As well as the Law on Enterprise, the Law on Investment is also an important legal foundation for business activities, helping to orient the investment activities of both domestic and foreign investors (“Investors“). The lately amended and passed Investment Law ensures not only the consistency and unification in the implementation of investment incentives and supportive policies, but also the sustainable national economic growth, harmonizes social and environmental issues.
This article aims to provide clients with an overview of the new points of the Law on Investment 2020 (“LOI 2020”) together with the legal consequences of these changes to investors and the investment market of Vietnam in the coming time.
I. ON THE INVESTMENT SECTORS, INDUSTRIES AND TRADES
1.1 Abolishing regulations on investment in the form of public private partnership
Public-private partnership (“PPP”) is one of the investment forms recognized in the LOI 2014. Specifically, PPP is an investment form conducted on the basis of a contract enterred by and between a competent State agency and an investor, a project enterprise to implement, manage, operate projects of infrastructure construction,providing public services. In fact, this is a form of macro and long-term investment, however, the legal framework for this form is still only at the Decree-level, leading to various difficulties and inadequacies in implementing such projects.
Consequently, the State has issued a separate regulation on PPP (Law on investment under the public-private partnership model 2020) and removed regulations related to this field in LOI 2020. The above change is a major turning point in solving problems in the process of doing business under the PPP model such as ensuring risk-sharing between the State and investors, ensuring assets to pay for investment projects in the form of Construction – Transfer (BT)… At the same time, creating a general legal framework with a superior legal effect for the implementation of PPP projects, setting a stable legal environment for private enterprises (“PEs“). when participating in these projects.
1.2 Prohibiting the business of providing debt collection services
Compared with the 2014 LOI on the debt collection services which is on the list of conditional business lines, LOI 2020 has moved the debt collection services into the List of business lines banned from business investment. Accordingly, debt collection services transactions prior to the effective date of LOI 2020 will cease to be effective from the effective date of LOI 2020, and the parties are obliged to liquidate these transactions.
It can be reasoned that this amendment has created a legal corridor to ensure a “clean” investment environment, to avoid the case of these service providers using illegal methods negatively affecting social order and safety.
1.3 Reducing the conditional business lines
Currently, the list of conditional business lines includes 243 business lines. However, LOI 2020 shall retain 227 business lines and remove 16 business lines, such as logistics services, commercial franchising, commercial inspection services, service activities of commercial arbitration organizations, and debt trading services, etc.
The above reduction aims to eliminate unnecessary and unreasonable business lines; limiting the hinders which impact the market entry of potential investors/ investors at home and abroad.
1.4 Promulgating a List of business lines having limited – market access for foreign investors
Compared to LOI 2014, LOI 2020 has supplemented business lines whose market access are limited to foreign investors, creating a differentiation between business activities in some fields between domestic and foreign investors, aiming to improve transparency and feasibility in Vietnam’s commitments to open the market when participating in new generation Free Trade Agreements and international treaties on investment to which Vietnam is a member. Accordingly, the Government will issue a list of business lines restricted from market access to foreign investors, including: (1) business lines that have not yet been able to access the market; and (2) business lines with market access conditions.
1.5 Regulating business lines whose outward investment and conditional outward investment are prohibited
LOI 2014 does not specify the business lines in which domestic investors are not allowed to invest abroad or to invest with conditions, but it totally depends on policies, decisions of competent individuals and agencies. LOI 2020 has finally defined the business lines that are not allowed to invest abroad, including:
- Business lines banned from investment in Vietnam (the list of business lines prohibited from investment and business);
- Business lines with technologies and products banned from exporting in accordance with the law on foreign trade management; and
- Business lines prohibited from investment and business in accordance with the law of the host country.
In addition, LOI 2020 also stipulates business lines subject to conditional overseas investment, including banking; insurance; stock; press, radio and television; and real estate. Specific conditions shall be specified in legal documents issued by the National Assembly, the Standing Committee of the National Assembly, the Government and international treaties on investment to which Vietnam is a signatory.
It can be seen that, in addition to ensuring the business freedom of investors in the business lines that are not prohibited by law, the provision of additional business lines and trades that are prohibited from overseas investment and conditional overseas investment has supplemented and improved necessary tools to improve the effectiveness and efficiency of the State management on investment, helping to improve the investment environment in Vietnam.
II. ON INVESTMENT INCENTIVES
2.1 Supplementing industries and business lines that are eligible for investment incentives
In addition to the business lines that are entitled to investment incentives under the 2014 LOI, LOI 2020 has added a number of industries and occupations that are also entitled to investment incentives, including (1) collegeeducation; (2) production of products derived from scientific and technological results in accordance with the Law on science and technology; (3) manufacturing products on the List of supporting industry products prioritized for development; (4) drug storage, medical equipment manufacturing; and (5) producing goods or providing services that create or participate in value chains, industry clusters.
Accordingly, the production of goods and the provision of services creating or participating in the value chain, industry clusters which supplemented to the list of business lines that are entitled investment incentives to play an important role to the SMEs.
2.2 Increasing the form of investment incentives
Currently, Vietnam always encourages domestic investment activities with the aim of improving the country’s economy and solving employment problems for the people. For that reason, in addition to the investment incentives specified in LOI 2014, LOI 2020 has added the regulation “Quick depreciation, increase deductible expenses when calculating taxable income” as a form of new investment incentives. Specifically, quick depreciation shall be determined as the systematic valuation, calculation and allocation of an asset’s value due to the depreciation of the asset after a period of use, applied to enterprises in fields with technologies that require rapid change and development. Thus, this new incentive form is very meaningful for investors who are business organizations in the fields of high technology, with large scientific content, with fixed assets such as advanced equipment and machines.
In fact, the correlation between investment incentives and the investment decisions of foreign enterprises is proportional; Therefore, the increase in investment incentives is the regulation to actively attract foreign direct investment into Vietnam, building an effective, dynamic and rich in potential investment environment.
2.3 Expanding the group of beneficiaries of investment incentives
To attract foreign investors, apart from increasing incentives forms, LOI 2020 has expanded the subjects which are eligible for investment incentives, increasing foreign investors’ ability of access to the Vietnamese market. Accordingly, the group of beneficiaries of investment incentives has increased from five (05) groups to seven (07) groups. In which, two (02) newly added groups are (1) innovative startup investment projects, innovation centers, research and development centers; and (2) investing in and doing business in the product distribution chain of small and medium enterprises; investment in and business of technical facilities to support small and medium enterprises, small and medium-sized enterprise incubators; investing in and operating co-working areas to support small and medium-sized innovative startups in accordance with the law on support for small and medium-sized enterprises.
2.4 Adjusting investment incentives and special investment supportive policies
The LOI 2020 has supplemented the regulations on authority of the Government to make decisions on the application of special investment incentives to encourage the development of a number of investment projects having great impact on socio-economic development as follows:
- Newly established investment projects (including the expansion of such project) including innovation centers, research and development centers with total investment capital of VND 3,000 billion or more,disburse at least VND 1,000 billion within 03 (three) years from the date of issuance of the Investment Registration Certificate (“IRC“) or the approval of the investment policy; national innovation center; and
- Investment projects in business lines with special investment incentives, with an investment capital of VND 30,000 billion or more, disbursing at least VND 10,000 billion within 03 (three) years from the date of issuance of the IRC or the approval of the investment policy.
However, the above special investment incentives and support policies are not applicable to :
- The investment project has been granted an IRC or approval of investment policy before the effective date of LOI 2020; and
- Investment projects of mineral exploitation, construction of commercial houses in accordance with the law on housing, production and trading of goods and services that are subject to special consumption tax as prescribed in the Law on Special Consumption Tax (except for projects of manufacturing cars, aircraft and yachts).
In addition, in case it is necessary to incentivize the development of a particularly important investment project or a special administrative-economic unit, the Government shall submit to the National Assembly for a decision to apply other types of investment incentives than the ones regulated in LOI 2020 and other laws.
Furthermore, from the effective date of LOI 2020, the ceiling of investment incentives will no longer be regulated, but the preferential rate and the period of special incentives shall comply with the provisions of the Law on Enterprise Income Tax and the Land Law to limit the overlap of laws and creating mechanisms and policies to attract the FDI inflow to the Vietnamese investment market.
III. ON THE OPERATION OF FOREIGN INVESTORS
3.1 Supplementing conditions for establishment of economic organizations in Vietnam by foreign investors
In addition to the conditions specified in the LOI 2014, the new LOI stipulates that when establishing an economic organization in Vietnam, foreign investors must meet the market access conditions specified in the List of business lines having limited – market access for foreign investors (as mentioned in Section 1.4) and must have an investment project, carry out procedures for issuance and adjustment of IRC.
Nevertheless, when establishing a small and medium-sized start-up enterprise and an investment fund for the start-ups, foreign investors shall not be obliged to carry out procedures for issuance of an IRC before implementingan investment project. This regulation aims to simplify investment procedures, attract foreign investment capital, and ensure a dynamic and efficient investment environment.
3.2 Amending conditions for foreign investors to contribute capital, purchase shares, purchase capital contributions of economic organizations in Vietnam
According to LOI 2020, when contributing capital, buying shares, buying contributed capital to economic organizations in Vietnam, the market access conditions for foreign investors shall be satisfied; foreign investors shall not be allowed to violate Vietnam national defense and security; comply with the regulations of the Land Law on the conditions for receiving land use rights, the conditions of land use in the island, commune, ward, border town, commune, ward and coastal town.
The supplementation of these completely new regulations is aimed at restricting foreign investors from acquiring or holding dominant shares in enterprises operating in crucial sectors or holding important national assets like real estate.
3.3 Reducing the rate of foreign investors’ holding of charter capital in economic organizations conducting investment activities
According to LOI 2020, if falling into the following cases, enterprises are required to meet the conditions and carry out investment procedures as prescribed for foreign investors when investing in establishing economic organizations; investment in capital contribution, purchase of shares, purchase of contributed capital of other economic organizations; investment in the form of BCC contract, specifically:
- Having one or more foreign investors who hold more than 50% of the charter capital or having the majority of the partners being foreign individuals if the business organization is a partnership ;
- Having an economic organization whose foreign investors hold more than 50% of the charter capital or the majority of the partners are foreign individuals if the business organization is a partnership holding more than 50% of the capital regulations; and
- Having foreign investors and economic organizations with foreign investors holding more than 50% of the charter capital or having the majority of the partners are foreign individuals if the business organization is a partnership holding more than 50% of the capital regulations.
The reduction of the proportion of foreign investors’ holding of charter capital in economic organizations conducting investment activities from 51% down to 50% in order to ensure the appropriate state management of economic organizations with foreign elements, reconcile interests and obligations between economic organizations with foreign elements and economic organizations of other sectors.
IV. ON INVESTMENT PROCEDURE
4.1 Changing the agency receiving investment project dossiers
According to LOI 2014, whether the project falls under the authority of the National Assembly or the Prime Minister to approve the investment policy or the project does not require investment policy approval, the investor shall be obliged to submit a dossier at the local investment register authority where the investment project isimplemented (usually the Departments of Planning and Investment of provinces).
However, LOI 2020 has clearly decentralized the management over the types of projects. Accordingly, when implementing a project that requires approval of the National Assembly or the Prime Minister on investment policy, investors must submit a dossier to the Ministry of Planning and Investment (at the central level). Such regulation helps to overcome the shortcomings in the business environment due to difficulties in handling administrative procedures and ensures investment process is carried out more conveniently.
4.2 Amending the conditions for issuance of investment registration certificates for investment projects that are not subject to investment policy approval
LOI 2020 has supplemented specific regulations on the conditions for issuance of IRC for investment projectthat is not subject to investment policy approval, to create a clear legal framework for investors to comply with when conducting investment projects under this form of investment. Specifically:
- The investment project is not in the list of business lines forbidden from investment and doing business;
- Having a location for the implementation of the investment project;
- Investment project in accordance with the planning specified at Point a, Clause 3, Article 33 of the LOI2020;
- Satisfying the conditions of investment rate per land area, number of employees using (if any); and
- Satisfying market access conditions for foreign investors.
4.3 Curtailing the case investors shall not be obliged to make deposits when implementing investment projects
In order to secure the implementation of an investment project that is allocated land, leased land, or allowed to change the use purpose of the land by the State, the LOI requires investors to implement a security measure that is escrow deposit. With the aim of reducing the financial burden for investors and increasing resources to implementthe project, LOI 2014 has specified the cases in which investors do not need to make deposits. However, based on the balance of interests between project implementation investors and in order to ensure the legality when implementing an investment project, LOI 2020 has removed one (01) circumstance that the investor does not need to deposit is when the investor is a public non-business unit with revenue, a hi-tech park development company established under a decision of a competent state agency to implement investment projects that are allocated or leased land by the State for the infrastructure of industrial parks, export processing zones, high-tech zones and functional zones in economic zones. Therefore, when implementing an investment project, these investors still have to make escrow in accordance with the law.It can be seen that the LOI 2020 has gradually removed problems with implementation of the previous regulations; abolished unnecessary administrative procedures; simplified investment procedures and supplemented necessary mechanisms to raise the effectiveness and efficiency of state management on investment; simultaneously, it provides changes in business lines and investment incentives to ensure selective and quality foreign investment attraction and contributes to improving transparency and feasibility in applying commitments on opening the Vietnamese market under the new generation Free Trade Agreements.