-CP dated 21 September 2006 on re-registration and conversion of foreign invested enterprises, and Decree 108/2006/ND -CP dated 22 September 2006 on guiding the implementation of the Investment Law. Both decrees will take effect 15 days after publishing on the Official Gazette which is estimated to be around 1 October, three months late after the statutory effective date of the Investment Law. Although decrees have been issued, it is usually a practice in Vietnam that Ministries’ guiding circulars are needed to bring about the real effect to the laws.

It is still lack of new guidelines on the investment in form of build – operate – transfer, build – transfer – operate, or build – transfer contracts; portfolio investment in form of acquiring shares, buying stocks, bonds, securities; investment via intermediate finance institutions; and outbound investment. Those investment forms are not governed by the Decree 108.

Although expect the new decrees bring about positive guidelines, investors may still raise questions on whether new provisions are not always appropriate and clear as the consequence of a hurry issuance.


Investment licensing and company incorporation

A domestic investor wishing to incorporate a company and do an investment project is required to undertake two different procedures, registering a company in accordance with the Enterprises Law, and registering or applying for appraisal of the investment project. The domestic investor may require licensing authority to consider application for forming the investment project and for incorporating the company at the same time.

A query remained is about a clear definition of “an investment project‿. Article 3.8 of the Investment Law defines an investment project as “a set of proposals for using middle or long term capital to do investment activities within certain locations and period. Decree 108 does not further define what “middle term capital‿ is and how much capital is required to be considered as an investment project. Except an exemption of responsibility to register investment projects of less than VND15 billions in unconditional sectors, there is a possibility that any corporate incorporation case is deemed also establishment of an investment project, given that all companies shall need capital and location for operation. This will cause a danger that domestic investors shall always have to undertake two procedures for project licensing and company incorporation where the charter capital of the company is equal or more than VND15 billions, even that the company has had no real investment project.

A new foreign investment project is guided to undertake a single procedure for registration or appraisal of the project and incorporation of the enterprise at the same time. The investment certificate shall be also the business registration certificate.




Business cooperation contracts

It is interpreted from Article 9 of Decree 108 that a business cooperation contract, or BCC, between a foreign partner and a local partner is required to be registered or licensed while a BCC between local partners is not.


Conditional investment sectors

Decree 108 lists all conditional investment sectors which include broadcasting, production and distribution of cultural products, exploitation and exploration of minerals, establishment of telecom network infrastructures, telecom and internet services, establishing public postal networks, providing postal and forwarding services, construction and operation of ports, commodity and passenger transportation, seafood fishing, production of tobacco, real estate business, importation, exportation and distribution services, education and training, hospital and clinic business, and other sectors limited in the international agreements.

For those sectors, Decree 108 does not guide in detail what conditions are. The list of conditional sectors shall only serve as the basis for defining the licensing authorities. Investors need to look at other regulations and international agreements, or wait for further guidelines on business conditions to see the detail conditions of different sectors.


Investment licensing authority

Amount of investment capital is a factor to determine the licensing authority and criteria of appraisal (for instance VND1,500 billions in Article 37, VND300 billions in Article 46). The thresholds of investment for that purpose are all dominated in Decree 108 in Vietnam dong. There is no problem with that in cases of domestic investment projects. However, to define a licensing authority for a foreign invested project, a query raised is what exchange rate will be employed to convert into Vietnam dong where the investment is dominated in USD.

Decree 108 gives more powers at hand of provincial departments of planning and investment and management boards of industrial zones, economic zones export processing zones or high tech zones. The Ministry of Planning and Investment shall no longer receive applications or grant investment registration and licence to investment projects, both locally and foreign invested. This Ministry shall only play its roles to give consenting or dissenting opinions with respect to projects needing Prime Minister’s acceptance, projects fallen out of the master plans and some others.

The Prime Minister reserves the right to consent in principle all projects in fields of construction and operation of airports, airline transportation, national seaports; oil and gas exploration, exploitation and refinery, mineral exploration and exploitation; broadcastings and television; casino business; cigarette production; university level training; establishment of industrial zones, export processing zones, high tech zones and economic zones. The projects of VND1,500 billions in the fields of electricity business, mineral processing, metallurgy; construction of railway, road, inland water transportation infrastructure; and production and trading of beverages shall be also subject to the Prime Minister’s acceptance. All foreign invested projects in sea transport business; establishment of networks and provision of services in postal, forwarding, telecom and the Internet areas; printing, publishing newspapers and publishing services; establishment of independent scientific research organizations must be accepted by the Prime Minister.

It appears from Decree 108 that all investment projects shall be registered or licensed by the provincial departments of planning and investment or the said management boards, including those subject to Prime Minister’s acceptance in principle. Provincial departments of planning and investment shall receive the projects fallen out of industrial zones, export processing zones, economic zones, high tech zones, and those in locations where there has been no management board established. The management boards shall have licensing authority as to the rest.

However, for the projects needing the Prime Minister’s acceptance in principle which are listed in Article 37, it is unclear on whether investors are required to obtain the Prime Minister’s acceptance in principle before submitting application dossier to the said provincial departments or management boards (Articles 38 & 39). Decree 108 does not guide in detail the procedures and document requirements to obtain the Prime Minister’s acceptance in principle. The Decree however does not specifically stipulate which body shall receive applications for the projects subject to Prime Minister’s acceptance in principle (Article 40). Conversely, Article 48 requires the body who received the applications submits dossier to the Prime Minister for acceptance. One may face a matrix vis-à-vis the licensing procedures under the authority of the Prime Minister.

To prepare documents for investment registration and company incorporation, applicants are required to provide information and documents on the project as guided under Decree 108 and information and documents on corporate establishment as required under Decree 88/2006/ND-CP on business registration, and then submit those to one licensing authority. Decree 108 provides in detail document requirements for foreign investment projects (Article 44) but does not provide any guideline on documents for registration of domestic investment projects (Article 43).

Also, Decree 108 does not make clear on which office under a department of planning and investment shall receive applications for registration of investment projects. Previously, the Business Registration Office received applications for local company incorporation and another office (i.e. reception office, or somewhere so called ‘one-door office’) received applications for foreign investment projects. Now, which office a local investor shall lodge application to if she wishes to register the project and incorporate a company at the same time?



Hiring of management

Previously, only foreign invested enterprises running hotels, apartments and offices for lease, golf and entertainment business, etc. are guided to hire management services with cap limitations on management fees. The management agreements must be approved by the competent bodies. It appears from Article 64 of Decree 108 that investors, both local and foreign, shall enjoy freedom in employing management services. There is no limitation on permissible business sectors and fees and no requirement on authorities’ approval.


Transfer of investment projects

Investment Law and Decree 108 allow investors to transfer their investment projects in Vietnam. However, Decree 108 seems to equate the transfer of capital and the transfer of project. A company can not sell out a project without admitting the buyers to be a shareholder of the company. Article 66 requires that, in all cases where the transfer of a project does not constitute the liquidation of the company, the transfer of capital must be conducted in a way and within the conditions as same as the transfer of capital. There seems to be a misleading in understanding the term “transfer of project‿, or the wording of such new provision has been designed intentionally. If the terms transfer of project and transfer of capital are the same, the Investment Law should have not differentiated the terminology “transfer of project‿ and “transfer of capital‿ in Article 17.

Corporate re-registration and conversion

Decree 101 reconfirms the investors’ right to re-register foreign invested enterprises established under the defunct Law on Foreign Investment in Vietnam. The re-registration can be conducted by a two-foreign investor enterprise (having two investors or more) to become a two-member limited liability company (Ltd) (having two members or more); or by a one-foreign investor enterprise to become a one-member Ltd; or by a foreign invested shareholding enterprise to become a shareholding company. That means the re-registration shall not constitute the change to the number of investors and members. A re-registered new enterprise shall automatically inherit all rights and obligation of the defunct enterprise.


Any change to the number of investors or members shall constitute the corporate conversion. Decree 101 provides for the conversions from a joint venture or a two-foreign investor enterprise to become a one member Ltd; or from a one-foreign investor enterprise to become a Ltd with two members or more; or from a foreign invested Ltd to become a shareholding company.


The conversion can be conducted at the same time with the re-registration, but two different document sets are likely required. Converted new enterprises shall enjoy the same incentives if foreign investors hold at least 30% charter capital of the new enterprises.

It is worthy of note that an enterprise where foreign investor(s) committed to transfer without compensation assets to Vietnamese government can be re-registered or converted if there is no change to the commitment. Where the re-registration or conversion constitutes the change to the said commitment, an acceptance from the Prime Minister needs to be secured.

Decree 101 has made clear that, without re-registration, previously established enterprises shall be entitled to operate in accordance with the issued Investment Licences and charter. They can request for amendments of the issued investment licences except changes to business functions and operation terms. That means beyond the deadline of 1 July 2008, previously established foreign invested enterprises can not change its business functions and term of existence in Vietnam. A query remained is whether they can request for changes to the charter in accordance with defunct laws without re-registration.

Another question concerns the legal representative of the old enterprises. Under the old law, the General Director of a foreign invested enterprise is not required to be resident in Vietnam. The 2005 Enterprises Law requires that the legal representative of a Ltd or a shareholding company must be resident in Vietnam. If (s)he is absent from Vietnam for more than 30 days, (s)he must authorize in writing another person to carry out the powers and obligations of the legal representative. Would the directors of enterprises without re-registration have to obey the new requirement?

VIR No. 781/October 2-8, 2006