Vital modifications under the new Law on Investment 2019
1.New foreign ownership threshold: The New Law on Investment drop-down on the foreign ownership threshold from previously being 51% to now being 50% to determine if an economic organization with foreign-owned capital must satisfy conditions prior to the investment. Please note that these conditions apply to economic organizations with foreign-owned capital establishing economic organizations, contributing capital, acquiring shares or equity, or investing on the basis of a business cooperation contract. This change will invite investors to consider the matters related to the competition laws of Vietnam
2. Merger & Acquisition approval (“M&A Approval”): The New Law on Investment simplifies the procedure for M&A Approval by eradicating the need for M&A approval in case the M&A transaction does not result in an increase of the foreign investors’ ownership ratio in the target company. It is to be noted that such conditions apply if the target company operates in the business sectors subject to market entry conditions applicable to foreign investors. Further, if any M&A transaction results in an increase of the foreign investors’ ownership ratio in the target company and with the foreign investor holding more than 50% of the shares or charter capital in the target company after the M&A transaction, the same shall be subject to M&A approval requirements under the New Law on Investment. This a significant relief provided from an administrative angle and will support businesses to cut-short on the timeline for M&A transactions.
3. Refreshed list of conditional business lines: Under the New Law on Investment, commercial arbitration, franchising, and logistics services are no longer considered conditional business lines. New conditional business lines are architectural services, data center services, electronic identification, and authentication services, import press distribution services, fishing vessel registration, and fishing vessel crew training. Further, the New Law on Investment details on the list of business lines restricted to foreign investment. It includes business lines for which foreign investment is not permitted or business lines for which foreign investment is subject to conditions. The detailed list of such business lines will be formulated by the relevant authorities. The New Law on Investment has touched upon the long-existing issue under the Current Law on Investment with respect to conditional business lines. Although, the conditional business lines are listed out under Appendix 4 of the Current Law on Investment the list is not comprehensive and needs to be refined to avoid conflict with Vietnam’s international commitments.
4. Investment projects and investment policy decisions: The New Law on Investment supplements the categories of investment projects which are subject to the Prime Minister or provincial People’s Committee investment policy decisions. The additional projects subject to the investment policy decisions include projects invested by the foreign investors in areas subject to national security concerns and housing and urban area construction projects. New Law on Investment provides more clarity on the relevant authority for certain investment projects falling in areas as mentioned above. It is again a constructive provision and will support investment activities in certain areas