Crafting complete enterprise and investment laws

Riccardo Verzella Senior associate (left) and Ho Ngoc Diep Legal advisor, D’Andrea & Partners Legal Counsel

Some new innovations of the aforesaid regulations are more relevant compared to the previous FDI regime, and certain aspects may be further optimised with the aim of improving the ease of doing business in Vietnam for overseas investors.

Market access rules were significantly improved under the amended LoI. Before its implementation, based on the previous law, the allowed business fields for foreign investors were only those expressly referred to in a permitted list as mentioned therein.

Nevertheless, Vietnam has switched to the so-called “negative list” approach with the LoI: hence, currently, foreign investors may perform all the business activities not included in the Negative List for Market Access for Foreign Investors without differentiation from domestic investors. This innovation indeed removes uncertainty for foreign investors, widens their business opportunities in the country and contributes to simplifying the FDI process.

Regarding investment incentives, the LoI has added a number of new fields where foreign investors may enjoy investment incentives, such as investment projects related to innovation, higher education, equipment manufacturing in medicine and pharma, and construction of social housing. Such incentives may include tax incentives, access to credit, support for research and development, and further measures.

Another significant aspect is the reduction of the “foreign shareholding threshold” to determine whether a foreign-invested enterprise must satisfy the conditions and carry out the prescribed investment procedures for foreign investors when implementing investment forms in Vietnam, from 51 to 50 per cent of the charter capital.

This means that under the LoI, a Vietnam-incorporated company being 50 per cent owned by a foreign entity may now receive the benefits afforded to domestic enterprises while making additional investments in Vietnam. As for the LoE, it is noteworthy to mention the significant improvements made to better protect minority shareholders’ rights in joint-stock companies.

Moreover, any shareholder, without any requirement to hold shares for at least one year, will now have the right to request the court suspend or cancel board of members’ (BoM) resolutions in certain circumstances; or, provided that the shareholder/shareholders group holds at least 1 per cent of the shares of the company, take a derivative action against BoM members or the general director. Under the LoE, a limited liability company is not anymore required to have an inspection committee or an inspector, thus simplifying governance.

To improve the regulations on attracting foreign investment into the country, there are several options available. The first is to optimise the licensing process. Currently, in light of the two laws, investment demand in Vietnam is increasing. Still, when investors start to carry out the licensing process for new projects, they experience certain administrative burdens which may unnecessarily delay and complicate the relevant procedures.

In the digital world nowadays, Vietnam’s requirements for legalised documents are cumbersome and time-consuming for investors. Therefore, the requirement for legalised documents should be reduced.

One may also think about the mandatory requirement to provide audited financial statements for the latest two years from the investor, duly notarised, which is an uncommon requirement in other jurisdictions and on the overall burden of many small-scale enterprises, which might not be subject to mandatory auditing based on the regulations of the state of provenience.

A further step in optimising the licensing process may be, in line with the Chinese experience, to replace or simplify the process of application and approval of the investment registration certificate for business fields not subject to restrictions as for FDI, for example by providing a simpler “record filing” procedure, or an “ex-post” review by competent authorities, rather than a mandatory prior authorisation process.

The second factor is the removal of the residence requirements for enterprises’ legal representatives. The LoE requires any company must have at least one legal representative residing in Vietnam, according to Article 12.3. Otherwise, he/she must authorise in writing another individual residing in Vietnam before leaving the country to exercise his/her rights and obligations.

It is recommended for Vietnam to further implement clear and transparent preferential policies, prioritising projects with advanced and clean technology, taking quality, efficiency, technology, and environmental protection as the main goals. Discretionary evaluations and cumbersome administrative review and approvals shall be avoided to the possible extent, so as to ensure a fair, reliable and internationally competitive business environment.