As of today, the Law on Investment No. 61/2020/QH14 dated June 17th, 2020 (Amended LOI) and the Law on Enterprises No. 59/2020/QH14 dated June 17th, 2020 (Amended LOE) are the essential legal references for the Foreign Direct Investments (FDI) in Vietnam.
Both the Amended LOI and the Amended LOE have marked an important milestone in the development of the Vietnamese legal framework on FDI, creating more favorable conditions for foreign investors when implementing investment projects in Vietnam.
In this article, we will provide a brief overview of the most relevant innovations of the aforesaid regulations introduced to the previous FDI regime to increase the attractivity of the country to foreign investors.
Main Innovations of the Amended LOI
Market access rules were significantly improved under the Amended LOI. Before its implementation, based on the previous Law on Investments (the Law on Investments No. 67/2014/QH13 dated November 26th, 2014 – “Law on Investments 2014”), the permitted business fields for foreign investors were only those expressly referred to in a permitted list as mentioned therein.
Nevertheless, also in line with the Chinese regulations on FDI, Vietnam switched to the so-called “negative list” approach with the Amended LOI: hence, currently, foreign investors may perform all business activities not included in the Negative List for Market Access for Foreign Investors without differentiation from domestic investors. This innovation indeed removes uncertainty for foreign investors, widens their business opportunities in the country and contributes to simplifying the FDI process.
Regarding investment incentives, the Amended LOI has added a number of new fields where foreign investors may enjoy investment incentives, such as investment projects related to innovation, higher education, equipment manufacturing in medical and pharmaceuticals, construction of social housing, etc. Such incentives may include tax incentives, access to credit, support for research and development, and further measures.
Another significant aspect is the reduction of the “foreign shareholding threshold” to determine whether a foreign invested enterprise must satisfy the conditions and carry out the prescribed investment procedures for foreign investors when implementing investment forms in Vietnam, which has been reduced from 51% to 50% of the charter capital.
This means that under the Amended LOI, a Vietnam-incorporated company 50% owned by a foreign entity may now receive the benefits afforded to domestic enterprises while performing additional investments in Vietnam.
Main Innovations of the Law on Enterprises
As for the Amended LOE , it is noteworthy to mention the significant improvements made to better protect minority shareholders’ rights in joint stock companies. For instance, a shareholder or group of shareholders holding 10% or more of the shares in a company currently enjoy the right to appoint nominees to the Board of Management (BOM) and the Inspection Committee (IC) without the requirement of holding shares for at least six consecutive months as per the former regulations.
Moreover, any shareholder, without the requirement of holding shares for at least one year, will now have the right to request the court suspend or cancel BOM’s resolutions in certain circumstances, or, provided that the shareholder/shareholders group holds at least 1% of the shares of the company, take a derivative action against BOM members or the general director.
It is also noteworthy to mention that under the Amended LOE, a limited liability company is no longer required to have an inspection committee (in respect of a multi-member limited liability company) or an inspector (in respect of a single-member limited liability company), thus simplifying governance.
Regarding the time limit for capital contribution in kind to establish a company, the Amended LOE states that the time for transporting, importing and carrying out procedures for transferring property ownership will not be counted into the “90-day time limit”. Compared to the Law on Enterprises 2014, many foreign investors were unable to comply with the maximum 90-day capital contribution deadline as transportation, importation and procedures for transferring property ownership accrued a substantial period of time.
The abovementioned points have brought about significant changes that have had a positive impact on foreign investors in the investment process in Vietnam.