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| PART I | INVESTMENT LEGISLATION IN VIETNAM |
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As a result of globalization, Vietnam must improve and develop its legal system, especially the laws on investment and commerce. In 1987, the National Assembly of Vietnam enacted the Law on Foreign Investment in Vietnam, which was later amended for several times. In 1996, the National Assembly of Vietnam promulgated the new Law on Foreign Investment in Vietnam, which superseded the Law on Foreign Investment, but which was also amended in 2000. Meanwhile, investment by local investors was governed by the Law on Companies and the Law on Private Enterprises (1990), which was subsequently superseded by the Law on Enterprises (1999) and the Law on Encouragement of Domestic Investments (1994). Vietnam realized that it was necessary to promulgate a unified law which might be able to govern and control all domestic as well as foreign investment activities. Therefore, in 2005, the National Assembly of Vietnam enacted the Law on Enterprises, and the Law on Investment, both of which took effect on July 1, 2006. These laws superseded the previous Law on Foreign Investment in Vietnam, the Law on Enterprise (1999) and the Law on Encouragement of Domestic Investments (1994).
In addition, the National Assembly of Vietnam has also enacted numerous important legislations such as the Civil Code (2005), the (amended) Law on Commerce (2005), the Law on Insurance, the Law on Credit Institutions, the Law on State-Owned Enterprises, the Law on Securities, etc. The legal framework on business is more and more improved and also works as the legal bases for domestic and foreign investment activities to be developed and revolved. |
| A-INVESTMENT FORMS |
Domestic and foreign investors may choose either direct or indirect investment form when implementing their investments in Vietnam. There are some restrictions applicable to foreign investors who invest in conditional industries in accordance with WTO commitments. These restrictions may include cap on the percentage of capital contribution by foreign investors or may put limits on foreign investment in certain industries… However, these restrictions and limitations are being removed according to the committed schedules.
In accordance with the current investment laws, investment can be done in form of “direct” and “indirect” investments. |
| 1.Direct investment |
Direct investment includes the following investment activities:
In order to invest in the form of WFOE and JV, foreign investors are required to complete procedures on setting up a legal entity in Vietnam. Except a number of business lines which are not permitted or restricted under WTO commitments, this legal entity will have the same rights and obligations as those of a local company. If the foreign investors decide to invest in the form of a WFOE, they can set up a Private Company, Limited Liability Company, Joint Stock Company and Partnership. If they choose JV as their investment form, the forms of company structure are limited to Limited Liability Company with Two Members or more, Joint Stock Company and Partnership in which a Vietnamese party’s participation is compulsory. BCC, BOT, BTO and BT are contract-based investment forms. These investment forms do not create legal entity. The parties may specify profit and loss sharing or products sharing in the Contract. BCC is popular form used in telecommunication, oil & gas, and real estate industries, while BOT, BTO, BT are commonly used in transport and infrastructure industries. |
| 2.Indirect investment |
Indirect investment includes the following investment activities:
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| B.INVESTMENT LICENSING PROCEDURES |
In accordance with the prevailing investment law, for all direct investment forms, whether they are in the form of WFOE, JV, BCC or the other permitted direct forms, the foreign investors must apply for an Investment Certificate. The Investment Certificate clearly states the name, the structure of company, the scope of activities, the legal representative and the amount of registered capital. Please note that the Investment Certificate serves as the Business Registration Certificate authorizing the establishment of a company. Depending on certain industries, during the operation of the company, other approvals and permits from the various competent authorities may also be required for the implementation of the project. |
| 1. Procedures for obtaining Investment Certificate |
In order to obtain an Investment Certificate, depending on the capital size and investment industries, investors must follow either following procedures: (i) registration only; or (ii) project evaluation. As the words imply, registration is much simpler than project evaluation procedure. |
| a. Registration procedure: | Applies to projects in which the investment capital is less than VND300 billion (approximately US$15 million) and are not subject to conditions (the List of conditional project is specified in the Investment Law). The time limit for issuance of an Investment Certificate as provided by the law is fifteen (15) business days. |
| b. Project evaluation procedure: | Applies to projects in which the investment capital is over VND300 billion or which is categorized in the List of conditional projects. According to the law, the timeline for issuance of an Investment Certificate is forty five (45) business days. |
| 2. Application for Investment Certificate | The application dossiers for an Investment Certificate following the registration and project evaluation procedures consist of various documents depending on the investment industry; however, the basic documents include: (i) an Application for Investment Certificate; (ii) a Report on Financial Capacity of Investors; (iii) a Joint Venture Agreement or Business Cooperation Agreement; (iv) Incorporation Articles (if any); (v) a confirmation on legal status of Investors; (vi) an Explanation stating that conditions on investment have been satisfied or a Feasibility Statement; and (vii) other documents regarding location of project or the head office of company. |
| 3.Licensing Authorities | Unless otherwise provided by applicable laws, an Investment Certificate is granted by the Chairman of Provincial People’s Committee or by the head of Management Authority of Industrial and Export Processing Zones or the Hi-tech Park where the investment projects are to be implemented. For the conditional or large size or important projects, an Investment Certificate is only granted upon the Licensing Authorities’ receipt of approval from the Prime Minister, the Ministry of Planning and Investment or other relevant ministries. Note that the State Securities Commission (SSC), the Ministry of Finance (MOF), or the State Bank is in charge of issuing a separate license for projects in banking, insurance or securities fields respectively. |
| 4. Timeline for the issuance of Investment Certificate | It is stipulated that the timeline for examination and issuance of an Investment Certificate is about fifteen (15) to forty five (45) business days upon receipt of valid and proper application. Practically, depending on certain project and the opinions of local agencies and relevant competent ministries, the timeline for the issuance of an Investment Certificate could be extended. |
| C. ENTERPRISE FORMS | The current laws on the establishment and organization of enterprises in Vietnam are primarily the Law on Enterprises (2005), Law on Investment (2005), Law on Cooperatives (2003), Law on Credit Institutions (2010), Law on Securities (2006, 2010 amendment) and relevant regulations on guiding the implementation of those laws. Under these laws, a company may be structured in various forms. Each structure has its own advantages and limitations. Depending on the need of business development, the investors may wish to structure its company as follows: |
| 1.Limited Liability Company | A limited liability company is the most common form of enterprises in Vietnam. According to Vietnamese laws, there are two types of limited liability companies namely one-member limited liability company, and limited liability company with two (02) members or more. |
| a. Limited Liability Company with two members or more | - Characteristics: • Liability of the members who contributed or undertook to contribute the capital for debts and other financial obligations incurred by the company is limited to the amount of contributed capital or the amount of capital undertaken to be contributed into the company; • The company may have two (02) but no more than fifty (50) members who can be either organizations or individuals; • A limited liability company secures its legal status as of the issuance of the Business Registration Certificate; • A limited liability company is not allowed to issue shares/stocks. - Management structure: |
| b. One member limited liability company | One member limited liability company is a limited liability company owned by either one individual or one organization. The organizational structure of a one member limited liability company owned by an individual consists of a Company Chairman and Director/General Director. The owner shall be the Company Chairman. The Company Chairman may also act as or engage another person to act as Director/General Director. The organizational structure of a one member limited liability company owned by an organization is as follows: the organizational owner shall authorize one or more representatives to perform its rights and obligations. In case only one authorized representative is appointed, the organizational structure of the company shall consist of the Company Chairman, Director/General Director and an Inspector. Where two authorized representatives or more are appointed, the organizational structure of the company shall consist of the Members Council, Director/General Director and an Inspector. |
| 2.Joint-stock Company | a. Characteristics: • The charter capital is divided into equal portions called shares; • Shareholders are only liable for debts and financial obligations within the amount of paid-in capital; • Shareholders are free to transfer their shares to others, except voting preference shareholders and founding shareholders, who are restricted to do so within three (03) years from the date of the company establishment, • Shareholders may be organizations, individuals; minimum number of shareholders shall be three (03), and there is no restriction on the maximum number of shareholders; and • A joint-stock company is entitled to issue securities to the public under the Laws on Securities. b.Management structure: |
| 3. Partnership | Partnership is an enterprise which is owned by at least two members who jointly conduct business under one common name (partnership members); in addition to partnership members, there may be capital contributing members. a. Characteristics: • Partnership members must be individuals, have qualified and professional reputation and be unlimitedly liable for the partnership obligations by their whole assets; • Capital contributing members are liable for obligations of the partnership within the scope of contributed capital ; • The partnership has legal entity status and do not issue any kind of securities; • Partnership members are entitled to manage and conduct business activities on behalf of the company, and jointly liable for its obligations; • Capital contributing members are entitled to enjoy prorated profits as provided in the Charter of the partnership. They are not allowed to involve in the management and operations of the partnership. b.Management structure: |
| 4. Private Enterprises | A private enterprise is an enterprise owned by one individual who is liable for all activities of the enterprise by all of his or her assets. a. Characteristics: • The private enterprise owner is one individual and also the representative at law; • The private enterprise has no legal entity status; • The owner of private company has discretion to decide on all business activities of enterprises as well as the use of profit after payment of taxes and performance of other financial obligations as stipulated by law; • Each individual may only establish one private enterprise. b.Management structure: |
| 5. Cooperatives | a. Characteristics: • A collective economic organization is established by individuals, households or legal entity (called as cooperative members) who have common benefits and interests, voluntarily contribute their capital and labor in accordance with Law on Cooperatives • It is a special type of enterprises, having the legal entity status, autonomy and self-responsibility for financial obligations within the scope of its charter capital, accumulative capital and other capitals of the cooperative in accordance with the law. b.Management structure: |
| 6. Procedures for registration for the establishment | Based on sizes and investment sectors, investors will complete the procedures for the registration of the enterprise in accordance with Law on Enterprises, Law on Investment and other applicable laws. The following are general procedures to be carried out for the set-up of local companies.
a. Place of registration: Business registration is carried out at the Department of Planning and Investment of provinces or centrally-run cities (“DPI”), the Management Authority of Industrial and Export Processing Zones, and the Hi – Tech Park, except in some particular cases such as securities, banking and insurance, the registration is made at the SSC, MOF, etc. With respect to cooperatives, their business registration should be done at either the DPI, or the district-level People’s Committee where the head office of a cooperative is to locate depending on particular conditions of such cooperative. b. Required documentations: c. Timeline for the issuance of business registration d. Business registration fee::VND 200,000 |