Asia Counsel In-Depth
New Law On Investment
On 17 June 2020, the National Assembly of the Socialist Republic of Vietnam adopted the Law on Investment No. 61/2020/QH14 (“New LOI”), which will come into effect from 1 January 2021.
The New LOI will replace the current Law on Investment No. 67/2014/QH13 dated 26 November 2014 (“Current LOI”). This insight provides a brief summary of the key changes to be brought in by the New LOI.
Market approach conditions
The New LOI provides that the Government will issue a list of business lines subject to foreign ownership restrictions. This list will cover all conditions and restrictions provided under domestic laws and international treaties that Vietnam is a party. Therefore, when this list is issued and takes effect, foreign investors will have to review the restricted business lines provided in this list to conduct a foreign ownership assessment. We hope that this list will be issued before the New LOI takes effect.
New threshold foreign ownership
The New LOI will treat a company as a local company for licensing purposes if its foreign ownership ratio is not ‘more than 50%’. Under the Current LOI, this threshold is ‘less than 51%’.
Termination of façade transaction
Under the New LOI, the licensing authority may terminate an investment project if it is based on a façade transaction. Under the civil code, façade transaction is a transaction established to hide another real transaction.
National defense and security
The New LOI provides that any investment activity which causes or may cause harm to the national defense and security will be suspended or terminated by the Prime Minister on proposal from the Ministry of Planning and Investment. It remains unclear on which investment activities will be treated as causing harm to the national defense and security.
Project license matters
New conditions for IRC issuance
To obtain the investment registration certificate (“IRC”), the New LOI provides that the investment project must comply with, among others, (i) the approved national plan; (ii) the investment rate per land area unit and the required employee number; (iii) the market approach conditions.
Compulsory IRC amendment
Under the New LOI, any amendment to the investment project that cause changes to the issued IRC must be subject to IRC amendment procedures. While under the Current LOI, it is not compulsory to amend the IRC.
No IRC requirements for innovative startup
Under the New LOI, small- or medium sized innovative startup or creative startup investment fund are not required to have an investment project or obtain the IRC before setting up an enterprise.
Extension of the project term
Under the New LOI, a project will be rejected for term extension if: (i) it uses outdated technology that potentially causes harm to the environment; or (ii) the investor of such project are required to transfer the assets to the State of Vietnam without compensation. Under the Current LOI, no restriction for project extension is provided.
Acquisition approval cases
The New LOI sets forth clearer cases where an acquisition approval is required. An acquisition by a foreign investor will be subject to the acquisition approval if:
- It leads to the increase of foreign ownership ratio in the target company carrying on business in a conditional business sector;
- It leads to the increase of foreign ownership ratio in the target company of more than 50%; and
- The acquisition by the foreign investors in the target company having land use right certificate for land on island or coastal or border areas which affects the national defense and security.
Additional conditions for acquisition approval
Under the New LOI, acquisition approval will be subject to two additional conditions: (i) ensuring the national defense and security requirements; and (ii) complying with conditions for receiving land use rights and using land in islands, in border and coastal areas under the law on land.
No environment report for project license issuance
The environment impact assessment report (“EIAR”) is no longer required for issuing the IRC or the investment policy. However, the investor may need to obtain the EIAR before project implementation.
New investment incentives form
The New LOI provides a new form of investment incentives being accelerated depreciation and increased deductible expenses when calculating taxable income.
More preferential investment sectors
More investment sectors will be subject to investment incentives such as, among others, university education, medicines storage and medical equipment production.
Special incentives and support policy
The New LOI introduces the policy of special incentives and support which is applied to new investment projects which are (i) for establishing creative innovation centers with total investment capital of at least VND3,000bil; or (ii) in specially preferential business lines with the total investment capital of at least VND30,000bil. The level of special incentives and support will be in accordance with the relevant tax law.
Prohibited and conditional business lines
New prohibited business lines
‘Debt collection services’ and ‘firecrackers trading’ will be prohibited under the New LOI. Any ongoing contract providing debt collection services will no longer be effective from 1 January 2021.
Conditional business lines list
Certain business lines are removed from the conditional business lines list such as franchising, logistics services and medical equipment inspection. However, other conditional business lines are added such as, architectural services, payment service provision, insurance auxiliary activities, etc.
Removal of PPP contract
The PPP contract investment form is removed under the New LOI. Under the Current LOI, PPP contract is signed between the competent state authority and investors for projects of new construction, renovation, upgrading, expansion, management and operation of infrastructure facilities or provision of public services.
Selection of investors mechanism
The New LOI clarifies the mechanism for selecting investors under a competitive process as provided under the law on land, the law on tendering and the law on investment. The selection of investors can be under the following forms: (i) auction of the land use right in accordance with the law on land; (ii) tendering for selection of an investor in accordance with the law on tendering; (iii) approval of the investor by the licensing authority if auction or tendering process are not successful; (iv) approval of the investor by the licensing authority for investment project that must obtain the investment policy without going through auction and the tendering process. Further clarifications will be provided under guiding legislations.
Under the Current LOI, there is no restriction on business lines for offshore investment. However, under the New LOI, any prohibited business lines applicable to investment in Vietnam will be prohibited for offshore investment, and other prohibited business lines under the law of investment recipient countries will also apply. Certain business sectors will be conditional for offshore investment include banking, insurance, security, press, radio and television and real estate business.
Periodical reporting obligations
The investor is no longer required to report monthly on the status of implementation of the investment project, but only on quarterly and annually basis.