Back ground

The more integration by Vietnam into the global economy, the more investment and business opportunities are available for foreigners. To do their investment in Vietnam, foreigners can choose either foreign direct investment (“FDI) or foreign indirect investment (“FII”). If under FDI scheme, foreigners have to, before July 2006, follow the Law on Foreign Investment in Vietnam of 1996 (“FIL 1996”). If under FII scheme, foreigners have to, before July 2006, follow the Law on Enterprises of 1999 (“LoE 1999), and the Law on Domestic Investment Promotion of 1998 (“LDIP 1998”). From July 2006, all Investment, including FDI and FII, must be in compliance of the Law on Investment of 2005 (“LoI 2005”), which together with the Law on Enterprises of 2005 (“LoE 2005”) provide an equal playing field for all enterprises in Vietnam, including foreign invested companies (“FIE”) established under FIL 1996 and Vietnamese company established under LoE 2005.

Under the LoI 2005, “direct investment” means a form of investment where investors invest their investment capital and participate in its management, while “indirect investment” means a form of investment where investors buy shares, [capital contribution], bonds, other valuable papers, by themselves or via investment funds or other financial intermediates, but not participate in management.

Still discrimination between investment in FIEs and Vietnamese companies

In theory, as mentioned above, all enterprises play on the same playing field, without any discrimination in terms of corporate incorporation, corporate governance, procedures and conditions for investment projects. However, in fact, they are still being treated in different way, particularly in terms of business registration for corporate incorporation, investment registration as well as any amendment thereof. Distinction can be seen in licensing authorities.

With respect to FIEs, though it is called differently “business registration” for corporate incorporation and “investment registration” for investment projects, the procedures for them are basically the same as previously. The investment registration requires an investment approval under FIL 1996, and it is quite different from the business registration applicable to Vietnamese companies. [Registration here means you complete your action then registration with authorities]. [Approval here means you need to get approval from authorities before any action]. In particular, an FIE will be granted with the so called “Investment Certificate”, which serves at the same time as a “Business Registration Certificate” for incorporation of a Vietnamese company, and a “Investment Certificate” for an investment project. The licensing authorities are provincial-level people’s committees (“PC”) that are supported by provincial-level departments of planning and investment (“DPI”), which are again, basically the same as the licensing authorities as provided under FIL 1996.

With respect to Vietnamese companies, a new incorporation will be granted with a Business Registration Certificate. Once it makes a new investment project, subject to certain law provisions, it will be granted with an Investment Certificate. The licensing authorities are business registration divisions (“BRD”) under DPIs.

Differences leading to uncertainties for shareholding registration and risks to investors

As mentioned above, in theory, all types of enterprise whatever it is FIE or Vietnamese, will be regulated by the same legislation and play on the same playing field. However, in fact, the said differences in requirements, conditions, and procedures for business and investment registration as well as in licensing authorities, have resulted in certain distinction in registration of the shareholder status of investors in FIEs and Vietnamese companies.

With respect to FIEs, particularly unlisted companies, it seems that all changes in shareholder structure, e.g. when capital transfer is occurred, etc., must be registered with PCs for an amendment of the Investment Certificate. Then, in the amendment IC the names of all investors and any changes thereof must be recorded. This requirement appears to be inconsistent with what the LoE 2005 says about enterprises generally, e.g. only the changes in the ownership percentage by founding shareholders, will require an amendment to the Certificate of Business Registration, see further below. Consequently, it will lead to much paperwork and time-consuming both for FIEs and licensing authorities. Moreover, no provision as well as nowhere can be seen in the Investment Certificate to recognize the status of founding shareholders of FIEs. This may cause troubles not only for FIEs but also for licensing authorities to deal with related issues, e.g. whether a capital assignment transaction involving founding shareholders of the companies will be subject to limits imposed upon founding shareholders within the first three years as provided for in the LoE.

With respect to Vietnamese companies, only a change of shareholding by founding shareholders must be registered with BRUs for an amendment of the Business Registration Certificate. Registration is also required for shareholders of over 5% of the charter capital. Capital transactions among other shareholders will not be required to be notified and/ or registered, and then no amendment of the Business Registration Certificate will be needed. This seems much simpler than the requirements, conditions and procedures applicable to FIEs as mentioned above.

Move forwards

To remove the above said differences and create a common playing field where all enterprises are really equal, from the practical point of view, we believe that, the same requirements, conditions and procedures for business and investment registration will be sooner or latter applicable to all enterprises, without discrimination, regardless of what they are, FIEs or Vietnamese companies. To do so, amendment to the LoE 2005 and LoI 2005 should be considered and made soon, we think./.