New laws signal welcome change

Vietnam’s young population, growing middle class, and proximity to key Asian supply chains and markets, along with its membership in ASEAN and participation in prospective global trade agreements, make it an attractive destination for foreign investment.

UBS has recently referred to Vietnam as “potentially one of the most exciting markets in Asia”, while Goldman Sachs includes it as one of the “N-11 economies” – the next eleven economies to grow the fastest after the BRICS (Brazil, Russia, India, China and South Africa).

Foreign investors, however, face challenges when seeking to invest or do business in Vietnam, including vague and occasionally contradictory regulatory requirements and restrictions on foreign ownership that impede investment. With an eye toward facilitating investment, late last year the National Assembly enacted revised laws governing enterprises, investment, real estate business, and housing. Effective from July 1 2015, these new laws have the potential to increase investment opportunities and streamline the regulatory process in a number of sectors.

The new Law on Enterprises simplifies the application dossier to incorporate entities in conditional business sectors by removing the requirement to prove legal capital which has been paid-up, and relevant professional qualifications have been met at the registration stage. Business lines are no longer stated in the enterprise registration certificate (eliminating the need to amend the certificate with every change in business activity) and enterprises of any corporate form may now enter into a merger.

The new Law on Investment reduces the number of conditional and prohibited business activities, expands the range of projects that are entitled to investment incentives and streamlines the licensing application process. On the other hand, the new law also re-asserts the government’s right to require “in-principle” approval from the prime minister, the National Assembly, or people’s committees for projects in “sensitive” sectors, which is likely to remain a burdensome and time-consuming process.

The new laws address many issues concerning investors Photo: Le Toan

The new Law on Real Estate Business and Law on Residential Housing have made it easier for foreigners to invest in the Vietnamese real estate market. Foreign-invested enterprises (FIEs) may now lease houses and other buildings for the purpose of sub-letting. FIEs are also permitted to purchase completed buildings for use as a head office or place of business and may receive an assignment of all or part of a real estate project. Foreign organisations operating or with an investment project in Vietnam, and individuals permitted to enter Vietnam, may now purchase and own houses (including condominiums/apartments, villas and townhouses) in residential development projects for a term of up to 50 years (extendable in certain circumstances), subject to overall caps on foreign ownership at the building or ward level.

Two recently-issued decrees are also worth noting. Decree 15/2015/ND-CP regulating investment in public-private partnerships (PPP) was issued in February 2015 and took effect in April. While eliminating the cap on state capital that can be used in a PPP project, helping to clarify certain procedural matters, and providing a framework for unsolicited projects, there are concerns that the PPP decree is overly prescriptive and will be difficult to implement in practice.

Perhaps more significantly, Decree 60/2015/ND-CP, which was issued at the end of June 2015 and will take effect from September 1, contains long-awaited provisions that could allow for majority and above control of public companies by foreign investors. Although foreign investment in many sectors will continue to be constrained by foreign ownership caps set out in international treaties (such as the WTO) or domestic regulations, there are now at least in theory some sectors and business lines in which the ratio of foreign ownership is unlimited.

The new laws governing enterprises, investment, housing and real estate, and the changes enacted under the new PPP decree and signalled by Decree 60, have the potential to encourage and attract significant additional foreign investment. At a minimum, they demonstrate that the government is listening to and considering the views of the foreign business community in shaping policies that touch on areas of interest to that community. In that regard at least, each of these measures can be seen as a definitive step in the right direction.

However, as is so often the case in Vietnam, the devil will be in the detail and much will depend on how these new laws are ultimately interpreted and applied in practice. The American business community, and the foreign investor community generally, is hopeful that the government will seize the momentum and take further steps to eliminate barriers to investment and unlock the full potential of these new laws and policies.