7 Mar, 2019

Investment in the not-so-far east. Part 2: The Investment Permit

While European companies are eagerly awaiting the entry into force of the Vietnam-EU Free Trade Agreement, Vietnam is steadily improving its regulatory environment for foreign investment. Especially the regulations for investments and entrepreneurial commitment in Vietnam are becoming increasingly interesting for international investors.

Step by step and with a special focus on the concerns of companies interested in investing, our consultants and experts for international corporate commitment under the title “Investments in the not-so-far East” explain the central legal foundations in Vietnam.

Part 2: The Investment Permit

Under the new Vietnamese Investment Law, investment approval is only required for foreign investment projects in Vietnam.

In addition, the need for an investment permit depends critically on the type of activity and the economic sector in which an investor intends to operate with their respective project.

There are also different approval requirements, procedural steps and regulatory responsibilities under Vietnamese investment law for different sectors and sectors.

While Part 1 of the “Investing in the not-so-far east” series focused on corporate law in Vietnam, this article addresses the second challenge that foreign investors in Vietnam face right at the beginning of their engagement: the frequently required investment approval.

New investment law with liberal orientation

Like the Companies Act, the Vietnamese Investment Law was amended extensively with effect from 1 July 2015. Basically, the investment law with the new version has received a much more liberal primer. Whether an investment permit has to be obtained at all depends on two questions:

In the starting point, all investment projects are now considered as permitted and without authorization, unless something else results from the investment law.

In Appendices 1 to 3, for example, there are goods and substances with which trading from the outset is prohibited for investors in Vietnam (see Art. 6 (1)). Likewise, an activity in the field of prostitution and trafficking is prohibited.

Annex 4 then identifies areas of activity and sectors that can only be the subject of an investment project under certain conditions and after approval. These include activities in the insurance and reinsurance sectors (points 26 to 30), the fuel and gas sectors (points 41 and 43) and various asset and business advisory activities (for example points 32, 43, 113, 190).

This means that investors with concrete plans for the Vietnamese market should first deal in detail with the list in Annex 4 to the Investment Act.

However, an investment certificate is also only required under Article 36 (1) for listed activities if it is a “foreign investment project”. When a project is foreign under the terms of Vietnamese investment law, Article 23 (1) provides that this requires participation by at least 51% of the Vietnamese company or investment project by a foreign natural or legal person.

Restrictions and special requirements

Ultimately, when determining the specific licensing requirements for the respective areas of activity listed in Annex 4, there are often major challenges for investors. Under Article 7 (3), the conditions to be respected are governed by the laws, regulations, directives and international treaties applicable to the relevant industrial sectors.

For example, foreign companies may hold no more than 30% of the shares in Vietnamese banks and no more than 49% of the shares in public-sector companies.

However, because the legal situation can be very confusing, depending on the field of activity, legal advice in Vietnamese law is just as recommendable as early and detailed information gathering, for example, from the competent authorities in Vietnam.

Responsibilities for various investment projects

Finally, the responsibility for the approval procedure depends partly on the area of activity of the investment project and partly on the size and scope of the project:

The competent authorities are the National Assembly of Vietnam (see Article 30), the Prime Minister (see Article 31) and the Provincial Authorities (see Art.32).

The National Assembly is primarily responsible for projects that are particularly damaging to nature, such as nuclear power plants or large-scale projects in national parks, nature reserves, water conservation areas and similar particularly protected regions. In addition, the National Assembly decides on projects that require rice paddy fields of more than 500 hectares to be used for other purposes.

The Prime Minister is also responsible for most investment projects. These include, in particular, all projects with a total investment of VND 5,000 billion (approximately EUR 180 million), as well as projects related to the construction and operation of airports and seaports, air cargo and air transport companies, oil companies and infrastructure development companies in Vietnamese Special Economic Zones.

Finally, the provincial authorities only decide on all other projects that land is assigned or leased by the state, or where the permitted use of land must be changed. Similarly, projects involving the use of certain technologies whose use is restricted by the Technology Transfer Act are the responsibility of the provincial authorities.

Which documents have to be submitted to the respective authorities in order to finally initiate the approval procedure and which procedural steps must be taken to this end are laid down in Articles 33 to 35.

All in all, three questions must be answered for the approval procedure for foreign investors from an investment law perspective:

· Is the project in need of approval pursuant to Annex 4 to the Investment Act?

· How big and extensive is the investment project?

· Which body is responsible for the approval?

Conclusion

Based on the system of investment law explained here, the responsible authorities can be identified, addressed and the planning process can be started. Although the new investment law involves some simplifications and simplifications, at least formally, the highly formalistic approval procedure is still and unfortunately often characterized by non-transparent procedures and long waiting times. Intensive preparation and communication with local authorities are therefore an extremely important factor in investing in Vietnam.

However, it will be cautious to see how the actual implementation of the procedural framework in Vietnam will evolve in the coming years, both with the Free Trade Agreement and with the new Vietnamese laws on corporate and investment law.

Written by Erik Ahrens from our partner Germela (https://www.germela.com/).