Revising key laws to lead Vietnam into the new era

Tuesday - 05/05/2020 13:03
With ambitions to attract high-quality foreign investment over the next decade, the draft amendments to the Law on Investment and the Law on Enterprises feature notable changes and are expected to bring forward a more favourable investment climate when it is scheduled to take effect in 2021.
Revising key laws to lead Vietnam into the new era
As a foreign investor looking for opportunities in Vietnam, Hong Nam-Pyo, representative of South Korea’s Gomax remarked that it was important for investors like him to look at a list of sectors and trades in which foreign investors are subject to market access conditions in Vietnam, as well researching business lines which are not allowed for investment in Vietnam.
 
“In addition, clear regulations would help businesses make decisions faster. We need procedures to be less complicated, the rules to be fairly enforced, and companies to compete on their merits, including for access to land and opportunities,” Nam-Pyo said.
 
This is the main purpose of the draft amendments to the Law on Investment and the Law on Enterprises that are being discussed at the National Assembly (NA), and the topic is the centre of attention for both foreign and local investors.
 
According to Minister of Planning and Investment Nguyen Chi Dung, who presented to the NA proposals on changes of these important laws, the amended Law on Enterprises would create favourable conditions for individuals and organisations to start businesses. It would cut administrative steps, costs, and time for newly-established firms and help raise Vietnam’s ranking by 25 places in the World Bank’s Doing Business Report. In addition, the rights, obligations, and benefits of shareholders, investors, and members of the company would be protected while the quality of corporate governance would be improved.
 
Meanwhile, the amended Law on Investment aims to improve the quality and efficiency of attracting domestic and foreign investment resources in accordance with the planning and development orientation of industries, fields, and localities on the basis of ensuring security, sustainable development, and environmental protection.
 
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Positive movement
 
Law firm DAN TRI LAW remarked that one of the highlights of the draft amendment to the Law on Investment is the abolition of 12 conditional investment lines while six lines are being added. The draft law will therefore be very significant to foreign investors in Vietnam in the coming time (see chart).
 
The draft also contains additional conditional market access business lines for foreign investors. Specifically, as to implement the policy on the attraction of overseas investment under the Politburo’s Resolution No.50-NQ/TW on orientations to perfect the efficiency of foreign investment by 2030, the draft investment law introduces a list of conditional market access business lines. With respect to unlisted business lines, foreign funders are afforded the same conditions as domestic investors. Other important additional regulations involve investment incentives.
 
Accordingly, it includes new preferential investment business lines: manufacturing and trading of products formed from science research, college education, manufacturing of goods or services provision creating and participating in a value chain or sector clusters, and innovation startups.
 
Resolution 50 has comprehensively assessed the situation of attracting and using foreign investment capital over the past 30 years, which clearly indicates the limitations and shortcomings in activities of attracting capital sources, such as: quality, efficiency of revenue, imbalance in attracting and using foreign capital, links between foreign and domestic investment sectors, and inspection and supervision of foreign investment activities.
 
Meanwhile foreign investors, especially those who were involved in merger and acquisition deals in Vietnam over the past year, will see advantages as the draft on amending the Law on Investment proposes to remove the need for M&A approval if the relevant transaction does not result in an increase of the foreign investors’ ownership ratio in the target economic organisation. This applies even if such target economic organisation operates in the business sectors subject to market access conditions applicable to foreign investors.
 
More propositions
 
The NA’s Economic Committee said it found it necessary to review and revise regulations on investment incentives and support. However, the committee proposed supplementing cases in which investors do not comply with investment commitments, adding they must have sanctions to recover incentives. Chairman of the NA’s Economic Committee Vu Hong Thanh stated that it is necessary to continue reviewing regulations on incentives and investment support to overcome the situation with different interpretations on the scope and subject of application.
 
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It is also required to supplement criteria and conditions for the effectiveness and continuity of the investment project as a basis for determining the incentive, and ensuring clear and convenient procedures for enjoying investment incentives and support, especially for scientific, technical, and technological transfer support.
 
Some members from the committee suggested the government should design regulations in the direction of offering incentives to legal entities instead of projects to prevent transfer pricing between projects of the same investor, removing obstacles in tax administration for projects, especially M&A projects that have different incentive durations.
 
There should also be clarity on the timeline for contributing charter capital as aforementioned to a plausible timeframe to support the investors and at the same time provide the authorities ample time with a clear legal base to manage the paperwork.

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