The EU-Vietnam Free Trade Agreement (EVFTA) is expected to be ratified by all member countries by 2018 and take effect from 2019. It will create more opportunities and have a massive impact on the Vietnamese economy. In order to ensure full compliance with the EVFTA provisions, Vietnam’s legal system faces certain challenges. To shape the future and prepare for the fourth industrial revolution, it is vital for Vietnam to make reforms. This will prepare the way for transformation and to fully grasp the new opportunities that are coming their way.
What has been done?
Regarding the mechanism in dealing with the licensing process for a foreign invested company, different Chambers of Commerce in Vietnam have recognized significant improvement in the implementation of business and investment regulations since the effectiveness of the Enterprise Law No 68/2014/QH13 (Enterprise Law) and the Investment Law No 67/2014/QH13 (Investment law) on 1 July 2015.
In general, the Enterprise Law and Investment Law guarantee the principle of freedom of business. The licensing authority also fully complies with the prescribed time limit for the issuance of an Investment Registration Certificate (IRC) and an Enterprise Registration Certificate (ERC). These improvements have indeed improved the business and investment environment.
New laws applied in an ambiguous way?
Although there have been significant improvement in the implementation of the Investment Law, Enterprise Law and their guiding documents, there remain concerns about inconsistencies between implementation and enforcement of the current laws in certain aspects. The new laws are still holding back potential foreign investment due to many uncertainties. For example the business registration process contains issues as below:
- Overlapping investment approvals and documents. – The procedures for investment registration are overlapped in terms of formalities and documents which are time consuming. The Investment Law and Enterprise Law set a timeline for the licensing authorities to provide the IRC (15 working days) and the ERC (3 working days). However there are many cases where authorities miss such deadlines. In addition, Decree No. 23 requires a trading license for foreign invested enterprises doing trading activities but it is not certain when such license will be issued from the application date (could be from two to several months).
- Time limit for capital contribution. – The time limit for capital contribution regulated by law is too short (90 days). This timeline is not feasible especially for projects whose total investment capital is of high value.
- Procedure for purchase of shares by foreign investors .- According to Article 46.2 of Decree No. 118/2015, a foreign investor is only required to obtain an approval from the Ministry of Planning and Investment under limited circumstances listed by law (e.g., purchasing 51% or more shares in a local company). However, due to the lack of specific guidelines, many foreign investors have been required to obtain an approval whenever they acquire new shares, even in a company not operating in a conditional sector.
- Payments for transfer of shares/stakes. – According Article 36.3 of the Enterprise Law, payments for transfer of shares and receipt of dividends of foreign investors must be made through their capital accounts opened at banks in Vietnam. Furthermore, the State Bank of Vietnam requires different regulations for foreign direct investment (FDI) and indirect investment (FII). For instance, FDI payments are made to the project company’s direct capital account. Meanwhile, FII payments are made to the investor’s VND account. In fact, local banks have adopted different interpretations to these regulations, thus creating confusion for the investors.
- Share Swaps. – The Enterprise Law does not provide for share swaps.
Calling to action
As analyzed above, the current system for an investment registration in some cases makes it difficult to enforce current laws. Accordingly, administrative reforms should be conducted to simplify procedures, namely:
Ø To require only 1 or 2 approvals for the investment registration. In doing so, electronic submission should be allowed and overlapping documents must be removed.
Ø To allow shareholders to decide the time limit for capital contribution, except for certain projects.
Ø To ensure that approval of share acquisition complies with the requirements listed by law only.
Ø The State Bank of Vietnam should provide a guidance on transfer of payments among banks.
Ø To adopt provisions relating to share swaps.
The EU-Vietnam economic relationship is a mutual cooperation. The EVFTA is among tools to facilitate investment and trade between the parties. With the EVFTA, each party aims at guaranteeing non-discrimination treatment. However, if the current laws continue being enforced as they are now, it may trigger possible violations of that principle. In order to avoid this, it is vital not only to determine the incompatible regulations and institutions in the local legal framework but also to adopt appropriate solutions. For example, the Government should enhance information exchange among state agencies to prevent overlapping documents and time consuming process, and improve a single window and inter-agency regime. The Government should also ensure that licensing authorities operate more efficiently according to the regulation.