joint Stock Bank (Eximbank) may be coming to an end. 

VIETNAM BUSINESS NEWS MAY 28
VIETNAM BUSINESS NEWS MAY 28
BUSINESSicon  28/05/2021 

Food companies pressured by soaring raw material prices

Share prices rise, strong cash flow emerges
Share prices rise, strong cash flow emerges
FEATUREicon  26/05/2021 

Vietnam’s stock market made a spectacular breakthrough in the first months of the year with the VN Index staying at the 1,200 point threshold and some blue-chip prices strongly increasing.

Taxing unoccupied villas: one solution for creating fair housing market
Taxing unoccupied villas: one solution for creating fair housing market
FEATUREicon  26/05/2021 

A reasonable taxation policy is expected to help settle several problems, including excessive investment in high-end apartment and villa projects, and speculation buying.

Media tycoon has no way out after suffering losses
Media tycoon has no way out after suffering losses
BUSINESSicon  26/05/2021 

The VN-Index has been in the top of the world's strongest stock indexes since the beginning of the year with an increase of more than 16%. Over the past year, the index has increased by nearly 50% despite the Covid-19 pandemic.

 
 
 
Leave your comment on an article

OR QUICK LOGIN