Effects of the new Vietnam law on investment and enterprises on FDI Flows - Investment in Vietnam - FDI in Vietnam - ASL LAW

Effects of the new Vietnam Law on Investment and Enterprises in attracting FDI flows

The amended Investment Law and the Enterprise Law: impacting on improving the quality and efficiency of attracting domestic and foreign investment resources in Vietnam.

With the increasingly dynamic economic integration in Vietnam, in particular, the two significant FTAs are passed currently, which are CPTPP and EVFTA, have brought many more opportunities to domestic businesses and open many directions of investment for foreign investors into Vietnam. Besides, transferring the FDI sourcing inflows from China to ASEAN countries is strongly taking place. Hence, on 17th June, 2020, the National Assembly passed the amended Law on Enterprises and the amended Law on Investment, which creates a significant foundation to attract FDI into Vietnam.

The effects of the new Law on Investment in attracting the FDI sources

Reduction of conditional business lines

This is one of the important contents in the amended Law on Investment, which foreign investors concern. Because the conditions that business lines require in the law are a barrier for investors to invest in such business lines in Vietnam. With the desire to open the market to foreign investors, the reduction of conditional business lines has helped remove barriers for investors to create a simpler and more efficient business environment.

Besides, according to the current investment law, although Vietnam has made a commercial services commitment with the WTO, the commitment has been made since 2008 and up to now it has been more than 10 years, so the number of commercial service sectors have become much more diverse with many uncommitted sectors in such WTO commitment. Hence, investors will face many difficulties in investing in these sectors in Vietnam, when they may not know clearly whether there are limitations or conditions thereof. Therefore, the new Investment Law stipulates a list of sectors and industries with conditional market access for foreign investors according to the opt-out approach, contributing to improving transparency and feasibility in applying Vietnam’s commitment to the open of market under the new generation free trade agreements.

Incentives and investment support

With the introduction of many incentives and investment support for foreign investors in Vietnam, 2019 and even the first half of 2020 are bright spots in attracting FDI into Vietnam, but based on analysis of the FDI capital source, this capital source mainly focuses on processing and manufacturing industries, but these industries do not require high skilled labor and it does not create a basis for further training of high skilled labor for Vietnam. Hence, this amended Investment Law has focused on issuing preferential policies and supports to high-tech enterprises, start-up projects, research and development centers, and production of new materials, new energy, clean energy and information technology products. Since then, this has facilitated the attraction of selective and qualified FDI sources into Vietnam.

In addition, the amended Law also provides for the possibility that the Prime Minister may apply special incentives (which allow a maximum of 50% more than the highest level in comparison with the current Law), thereby this can help the Government to make timely policies to attract strong current FDI inflows.

Ensuring the consistency of the Investment Law with specialized Law

In the Vietnamese legal system, the Investment Law is considered a “common law” to regulate investment-related issues in Vietnam. Hence, issues related to investment will first have to follow the provisions of the Investment Law, but there are still overlaps of the current Investment Law with other specialized Laws when dealing with an investment-related issue. For example, the Investment Law stipulates that projects that are not subject to investment project approval will not have to carry out any procedures related to approval of investment projects before the implementation of investment projects. However, the Housing Law states that any housing construction project must carry out investment-related procedures prior to project implementation. This overlap has made investors confused in the proper application of documents and procedures of investment projects. Thus, the amended Investment Law amended 10 groups of regulations to be more consistent with the provisions of specialized Laws such as the Environment Law, the Housing Law, and the Land Law. Since then, to create a clarity in the legal system of investment, as well as to create favourable conditions for investors when implementing investment projects in Vietnam.

Reform of administrative procedures in investment

The amended Investment Law has repealed unnecessary administrative procedures, such as the regulation about approving investment policies for projects with capital capital of 5,000 billion dong of the Prime Minister. In addition, the Investment Law also extends the investor’s autonomy as stipulated in Article 41 that “during the implementation of an investment project, the investor has the right to adjust the target, transfer in part or in whole of investment projects, merging projects or splitting a project into many projects and other contents ”. This helps investors to be more proactive in implementing their projects without having to face many difficulties due to previous cumbersome procedures. Hence, this is an important factor to attract foreign capital into Vietnam.

Effects of the new Vietnam law on investment and enterprises on FDI Flows - Investment in Vietnam - FDI in Vietnam - ASL LAW
Effects of the new Vietnam law on investment and enterprises on FDI Flows

The new Law on Enterprises has exerted a significant influence in attracting the FDI sources

Reduction of the procedures for enterprises

The current Law on Enterprises has regulated that prior to running the business, companies must complete five administrative procedures including business registration in the Registrar of business, making a seal at the seal engraving unit, notifying the seal sample to  the Registrar of business, opening accounts and notifying account information to the Registrar of business. However, the amended Law on Enterprises abolish the procedure of notifying the seal specimen to the business registration agency for publicly posting on the National Enterprise Registration Portal. Thereby, this may lead to the reduction of a few of cumbersome procedures and the simplification of the operation of the companies with the general aim of creating a more effective business environment.

Shareholders

The amended Law has changed a number of regulations to protect rights and interests of shareholders or groups of shareholders that own the small rate of shares in the company. In details, this Law has decreased the rate of shares for performing a few of rights from 10% to 5%. Therefore, shareholders or groups of shareholders only owning 5% of the total number of common shares can carry out some rights as prescribed.

In addition, the amended Law has abolished the regulation which regulates that shareholders or groups of shareholders owning 10% or more of common shares are allowed to perform their rights on their shares only when they have owned their shares for a consecutive period of at least 6 months or more. This is because in fact, although many shareholders own the majority of shares of the company, they cannot perform their rights and legitimate interests since not meeting requirements on the term of owning shares. Therefore, these regulations are to protect rights and interests of shareholders or groups of shareholders in the business, which is an important basis to attract investing sources into the business.

From that, Vietnam expect the attraction of strong FDI sourcing inflows moving from China into ASEAN countries.

***ASL LAW with very experienced business lawyers and consultants shall provide the clients a full legal service with affordable quotation to establishment of a company in Vietnam from the initial step until full functional operation. Accordingly, the business of the clients shall operate in Vietnam legally, efficiently and costly.

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