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May 7, 2021

New Decrees Help Clarify Vietnam’s 2020 Enterprise and Investment Laws

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On the first day of 2021, Vietnam’s new Law on Enterprises (2020 LOE) and Law on Investment (2020 LOI) took effect, replacing the previous versions of each law passed in 2014. These are the primary laws governing corporate and investment activities in Vietnam, for both domestic and foreign companies, and the new versions introduced some key changes for foreign investors.

To provide further guidance on the new laws, the government issued Decree No. 01/2021/ND-CP on enterprise registration under the 2020 LOE (Decree 1) and Decree No. 31/2021/ND-CP guiding the implementation of the 2020 LOI (Decree 31), which took effect on January 4 and March 26, 2021, respectively. Key highlights of these decrees are summarized below.

Decree 1: Great improvements in administrative procedures for enterprise registration

One enterprise – one ID number. Under Decree 1, an enterprise is granted only one ID number for all necessary governmental filings during the course of its existence. The enterprise code will now not only act as the tax code but also as the account number to participate in the compulsory social insurance system.

No hard copies required for enterprise registration. Under the previous 2014 LOE, procedures for enterprise registration could be conducted online via the National Business Registration Portal (NBRP), a publicly accessible centralized database of registered corporate details of all enterprises in Vietnam. However, this “e-filing” process still retained some burdens in terms of paperwork for both the enterprise management authorities and applicants. The 2020 LOE and Decree 1 have finally lifted the requirement for hard copies following a valid online filing, regardless of whether a certified electronic signature is utilized or not. The applicants only need to physically come to the local authority once, to directly obtain the results, or they can even request delivery. This development shows Vietnam’s legitimate efforts to build up and transform to a true e-government system.

More options for an enterprise’s legal status. In comparison with the preceding laws, Decree 1 provides clearer and more concise wording to report on a target enterprise’s operating status. Particularly, there are now seven options for an enterprise’s legal status as publicly shown in the NBRP: “business suspended,” “not operating at the registered address,” “enterprise registration certificate revoked due to enforcement of tax management,” “undergoing dissolution, acquisition, consolidation or merger,” “undergoing bankruptcy proceedings,” “dissolved, bankrupt or ceased to exist,” and “active/in operation.”

The Ministry of Planning and Investment recently issued Circular No. 01/2021/TT-BKHDT, which took effect on May 1, 2021, promulgating the standard forms to carry out the enterprise registration procedures in line with the 2020 LOE and Decree 1.

Decree 31: Brings clarity to certain key changes under the 2020 LOI

Definition of areas affecting national defense and security. The 2020 LOI newly introduced a regime of investment policies relating to national defense and security. However, in addition to setting out specific areas such as islands, border or coastal areas, the law contains a catch-all provision for “other areas affecting national defense and security.” Due to a lack of clear guidance on how to identity these areas, foreign investors faced difficulties in registering new investment projects or relocating existing projects after the 2020 LOI took effect. These “other areas” are now clearly defined in a closed list under Decree 31, which hopefully can help to resolve the recent issues.

List of business lines subject to market access restrictions for foreign investors. Decree 31 presents a combined list of business lines for which foreign investors are subject to market access restrictions. The list is divided into two sections: the first containing the business lines for which Vietnam has yet to open the market for foreign investment, the second containing those for which foreign investors have to satisfy conditions to enter the market. These conditions typically include restrictions on foreign ownership percentage, form of investment, scope of investment activities, and capacities of the foreign investor and local partners involved in an investment project. Specific conditions for each business line are further governed by and documented in relevant international treaties of which Vietnam is a member, and domestic specialized legal provisions.

Termination of a project as a result of a sham transaction. Following its introduction under the 2020 LOI, Decree 31 further clarifies that a project can be forced to be terminated in part or in whole as a result of a sham transaction in accordance with civil law, pursuant to a court judgment or arbitral award.

To promulgate standard forms for investment procedures in line with the 2020 LOI and Decree 31, the Ministry of Planning and Investment also issued Circular 03/2021/TT-BKHDT on April 9, 2021, which took effect on the same date.

Outlook

All the recent changes under the new legal framework demonstrate the government’s efforts to reduce administrative burden, create a more user-friendly e-government system, attract foreign investors, improve fairness and competitiveness in the market, and gradually ease discrimination between domestic and foreign-invested sectors to observe Vietnam’s commitments under international treaties. However, most of the new provisions are likely to come under close scrutiny, and conflicting interpretations and views can be expected in the immediate future.

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