The enactment of the Investment Law in 2005 marked a milestone in the process of building and improving the legal system for investment activities in Vietnam. Together with the Enterprise Law, which came into force in 2006, it marked the first time in nearly two decades of economic renovation in which Vietnam finally had in place a unified legal framework that could be applied to investors and businesses operating in a variety of sectors.

The amended Investment Law will be submitted to the National Assembly during the seventh session in the middle of this year in order to be approved by the end of 2014.

The main objectives of the revised law are to further improve the investment climate in terms of quality and efficiency to attract investment based on the priorities laid out in the country’s socio-economic development strategy for the 2011-2020 period. The new law will hopefully contribute to restructuring the economy, overcoming existing bureaucratic bottlenecks that foreign investors face, and meet the requirements Vietnam has made to open up its markets.

Here are some of the key points of the draft version of the revised Investment Law.

Scope and objectives

- The Investment Law shall be the principal law regulating the entire investment and business activities of investors in Vietnam as well as Vietnam’s outbound investment. The Investment Law shall regulate investment and business principles, investment protection and encouragement policies (including investment incentives) and state management in regards to investment activities;

- Defining special investment activities which shall be regulated by specific laws to avoid overlapping and triggering conflicts between the Investment Law and related laws to ensure uniformity and consistency within the legal system. Except some specific regulations related to explicitly defined investment fields, investment projects in all fields must follow the same principles, conditions and procedures regulated in the law; and

- The law will clarify that direct investment shall be regulated by the Investment Law while indirect investment will fall under the provisions of the Law on Securities. Indirect investment shall adhere to regulations outlined in the securities laws and general regulations applied to investors in the Investment Law (definitions about foreign investors, domestic investors, rights and obligations of investors, investment conditions and treatment towards investors).

The draft law did not regulate investment business activities using state capital to avoid overlapping with the law on state capital usage and management which the National Assembly has included in its legislative programme for 2014.

General regulations

Definition of foreign investors: To match international practice and ensure unity in application, the draft law outlines a definition of foreign investors based on ownership rate and involvement of the investor in corporate governance. Foreign investors are described as:

i, Individual not holding Vietnamese nationality;

ii, Registered organisations established in foreign countries;

iii, Registered organisations established in Vietnam belonging to following cases:

- Having individuals and organisations as regulated in items (i) and (ii) surpassing 50 per cent of total members and from 50 per cent of the chartered capital;

- Limited liability companies and consortiums having individuals not holding Vietnamese nationality acting as members and managers.

iv, Registered organisations established in Vietnam having from 50 per cent of chartered capital held by individuals and organisations as regulated in aforementioned (i), (ii) and (iii); or registered organisations established in Vietnam having individuals and organisations as regulated in (i), (ii) and (iii) contributing from 50 per cent of their total investment capital.

Definition of investment project: The draft law includes new regulations about the content of investment projects which require investors to make clear their project objectives, scope of investment, investment model, investment capital (including capital structure, progress in capital contributions), location, land use needs, duration, pace of execution and investment phases. It must also cover information about technology for use at project, standards associated with products and services, implementation plans and prospective social and economic aspects of the projects.

Regulations on investor rights and obligations

The draft law confirms the rights of investors and in which business fields they can operate, including their equal rights to accessing investment resources. However, to avoid overlapping with other laws, the draft law abolishes some regulations already present in other laws such as rights on import-export, buying foreign currency or collateral requirements.

Regulations on investment model

To ensure unity and consistency between the Investment Law and the Enterprise Law, the draft law revises investment regulations on founding economic organisations to match the types of businesses set in the Enterprise Law.

The draft law also revises regulations on investment forms under business co-operation contracts (BCC) to differentiate them from other economic contracts. Investment forms under build-operate-transfer (BOT), build-transfer-operate (BTO) and build-transfer (BT) are also amended to conform with the government’s commitment to attracting private investment capital into building infrastructure or providing public services under public private partnership (PPP) model.

Significantly, in respect to capital contributions and share purchases by foreign investors the draft law sets explicit conditions and procedures for foreign investors, in the item with regulations on investment procedures.

Regulations on investment fields and incentives

To improve the efficiency of attracting investment, investment encouragement fields and areas shall be extended towards stimulating investment into projects using new, cutting edge and environmentally friendly technologies, use and production of clean energy; investment projects in agriculture, rural areas, growing and processing agro, forestry and fishery items; supporting industry projects; development of education, training, healthcare; projects with major social and economic impacts, of high added value, and investment in areas with difficult socioeconomic conditions.

The draft law stipulates investment incentives are applicable to both new and expanded investment projects.

Besides, the draft law envisages revising regulations on the implementation of investment incentives so investors, based on their investment projects and preferential investment areas, shall determine investment preferences and ask for investment certificate granting authorities to include these investment incentives in the investment certificates as a basis to enjoy these incentives.

Regulations on investment procedures

The draft law strives to improve regulations in this field by:

- Narrowing the number of projects to follow investment procedures. Only projects under state management and supervision shall need to follow these procedures, including (i) projects with land given and allocated by the state; (ii) projects enjoying investment support and incentives; (iii) projects that need environmental impact assessment reports and (iv) foreign direct investment projects.

- Separating business registration from investment registration for foreign investors. Foreign investors shall carry out procedures to source investment certificates, and then register for the establishment of their business to implement investment projects.

- Improving regulations on foreign investor capital contributions and share acquisitions in Vietnamese businesses:

+ Step 1: Investors submitting proposals on capital contributions and share acquisitions to investment licensing authorities for consideration whether they meet investment conditions;

+ Step 2: Investors handling procedures on changes of shareholders and members at business registration organisations following the regulations at the Enterprise Law.

Regulations on execution of investment projects

The draft law consists of new regulations on halting project operations, on the withdrawal of investment certificates on projects which can no longer be implemented or foreign investment projects with runaway investors, on deposits to ensure investment efficiency.

Revising regulation on extensions to investment project deadline: extensions will no longer run for more than 36 months, except in cases where the fault lies beyond the power of the investor.