Asia Counsel In-Depth

September 2020

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: 

  1. It leads to the increase of foreign  ownership ratio in the target  company carrying on business in a  conditional business sector; 
  2. It leads to the increase of foreign  ownership ratio in the target  company of more than 50%; and 
  3. 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. 

Investment incentives  

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. 

Offshore investment  

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.