BUSINESS AND INVESTMENT GUIDE FOR FOREIGN INVESTORS

Updated Feb 2009

COUNTRY’S BASIC FIGURES

• Political institution: Socialist Republic
• Capital: Hanoi
• Population: 85.2 mil
• Languages: Vietnamese (French, English, Chiness are commonly used)
• Telephone code: 84 (Hanoi +844; Hochiminh City +848)
• Time zone: GMT + 7
• Climate: Tropical in the south with wet season and dry season; subtropical in the north with four seasons (Spring, Summer, Autumn & Winter)
• Currency: Vietnamese Dong (VND); Exchange rate is approximately 17,500 VND/1 USD (Jan 2009)
• Major Int’l Airports: Tan Son Nhat Airport (Ho Chi Minh City), Noi Bai Airport (Hanoi), Da Nang Airport (Da Nang), Nha Trang Airport (Khanh Hoa)
• Economic hubs: Hochiminh City, Hanoi, Hai Phong, Da nang, Quang Ninh, Baria Vung Tau, Binh Duong, Dong Nai

ECONOMIC OVERVIEW

• GDP: US$71.2 bns
• Export/GDP: 75.7.
• GDP growth rate: 8.5%
• GDP per capita growth: 7.2%
• GNI per capita: US$790
• Export growth: 17.9%
• Sectorial contribution to GDP: Agriculture 20.4%; Industry 41.6% (manufacturing 21.3%); Services 38.1% (2006)
• Major export markets: United States, Japan, EU countries, China, Australia, Singapore

(source: WB, 2007)

FDI STATISTICS

• Number of FDI projects : total 8.684 (Industry and construction 5818 accounting for 67%; Service 1937, 22.30%; Agriculture and forestry 929, 10.7% )
• Total FDI capital: US$85.05bn registered; US$30bn implemented
• FDI capital in industry and construction: US$51.03bn (60%) registered
• FDI capital in services: US$29.17bn (34.3%) registered
• FDI capital in agriculture and forestry: US$4.85bn (5.7%) registered
• FDI by main countries: (1) Asian Countries: 66% capital registered (4 major countries: Korea, Singapore, Taiwan and Japan accounting for 55% of the total FDI registered capital); (2) EU Countries: 29% capital registered; (3) American Countries: 4% capital registered.
• FDI by provinces: (1) Hochiminh city accounting for 27.60% number of projects and 20% total FDI registered capital; (2) Hanoi 11.60% and 14.90% respectively; (3) Dongnai 10.50% and 13.70%; (4) Binh Duong 18.20% and 10%; (5) Baria-Vungtau 1.80% and 7.20%
• FDI by forms: (1) 100% foreign accounting for 77.6% projects and 61.60% total registered capital; (2) joint venture: 18.80% and 28.80%; (3) BCC, BOT, shareholding companies and apital management companies: 3.60% and 9.60%

(source: MPI, 12/2007)

LEGISLATION SYSTEM

Vietnam applies the civil law system which is based on written laws.

The hierarchy of the legal system in Vietnam can be simply classified into three basic layers in term of its governing scope and level: (1) The National Assembly issues the Constitution, resolutions, codes and laws ; the National Standing Committee issues ordinances and resolutions; (2) Legal instruments issued by the central executive and justice bodies including: decisions and mandates of the State President; decrees and resolutions of the Government, decisions and directives of the Prime Minister; decisions, directives and circulars of Ministers and equivalent levels; resolutions of the Supreme Court’s Judge Council and other legal instruments of the Supreme Procuracy; and (3) resolutions of the People Councils and decisions and directives of the People’s Committees.

All laws and regulations root from the Constitution and then the Civil Code. Other important laws concerning foreign investment and trade include the Law on Investment in Vietnam; the Law on Enterprises; the Law on Commerce; the Labour Code; the Law on Land; Law on Corporate Income Tax; the Law on Value Added Tax; the Law on Competition; etc.

Investors are allowed to invest in most sectors of the economy, except those which are detrimental to the national security, defense and public interests; and those under the State monopoly.

MAKING OF INVESTMENT

Foreign Direct Investment

Foreign direct investment in Vietnam is defined as investment by foreign investors who directly involve in management of investment activities in Vietnam.

Foreign direct investment vehicles include foreign wholly invested projects, joint venture projects with Vietnamese entities, business cooperation contracts (BCC), build-operate-transfer (BOT) contracts, build-transfer-operate (BTO) contract, build-transfer (BT) contracts, investment in business development, purchase of shares of local companies where investors involve directly in management of investment.

• A foreign wholly invested company can be incorporated by (i) one or some foreign investors or (ii) foreign investor(s) and established foreign wholly invested company(ies) in Vietnam.
• A joint venture is a company established in Vietnam on the basis of a joint venture contract signed between two or more parties. At least one party must be Vietnamese. Foreign party can be either foreign organisations, companies or individuals or Vietnamese overseas while Vietnamese partner(s) can be either company(ies) and/or economic organisation(s) but not a Vietnamese individual. Foreign investor(s) can join with already-established joint venture to set up a new joint venture in Vietnam.
• A BCC is a contract signed between foreign investor(s) and local partner(s) without setting up a legal entity in Vietnam. Parties to a BCC will contribute investment capital, jointly run business and share profits/losses.
• BOT, BT and BTO refer to methods of project cooperation which can be operated under the forms of either joint venture or foreign wholly invested company. BTO, BT, and BOT are mostly established in arrangements between investor(s) and Governmental agencies, and involve such infrastructure construction as bridges, power plants, water treatment plants, airports and transportation.

Forms of company include the followings:

(1) Limited liability company (LLC)

Members of a LLC can be organizations or individuals. Members of a LLC shall be limitedly responsible for the operation of the company within the chartered capital proportion in the company. The number of members shall not exceed 50. Members’ capital contributions are transferable but not flexibly like shares in JSC. The LLC can not issue stocks.

There are two types of LLC, one member LLC and multi-members LLC. Such two types will have different corporate management structure.

(2) Joint stock company (JSC)

A JSC has chartered capital divided into pieces called “shares”. The number of shareholders is at least three. There is no cap for the number of shareholders. Shareholders are limitedly responsible for the operation of the JSC within their share proportion. Shares of a JSC encompass common shares and various kinds of preferential shares.

A JSC can issue stocks for mobilization of capital. Laws do not distinguish between publicly held JSC and closely held JSC. In fact, a publicly held JSC can be understood as a JSC offered stocks to the public.

(3) Partnership company

A partnership company must have at least two partnership members (partners) jointly owning the company. Besides, it may have other capital contribution members. Partners are unlimitedly responsible for all operation of the company. Capital contribution members are limitedly responsible for the operation of the company.

(4) Sole proprietorship

A sole proprietorship is defined as private enterprise which is owned by only one investor who is unlimitedly responsible for operation of the sole proprietorship. Sole proprietorships are not allowed to issue stock of any kind.

Licensing Procedures

Foreign investment projects in Vietnam must be licensed by competent authorities. Subject to the traits of the project, it can be subject to registration of investment or appraisal of investment.

An investment project having capital of less than VND300bn (appr. US$17.24ml) and not fallen within the list of conditional projects shall be subject to registration of investment. The rest shall be subject to appraisal of investment. The registration of investment shall be conducted with provincial departments of planning and investment or management boards of industrial zones, export processing zones.

Investment Incentives

Foreign investment in encouraged sectors, within areas with difficult socio-economic conditions, in building of industrial zones, export processing zones, high tech zones and economic zones shall be enjoying certain incentives. Investment incentives encompass typically tax reduction or exemption and incentives in use of land.

Encouraged sectors include: (i) production of new materials, new energy, high tech products, biological technology products, informatic technology products and mechanical technology products; (ii) Cultivating and breeding in agricultural, forestry and aquatic sectors; (iii) use, research and development of high and modern technology, protection of environment; (iv) use of high number of employees; (v) construction and development of infrastructure, important and large scaled projects; (vi) development of education and training, heathcare services, gymnastics and traditional culture; (vii) development of traditional professions; etc.

Portfolio Investment

Portfolio investment is defined as to include the investment activities in forms of purchase of shares, stocks, bonds and other valuable papers, investment via stock investment funds, and investment via other intermediate financial institution, where foreign investors do not involve in management of their investment.

In buying shares of local companies, foreign investors can purchase shares without restriction (i.e. up to 100 per cent) in Vietnamese companies, except for sectors restricted by laws. The cap is opening up according to the commitments of Vietnam made under the framework of the WTO’s regulations.

In purchase of stocks in the stock market, foreign investors are also limited to buy maximum 49% of total listed shares of a company. There is no limitation for foreigners to buy bonds of local companies.

BRANCH & REP OFFICE

Company Trading Branch

Foreign corporation, foreign trader is entitled to set up a trading branch of his/her corporation in Vietnam if having operated for at least 5 years from its date of incorporation or business registration . Business scope of a trading branch shall be issued soon under a Circular from Ministry of Trade.
Trading branch can operate for a term of 5 year subject to subsequent renewals.

Representative Office

Foreign corporations are also entitled to set up one or several representative offices in Vietnam if having operated for at least 1 year from its date of incorporation or business registration. Activities of a representative office are limited to non-profit making activities, such as business links, follow up, and trade promotion. However, a representative office with duly authorization from its parent corporation, may sign and carry out commercial contracts on behalf of its parent corporation. In that case payments can not be made to bank account of the representative office in Vietnam. A representative office is allowed to do the following activities:

• To act as liaison office;
• To promote cooperation projects of foreign traders in Vietnam;
• To study business environment to accelerate the sale and purchase of goods and services of the foreign trader it represent;
• To supervise and speed up the implementation of contracts assigned by its head office with Vietnamese partners or related to Vietnam's market;
• To act on behalf of its head office to execute contracts, amend or supplement signed contracts on the case by case basis.

FOREIGN CONTRACTORS

Foreign companies or individuals (foreign contractors) can undertake to carry out projects and other undertakings in Vietnam in accordance with contracts signed with Vietnamese companies without establishment of a legal presence in Vietnam.

Presently, it seems that very limited business areas, such as construction, construction consulting services, surveying works, designing works, appraising services, verification, supervision and management of quality of construction works; supply of equipment and apparatus under Official Development Assistance (ODA), inter alia, are referred to by law for the operation of foreign contractors.

Foreign companies generating income from technology transfer or royalties or giving loans are also deemed foreign contractors for the sake of tax imposition. Business areas other than those can still be undertaken by foreign contractors provided that foreign contractor’s tax must be fulfilled.

To become a foreign construction contractor or sub-contractor in Vietnam, construction contractor permit shall be required.

After issuance of the permit, foreign contractors may establish and must register an operating office in the locality of the construction works to which the permit relates for the purpose of carrying out the tasks of the contract work. The operating office may only exist for the duration of implementation of the contract and must be dissolved when the contract is liquidated. Foreign contractors may recruit and employ Vietnamese and foreign employees. Foreign contractors may import materials, machinery and equipment required to perform the contract work. The temporary import for re-export of materials, machinery and equipment for execution of construction works and the list of raw materials, fuel, materials, and both entire and synchronous equipment for the contract works must be registered.

COST ESTIMATES

Visa

Cost for obtaining Visa depends on types and period of validity. Business Visa would cost from USD25 to USD100. Cost for a tourism Visa would be USD25 for single entry and USD40 for multiple entry.

Transportation

From Noi Bai Airport to Hanoi downtown, by taxi would cost about USD15 and by Vietnam Airlines bus would cost about USD2.5. Fare of normal bus is much cheaper which is about USD0.16 only (Those costs include toll fees).

Distance from Tan Son Nhat Airport to Hochiminh city downtown is shorter and would cost about USD7.2 by taxi. Taxi fare for going around Hanoi and Hochiminh city varies from USD0.4 to USD0.5 per kilometer depending on taxi quality and distance.

Accommodation

Accommodation fees in Hochiminh City are pretty higher than those in Hanoi. Hotel rates range from USD35 to USD500 depending on quality of hotel and room. An average level single room would cost about USD90/night.

Telephone, Internet & Electricity

Subscription fee for telephone is about USD1.7/month. Telephone calling fee is USD0.46/hour for the calls within a province which will be reduced for long time calls. Fee for the calls between different provinces is from USD2.8 to USD6.3 per hour. Fee for international calls would be from USD1.5 to USD2.5 per minute. Costs for calls using mobile phone are higher.

Costs for Internet connection using ADSL will be from USD15 to USD58 per month including subscription fee and depending on connection speed and downloading quantum. Individuals can use other types of Internet connection via telephone line and dial-up modem but speed is very low. Fees for that type are cheaper.

Electricity costs in Vietnam range from USD0.0314 to USD0.102/KWh for residential uses and from USD0.0448 to USD0.101/KWh for production.

Rentals

Land rent applicable to enterprises varies from USD0.932 to USD13.89/m2/year for urban land. Land rents of suburban lands surrounding Hanoi and Hochiminh City will be from USD0.314 to USD1.31/m2/year. Land rents of other regions would be from USD0.04 to USD0.98/m2/year. Depend on the traits of each province the people’s committees will decide specific rates in line with land rent framework. Many provinces are offering land rent abatement to foreign investment projects.

If investors lease land and infrastructures in industrial zones, rentals will be much varied (from USD30 to USD150/m2/year) and subject to location, infrastructures availability, and negotiation with industrial zone owners. Office lease in international class buildings in Hanoi and Hochiminh City would cost from USD20 to USD150/m2/month, while local standard buildings charge only about USD2/m2/month.

LAND

Land Ownership and Use Right

In Vietnam, land ownership belongs to the State as the representative of all the people. Individuals and organizations are using land by allocation or lease from the State and they hold the land use right. No land ownership belongs to individuals or organizations. The Government and people’s committees at all levels are assigned to daily manage land related activities. The specific authority being in charge of managing land is the Ministry of Natural Resources and Environment which is assisted by the provincial Departments of Natural Resources and Environment in provinces and Divisions of Natural Resources and Environment at municipal level.

Land use right encompasses right to use, transfer, lease, mortgage, inherit the land premises to other individuals or organizations, and contribute the land use right value as capital in a company. Foreign entities can neither hold land ownership nor land use right in Vietnam. However, land use right is extended to their companies established in Vietnam. Once a company obtained land use right, it can mortgage the value of land use right with Vietnamese joint stock banks, joint venture banks, foreign bank branches and other credit institutions in Vietnam. Any mortgage of land use right at foreign banks is not allowed.

Obtaining of Land Use Right

Foreign investors wishing to do business in Vietnam can obtain the land use right by (1) leasing land from the State after establishment of companies in Vietnam; or (2) partnering with Vietnamese company(ies) to establish companies where land use right is contributed by Vietnamese company(ies); or (3) acquiring a project to hold the land use right.

In the former case (leasing land), companies will be paying land rent in accordance with the land rent frameworks set by the Ministry of Finance and provincial people’s committee where the project is located. Except in case the project is located in the industrial zone, high tech zone, export processing zone, or economic zone, foreign investors have to arrange to receive the conveyance of land use right from the existing occupants.

The later case (contributing land) seems to be simpler. Normally the Vietnamese partner(s) will take charge of fulfilling the legal procedures for capital contribution by land use right. Once the company is incorporated, the land use right title shall be then transferred to the company. Established company shall not be subject to payment of land rent. Computation of land value for contribution will be agreed by parties basing on the lent rent paid, or to be paid, by the Vietnamese partner(s) and other market values.

Foreign investors may also locate their investment projects in industrial zones, economic zones, or export processing zones where the better infrastructure facilities are available and ready for lease. Normally the management board of the said zones is authorized to lease land to those projects located within their zone.

TAXATION

Corporate Income Tax

Generally, all enterprises are equally subject to the same corporate income tax (CIT) rate of 25%. Foreign invested enterprises conducting prospecting, exploration and exploitation of petroleum and gas and other rare precious natural resources shall be subject to a rate of from 32% to 50%, specific rate to be decided by the Prime Minister on the case by case basis. Tax abatement can be obtained for certain enterprises, particularly:

• The CIT rate of 20% shall apply for 10 years to newly established enterprises investing in the areas having difficult socio-economic conditions. This tax rate shall also applied to agricultural service co-operatives and to people’s credit funds.
• The CIT rate of 10% shall apply to newly established enterprises investing in the areas having specially difficulty socio-economic conditions; in economic zones and in high-tech zones; and to newly established enterprises investing in the sectors of high technology, scientific research and technological development, investment in development of specially important infrastructure facilities of the State, and production of software products. This tax rate shall be applied for 15 years from the commencement of business operation; and
• The CIT rate of 10% shall apply to enterprises operating in the sectors of education and training, occupational training, health care, culture, sport and the environment.

Foreign investors may opt for recording the CIT rate and incentives in the investment licence, or applying the CIT rate and incentives as stipulated by laws and decided by tax authority in actual appraisal.

Value Added Tax

Enterprises engaging in manufacturing and conducting business in value added taxable goods/services and enterprises importing value taxable goods shall be subject to value added tax, or VAT.

There are three levels of VAT rates as follows:

• The VAT rate of 0% applies on exported products/services, except international transportation; abroad re-insurance services; credit services, assignment of capital and derivative financial services; post and telecommunications services; and unprocessed natural resources for export;
• The VAT rate of 5% applies on water, fertilizer, insecticides, animal feeds, medicine, educational and training equipment and tools, baby toys, scientific and art books, natural agro-forestry products, sugar, basic chemicals, services for scientific and agricultural applications, and some other products/services;
• The VAT rate of 10% applies on other goods/services not subject to the rate of 0% nor 5%.

There are two methods of VAT calculation, deduction and direct calculation. Most enterprises shall employ the method of VAT deduction on output VAT (price of sold goods/services multiplied by applicable VAT rate) minus input VAT (price of purchased materials/services multiplied by applicable VAT rate). During the purchase of goods/services enterprises must pay VAT (VAT inputs) to sellers. And during the sale of goods/services enterprises must collect VAT from buyers (output VAT).

Special Consumption Tax

Enterprises doing business in the field of importation and sale of the following products/services shall be subject to special consumption tax: cigarettes, cigar, beer, alcohol, cars (less than 24 seats), two-wheeled motorbike, three-wheeled motorbike with capacity of more than 125cm3, aircraft, yacht, gasoline, naphtha, reformade component and other components for making up gasoline, air conditioners (less than 90,000 BTU), playing cards, joss papers, joss articles; trading in dancing clubs, massage, karaoke, casino, jackpot, slot and other game machine-based services, betting, lottery trading, and golf course trading.

Special sale tax rates range from 10% to 70%, lowest for gasoline, naphtha, reformade component, other components for making up gasoline and cars 10-24 seats, and highest for joss papers, joss articles.

Import and Export Duty

The Import Tariff and Export Tariff are being amended frequently from time to time to satisfy the State requirements import and export management. Import Tariff includes (i) preferential tariff applicable to the countries applying the Most Favoured Nation (MFN) treatment with Vietnam, (ii) special preferential tariff applicable to countries applying special treatment of import tariff with Vietnam, and (iii) normal tariff which is equal up to 150% of preferential tariff. Although there are three levels of import tariff, the preferential tariffs are applying to almost countries having trade relations with Vietnam. Dutiable prices are determined in accordance with the rules of the General Agreement on Trade and Tariff (GATT), adopted by the Government.

Importation of commodities for fixed assets of newly established foreign invested enterprises, after being approved by competent authority in Vietnam, is exempted from import duties.

Importation of materials and components for production by foreign invested enterprises which are located in areas having special difficult socio-economic conditions and lying in special preferential investment sectors shall be exempted from import duty for 5 years from commencement of production.

Foreign Contractor Taxes

Taxes applicable to foreign contractors comprise of VAT, CIT, special consumption tax, import and export duty, personal income tax and/or other taxes as appropriate. The following foreign contractors are subject to foreign contractor tax:

• Foreign organizations not having Vietnamese legal entity status and foreign individuals practising independently or doing business in Vietnam on the basis of a contract or agreement or commitment with a Vietnamese organization or individual or with another foreign organization or individual currently doing business in Vietnam;
• Foreign organizations and foreign individuals supplying goods by mean of delivery of goods within the territory of Vietnam or supplying goods accompanied by services provided in Vietnam, such as installation, commissioning, warranty, maintenance, replacement and training or other services attached to the supply of goods;
• Foreign organizations and foreign individuals doing business and having income in Vietnam but without a legal presence in Vietnam, such as income from technology transfer, royalties.

Foreign contractors may adopt Vietnam accounting system or apply foreign accounting system for their activities in Vietnam. In the former case, foreign contractors will pay CIT on the actual profits or gross income. In the later case, foreign contractor will pay VAT and CIT by withholding from the payer (deduction from paying source).

‘Amount of CIT payable’ equals ‘taxable corporate income’ multiplied by ‘CIT rate as percentage of taxable income’. CIT rates as percentage of taxable income are fixed with respect to different goods and services.

‘Amount of VAT payable’ equals “added value” multiplied by VAT rate. VAT rates are as same as those provided in the Law on VAT. Added value is fixed for different goods and services.

Personal Income Tax

Incomes subject to personal income tax, or PIT, include: business income; income in forms of salaries and wage, allowances and subsidies, remuneration, bonuses; income from capital investment; income from transfers of capital portion, from transfer of securities; income from real property transfers; income being winnings or prizes; income from royalties; income from franchises; income being inheritance or being receipt of a gift of securities, of capital portion, of real property or other assets for which ownership or use rights must be registered.

Certain incomes are not subject to PIT such as income from the value of a land use right for allocated land; interest on deposit accounts, saving accounts, interest from Government bonds, interest from life insurance policies, income being foreign currency remitted by overseas Vietnamese, social insurance pensions, scholarships, life and non-life insurance compensation, labour accidents compensation and other compensation, charitable funds, foreign aid sources for charitable or humanitarian purposes etc.

Assessable income for the business income and/or salaries, wages shall be the total taxable income less any contributions for social insurance, medical insurance, professional indemnity insurance, less deduction for family circumstances and the deductions for contributions to charitable and humanitarian funds.

Foreigners being present in Vietnam for less than 183 days shall be subject to PIT rate for non-resident individuals . Those who are living in Vietnam for 183 days or more within one western calendar year or within 12 consecutive months from the date of entry into Vietnam or having a regular residential location in Vietnam shall be subject to PIT rates for resident individuals .

LABOUR

Minimum Wage for Vietnamese Labourers

Wages paid by foreign invested enterprises to Vietnamese employees must not lower than the minimum levels provided by laws. The minimum monthly wage of enterprises domiciled in urban areas of Hanoi and Hochiminh city is VND 1,200,000 or appr. USD68.57 . Wage of enterprises located in suburban areas of Hanoi and Hochiminh city and urban areas of Haiphong, Bien Hoa, Da Nang, Vung Tau city, and some other areas must not lower than VND1,080,000, equivalent of about USD61.71, per month. For the remaining cities/provinces, the minimum monthly wage is VND950,000,(USD54.29) or VND920,000 (USD52.57) (exchange rate 17,500VND/USD).

Working Hours & Holidays

Normal working hour is 8 hours a day, 48 hours a week. Where the enterprise’s workload requires, overtime works may be agreed between employer and employees but total overtime must not exceed 4 hours a day and 300 hours a year. Employees who work overtime shall be enjoying overtime salary of 150% normal salary for overtime in normal working days; 200% normal salary for overtime in weekends; and 300% normal salary for overtime in holidays.

There are 9 mandatory paid holidays in Vietnam including 4 days for traditional New Year, 1 day for calendar New Year day, Victory day (30 April), International Labour day (1 May), National day (2 September), and Hung King Death Anniversary day (3 October lunar calendar). In addition to those holidays, employees who served one year for the enterprise will be entitled to 12 days as paid annual leaves. This number will be 14 or 16 days depending on difficult working conditions. The number of annual leaves will be added by one day for each five year period served by an employee for the enterprise. Employer will agree with employees on the appropriate time to effectuate annual leaves. If an employee does not take annual leaves and works in those days, (s)he will be paid.

Mandatory Insurances

An enterprise that employed an employee for a period of 3 months or more or for an indefinite term must pay social insurance. An employee is responsible for 5% of salary and employer is responsible for 15% of total salary fund of the enterprise to be paid to social insurance agency.

Health insurance will be paid at the same time of social insurance payment. Employer will pay 2% of total salary fund and an employee will be responsible for 1% of his/her salary for health insurance. Employer shall withhold the social and health insurance amounts from employees when making salary payment and transfer those amounts to the insurance agency. From 1 Jan 2009, unemployment insurance shall be additionally required.

Registration of Working Rules

Every foreign invested enterprise must issue the set of working rules and register the same with provincial labour administration agency, known as the Department of Labour, War Invalids and Social Affairs. The working rules must set forth regulations on working time, rest time, working orders, labour safety and hygiene, labour disciplines and material responsibilities etc. Employer shall base on prevailing laws and the issued working rules to convict the malpractices and apply disciplines on the violations done by employees.

Establishment of Labour Union

Foreign invested enterprises are required not to bar the establishment of the labour union in their enterprises. Labour union in an enterprise is a representative unit of all employees in that enterprise which will be established to protect legitimate rights of employees and to represent all employees in settlement of disputes to be arose. Employer in an enterprise is also required to enter into a collective labour agreement with all employees representing by the labor union.

Circumstances of Dismissal

An employer can not be at his sole volition to dismiss an employee. The dismissal of an employee can be expedited where (s)he (i) commits and act of thief, embezzlement, disclosure of business or technology secrets, or other conduct which is sorely detrimental to the assets or reputation of enterprise; (ii) who was disciplined by extension of the period for salary review or transfer to another position, repeats the offence during the disciplined period, or repeat the offence after he was disciplined by removal from position; or (iii) takes 5 days off in a month or 20 days off in a year at his/her sole volition without proper reasons.

Settlement of Disputes

Disputes concerning labour relationships between employer and employees are required to be firstly settled through amicable negotiation between them. A labour conciliation council may be established containing representatives of both employer and employees. Further step in negotiation could be the labour conciliation arbitrators. Failing those, disputes shall be referred to Vietnamese court for ruling.

FOREX CONTROL

Business transactions in foreign currency are tightly controlled by laws. Foreign investors wishing to transfer capital in foreign currency into Vietnam must open a specialized foreign currency bank account at banks legally operating in Vietnam. During the operation, foreign currency remitted into Vietnam by foreign investors must be converted into Vietnamese dong or deposited in a foreign currency bank account. Payment made by enterprises in foreign currency can be implemented in certain cases as described by the State Bank of Vietnam (SBV), such as payment for imported goods and services; abroad remittance by foreign investors of invested and reinvested capital, earning profits from undertakings in Vietnam, principals and interests of off-shore loans and credits, and other legal benefits; payment for travel allowances to employees traveling abroad, payments of salary to the executives of foreign capital enterprises and Vietnamese employees working in a foreign country; and abroad remittance of salaries and other legal incomes of foreigners.

Foreign investors who are in needs of foreign currency for paying allowed business transactions can buy foreign currency from permitted banks operating in Vietnam. Offshore loans reaped by enterprises are subject also to certain conditions as regulated by SBV. Medium and long term loans are required to be registered with SBV.

MERGER & ACQUISITION

Available Modes of M&A

In the context of Vietnamese laws, M&A encompasses acquisition of shares/capital; merger, and consolidation.

(1) Acquisition of shares/capital

“Acquisition of shares/capital in a FIE” in this context means purchase or obtaining by an outside investor a part of or the whole capital assignment of one or more members in an existing company. This term is merely called under Vietnamese laws “assignment of capital”.

(2) Merger of companies

One or some companies (non-surviving enterprise(s)) may merge into another FIE (merged enterprise, or surviving enterprise) by the method of transferring the whole of the assets, rights, obligations and legitimate interests to the merged enterprise and at the same time the non-surviving enterprises cease to exist.

(3) Consolidation of companies

Two or some companies (non-surviving enterprises) may consolidate to become one new company (consolidated enterprise, or surviving enterprise) by the method of transferring the whole of the assets, rights, obligations and legitimate interests to the consolidated enterprise and at the same time terminating the existence of the non-surviving enterprises.

(4) Division of a company

A company (non-surviving enterprise) may divide into two or a number of other new companies and after that the former company shall cease to exist.

(5) Separation of a company

A company may be separated into two or more different companies by mean of transferring one part of the existing assets of the company (separating enterprise) in order to establish one or a number of new companies (separated enterprise(s)); or transferring one part of the rights and obligations of the separated enterprise to the separating enterprise(s), but maintaining the existence of the separated enterprise.

Approvals

The acquisition of shares/capital in a foreign invested enterprise must be approved by the Investment License Granting Authority. Likewise, all forms of restructuring, including merger, consolidation, division and separation, require approval(s) of the Investment License Granting Authority(ies).

In consolidation, division and separation where new companies are appeared, procedures for establishment of the new companies must be undertaken.

Land Matters

In principle, if new/surviving companies take over all rights and obligations of the old/non-surviving companies, land use right will be legally and automatically transferred to the new/surviving companies. Laws do not expressly require the new/surviving companies to undertake legal procedures for manifestation of new name of the land use right certificate holder. In fact, to attach the name of the new/surviving companies into the land use right title, the new/surviving companies are advised to expedite necessary procedures to obtain the new land use right certificate.

Labour Matters

After restructuring the new/surviving company shall continue to be bound by the labour contracts signed by former employer(s). New employer may agree with employees to terminate the former contracts or enter into the new ones.

In case the new employer can not arrange jobs for employees of the former companies due to the restructuring, those employees may be considered redundant and subject to lawful retrenchment. Retrenched employees will be entitled to severance allowance in accordance with provisions of laws.

STOCK MARKET

Vietnam has two stock exchange centers, one in Hochiminh City and another in Hanoi. Although establishment of those stock exchange centers was decided in 1998, the Hochiminh City stock exchange center officially operated in July 2000, earlier than Hanoi center which was commenced in March 2005.

Till date, there are 301 companies listed in Vietnam stock market (including foreign invested enterprises), 101 registered securities companies, 42 fund management companies, and 8 securities custodian banks .

(source: SSC 01/2009)

Initial Public Offering

Joint stock companies (or shareholding companies) wishing to have initial public offering (IPO) of stocks must satisfy the following conditions: (i) Being a joint-stock company having a minimum paid-in capital of VND 10 billion; (ii) Having been profitable in the year prior to the one applying for an IPO and no accumulate loss till the year of application; and (iii) Having the feasibility study to utilize the proceeds from the issuance of shares approved by the General Meeting of Shareholders.

The stock IPO must be registered with the State Securities Commission.

The IPO of additional issuance of shares, issuance of warrants and rights, bonds, and securities investment fund units shall be subject to different regulations and conditions.

Overseas Listing

Vietnamese joint stock companies may offer stocks or bonds in overseas markets. Currently laws and regulations are being completed to provide more enabling regimes for overseas listings.

Forex Management in Securities Transactions

All the sale and purchase of securities within Vietnam territory must be conducted in Vietnamese Dong (VND).

Foreign investors who want to transfer money to Vietnam for buying securities must remit money into a specially used foreign currency account opened by securities company at a permitted bank in Vietnam. Foreign currency must be sold to the bank for Vietnam Dong to purchase securities. Foreign investors must open a securities exchange VND account at stock exchange center for sale and purchase of securities at that center.

Securities company shall manage the specially used foreign currency bank account separately with respect to different investors and separately from the company’s money. Foreign investors' money will be then remitted to a specially used VND account opened by the securities company at a permitted bank in Vietnam.

Securities Companies

Beside representative office, foreign securities companies can invest in Vietnam in the form a joint venture with up to 49% foreign ownership or (it is expected) 100% foreign invested after 5 years as of the date of Vietnam's accession to WTO securities company, funds management company A credit institution operating in Vietnam can conduct securities business by setting up another securities company.

Foreign Participation

Foreign organizations and individuals purchasing shares on the securities market of Vietnam may currently hold maximum of 49% of the total listed shares of any issuing organization. It is expected that this cap is abolished after 5 years as of the date of Vietnam's accession to WTO. The purchase of bonds is not limited.