Writer: Truc Nguyen
On 17 June 2020, the National Assembly issued the new Law on Investment No. 61/2020/QH14 and the new Law on Enterprises No. 59/2020/QH14. These new laws will replace the current Laws on Investment and Enterprises issued in 2014 to take effect from next 01 January 2021. As this is the great time to do business in Vietnam, have you concerned how those documents affect the foreign investment in 2020s?
Please see underneath some notes from our corporate lawyers for foreign investors to do business in Vietnam from 2021.
1. Preparation before doing business in Vietnam
(i) Firstly, the investors should question the followings before implementing the expected investment:
- Business lines of the company and their regulatory conditions. Some conditions could include:
- Commitments of Vietnam in WTO, bilateral/ international treaties on: (1) market opening regarding the business lines; (2) the limitation on foreign capital ratio in the entity; and (3) other limitations to the investment, if any;
- Minimum capital for doing the specific business lines (e.g. education sector, etc.) or depositing a specific amount to the State (e.g. commercial housing project or employee sub-leasing, etc.); and
- Degree/ certificate of the company’s manager on having skill or professional in the working area (e.g. clinic establishment, etc.).
- Types of to-be company and its characters stipulated by Vietnam’s laws;
- Partnership and other relevant matters;
- Company’s government according to each specific type of company;
- Person(s) to legally represent the company in transactions and his rights and obligations;
- Legal procedures requested by Vietnam’s law for doing business here, which we will mention hereafter; and
- Methods for capital mobilization for the investment project, if necessary.
In fact, investors can access to the general advice on investment activity from local authorities’ website. However, this information could not fit investors’ contemplation. Thus, they could seek the advice from a lawyer specializing in investment & corporate consultancy for more support in this issue.
(ii) Secondly, investors can themselves agree on the rights and obligations of each other before officially operating an investment project. Such agreements support the establishment and implementation of project before and within the operating duration. Therefore, an agreement prior to investment is necessary to determine the responsibility of each investor and resolving the legal consequence as well. However, Vietnam’s regulations have not given the clear solutions when the deal is broken. It will totally base on both parties’ agreement.
2. Registering for an investment project in Vietnam
First of all, investors must get approvals from local authorities for them to implement the investment project in Vietnam. Based on the scale and types of the project, it could need more than an approval for proceeding. In particular:
(i) Getting special approval on investment policy
Not all investment sectors need special approval for implementation. Law on Investment No. 61/2020/QH14 only requires the very important and special projects to proceed this procedure. The law also authorizes National Assembly, Prime Minister or provincial People’s Assembly the separate and specific competence on appraising each project. Furthermore, the procedure of issuing this approval is different due to the authorities having such competence.
(ii) Applying for the Investment Registration Certificate (“IRC”)
The below is the cases which IRCs are not compulsory to obtain:
- Investment projects of domestic investors;
- Investment project of the investors not considered as foreign ones; and
- Additional contribution, purchase on capital contribution/ shares in an economic entity in Vietnam.
For other investment projects, the procedure of applying for IRC is compulsory regardless of the requirement of the special approval. This certificate will record information of the investors as well as details of project. The issuance of IRC will be made by the provincial-level authorities.
In principle, such agencies will issue the special approval and/ or IRC base on their assessment on the investors’ dossier. Particularly, they shall consider investors’ possibility for doing investment projects, which is mostly based on the explanation on the compliance of investors engaging in the investment. Also, the investors must show the financial capability of the project implementation. Of note, some documents issued by the foreign States need legalizing for legally using in Vietnam.
3. Registering companies established based on projects
After obtaining the IRC, there should be a company to manage the investment project and play the role of connection between State authorities and investors. Therefore, investors should apply for company registration pursuant to Law on Enterprises 2020. Investors should determine which kind of the company and building the internal rule of the company as well. The local Department of Planning and Investment often issues the enterprise registration certificate (“ERC”) to investors. On the ERC, there are the information of company’s owner(s), capital, legal representative, address and other important details to be stated. The ERC is the legal document to recognize the official operation of investors’ business in Vietnam.
The procedure for obtaining ERC is less complicated than the one for IRC.
4. Post-licensing procedures
After getting the ERC, the investors need to do some obligations to the State before commencing the business. In particular, some tasks of the company could include:
- Announcing the company establishment;
- Making company seal;
- Registering initial taxation;
- Hanging the company’s signboard;
- Opening and notifying bank accounts (including normal bank account and investment capital bank accounts);
- Contributing registered capital to the company within 90 days from the date of ERC; and
- Other requested tasks, such as periodical reports to authorities.
The laws also stipulated a specific timeline for the company to obey the above. If failing to do so, it could be fined by the competent authorities.
5. Stopping doing business in Vietnam
There are lots of concerns that investors need to pay attention to when stopping the business in Vietnam. Some of them are:
- Firstly, they must proceed the procedures to terminate the company’s operation and investment project. They are the 02 separate procedures for the investors to proceed. The cessation will finish only when the company and the investment project stop operating with the authorities’ confirmation.
- Secondly, remittance of capital and profits abroad. After fully performing financial obligations to the State, investors could remit the profits, capital and other legal incomes abroad. Such activity could be made via the investment capital account.
In conclusion, Vietnam’s regulations on foreign investment is so complex that the foreign investors must take them into consideration to mitigate the risks when doing business here. Every minor mistake could lead to a administrative penalty from the competent authorities. Therefore, law compliance is the fundamental ground for the foreign investors to effectively broaden their business in Vietnam.
We hope to receive your comments on this article. Or should you have any questions regarding this matter, please contact us at email@example.com.