Dr. DO NHAT HOANG
Deputy Director of the Legal Department
Ministry of Planning and Investment
The National Assembly passed the Investment Law in 2005, and the law took effect on July 1, 2006. The 2005 Investment Law replaced the Foreign Investment Law and Domestic Investment Encouragement Law. The Government subsequently promulgated Decree 108/2006/ND-OP on September 22, 2006, detailing and providing guidelines on a number of articles of the Investment Law (Decree 108).
Unlike the previous Foreign Investment Law, the 2005 Investment Law was designed to regulate only investment-related issues. Provisions on organizational structure and operation of enterprises were transferred the Enterprises Law, tax incentives to tax laws, and special issues to other specialized laws.
This article summarizes basic contents of the Investment Law and Decree 108.
General regulations
The 2005 Investment Law stipulates that, in case a Vietnamese law promulgated after Vietnam accedes to an international convention has more advantageous provisions than the international convention, investors may choose to apply the international convention or Vietnamese law.
In terms of language use, the Law stipulates that investment project dossiers and official documents addressed to Vietnamese authorities must be in Vietnamese. For foreign-invested projects, their documents may be either in Vietnamese or in Vietnamese and a common foreign language. In case of difference between the Vietnamese version and the foreign-language version, the first one is applied.
In order to guarantee its coverage and no overlap with specialized laws, the 2005 Investment Law stipulates that, if specific investment activities are stipulated in a specialized law, that law will prevail. Securities, insurance, banking and financial services are governed by specialized laws.
In terms of definitions, Decree 108 adds the terms “new investment project” and “expanded investment project” to help investors know their investment incentives in the course of carrying out investment activities.
Forms of investment
Compared with the previous Foreign Investment Law and Domestic Investment Promotion Law, the 2005 Investment Law contains clearer provisions on forms of investment: economic organizations with 100% domestic or 100% foreign capital; joint-venture economic organizations between domestic investors and foreign investors; investment in the form of BOO, BOT, BTO or BT contract; business development investment; purchase of shares or contribution of money in order to participate in investment management; and investment to merge and acquire enterprises. Enterprises with 100% foreign investment capital already established in Vietnam are allowed to cooperate together or with foreign investors to establish new enterprises with 100% foreign investment capital under the Enterprise Law. Investors are also allowed to invest in establishing joint ventures between domestic investor and foreign investor and these joint ventures are allowed to cooperate with domestic investors and foreign investors to establish new economic organizations according to the Enterprise Law and other relevant laws.
With regard to establishing economic organizations to execute investment projects, the 2005 Investment Law stipulates that domestic investors with investment projects associated with the establishment of economic organizations should make business registration according to the Enterprise Law and other relevant laws and complete investment procedures under the Investment Law and Decree 108. These regulations are to facilitate domestic investment.
The 2005 Investment Law also stipulates that foreign investors making investment in Vietnam for the first time must have investment projects and complete investment procedures in order to be granted an investment certificate, which is also the business registration certificate. A new provision on foreign investment is that foreign investors who already have an investment certificate, if having a new investment project without establishing a legal entity, only have to complete investment procedures to be granted an investment certificate. If having a new investment project associated with the establishment of a new legal entity, foreign investors have to complete procedures for establishing an economic organization and investment procedures according to regulations on domestic investment.
In order to guarantee the flexibility of investment activities, Decree 108 stipulates the change of form of investment by foreign-invested enterprises. Accordingly, foreign investors already operating are allowed to freely convert forms of investment suitable to their production and business situation without any restrictions or prohibitions.
The 2005 Investment Law also guarantees the rights of the investor to: business investment autonomy; access to investment sources; use of credit, land, labor and other resources; opening of accounts and purchase of foreign currency; and exporting, importing, advertising, processing and reprocessing activities.
Setting preferences
Preferential sectors and preferential areas for investment are prescribed in the 2005 Investment Law on the basis of the objectives and status of socio-economic development in each period in order to attract investment, create economic leverage and restructure the economy in these sectors and areas.
Preferential sectors include production of new materials, new energy, hi-tech products, and information technology; farming development, seafood, agricultural and forest products processing; environmental protection; research and development of high technology; investment in research; labor-intensive industries; development of economic zones and industrial parks, and so on.
Preferential areas are identified based on criteria of national income, poverty rate, infrastructure, industrial development level, and policy on regional development and regional harmony.
The Investment Law also stipulates that investors who are enjoying investment incentives under the Domestic Investment Promotion Law, Foreign investment Law, Cooperative Law and tax laws are allowed to continue enjoying these incentives as specified in the investment incentive certificates or investment licensed already granted. For investment projects implemented before the effective date of the Investment Law which are eligible for investment incentives under Decree 108, investors will enjoy investment incentives for the remaining preferential duration starting from the effective date of Decree 108.
Investment incentives are specified in investment certificates in order to make investors feel secure in their investment process. The Investment Law also stipulates that in case a law or policy which is promulgated later offers better benefits and incentives than before, investors are also eligible for these benefits and incentives for the remaining preferential duration (if any), beginning from the effective date of the new policy or law.
Investment supports for technology transfer, training, investment consultancy, and building of infrastructure within industrial parks and export processing zones are specified in the 2005 Investment Law.
Regarding conditional investment domains, the 2005 Investment Law and Decree 108 specify conditions on market entry that investors must meet, not including operational conditions that investors must ensure during their business operation. These conditional investment domains must comply with regulations on conditional investment domains stipulated in Article 29 of the Investment Law and in other relevant laws, including investment activities affecting social safety and order, financial security, some special service sectors related to market opening and domains with wide impacts on the public. The list of preferential sectors and areas for investment serves as a common and uniform basis for the application of investment incentive policies.
Prohibited investment domains are stipulated more specifically, including projects that harm national defense and security and public interests, projects that cause damage to historical relics, culture, morality and customs of Vietnam, projects that cause damage to people’s health, destroy natural resources and the environment and projects that treat hazardous waste imported into Vietnam, produce hazardous chemicals or use toxic elements which are prohibited under international conventions.
Local control
A new point of the 2005 Investment Law is the policy of greater decentralization to provincial People’s Committees and management boards of industrial parks, export processing zones, high-tech parks and economic zones (referred to as management boards) to issue investment licenses, manage investment activities and reduce the number of projects subject to Prime Minister approval. The Prime Minister only approves in principle some important projects which are not yet planned or included in existing plans. For projects in accordance with approved planning and meet all conditions prescribed by law and international convention, provincial People’s Committees and management boards will issue investment certificates without having to submit them to the Prime Minister for decision on investment policy. Other projects will be decided and issued investment certificates by provincial People’s Committees and management boards.
For investment projects that are not included in plans which have been approved by the Prime Minister or his authorized person or projects that do not meet conditions for market opening prescribed in international conventions to which Vietnam has acceded, the investment certificate-issuing agency will collect ideas from the sector management ministry, the Ministry of Planning and Investment and related agencies to submit to the Prime Minister for decision adjustments and supplements to the plans or the opening of the market. For investment projects in domains that have no planning, the investment certificate-issuing agency will collect ideas from related agencies and submit to Prime Minister for decision on investment.
The 2005 Investment Law also stipulates simpler registration and verification procedures for investment projects and more specific verification responsibilities of ministries and authorities related to the projects than before, which also creates convenient conditions for provincial People’s Committees and management boards in issuing investment certificates.
The Law stipulates that when adjusting investment projects relating to investment objectives, scale, location, form, capital and project implementation term, investors have to carry out procedures at dossier-receiving agencies for adjusting investment certificates. The adjustment of investment projects is implemented according to one of the following processes: (1) without having to carry out procedures for registering for adjustment or verifying investment project adjustment; (2) registering for investment project adjustment registration; and (3) verifying investment project adjustment.
Implementation of projects
The 2005 Investment Law and Decree 108 clearly define the relationships between investment and construction activity; hiring of management; transfer of capital and projects; and adjustment of investment projects.
It specifies the powers and responsibilities of each state management agency, emphasizing the role and duties of provincial People’s Committees in the management of investment. Provincial People’s Committees will perform comprehensive management of socio-economic development in their localities, including issuing investment certificates and managing investment activities in these localities.
To ensure uninterrupted investment activities, the 2005 Investment Law provides for principles of re-registration of domestic and foreign-invested projects. It also stipulates the payment of deposits or provision of customer insurance when implementing projects which affect community interests, such as education, training and health care.
A new and important element of the 2005 Investment Law is that the lists of preferential fields and areas in Decree 108 will replace the lists of preferential fields and areas stipulated in other legal documents such as:
- List of enterprise income tax incentives in Decree 164/2003/ND-CP of December 22, 2003, and Decree 152/2004/ND-CP of August 6, 2004, amending a number of articles of Decree 164/2003/ND-CP;
- List of import tax and export tax incentives promulgated together with Decree 149/2005/ND-CP of December 6, 2005, detailing the implementation of the Import Tax and Export Tax Law.
Conclusion
Over the past 20 years, foreign investment in Vietnam has reached important achievements, greatly contributing to economic growth, promoting economic restructuring toward industrialization, modernization, expansion of export markets and increase of state budget revenues, and enhancing Vietnam’s integration into the regional and world economies. Among great achievements of foreign investment, the Foreign Investment Law plays an important role. In the context of fierce competition in the attraction of foreign investment capital in the region and the world, the Foreign Investment Law has become an important tool in attracting foreign investment to Vietnam.-