The long-awaited decree detailing the implementation of the 2014 Investment Law was finally issued last month with clear regulations on investment conditions and procedures, especially those applicable to foreign investors.
With the release of the above-said decree, Decree No. 118/2015/ND-CP, until now, all four decrees guiding the Investment Law have come out. Three other decrees include Decree No. 15/2015/ND-CP on investment in the form of public-private partnership, Decree No. 83/2015/ND-CP on offshore investment, and Decree No. 84/2015/ND-CP on investment supervision and evaluation.
Decree No. 118 takes effect on December 27, 2015, replacing Decree No. 108 issued in 2006.
Investment conditions and procedures for foreign investors
In addition to provisions on commonly applied investment conditions, Decree No. 118 consists of clauses exclusively targeted at foreign investors.
Under the Decree, investment conditions applicable to foreign investors are explained as conditions on capital holding of foreign investors in economic institutions; conditions on the form of investment; conditions on scope of investment; conditions on Vietnamese partners participating in investment activities; and others conditions regulated in Vietnam’s laws, ordinances and decrees as well as treaties of which Vietnam is a member.
The Decree assigns the Ministry of Planning and Investment to work with related ministries and agencies to make a directory of sectors and trades opened for foreign investment as well as conditions for foreign investors to do business in such sectors and trades prescribed in Vietnamese law as well as treaties which Vietnam has acceded to, and post it on the National Foreign Investment Portal. This directory will be updated with any changes in investment conditions applicable to foreign investors or service sectors and sub-sectors in which foreign investment is allowed.
In case a foreign investor does business in various sectors, he will be obliged to meet all investment conditions required for each of these sectors. If he is governed by several treaties with different provisions on investment conditions on foreign investors, he may choose to apply the investment conditions prescribed in one of these treaties. Once having chosen a treaty for application, the investor will exercise his rights and perform his obligations in light of such treaty only. Particularly if the investor comes from a country or territory other than WTO member states, he must satisfy investment conditions like those from WTO member states, unless otherwise provided by law or treaties between Vietnam and his country.
As for the case when a foreign investor wishes to invest in a service sector or sub-sector which is neither committed nor regulated in Vietnam’s WTO Commitments on Services and other investment treaties which Vietnam has signed or acceded to, the investment registration will depend on whether or not Vietnamese law has provided for the conditions for foreign investors to deal in such sector or sub-sector. If the answer is yes, the investor must comply with relevant provisions of Vietnamese law. If the answer is no, the investment licensing agency will consult the Ministry of Planning and Investment and line ministry. However, if the conditions applicable to foreign investors dealing in such sector or sub-sector have been publicized on the National Foreign Investment Portal, the investment licensing agency will consider and make decision without having to consult the line ministry.
Another noteworthy point of the Decree is provisions allowing foreign investors to apply for an investment registration certificate and to register business formation at a single place, instead of running here and there to fulfill formalities as at present.
According to Quach Ngoc Tuan, deputy head of the Ministry of Planning and Investment’s Legal Department, this coordination mechanism is clearly specified in the Decree for the sake of convenience for foreign investors.
An investor will submit his investment registration and enterprise establishment registration dossiers to an investment registration agency, which will then forward the enterprise establishment registration dossier to a business registration agency within one working day. Within two working days after receiving the dossier, the business registration agency will check the dossier and give feedback to the investment registration agency. In case either or both of the dossiers need to be revised or supplemented, the investment registration agency will inform such to the investor. After all documentation requirements are fulfilled, the two agencies will work with one another to process dossiers and return results to the investor at the investment registration agency.
“Thus, when investing in Vietnam for the first time, foreign investors may choose to either register their investment projects before founding businesses in Vietnam or carry out both procedures simultaneously. It is worthy noting that under Decree No. 118, it takes only 15 days to fulfill procedures for grant of an investment registration certificate, given that the investment project does not require government approval and the investor satisfies all investment conditions,” Tuan said.
As for foreigners pouring money into Vietnam through contribution of capital to or purchase of shares at domestic businesses, the Decree says that these investors do not have to go through investment registration procedures. Meanwhile, their local partners are not required to carry out procedures for grant or revision of investment registration certificates or investment policy decisions of investment projects that have commenced prior to the capital contribution or share purchase, but just have to carry out procedures for change of members or shareholders.
Exceptions are cases where the local business is dealing in a business line in which foreign investment is subject to conditions, or the foreign investor’s capital contribution or share purchase increases his current holding rate in the local business to above 51 percent, or the foreign investor has already owned more than 51 percent of the charter capital of the local business.
However, Tuan said, even in these cases, it would take just 15 days to complete the registration procedures for capital contribution and share purchase.
Measures to secure project implementation
Under the Decree, investors that are allocated or leased land or permitted to change land use purposes by the State must pay a deposit as security for project implementation.
The deposit amount required for a project will be calculated based on a percentage of the project’s investment capital according to the partial progression rule. It will equal three percent if the project has an investment capital amount up to VND 300 billion, two percent if the investment capital amount is between over VND 300 and VND 1,000 billion, and one percent if this amount is higher than VND 1,000 billion.
However, there are four cases in which an investor will be exonerated from deposit payment:
(i) The investor wins auction for land use rights and is allocated land with collection of land use levy or leased with one-off collection of land rental for the entire lease period;
(ii) The investor wins the contract for implementation of a land-occupying investment project in accordance with the bidding law;
(iii) The investor is transferred an investment project for which deposit has been made or capital contribution or raising has been completed according to the schedule stated in the investment registration certificate or investment policy decision, or acquires land use rights or land-attached assets from an other land user; and,
(iv) The investor being a non-business unit that has revenues or a hi-tech park development company established under decision of a competent state agency implements an investment project and is allocated or leased land by the State to develop infrastructure facilities in an industrial park, export processing zone or a functional area within an economic zone.
Under the Decree, a 25-percent reduction of the required deposit amount will be granted to investors that carry out investment projects in sectors and trades eligible for investment incentives or in geographical areas facing socio-economic difficulties or in industrial parks or export processing zones, including projects on building and commercial operation of infrastructure facilities in industrial parks or export processing zones.
Meanwhile, projects in sectors and trades eligible for special investment incentives; projects in geographical areas with extreme socio-economic difficulties; projects eligible for investment incentives which are implemented in areas with socio-economic difficulties; and projects in hi-tech parks or economic zones, including projects to build infrastructure in hi-tech parks or economic zones, will be entitled to a 50-percent reduction of the required deposit amount.
Investors that have advanced a money amount for ground clearance and resettlement work will have such advanced amount cleared against the payable deposit amount.
Half of the deposit amount will be refunded to the investor right after he completes procedures for land allocation, land lease or change of land use purposes and is granted a construction permit, if any, according to the schedule stated in the investment registration certificate or investment policy decision. The remainder and arising interest, if any, will be refunded to the investor after the construction work is tested before acceptance and all machinery and equipment are installed to serve the project operation according to the schedule stated in the investment registration certificate or investment policy decision.
If reducing the investment capital level of his investment project, an investor will be refunded part of the deposit amount corresponding to the reduced capital amount as stated in the modified investment registration certificate or investment policy decision.
Should an investment project cannot be further implemented for force majeure reasons or due to a fault committed by a competent state agency in the course of performing administrative procedures, the investor will be refunded the deposit amount as agreed with the investment registration agency.
The Decree stipulates that in case an investment project is suspended and the investment registration agency cannot contact the investor or his lawful representative, the investment registration agency will make a record and then send an official letter to the address by registered by the investor to request the latter to contact the investment registration agency to carry out the termination of the investment project.
Within 30 days after sending the request, if receiving no response from the investor, the investment registration agency will request the commune-level People’s Committee of the locality where the investor resides, for investors being Vietnamese nationals, or the Vietnam-based diplomatic representative agency of the country of which the investor is a citizen, for foreign investors, and at the same time, publish the request on the National Foreign Investment Portal for 90 days.
After taking the above-mentioned measures and past the 12-month time limit from the date the project is suspended, should the investment registration agency still fail to contact the investor or his lawful representative, the investment registration agency will decide to terminate the project.