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New Law on Enterprise and Law on Investment – New favorable conditions for businesses

On November 26, 2014, Vietnam’s National Assembly adopted two new important laws: Law on Investment and Law on Enterprise, both shall take effect from 1 July 2015.

Bellows are summary on some key points of these new legislations.

Law on Enterprise (“LOE”)

  • Corporate seal is no longer issued by a Public Security Department. Companies are now free to make their own seals, but shall have to notify the same to the National Portal on Enterprise Registration (“NPER”) (Article 44). As such, partners doing business with a company must themselves check the validity of such company’s seal i.e. via NPER.
  • A limited liability company and joint stock company may have more than one legal representative (Article 13.2). A company must always ensure at least one legal representative resides in Vietnam (Article 13.3).
  • Enterprises are now “free to conduct business in sectors not prohibited by law” (Article 7.1). It is truly revolutionary, however we have to see what this means in practice. One’s understanding is that if enterprises are free to do business in that sense, they can conduct as many types of business as they wish and details of such businesses (business line) shall not necessarily be reflected in the Enterprise Registration. The burden shall shift from the enterprises themselves to the licensing authority, which shall have to conduct post-licensing inspection.  
  • A new type of enterprise - social enterprise - is now adopted (Article 10). Social companies are those who operate “to tackle social or environmental issues for the community’s benefits”. Specifically, a social enterprise shall have to use at least 51% of its total profit to reinvest into implementation of social or environmental issues as initially registered with the licensing authority.
  • The LOE clearly defines that an economic corporation and general company are not a type of enterprise (Article 188). As such, they shall not have legal status and thus, do not have to register like ordinary enterprises. Instead, they are simply made of a group of companies having relationship by way of share ownership, capital contribution or other connection.

Law on Investment (“LOI”)  

  • Banned business lines (Article 6) and conditional business lines (Article 7) are now directly specified in the LOI instead of in various sub-laws as previously been. This move much improves the disclosure and transparency of legal document and helps investors to make decisions on their activities. Furthermore, the number of banned business lines has been cut down from 51 to 6 (Article 6), and the number of conditional business lines down to 267.
  • Conditions for conditional business lines shall be specified in Laws, Ordinance, Decree or International Treaties to which Vietnam is a signatory. Ministries, Departments, People’s Council or People’s Committee cannot impose business conditions on investors.
  • Now an economic organization shall be ‘foreign’ if there is foreign investor(s) keeping from 51% up of its charter capital (or majority of members in partnership are foreign individuals), or a (above) ‘foreign’ economic organization keeping from 51% up of its charter capital, or in combination, there are foreign investor(s) and (above) ‘foreign’ economic organization(s) together keeping from 51% up of its charter capital. Economic organization with foreign investment capital not having the above percentage shall be treated as local investor.
  • Now the process of issuing of an Investment Registration Certificate for foreign investors shall be a maximum of 15 days instead of previous 45-day process of investment application and investment appraisal (Article 37). For large-scale projects or projects requiring site clearance, the National Assembly, Prime Minister or provincial People’s Committee shall have to issue in-principle approval and then, an Investment Registration Certificate shall be issued within 5 days from the date of approval.
  • Now the provincial Department of Planning and Investment shall be in charge of issuing the Investment Certificate, not the provincial People’s Committee (Article 38).
  • The scope of application of LOI and Law on Securities regarding acquiring of shares in a Joint Stock Company is now further clarified. Accordingly, procedures for acquiring of shares for listed company or public company shall be under the scope of the Law on Securities. Other cases shall be implemented in accordance with LOI. (Article 4).
  • Investment registration procedures and economic organization establishment procedures for foreign investors are now separate, not investment certificate and enterprise registration in one paper as before.
  • Investment incentives are now specifically stated to include exemption and reduction of taxes and land rent. (Article 15).