New laws promise greater simplicity

The changes in the new laws are part of government efforts to simplify Vietnam’s investment environment

The first historical milestone in Vietnam’s legal system occurred in 1993 with the doi moi policy and second in 2007 when Vietnam introduced a set of new laws to implement its WTO commitments.

2014-2015 will mark another historical milestone as lawmakers eventually reach some agreements on the basic principles to deal with long-standing confusions about legal rights and obligations of local enterprise in which foreign investors have acquired shares and how foreign investment and property ownership rights should interact. Several new laws of paramount importance to investors were passed in 2014 and will take effect in 2015 including the Law on Investment, Law on Enterprises, Law on Real Estate Business and Law on Housing. This article highlights some of the most important changes introduced by these laws.

When an FIE is treated as a local investor under investment laws

The 2014 Law on Investment introduces a new concept of “semi-foreign-investor,” which covers any enterprise incorporated in Vietnam in which at least 51 per cent of charter capital is owned by the following:

* Foreign investors (i.e. entities incorporated under foreign law or foreign individuals); and/or

* Foreign invested enterprises (FIEs) in which foreign investors own at least 51 per cent of charter capital.

This has important implications:

1. Any enterprise incorporated in Vietnam (even an FIE) may establish subsidiaries, acquire shares or equity in other enterprises and enter into business cooperation contracts in Vietnam under the same procedures and conditions applicable to local investors if it is not a semi- foreign- investor.

2. An acquisition of shares or equity is subject to acquisition registration requirement in either of the following cases: (i) the acquisition results in foreign investors and/or semi-foreign- investors owning an aggregate of at least 51 per cent of the charter capital of the target enterprise or (ii) the acquisition is conducted by a foreign investor in a target enterprise engaging in a “conditional business for foreign investors.”

3. A contract for investment to which one of the parties is a foreign investor or a semi-foreign-investor may be governed by a foreign law chosen by the parties if such choice is not contrary to other laws of Vietnam.

4. Any dispute involving investment in Vietnam must be resolved by a Vietnamese court or Vietnamese arbitration, except cases where one of the parties is a foreign investor or a semi-foreign-investor, which may be resolved by foreign arbitration or ad hoc arbitration.

Simplification of licence requirements

An investor other than a foreign investor or semi-foreign-investor is no longer required to obtain investment registration certificates for its investment projects, even though it still needs to obtain an approval-in-principle from the people’s committee, the prime minister or the National Assembly if its projects fall under a category where such approval-in-principle is required (such as a port, airport or casino).

The 2014 Law on Enterprises removes the scope of business activities of an enterprise and the list of founding shareholders of a joint stock company (JSC) from the enterprise registration certificate. If an enterprise changes its business activities, founding shareholders or foreign shareholders, it needs to report the change to the corporate registration authority for an update of its corporate registration records, but does not need to register the change on its enterprise registration certificate.

Companies may have more than one legal representative

The 2014 Law on Enterprises allows an enterprise to have more than one legal representative and only one of them is required to reside in Vietnam. In case where a JSC has more than one legal representative, the chairman and general director must be legal representatives.

Loosen quorum and voting requirements

In multi-member limited liability companies: the quorum of members’ council meeting and voting threshold for circular resolutions is reduced to 65 per cent of the charter capital from the current 75 per cent.

In JSCs: the quorum of the first convened general meeting of shareholders (GMS) and voting threshold for circular resolutions of shareholders is reduced to 51 per cent of the charter capital from the current 65 and 75 per cent respectively. At a GMS, the voting threshold is reduced to 51 per cent of the voting shares from the current 65 per cent for ordinary matters and to 65 per cent of the voting shares from the current 75 per cent for reserved matters.

Real estate FIEs may lease ready-built property for sub-leasing

While an FIE may currently only engage in a real estate business as a developer, the 2014 Law on Real Estate Business allows FIEs in the real estate sector to lease houses and construction works that are already developed for sub-leasing to other parties.

New obligations for developers for the sale of future properties

Residential project developers selling future properties must provide a bank guarantee in favour of the purchasers for their financial obligations which may arise in case the developers fail to hand over the property as committed.

Before handing over a future property, a local developer may not collect more than 70 per cent of the total [property] contract value and an FIE developer may not collect more than 50 per cent of the contract value. In no case may the first instalment payment exceed 30 per cent of the contract value. Furthermore, the aggregate payments before the issue of the ownership certificate to purchasers may not exceed 95 per cent of the contract value.

Foreigners can own residential houses in Vietnam

The 2014 Law on Housing created broader rights for the following residential house owners:

1. Overseas Vietnamese individuals who have been granted entry into Vietnam;

2. Foreign entities licensed to operate in Vietnam (including FIEs, branches and representative offices of offshore enterprises, foreign investment funds and foreign bank branches in Vietnam);

3. Foreign individuals who have been granted entry into Vietnam.

The restrictions on quantity and type of houses that a person may own have been removed for overseas Vietnamese individuals. Foreign individuals and foreign entities licensed to operate in Vietnam (except for real estate FIEs) however together may not own more than 30 per cent of the total number of apartments in a building or more than 250 houses in a ward or similar unit. The term of residential house ownership of a foreign entity licensed to operate in Vietnam may not extend beyond the duration of its operating licence in Vietnam. Foreign individuals are not required to be residents or have work permits as conditions for owning residential houses in Vietnam. The right of foreign individuals to lease their houses is also added.

Mortgage of houses by individual owners to non-credit-institution entities

Under the 2014 Law on Housing, individual owners may mortgage their residential houses (other than future properties) not only to a credit institution or foreign bank branch licensed in Vietnam, but also to other types of entities and individuals subject to conditions to be provided in relevant laws.