Vietnam: Proposed changes to business laws

A draft law amending some articles of the Law on Investment 2014 and the Law on Enterprises 2014 (the Business Laws) has been in the making since mid-2018. The draft law is scheduled to be presented to the National Assembly in its eighth meeting session for review and feedback. Following that, it will be further updated for promulgation in the National Assembly's ninth meeting session which will be held in mid-2020.

Here are some notable provisions in the draft law.

Supplemental regulations are proposed, adding clearer and more transparent procedures in licensing conditional business lines.

As proposed by the draft law, the conditions required for an investment (a conditional business line) set by by-laws must specify the following:

• Applicable entities and scope;

• Form of application of the business investment conditions;

• Details of requirements or conditions;

• Required dossier, sequence and procedures for conducting administrative procedures (if any) in order to implement the business investment conditions;

• Competent authority that is authorised to handle the administrative procedures and manages the business investment conditions; and,

• Effective term of the licence, certificate, practising certificate or other written certification or approval (if any).

The aim of these requirements appears to be to set out clearly the framework for the ministerial regulations on the conditions applicable to conditional investments, which in our view may result in more transparent regulations and licensing procedures.

These supplemental provisions require the government, based on the socio-economic conditions in each relevant period and based on laws, ordinances and international treaties on investment, to announce for the various business lines a list of the relevant market approaches that are required by foreign investors (list). The list would include business lines that have not been opened yet, and business lines that are open but which are subject to conditions.

Once the lines are open or open but conditional, the conditions that apply to foreign investors comprise:

• Conditions regarding the ratio of ownership of charter capital by foreign investors in economic organisations;

• Conditions regarding the form of investment;

• Conditions regarding investment operational scope;

• Conditions regarding the capacity of investors and other parties participating in the investment activities; and,

• Other conditions under various laws, ordinances, decrees and international treaties on investment.

The relevant market approaches for foreign investors with respect to other business lines that are not on the list will be the same as for domestic investors.

Once announced, the government will then base its list of business lines not yet open, those that are open but subject to conditions, and the applicable conditions thereof on these supplemental provisions. Foreign investors can actively use these provisions during their decision process both as regards making an investment and how to structure it, rather than going through an uncertain procedure involving an approval mechanism on a case-by-case basis, as is the existing practice.

• The legislature proposes adding some business lines in the investment incentive categories, such as manufacturing or trading of products that result from science and technology. These additions would be welcomed since the existing investment incentive categories of this type include only research and development (R&D) and hi-tech activities. Nevertheless, there would be further regulation guidelines on which products could be considered to be resulting from science and technology, and this will influence whether these supplementary provisions will truly serve to attract hi-tech investment to the country.

• In terms of post-licensing of investment projects which have been granted incentives, the draft law suggests that there should be a limited term for incentives, subject to the results of investors' implementation of their investment projects. That can be interpreted to mean that incentives may be withdrawn if investors fail to meet certain conditions post licensing.

• The draft law also proposes giving the prime minister the ability to grant a special higher incentive in certain specific cases. Under the existing law, any higher incentive must be approved by the National Assembly.

In the draft law, the article regulating investments in the form of an equity acquisition has been re-written in a clearer fashion. In general, in addition to other normal conditions and requirements, acquisition registration is required for foreign investors, unless the acquisition does not lead to an increase in foreign ownership in the enterprise; or if there is an increase, foreign ownership remains below 51% in an enterprise whose line of business is not one of the conditional lines for foreign investors.

The draft law proposes expanding the definition of SOE so that it also covers enterprises in which the state holds 51% or more of the charter capital or voting shares. This is believed to be in line with the definition of SOE under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

In the prevailing Law on Enterprises, an SOE is an enterprise where the state holds 100% of the equity. If this amendment is promulgated, enterprises in which the state holds 51% or more of the charter capital or voting shares (referred to as state-controlled enterprises, or SCEs) will be further subject to a bundle of regulations applicable to SOEs (such as bidding regulations, state capital investment and transactions, construction contracts, corporate governance and the commitments under the CPTPP, and so on). That will affect the existing minority shareholders in these SCEs as well as those projects in which the SCEs have invested.

Ha Hoang Loc	Dinh Thi Hien Ly