At the moment, however, potential foreign investors can only wait in
anticipation that the government opts to takes one step forward in the right
direction without the two steps back.
The government recently finalised
its long-anticipated considerations to amending Decree No.108/2006/ND-CP,
promulgated almost six years ago, to further clarify Investment Law provisions.
Most amendments have already been submitted to the government by the Ministry
of Planning and Investment (MPI). However, three matters remain, which will
have a big impact on foreign investors and domestic companies, write LCT
Lawyers’ Nguyen Ha Quyen, Nguyen Xuan Thuy and Logan Leung.
The procedures for these
transfers (or “acquisitions”) have been touched upon by numerous legal
instruments including the Enterprise Law, Investment Law, Decree
No.108/2006/ND-CP and Decision No.88/2009/QD-TTg.
However in the past, no detailed
uniform procedures for such acquisitions have been comprehensively covered by
any legal instrument. At some point in time, there existed numerous guidelines
from various licencing authorities within Vietnam, thereby creating
difficulties for investors wishing to engage in these acquisitions.
The most recent government
regulation overseeing the acquisitions, Decree No. 102/2010/ND-CP (“Decree
102”), was issued with a view to regulate and offer a uniform approach to the
procedures. On the face of the law, it seems to be a victory for foreign
investors and domestic companies alike as an interpretation of this decree
reveals an absence of any requirement on part of the domestic company to obtain
an investment certificate following the acquisitions. In fact, we were recently
presented with an opportunity to view official dispatches of the MPI (the
“Report”), which confirmed this absence.
The reality in the application of Decree 102
However, numerous commentators
have observed a potential conflict in the wording of Decree 102 and the
Investment Law. As a result of this lack of textual clarity in Decree 102,
licencing authorities are again divided on the correct procedural requirements
of carrying out the transfer. Foreign investors and domestic companies are
again left in the dark as to what is precisely required in executing the
procedures for these acquisitions.
This conflict has yet to be
resolved, with different licencing authorities still continuing to act upon
different interpretations of the law. For example:
lThe licencing authorities in Ho
Chi Minh City require domestic companies to obtain an investment certificate
after the acquisition such that the company will operate under two licences –
the enterprise registration certificate and the investment certificate.
lThe licencing authorities in
Hanoi require all members or shareholders of the domestic company (including
foreign investors) to engage in procedures to obtain an investment certificate.
In doing so, the members or shareholders of the company will be granted an
investment certificate while having their enterprise registration certificate
revoked.
lThe licencing authorities in Ba
Ria-Vung Tau and Binh Duong provinces abolish the need for an investment
certificate for domestic companies altogether if the transferred capital or
shares do not exceed 49 per cent of the domestic company’s charter capital.
The basis for this requirement
In its report, the MPI
highlighted the need for an investment certificate, citing that such
requirements lay consistent with international customs on selected industries
such as banking, insurance and real estate. Furthermore, it will ensure that a
codified set of procedures exist which would ultimately save the day on the
face issues arising through a lack of specified guidelines.
However, it is debatable that
perhaps the MPI should have given further foresight in providing its reasons.
Particularly, the face of the Report seemed to overlook numerous key
considerations.
First, the laws in countries of
developed economies such as Singapore, Australia, the United States and United
Kingdom do not generally provide for any requirement to obtain an investment
certificate of the kind potentially required in Vietnam.
Particularly, Singapore provides
no specific provisions for foreign investors in establishing a new company or
purchasing shares of a private Singaporean company.
Second, the conformity to
international customs that the MPI highlights apply to selected industries
which are traditionally regulated to a high degree. Therefore, it is not
necessarily appropriate to apply them universally to all industries.
Third, it seems that the
requirement does not draw advantages for the transferring parties, not the
state. In fact, both the parties and the licencing authorities fall victim to
an increased burden and administrative workload as a result of its requirement.
Fourth, Decree 102 does not
provide for this requirement so its removal will abolish any potential legal
conflicts now and in the future.
What is the solution?
Without a doubt, investors aim to
seek the simplest, shortest and cheapest way to carry out and maximise their
investment. As such, one can only expect disappointment from foreign investors
and domestic companies alike if the amendments of Decree No.108/2006/ND-CP
continue to implement this investment certificate requirement.
Therefore, now is a crucial time for
the government to reconsider its position, particularly given Vietnam’s
national policy in promoting foreign investment into the country. Otherwise,
consistency in the laws will need to be maintained in order to create a clear
and systematic process for the transferring parties and licencing authorities.
At the moment, however, potential
foreign investors can only wait in anticipation that the government opts to
takes one step forward in the right direction without the two steps back.
------------------
Please note that the scope of
this article covers only transfers between foreign investors and domestic
companies established and operating in ordinary domains and sectors.
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