DOING BUSINESS IN MEDIA SECTOR IN VIETNAM

Vietnam is saturated with lively entertainment media and well-produced televisions. By law and policy, however, media and broadcasting activities are considered sensitive sectors in Vietnam and the scope for foreign participation in the same is very limited. The Vietnamese government controls all local media, which are managed either the Ministry of Information and Communications (“MIC”) or the Ministry of Culture, Sports and Tourism (“MCST”). This paper is to provide you with a ready reference sources for the laws and regulations governing the activities of televisions/broadcasting and other audiovisual services which foreign investors are permitted to engage in Vietnam and our legal analysis on the same.
A. PRIMARY LEGISLATION
Many of the laws and regulations governing the media sector were issued prior to Vietnam’s accession to the World Trade Organization (the “WTO”) (i.e. in January 2007). Following the WTO accession, a number of such laws and regulations on media and broadcasting have been amended accordingly.
• The Law on Cinematography No. 62/2006/QH11 passed by the National Assembly of the Socialist Republic of Vietnam dated 29 June 2006 as amended by The Law amending the Law on Cinematography (no. 31/2009/QH12) passed by the National Assembly dated 18 June 2009 (the “Cinematography Law”);
• The Law on Press passed by the National Assembly of the Socialist Republic of Vietnam dated 28 December 1989 (the “Press Law””) as amended and supplemented by the Law on Press No. 12/1999/QH10 dated 12 June 1999 (the “Amended Press Law”);
• The Law on Investment No. 59/2005/QH11 passed by the National Assembly of the Socialist Republic of Vietnam dated 29 November 2005 (the “Old Investment Law”), which is to be replaced by the Law on Investment No. 67/2014/QH13 passed by the National Assembly of the Socialist Republic of Vietnam dated 26 November 2014 from 01 July 2015 (the “New Investment Law”);
• Law on Enterprise No.60-2005-QH11 passed by Legislature X of the National Assembly at its 10th Session on 25 December 2001 and took effect from 1 July 2006 (the “Old Enterprise Law”), which is to be replaced by the Law on Enterprise No. 68/2014/QH13 passed by the National Assembly of the Socialist Republic of Vietnam dated 26 November 2014 from 01 July 2015 (the “New Enterprise Law”);
• Decree No. 54/2010/ND-CP dated 21 May 2010 of the Government detailing a number of articles of Cinematography Law No. 62/2006/QH11 and Law No. 31/2009/QH12 amending and supplementing a number of articles of the Law on Cinematography (“Decree No. 54”);
• Decree No. 51/2002/ND-CP dated 26 April 2002 of the Government detailing the implementation of the Law on Press and the Law amending and supplementing a number of articles of the Law on Press (“Decree No. 51”)
• Decision No. 20/2011/QD-TTg dated 24 March 2011 of the Prime Minister on promulgating regulation on management of paid television (“Decision No. 20”)
B. SPECIFIC ISSUES
I. TELEVISION CHANNEL/BROADCASTING SERVICE
1. Foreign Investment Form
Vietnam has one national television station (VTV), one national radio station (VOV) and four inter-provincial broadcasting stations. Vietnam’s broadcasting industry has developed rapidly in recent years with more than 90 percent of Vietnamese households have televisions.
Television (“TV”) is primarily a visual press in Vietnam[1] and accordingly governed by the Press Law and the Amended Press Law. A “press agency” includes an organization/agency that broadcasts programs.
Press is defined as “the essential media for social life; the speaking agency of the Party’s organizations, State bodies and social organizations, and a forum for the people”[2]. Accordingly, a press agency is defined as being the “voice” of government agencies, associations and agencies of the Party. Therefore, a broadcasting station is also considered a press agency and subject to the scope of application of the Press Law and the Amended Press Law and under the oversight of government agencies (i.e., government agencies, the Party’s agencies, and associations)
Current regulations provide that only press overseeing bodies are eligible to apply for a license to establish a press agency or become the management of agency of any press in Vietnam[3] and therefore the establishment of TV channel/broadcasting project that is owned, established and operated by any foreign company in Vietnam appears unfeasible – i.e., this remains the preserve of press overseeing bodies/government agencies.
In short, cross ownership in the TV channel/ broadcasting project is currently not addressed by the regulatory regime of Vietnam and there is no precedent in this regard to-date.
However, foreign radio/TV stations are allowed to supply foreign TV channels broadcasting on Pay TV or satellite TV in Vietnam for the purpose of business through authorized local broadcasting agencies in Vietnam to conduct registration for granting program channel and financial obligation to Vietnam’s State under Decision 20. Many U.S service providers such as American channels are present in Vietnam including movie channels, news channels, sports channels and kid channel. Example of major U.S channels in Vietnam include HBO, CNN, BCC, Bloomberg, Cartoon Network, etc..
2. Licensing
Pay TV
Pay TV service means service applies telecommunications to transmit, distribute program channels, pay TV program and added value services on technology infrastructure for providing pay TV services to pay TV subscribers under service providing contract or equivalent constraint agreements (called as paid television service providing Contract). Pay TV may be provided directly (direct television service) or on request (requested television service) to paid television subscribers[4].
There are currently 40 foreign TV channels broadcasting on Pay TV available in Vietnam as of 13 March 2014[5]. With 3.7 million Pay TV subscribers in a country with a population of 90 million, Vietnam is a promising destination for Pay TV service providers.
Pay TV includes cable TV service (analog, digital, IPTV), digital ground TV service (DVB-T), direct from the satellite TVservice (DTH) and mobile TV service[6]. Decision No. 20 also specifies different licenses required to be obtained by Pay TV providers TV (i.e. Pay TV content providers, Pay TV translators and editors, Pay TV service providers, etc.), which must be established legally under the laws of Vietnam, to provide foreign TV channel on Pay TV. The following licenses required to be obtained for any activities in connection with Pay TV before conducting:
(i) Foreign TV broadcasting station agencies, through its authorized agent in Vietnam which is legally established under the laws of Vietnam, must register their provision of TV channels in Vietnam with the MIC to be issued with registration certificate[7]. The documents for registration application are clearly provided under Article 12 of Decision No. 20.
(ii) Pay TV content providers, editors and translators are required to obtain visual press license.[8] There are currently 40 foreign Pay TV channels licensed to provide edition service for Vietnam Television and Vietnam News Agency.
Satellite TV
Only a limited number of organizations are permitted to receive signal of direct foreign television, foreign television channels from satellite[9] including (i) State organizations at central and provincial levels (party, state and political groups); (ii) press agencies; (iii) foreign organizations in Vietnam; (iv) representative offices or residential offices of foreign press agencies in Vietnam; and (v) foreigners and organizations employing foreigners directly receiving foreign programs via satellite (if those program channels have not been supplied on Pay TV system of Vietnam in the local where such organizes, individuals install signal receivers).
The above organizations must implement the registration with the local Departments of Information and Communications where the direct foreign television signal receivers from the satellite are located. All documents required for application of registration and timeframe for issuance of registration certificates are provided in Decision No. 20.
3. Restrictions
• Under the Press Law and the Amended Press Law, the content of all programs broadcasting on Vietnamese TV, except for those from direct satellite, are subject to censorship by authorities.
• The content of foreign Pay TV channels must meet people’s demand and not violate the Press Law and the Amended Press Law.
• All foreign TV Pay channels broadcasting in Vietnam must be edited and translated into Vietnamese by editors and translators who are legally licensed.
II. CERTAIN AUDIOVISUAL SERVICES
1. Foreign Investment Form
Under the Schedule of Specific Commitments in Services annexed to the Protocol of Accession of the Socialist Republic of Vietnam to the WTO (the “WTO Commitments on Services”), foreign investors are allowed to invest in audiovisual services[10] in Vietnam in the form of business cooperation contracts (“BCC”)[11] or joint ventures (“JV”)[12] with Vietnamese partners who are authorized to provide these services in Vietnam. Foreign capital contribution may not exceed 51% of the legal captial of the joint venture. However, please kindly note that specific to motion picture project service, Vietnam’s houses of culture, film projection place, public cinema clubs and societies and mobile project teams are not allowed to engage in business cooperation contract or joint venture with foreign service suppliers.
The Cinematography Law also provide that foreign entities/individuals are permitted to invest in the form of BCC or JV with local partners in Vietnam in this sector[13].
In short, foreign investors are allowed to become certain audiovisual service providers in Vietnam by ways of BCC or JV under of laws of Vietnam and international treaty.
Up to date, there are several foreign-invested companies which have been licensed in Vietnam such as Megastar, Lotte Cinema, etc….
Megastar was established by Mega Star Media JV Company (joint venture between Envoy Media Partners and Phuong Nam Culture Joint Stock Company). Megastar Vincom Cinema (belonging to Megastar system nationwide) was the first one which was set up in 2006 according to the international standards in Vietnam. In 2011, CJ-CGV Company (South Korea) took the control over Mega Star through acquisition of Envoy Media Partners and changes Megastar into CGV.
Recently, Lotte Cinema owned by Lotte Cinema Vietnam Co., Ltd (South Korea) was licensed to establish in Vietnam.
2. Licensing
Foreign direct investments in Vietnam come under the investment regulatory regime of the the Investment Law and the Enterprise Law.
Under the Old Investment Law, foreign investors making direct investment in Vietnam are required to apply for and obtain an investment certificate for the establishment of the project and the entity. This investment certificate concurrently serves as the enterprise registration certificate.
It is important to note that as the audiovisual services is considered a “conditional sector” under the Old Investment Law, it will be subject to the appraisal procedure for obtaining the investment certificate and the Government (via local Department of Planning and Investment or other competent authority) will have discretion to consider and approve or reject the application. The appraisal process may take 30 working days after receiving all the required documents[14]. However, that process in practice may take longer than that time since the sensitive service sectors which will be reviewed carefully by the relevant competent authorities. The documents and procedures for certificate application are provided in the Investment Law and the Cinematography Law, depending the form of enterprise to be established.
Under the New Investment Law which takes effect from 01 July 2015, foreign investors investing in Vietnam and establishing an entity must obtain two separate certificates: investment certificate pursuant to the New Investment Law and enterprise registration certificate pursuant to the New Enterprise Law. The process of applying for investment certificate may take up to 15 days (instead of 45 days under the Old Investment Law) from the receipt of a sufficient dossier but it may take longer in practice.
Moreover, the New Investment Law narrows down the scope of conditional business sectors. Particularly, only paid audiovisual services and requested TV services are considered “conditional sectors”. However, the appraisal procedure no longer applies. Foreign investors are obliged to comply with the conditions set out for these respective sectors and the competent authority will at their discretion carry out the inspection to check the compliance. The specific conditions are expected to be stipulated in the implementing documents of the new Investment Law in the upcoming months.
3. Restrictions under international treaties
• Under WTO Commitments on Services on audiovisual services, foreign investors are allowed to hold up to a maximum 51% stake in a local company engaged in the audiovisual sector which means that all these services are subject to 51% foreign ownership limitation. (Sound recording is also included but recorded as “unbound”, meaning that Vietnam has not committed to allow any particular foreign investment in that area and any investment is at the complete discretion of the Government.)
• We note that the 51% cap applied for foreign capital contribution in an audiovisual services company is also imposed under Article 13.2 of the Law on Cinematography according to which “foreign organization/ individual is allowed to carry out investment cooperation with motion picture production companies, motion picture distribution companies and motion picture popularization (i.e. should include motion picture projection) in the form of business cooperation contract or establishment of joint venture enterprises. For the form of joint venture enterprise, the capital contribution of foreign investor(s) shall not exceed 51% of the legal capital.”
• The Cinematography Law provides that the JV must have a minimum amount of the charter capital if licensed to engage in motion picture production[15]. Specially, the legal capital must be at least VND 1 billion (approximately USD 50,000)[16].
• It is also important to note that with regard to motion picture production, distribution and projection services for the purpose of these business activities, it is stipulated in the WTO Commitments on Services that all films must have their content censored by Vietnam’s competent authorities. In particular, under Article 37 of the Cinematography Law, each motion picture will be subject to a “License for popularization” (including film projection) issued by the competent authority for the purpose of distribution and popularization.
• Another condition for motion picture enterprises, in general, is that the General Director of a motion picture enterprise must be a person having expertise and experience in motion picture activity.[17]
• Vietnam and the EU are finalizing the EVFTA and it is expected to be concluded this year. With the entry into force of this new agreement, members of the EU will enjoy more preferential conditions when investing in audiovisual services businesses. Implementation process of the EVFTA will be monitored and updated in the mean time.

III. CONCLUSION
Foreign TV channel/broadcasting are permitted by the laws of Vietnam to supply in Vietnam through authorized agencies provided that it meet satisfy conditions required by the MIC and relevant authorities.
As for production media-related services, pursuant to the WTO Commitments and the conditions, it take the form of a BBC or JV. However, it is subject to the ownership ratio, legal capital and appraisal procedure.

If you have any questions, please contact Oliver Massmann under omassmann@duanemorris.com;

Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Lawyer in Vietnam Oliver Massmann Taxation of Cross Border Services

I. Source Country Considerations for a Domestic Service Recipient/ Payor

A. Do the laws of your country impose any legal (non-tax) restrictions on ability of a domestic entity to make payments to a foreign entity for provision of services or on the amounts of such payments?

Vietnamese Dong is not free convertible currency, therefore, the payment by a domestic to a foreign entity is governed by rules on foreign exchange control.

Domestic entities who has foreign currencies from export of goods and services or from other current revenue sources overseas must retain foreign currencies bank accounts at credit institutions permitted to operate in Vietnam [1]. Payment made in foreign currencies aboard to a foreign company for provision of services must be transferred via licensed credit institutions. [2]

The Ordinance on Foreign Exchange also stipulates that all the payment in the territory of Vietnam must be made in Vietnam Dong [3] except for payments to certain entities allowed to receive payments from local entities in foreign currencies for international services such as insurance, aviation, hotels, tourism or services provided in isolation zones in international entry/exit ports. However, foreign companies providing services other than above mentioned services in Vietnam are still allowed to receive payment in foreign currencies within the territory of Vietnam if they provide services with the capacity of “foreign contractor” [4]. Accordingly, foreign companies provide services other than services mentioned above under contracts signed by its subsidiary in Vietnam will not be allowed to receive payment in foreign currencies from domestic entities.

Please note that, even though domestic entities are allowed to pay for services in foreign currencies in some circumstances, they have to self-balance their foreign currency needs. In case where the domestic entities do not have sufficient foreign currencies for the payment, they have to buy from the bank. The sale of foreign currencies will be based on the availability of foreign currencies and not all domestic entities are guaranteed for the assistance of the government in balancing their foreign currency needs. As the matter of practice, the payment may be delayed for the reason of having not sufficient foreign currencies. The service contract should be drafted carefully regarding payment clause so that the foreign company does not loose its right to initiate a litigation in case where the domestic entities fail to pay due amount [5].

B. Are there limits on the tax deductibility of payments made to a related party for the provision of services?

Domestic entities “purchasing” services are required to withhold the contractor tax before making payment to foreign service providers. In case where the foreign company sub-contract a part of the contract signed with the domestic service “purchasers”, the withhold obligation of the “purchaser” varies depend on whether the sub-contractor is a domestic entity or a foreign entity [6].

– Sub-contractor is a domestic entity:

The foreign contractor must inform the “purchaser” of the value of the sub-contract. The “purchaser” will not withhold contractor tax on the value of sub-contract. The foreign contractor pay the full value of sub-contract to the domestic sub-contractor without any withholding. The domestic sub-contractor is responsible for its tax obligations as its other business.

– Sub-contractor is a foreign entity:

The “purchaser” withhold contractor tax on the total value of the contract, including the value of the sub-contract. The foreign contractor pay the foreign sub-contractor the net value, without tax, of the sub-contract and provide the sub-contractor with the proof proving that the contractor tax for the whole contract has been paid.

D. What rates of withholding tax apply to:

1. Payments for services provided offshore

VAT: from 0% to 10% of the turnover used for tax calculation
EIT: 5% of the turnover used for tax calculation; 2% for transportation and construction services

2. Payments for know how/intellectual property provided by an offshore entity

VAT: exempted
EIT: 10% of the turnover used for tax calculation

3. Payments of a local entity’s share of its international group’s cost of providing regional services

The payment of a local entity’s share of its international group’s cost of providing regional services can be paid only under the sub-contract signed between the foreign company and its local entity. The value of the local entity’s share will be excluded from the value of the contract for the purpose of tax withholding by the “purchaser”. The local entity is responsible for its tax obligations as its other business.

II. Source Country Considerations for a Foreign Service Provider/Payee

A. If a foreign entity provides services in your jurisdiction, at what point does that entity become subject to income tax in your jurisdiction?

1. Foreign service provider without tax treaty benefits

Foreign service providers are subject to Vietnamese EIT regardless whether the service is considered to be provided through permanent establishments.

2. Foreign service provider with tax treaty benefits

Foreign service provider are subject to Vietnamese EIT when it provides services in Vietnam through permanent establishments or has income derived in Vietnam. Foreign service provider having permanent establishments in Vietnam pay tax on income derived in Vietnam and taxable income derived outside Vietnam and related to the operation of such permanent establishments. . Foreign service provider having permanent establishments in Vietnam pay tax on income derived in Vietnam , which is not related to the operation of such permanent establishments. Meanwhile, foreign service provider not having permanent establishments in Vietnam only pay tax on income derived in Vietnam.
“Permanent Establishments” are defined in the EIT Law as including (Article 2.3):

– branches, management offices, plants, factory/workshops, warehouse, means of transport, mines, oil or gas well, place of exploration or exploitation of natural resources or equipment for exploration or exploitation of natural resources;
– a construction site, construction and installation works, activities of supervision of construction and installation;
– establishments for supply of services, including consultancy services through hired personnel or through other subjects;
– an agency for foreign company;
– a representative office in Vietnam under the following circumstances:
+ having the authority to sign contracts in the name of the foreign company;
+ not having the authority to sign contracts in the name of the foreign company but regularly performing the delivery of goods or provision of services in Vietnam.

The definition of “permanent establishment” may vary in each specific tax treaty.

B. What is the threshold at which a foreign company providing services in your jurisdiction must establish a local presence (for legal and tax purposes) in your jurisdiction?

The local presence of a foreign company may be in one of the following form:

– Representative office: representative office is not allowed to conduct profit-generated operations;
– Branches: to date only foreign banks, law firms are licensed to establish branches to provide services in Vietnam.
– Presence under the Law on Foreign Investment (joint venture, enterprises with wholly foreign owned capital or business cooperation contracts): the issuance of license to foreign investor is subject to market policy of Vietnam which vary for different industries and for different foreign countries.

There is no provision of the laws requesting a foreign company to establish a local presence in Vietnam in order to provide service into Vietnam. Foreign company who do not have commercial presence in Vietnam still can provide services in Vietnam. However, a number of foreign company consider the establish establishment qualified to do business in Vietnam in order to participate in projects that are available to domestic contractors or the project where priority is given to domestic contractors.

III. Source Country Tax Considerations for Employees of a Foreign Service Provider

If a nonresident, noncitizen of your jurisdiction employed by a foreign company is providing services in your jurisdiction, at what point does that individual become liable to personal income tax in your jurisdiction?

A nonresident, noncitizen of Vietnam who is employed by a foreign company to perform service contacts in Vietnam will be subject to Vietnamese personal income tax. The tax liability will depend on the duration of his/her staying in Vietnam.

Foreigners are taxed on their Vietnam-sourced income if they do not spend more than 183 days a year in Vietnam or do not have a permanent residence in Vietnam or lease house under a definite term contract. Foreigners are taxed on their worldwide income once they spend over 183 days a year in Vietnam; or have a permanent residence in Vietnam or lease house under a definite term contract. Foreign nationals who spend 183 days or more in Vietnam and Vietnamese nationals are considered Vietnam tax residents for most tax treatment purposes.

Foreign non-residents are taxed based on sources of income at a fix rate (from 0.1% to 20%).

IV. Tax Considerations in the Jurisdiction of Residence/Incorporation of the Legal Entity Providing Services Abroad

A. Does your jurisdiction impose tax on the worldwide income of a company resident in/incorporated in your jurisdiction or only on income with a local source? If a company incorporated in or resident in your jurisdiction is providing services overseas and is earning income from those services, is that income subject to income tax in your jurisdiction?

Vietnam imposes tax on the worldwide income of a company resident in/incorporated in Vietnam [7]. A company incorporated in or resident in Vietnam providing services overseas and earning income from those services also have to pay EIT on income for income from service provided abroad.

B. If your jurisdiction does impose tax on such foreign source income, what is the applicable rate of income tax?

With respect to foreign invested enterprises, the rate applicable to this income is the rate applicable to enterprise income which is specified in the Investment License of the FIE. The standard rate is 22%, however, many FIEs enjoy preferential rates (e.g., 10%, 15% or 20%), which are granted based on a number of factors.

At present, branches of banks and law firms in Vietnam are subject to the rate of 22% as FIEs.

C. Does your jurisdiction offer any tax incentives for the provision of certain types of services or for the provision of services overseas?

VAT: Exempted from VAT [8]
– Services of credit granting and financial leasing; investment funds;
– Life insurance, insurance for student, livestock and crop/plant insurance and other non-business insurance;
– Health care service;
– Education and professional training;
– Public service such as sanitation, drainage, maintenance of zoos, parks, public gardens, public lighting, funeral service;
– Maintenance, repair and construction of cultural, artistic works, public works, infrastructure projects and charity house; and
– Public transportation.

50% VAT reduction [9]:
– Construction and installation services;
– Transportation, load/unload services; and
– Hotel, tourism and restaurant services

5% of VAT [10]:
– Clean water supply;
– Technical and scientific service; and
– Service directly serving agricultural services.

EIT: newly set up enterprises in geographical areas with socioeconomic difficulties or in domains eligible for special support are granted preferential tax rates of 10 or 20%, in some cases for an unlimited period [11]. In practice, FIEs usually pay no enterprise income tax if they incur losses since income tax is levied on profits.
Tax incentives include so called “Tax Holidays” which may last four years and be followed by a 50% reduction of payable tax amounts for nine subsequent years [12]. The tax exemption or reduction duration is counted from income or turnover in the first fiscal year [13]. Under the previous law, foreign investors who reinvested after-tax profits were eligible to apply to the Ministry of Finance for refund of the paid EIT. Unfortunately, this regulation has been abolished by the new Law on Investment.

V. Transfer Pricing

A. Does your jurisdiction have transfer pricing rules that apply to intercompany services? If so, please briefly describe the key points.

The transfer pricing rules are stipulated in regulations on tax management and Circular No. 66/2010/TT-BTC dated 22 April 2010.

Measures for anti-transfer-pricing are used for preventing the transfer pricing in transaction among affiliates. In case where the tax authority find absurdity in the prices or profit ratio in transaction among affiliates, it has the right to impose “market price” for determining taxable profits of the enterprises involved. To determine the “market price” the tax authority will use the price that the enterprise involve use in transaction with non-affiliates, or the price of the similar goods or services in the market with taking into account the differences in conditions of transactions such as quality of goods and services, trade mark, goods delivery conditions, payment.

B. Does your jurisdiction accept the principle that no intercompany charge is required for services provided by a parent company in the nature of “stewardship” or looking after its investment?

Yes.

In inbound investment: Inter-company charge may be in 2 manners: (i) allocation of management costs and (ii) provision of management service. Branches are allowed to use manner (i) while FIEs are allowed to use manner (ii) only. Branches and FIEs may present certain proof so that the intercompany charge is deductible from their taxable income but are not compulsory to do so.
In outbound investment: the inter-company charge is not the issue from tax perspective as the income of the offshore establishment will also be accounted together with those of the headquarters.

C. How does your jurisdiction treat cost sharing payments for tax purposes?

Depending on the nature of the enterprises (branches of FIEs) the cost sharing payment should be structured as the allocation of management costs or the provision of management services.

Please contact Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC. Thank you.

[1] Decree No. 70/2014/ND/CP on detailing certain provisions of the Ordinance on Foreign Exchange and the Ordinance on amending and supplementing certain provisions of the Ordinance on Foreign Exchange promulgated by the Government on July 17, 2014 – Article 5.1.
[2] Decree No. 70/2014/ND/CP on detailing certain provisions of the Ordinance on Foreign Exchange and the Ordinance on amending and supplementing certain provisions of the Ordinance on Foreign Exchange promulgated by the Government on July 17, 2014 – Article 5.2.
[3] Ordinance No. 28/2005/PL/UBTVQH11 dated December 13, 2005 on Foreign Exchange – Article 22, as amended by Ordinance No. 06/2013/UBTVQH13 dated 18 March 2013.
[4] Circular No. 32/2013/TT-NHNN on guiding the implementation of regulations restricting use of foreign currencies in the territory of Vietnam by the State Bank of Vietnam on 26 December 2013– Article 4.
[5] Ordinance on Procedures for Handling of Economic Cases stipulates a statutory limitation for initiating a litigation of only 6 months for economic disputes including disputes relating payment raised from the economic contracts (Article 31.1)
[6] Circular No. 169 – Clause C.2
[7] EIT Law – Article 6
[8] VAT Law – Article 5
[9] Decree 78/1999 dated August 20, 1999 – Article 1.3
[10] VAT Law – Article 8.2
[11] Art. 13 CIT, as amended by Article 1, paragraph 6 of the Law No. 32/2013/QH13.
[12] Art. 14 CIT
[13] Article 14, paragraph 1, CIT, as amended by Article 1, paragraph 8 of the Law No. 32/2013/QH13.

Lawyer in Vietnam Oliver Massmann – New Investment and Enterprise Laws – Meaning Reform or Minor Fiddling?

On 26 November 2014, the National Assembly of Vietnam passed Law No. 67/2014/QH13 on Investment (“2014 Investment Law”) and Law No. 68/2014/QH13 on Enterprises (“2014 Enterprise Law”), both will replace the Investment Law and Enterprise Law in 2005 by 01 July 2015. Major changes of these laws to the past laws and their impacts on the investment environment in Vietnam are discussed in details below.

1. 2014 Investment Law
The 2014 Investment Law makes a great attempt to reduce the number of prohibited business activities and conditional business activities. In addition, it introduces new definition of a foreign investor and replaces the term “foreign-invested enterprise” with “economic enterprise with foreign-owned capital”. It also no longer refers to either “direct investment” or “indirect investment” and certain changes are made to forms of investment in Vietnam. More importantly, the 2014 Investment law for the first time includes provisions regulating M&A activities.
New concepts – but clearer?
A foreign investor was defined as any foreign entity or individual using capital in order to carry out an investment activity in Vietnam. This definition has created much confusion about whether a foreign individual owning 1%, 49% or 51% is called a foreign investor in the past ten years. However, the 2014 Investment Law introduces a much more simpler and clearer definition. A foreign investor is now any foreign individual or entity established in accordance with the foreign law.
However, the new concept of “economic entity with foreign-owned capital” – an equivalent term of “foreign-invested enterprise”– does not shed light to the meaning of its predecessor. “Economic entity with foreign-owned capital” is defined as an economic entity which has any member or shareholder which is a foreign investor. It is unclear how much ownership ratio will qualify an enterprise an economic entity with foreign owned capital. Meanwhile, under the 2014 Investment Law, the ownership ratio will decide the licensing procedures for investment projects of foreign investors. If this is not detailed in the implementing documents, difficulties during investment application procedures will unavoidably arise.
Reduced number of prohibited business activities and conditional business activities
Article 6 of the Investment Law narrows down the list of prohibited business activities to six activities instead of 51 activities in the 2005 Investment Law. The number of conditional business activities also decreases from 386 to 267 activities. Notably, the 2014 Investment Law takes an initiative approach that it allows investors to do investment and business activities in fields not prohibited by the 2014 Investment Law. This is a new methodology compared with the old one, which only allows investors to do businesses specifically allowed. Accordingly, there is more transparency and investors have more investment opportunities in Vietnam.
Procedures for implementation different types of investment project
Investment in Vietnam is no longer classified into direct or indirect investment, but depends on either of the following forms:
 Establishment of a new entity for an investment project;
 Investment under Public-Private Partnership;
 Investment under Business Cooperation Contract;
 Capital contribution, purchase of shares or contributed capital in an economic entity.
i. Establishment of a new entity for an investment project;
An interesting point to note is the removal of a requirement to apply for an Investment Registration Certificate (“IRC”) of investment projects by domestic investors, regardless of the investment capital amount. Moreover, the application procedures no longer involves 2 steps: investment registration and investment appraisal procedures. However, for foreign investors with an investment project to establish a new entity in Vietnam, instead of applying for an IRC and such certificate concurrently serves as an Enterprise Registration Certificate (“ERC”), they are now required to separately apply for two different kinds of certificates: IRC and ERC. This could be more burdensome for foreign investors in terms of time and cost.
ii. Capital contribution, purchase of shares or contributed capital in an economic entity.
Under the 2014 Investment Law, capital contribution of foreign investors can be in the following forms:
(1) purchase of shares issued for the first time or additionally issued of joint stock companies;
(2) capital contribution to limited liability company, partnership companies; or
(3) capital contribution to other economic entities not falling under (1) and (2).
Foreign investors making investment by contributing capital, purchasing shares or contributed capital must register their investment with the local Department of Industry and Trade if (1) Foreign investors contribute capital, purchase shares or contributed capital in economic entities in conditional business activities applicable for foreign investors; or (2) capital contribution, purchase of shares or contributed capital results in 51% or more ownership of charter capital of certain economic entities in the targeted economic entities. Certain economic entities include entities which have (1) a foreign investor holding from 51% of its charter capital or the majority of its partnership members are foreign individuals (for economic entity being a partnership enterprise); or (2) an economic entity in (1) holding from 51% of its charter capital; or (3) foreign investors and economic entity in (1) holding from 51% of its charter capital.

2. 2014 Enterprise Law
The 2014 Enterprise Law simplifies the procedures for establishment of enterprises, introduces new provisions regarding company management and clearer regulations on Group of Companies. Establishment of enterprises
The 2014 Enterprise Law no longer requires the specification of business lines in the ERC. Indeed, enterprises may do any business not prohibited by the law and register their activities with the registration authority. If they do business in conditional sectors, they have to ascertain that they meet all the required conditions. The liabilities rest on the enterprises when the authority inspect their activities and may apply fines if they do not meet the required conditions. Moreover, under the 2014 Enterprise Law, if there is any member not fully contributing their committed capital after 150 days from the issuance of the ERC, enterprises have to apply for charter capital adjustment. Moreover, a single limited liability company is also allowed to reduced its charter capital, which is prohibited under the 2005 Enterprise Law. In terms of capital contribution, the 2014 Enterprise Law consistently applies the 90-day period for capital contribution for both limited liability companies and joint stock companies. Meanwhile, under the 2005 Enterprise Law, this time limit is 36 months for both types of companies. This is clearly a stricter rule and significantly impacts investment in large scale projects, for example, infrastructure or construction projects.
Company management
i. Legal representative
Limited liability companies and joint stock companies may have more than one legal representatives depending on the need of the companies. The company’s charter will specify the number, management title, rights and obligations of the legal representatives. If the enterprise has only one legal representative, this person must still authorize another person to perform his or her rights and obligations when he or she is out of Vietnam, irrespective of the absence duration.
ii. Structure of a joint stock company
A joint stock company can now choose to structure the company in either of the following ways: (i) General Meeting of Shareholders, Board of Management, Control Committee and Director or General Director. In case the company has less than 11 shareholders and shareholders which are organizations own less than 50% of total shares of the company, the Control Committee is not required; or (ii) General Meeting of Shareholders, Board of Management, and Director or General Director.
Group of Companies
The 2014 Enterprise Law clearly defines parent-subsidiary companies. A company is called a parent company of another company if it: (i) owns more than 50% of the charter capital or the total normal shares of that company; (ii) has the right to directly or indirectly appoint the majority or all of the members of the Board of Management, Director, General Director of that company; or (iii) has the right to amend or supplement the charter of that company.
A subsidiary is not permitted to contribute capital or buy shares in its parent company. All subsidies of the same parent company cannot together contribute capital or buy shares to own each other. Further, subsidiaries of the same company with at least 65% state ownership may not together contribute capital to establish a company.
Conclusion
With the adoption of the 2014 Investment Law and Enterprise Law, the investment environment in Vietnam now becomes more attractive to foreign investors to a certain extent. However, from investors’ perspective, they need more clarifications and better treatment. We will need to see the real impact of these new laws when their implementing documents are introduced in the upcoming time and their application.

Should you have any questions, please contact Oliver Massmann under omassmann@duanemorris.com; Oliver Massmann is the General Director of Duane Morris Vietnam LLC. Thank you!

Breaking news: Vietnam- BRAND NEW INVESTMENT LAW AND ENTERPRISE LAW – WHAT YOU MUST KNOW !

From the online press in Vietnam, the National Assembly passed the amended Enterprise Law (“EL”) and Investment Law (“IL”) on 26 December 2014. The amended Enterprise Law has 10 chapter with 213 articles while the amended Investment Law has 07 chapter with 76 articles.

The amendment of those 02 important laws is expected to create more favorable conditions for the enterprises to enter the market, to protect the rights and interests of the investors, shareholders and business members, and meanwhile to improve the management of foreign investment.

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Ausländer treffen beim Firmenkauf auf großes Durcheinander

Trotz des großen internationalen Andrangs steckt der vietnamesische Markt für Fusionen und Übernahmen noch in den Kinderschuhen. Lange schon bemüht sich der Gesetzgeber um moderne Regelungen– insbesondere im Hinblick auf die Gleichberechtigung ausländischer und inländischer Investoren ist ihm das aber noch nicht gelungen. Auch ein besserer rechtlicher Rahmen für Preisgestaltung, Lizenzierung und Kartellrecht tut not.

VON Oliver Massmann

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Lawyer in Vietnam Oliver Massmann Mergers and Acquisitions

X.1 Overview

With the passing of the Law on Investment (IL) and Law on Enterprises (EL) by the National Assembly of Vietnam, a foundation was laid for establishing a new Vietnamese investment regime in general and creating a level playing field for foreign and local investors in particular. The legal framework for the M&A sector in Vietnam has since been developing at a rapid pace. Portfolio foreign indirect investment was for the first time recognised as one of the official investment channels and has achieved spectacular growth in the recent years, despite a short pause in 2008 and 2009 due to the global economic recession. Currently, with some limitations, foreign investors can freely acquire stakes in Vietnamese enterprises. The limitations on foreign investment are defined by both Vietnam’s WTO commitments as well as domestic legislation. M&A activity is expected to remain buoyant in the coming years, with a projected growth rate of 25-30% per year over the next five years. The new wave of M&A sets to hit Vietnam, as Vietnam is once again perceived as an attractive investment market. The primary investors have been from Japan, Korea, Taiwan and recently from the ASEAN countries. Once the Trans-Pacific Partnership, and Free Trade Agreement between EU and Vietnam currently under final negotiation process, are concluded, it may also drive more interest in M&A activities in Vietnam.

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Investing in Geothermal Power Project in Vietnam

Introduction

The geothermal energy in Vietnam has great potential, up to date, the researched have showed that Vietnam has more than 200 sources of hot water at temperatures of 40-100 degrees centigrade that provides this Southeast Asian country necessary basis for developing prospective geothermal energy projects. However the geothermal energy industry of Vietnam is still under-developed, and mostly remains at the researching stage.

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Breaking News – Casino Business Vietnam – Vietnamese Nationals will be allowed to gamble in Vietnam

According to Vietnamnet, an online news service in Vietnam, the Ministry of Finance (“MOF”) just finalized a new draft on casino business (“New Draft”). You can find the link here (http://vietnamnet.vn/vn/kinh-te/191861/du-21-tuoi–nguoi-viet-duoc-choi-casino-.html). It is not clear whether the Ministry of Finance has submitted the New Draft to the Government for consideration and approval and when this New Draft becomes effective. In addition, the MOF has not yet published the New Draft but we are trying to obtain this New Draft asap.We will keep you posted.

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Conditions for Sea Shipment and Supporting Services

Decree 30/2014/ND-CP of the Government dated 14 April 2014 on conditions for sea shipping and sea shipping supporting services business (Decree 30)

The Government has recently issued the new Decree 30 which will take effect from 1 July 2014, replacing Decree 115/2007/ND-CP dated 5 July 2007 of the Government on conditions for sea shipping services business.

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