News on the Laws on Investment and Enterprise

The new amendments to the Vietnam’s Law on Investment (LOI) and the Law on Enterprise (LOE) will enter into force on the 1st of January 2021, although certain provisions will kick in from this September. There are several changes with regard to incentives and business lines. Foreign investors should be more affected, in a positive sense, by the new regulation.

1. The New LOI

With the new LOI, some conditional business sectors will open up to both domestic and foreign investors. Commercial arbitration, franchising, and logistics services are no longer considered conditional business lines. Furthermore, the Government will issue two lists of business sectors and lines that will be restricted and conditional for foreign investors. This means that, in every other business, foreign investors will be treated as Vietnamese.

The new LOI decreases the foreign ownership threshold from 51% to 50% to determine if an economic organization with foreign-owned capital must satisfy conditions prior to investment. The amended Article 23 of the LOI stipulates that a foreign invested company incorporated in Vietnam is subject to the same conditions and investment procedures applicable to foreign investors (corporates and individuals) if more than 50% of its charter capital is held by:

a. A foreign investor or investors;

b. Enterprise(s) under a. above; or

c. Both foreign investor(s) and enterprise(s) under a.

This adjustment is to comply with international practices related to the spirit of the simple majority principle and will avoid the current practice where a company can be controlled by foreign investors with more than 50% but less than 51% interest, yet still be treated by the current LOI as Vietnamese investors for the purpose of their investment activities in Vietnam. Regarding public and listed companies, they will be subject to a different treatment regime, as their foreign ownership level may fluctuate frequently depending on the trading in the securities market.

2. The New LOE

Instead, the new LOE does not provide substantial changes, but rather deals mostly with administrative procedures for company registration, operation, restructuring and liquidation. For instance, the requirement to register a company seal has been abolished, while electronic seals have been recognized by the law.

To ease the process and reduce time consumption, online and offline registrations shall have the same legal validity. Currently, after an online submission on the National Business Registration Portal, companies would have to complete the procedure by redundantly submitting a hard copy of the application dossier, the new LOE does not require such paperwork.

Regarding the capital injection for new companies, the new LOE maintains the time limit of 90 days from the issuance of the ERC to transfer the charter capital. However, some exceptions were introduced, allowing certain in-kind contributions where the time required for transportation/importation of assets or completion of changes of ownership are not counted as part of the 90-day time limit.