***This article is for discussion only, please consult your legal advisor for any matter relates to the law***
On 26 November 2014, the National Assembly of Vietnam approved amendments to the 2005 Investment Law and the 2005 Enterprise Law to improve the legal framework for business and investment in Vietnam. Those amendments will be effective from 1 July 2015. In this article, we look at some of the key changes introduced by the 2015 Amendments.
After ten years, Vietnam is taking a more mature approach to business and investment. The new laws provide companies with greater flexibility, both in the scope of their permitted activities and their internal organizational structure. Specifically, the new business law provides a modernized governance framework consistent with international practice, and aims at further simplifying the rules on company formation, business registration and corporate governance, thereby making it easier for both domestic and foreign-owned companies to operate in Vietnam.
Right to freely conduct business: The enterprises will really have the right to freely conduct business and allowed to do what are not prohibited by laws. The new law sets out six (6) prohibited business lines instead of the vague, general regulations as before. Those prohibited business lines now include – amongst others – all commercial activities with regards to narcotics/drugs, trading in banned minerals, trade in wild or endangered and rare plants and animals; prostitution, human trafficking, human tissues and organs and activities related to human cloning.
New definition of state owned enterprise (SOE): The New Law defines an SOE to be an enterprise 100% owned by the State whereas under the old Law on Enterprises, an SOE is defined as an enterprise more than 50% owned by the State. The New Law also imposes detailed requirements on the members’ council, chairman, general director and other managerial personnel of an SOE. The new law requires the SOE to disclose more information, to organize Board of Members meeting more frequently, to give more power to the SOE’s board of control. This will help to level the playing field for private enterprises.
Simplification of license requirements: The New Law removes the scope of business activities of an enterprise and the list of founding shareholders of a joint stock company from the enterprise registration certificate (“ERC”). If an enterprise changes its business activities, founding shareholders or foreign shareholders, it must “report” to the corporate registration authority to update its corporate registration records, but does not need to “register” for an update of its ERC as required under current laws.
New scope of governing: The amended law solely governs direct investment and leaves indirect investment to the Law on Securities (2006) and its guiding regulations. The amended law directly covers offshore investment (i.e. – investment by Vietnamese entities in foreign countries) which was previously regulated by a separate Government’s decree.
New definition of foreign investor: Foreign investor is now any foreign individual or organization established in accordance with the foreign law. This new definition is expected to make clear the concept of the foreign investor.
The 2015 Amendments will help clear up some of the confusion that accompanied the 2005 Investment Law and the 2005 Enterprise Law and their application, as well as ease and simplify the foreign investment process. The revised laws will facilitate the establishment of new enterprises, especially those owned by foreign investors, and reduce the costs when investors withdraw from the Vietnamese market.
In addition, it will ensure the legitimate rights and interests of investors, shareholders, and other stakeholders.
The Amendments are welcome and celebrate by the business community.