Tran Si Vy
Partner, Leadco Legal Counsel
In recent times, investors, especially foreign investors, who wish to undertake projects along with establishment of economic institutions in Vietnam, are required to apply for the Investment Certificate (the IC) subject to stringent, complicated and pricey legal procedures.
According to the 2005 Law on Investment, depending on the size of investment capital and business sectors, investment projects are divided into two categories with two applicable legal procedures being (1) registration of investment projects and (2) evaluation of same.
The final outcome of those procedures is an IC issued to not only the investment project but also the enterprise established by the investor that is aimed at managing and operating such investment project. In other words, the IC will concurrently be the Business Registration Certificate (the BRC). However, this regulation has been changed from July 1, 2015, when the 2014 Law on Investment begins to come into effect. Accordingly, the IC has been re-named as the “Investment Registration Certificate” (the IRC) and importantly it is separated from the BRC which also has been re-named as the “Enterprise Registration Certificate” (the ERC) following new legal procedures.
Why must the IRC be separated from the ERC?
Pursuant to the 2005 Law on Investment, investors undertaking direct investment projects via establishment of economic institutions (for instance, establishment of an enterprise) are required to obtain the IC. The IC will also be the BRC as aforesaid. The practice of implementing the 2005 Law on Investment, however, has posed a viewpoint that an issued certificate applicable to both investment project(s) and enterprises conducting such project(s) is irrational. In fact, those enterprises had to “shoulder two burdens” as they were required to observe regulations on investment (i.e., the Law on Investment) and those concerning the establishment, organization and operation of enterprises (i.e., the Law on Enterprises) at the same time.
The combination of two certificates (investment and business) along with relevant legal procedures, according to the 2005 Law on Investment, turned out to be an “innovation” to alleviate administrative procedures at the time. However, after 10 years of implementation of the 2005 Law on Investment, such a combination has witnessed some drawbacks.
First of all, enterprise and investment project are totally different from each other by conception and nature. Thereby, combining state management in business registration with investment registration in one certificate causes confusion in enterprise management and management of investment projects of such enterprise, eventually resulting in obstacles in dealing with the correlation between business lines and objectives of investment projects in the IC. In light of this, investment management authorities indeed have to function as business registration authorities when having no profession and networking on this issue.
Secondly, having one certificate applied to both an enterprise and its investment projects would trigger more administrative difficulties, even irresolvable ones. For instance, in case where an investor is behind the schedule of conducting an investment project, it may result in the withdrawal of the IC. However, due to the fact that the IC is also the BRC, therefore, the enterprise must be dissolved as a result of withdrawal of the IC no matter failure to follow the registered investment schedule by the investor in a timely manner does not fall into regulatory cases of dissolution of the enterprise.
Thirdly, with one-certificate mechanism following the 2005 Law on Investment, any amendment made to business registration contents will also lead to amendment of the IC. Likewise, enterprises or investors are required to conduct legal procedures to revise that IC. In fact, certain decisions of enterprises are simply those concerning their businesses and internal management such as relocation of head offices, change of tradenames, replacement of legal representatives and so forth. Under the 2005 Law on Investment, as long as such amendments or changes arise, an enterprise is required to revise its IC since the IC records information on business of such enterprise. It is troublesome as investors would have to spend a great deal of time and effort with unnecessary licensing matters, which, eventually, creates more disadvantages as well as put more burdens on their shoulders.
In the spirit of reducing burdens and complicated legal procedures for the best sake of investors, lawmakers have improved the 2014 Law on Investment by way of issuing IRCs to projects without recording information on enterprise registration in the same. Accordingly, the IRC is no longer deemed the BRC as it was under the 2005 Law on Investment. More specifically, in case foreign investors wish to register projects together with establishment of economic institutions (i.e., an enterprise), they are required to apply for the IRC for the investment project in the first instance. Afterward, they will continue to submit a dossier for the issuance of the ERC for the enterprise. In short, pursuant to the 2014 Law on Investment, the IC has been separated into two certificates instead of being combined into one according to the 2005 Law on Investment.
|Manufacturing electric wire at Japan-invested Yamato Industries Vietnam in the Que Vo industrial park (Bac Ninh province) __Photo: Danh Lam/VNA|
Pros and cons?
In theory, segregating the IRC from the ERC as provided for in the 2014 Law on Investment contains some values.
Firstly, as aforementioned, once there is any amendment to business information of an enterprise (changes of shareholder structures, supplementation or amendment of business lines, etc.), only revision of its ERC is required. And this is easier in comparison to revision of information on investment projects, which is more complicated and time-consuming.
Secondly, an enterprise is completely able to conduct more investment projects and each project will be issued with one IRC respectively. In the previous time, due to the complicated licensing mechanism and for the sake of convenience, investors (especially foreign investors) often established one enterprise for one investment project. Now things have changed as investors, having their enterprises already incorporated, only need to apply for the IRC for each of their projects without a need to create new enterprises. This is more favorable as it helps investors reduce their costs and time.
Thirdly, when issuing a certificate for both enterprise and investment project, the enterprise and the investment project are fated together whereas they are different by conception. In particular, an enterprise could perpetually exist while operation of an investment project is time-limited (maximum 50 years in most cases). This explains why, pursuant to the 2005 Law on Investment, when a foreign investment project expires and whose extension is not allowed, the enterprise conducting such project must be dissolved. Separating IRC from ERC will help solve this problem as the enterprise can stand still while its project comes to an end due to expiration. On the other hand, assuming that an investment project whose license is withdrawn (for instance, due to breach or contravention), the enterprise is completely able to continuously conduct business activities without being mandatorily dissolved as required by the 2005 Law on Investment.
Therefore, from the positive viewpoint, separation of the IRC from the IRC is a radical change, properly reflecting nature of investment activity and enterprise management, reducing burdens for investors in implementing administrative procedures, and generating more benefits for enterprises in conducting production and business activities.
Notwithstanding, at present, investors (mainly foreign investors), for the first time of conducting investment project(s) attached to establishment of economic institutions in Vietnam, must step by step carry out two procedures including (1) application for the IRC and then (2) application for the ERC. In particular, they must prepare two distinct dossiers to be submitted to competent licensing authorities. More specifically, only after possessing the IRC, they will be then able to apply for establishment of an enterprise. This is called, by majority of investors, as “double procedures”, causing their costs, efforts and time and undermining their confidence in deciding an investment project in Vietnam.
Another drawback is that enterprises/foreign investors, whose ICs were issued in the past in accordance with the old law, will have to conduct certain procedures to divide those ICs into two new certificates (the IRC and ERC) subject to the 2014 Law on Investment and the 2014 Law on Enterprises in case they wish to amend certain contents of either business registration or investment project(s). Once the IC is divided into the IRC and the ERC according the new law, investors will be able to carry out legal procedures of amending each certificate as they wish. This regulation could impede investors, who, at all times, wish to alleviate burdens of administrative procedures to smoothen investment and business activities.
Briefly, in a long run, a reform on regulations on issuance of the IRC under the 2014 Law on Investment would be valuable and ease burdens in favor of investors as analyzed above. However, at first, investors will have to continuously conduct “double procedures” to register investment project(s) and then establish enterprises, all of which are more complicated in comparison to former regulations on investment and business. In the context that regulations on enterprise establishment and investment registration are reformed to be simpler and more succinct in other countries within regions and around the globe, a legal reform on issuance of the IRC pursuant to the 2014 Law on Investment is hardly considered an outrageous movement, promoting business, investment registration activities. Thus, question arises as whether new mechanism of issuance of the IRC is considered a necessary way forward or simply a step back for which investors’ doubt remains.-