CASINO BUSINESS UNDER STRICT REGULATIONS

On 20 January 2017, the Government issued a long-awaiting casino business decree No. 03/2017/ND-CP (Casino Decree). Although the issuance of the Casino Decree after almost 10 years of waiting opens a promising market to casino industry, foreign investors have been very hesitant and in the waiting mode for further clarification documents from competent authorities. Finally after more than six months since the Casino Decree’s effective date, on 05 October 2017, the Ministry of Finance issues Circular No. 102/2007/TT-BTC (Casino Circular) guiding the Casino Decree. The Casino Circular helps complete the regulatory framework for casino business in Vietnam and put the young industry in momentum growth.

Local Vietnamese eligible for gambling

Local Vietnamese will be permitted to gamble at specific casinos approved by competent authority on a 3-year trial basis (i.e. – calculating from the first day opening of the authorized integrated resorts). According to the public media, only 02 casinos are open to Vietnamese individuals on a 3-year piloting scheme, which are located within complex resorts in Phu Quoc District, Kien Giang Province (South Vietnam) and Van Don District, Quang Ninh Province (North Vietnam). A small likelihood that Ho Tram Resort would join the list.

Local players are permitted to enter casinos if they essentially satisfy the following conditions: (i) 21 years old or above; (ii) monthly salary of VND10 million or more (equivalent to approximately US$440); (iii) paying entrance fee of VND1 million (US$44)/24 hours/ person or VND25 million (USD1,100)/ month/ person; and (iv) not being objected in writing by siblings, spouses and/or biological and adopted parents to play at casinos. However, these conditions, especially the monthly income requirement, are complicated to prove and were not previously dealt with in the Casino Decree. The Casino Circular then substantiates this requirement as below:

– Having documents (tax declarations/ confirmation by tax authorities) proving taxable income at level 3 or above pursuant to the Law on Personal Income Tax;

– Notarized house/ assets lease contract, where the total monthly rent is VND 10 million or above;

– Notarized bank savings book or bank statement of savings with a term of one year or more and having monthly interest from VND10 million or above;

– Other documents proving that the usual monthly income of players being VND 10 million or above; or

– In case a single document mentioned above is not sufficient to prove the VND10 million monthly income, players can submit several documents to prove such total monthly income.

Casinos under strict supervision of tax authorities

Casino-operating enterprises must arrange a place in the casino with necessary means and equipment for state authorities to perform the casino management and surveillance directly or via electronic equipment and camera system. Transactions under supervision are monetary transactions and/ or tokens related ones. These transactions must also be recorded ad reported to the tax authorities.

In addition, state authorities also supervise, either directly or via electronic and camera system, the inventorying and calculation of transactions performed at cashier area and/ or areas for counting and storing cash and tokens.

Foreign currency control in casino business

Casino-operating enterprises must exchange Vietnamese Dong or other currencies for tokens and vice versa for players.

The exchange rates for Vietnamese Dong or other currencies to tokens and vice versa must be based on the purchasing rates on the transaction date announced by the licensed bank where the casino-operating enterprise’s specialized foreign currency account is opened. In case the transaction date falls on days off or public holidays, the exchange rates must be based on the rates announced on the previous transaction date.

A casino-operating enterprise may accept bank cards of players to exchange for tokens when they play in the casino. The transaction must be in Vietnamese Dong.

In case the Vietnamese players win the prizes, they are only allowed to receive the prize in Vietnamese Dong (whether in cash or by bank transfer). This is not the case for foreign players where they can also receive the prize in foreign currency.

Conclusion

The issuance of the Casino Decree and the Casino Circular timely open Vietnam’s young casino industry to attract foreign investment and limit foreign currency loss to other neighbouring countries. According to recent statistics, Vietnam loses about USD800 million in tax revenue annually from gamblers who cross the border to Cambodia. This is even more critical as many countries in the region already allows casino business such as Macau, Singapore, Philippines, Korea and recently Japan. In such scenario, the Vietnam Government still has a lot to do in order to not only retain Vietnamese players in the market but also attract foreign players who are already familiar with other casinos in the region.

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If you have any question on the above, please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you very much!

 

 

 

Vietnam – Solar Power – Breaking News Update First draft of the solar Power Purchase Agreement released by the Ministry of Industry and Trade

Following the issuance of Decision No. 11/2017/QD-TTg of the Prime Minister on mechanism for encouragement of development of solar power in Vietnam (Decision 11), the Ministry of Industry and Trade released the first draft of a Circular guiding the Decision last month (Draft Circular). The Circular is aimed at providing regulations on formulation, approval and amendment of the national as well as provincial power master plan. In addition, the draft solar Power Purchase Agreement (Draft PPA), which is of great interest for many foreign investors, is also provided in the Circular as a mandatory template for future solar power projects with only minor changes expected to be permitted during the contract negotiations.

In essence, the Draft PPA is almost the same as current applicable PPAs for renewable projects. This creates bankable issues for solar projects and a hindrance to foreign investors planning an investment in the sector.

Feed-in-Tariff (FiT)

The draft Circular repeats the solar FiT for power output from on-grid projects and excessive power output generated from rooftop projects specified in Decision 11 to be VND2,086/kWh or US 9.35 cents/kWh. However, unlike Decision 11, the Draft PPA does not require that the conversion between USD and VND be according to the exchange rate at the time of payment.

EVN’s rights and obligations as the sole off-taker

EVN is delegated to purchase all power output generated from solar power projects pursuant to terms and conditions of the draft PPA within 20 years.

It is noteworthy that the Draft Circular and the Draft PPA list out certain circumstances where EVN is not obliged to purchase power as negotiated with the seller, for example:

  1. when EVN is in the process of installing equipment, or making repairs, replacement, inspection or examination of the grid connection of the seller’s power plant;
  2. when the transmission grid or the distribution grid connected to EVN’s grid has a problem or grid equipment directly connected to EVN’s transmission grid or the distribution grid has a problem; and
  3. when EVN’s grid needs support to recover after the incident in accordance with the provisions of operation of the national power system and the standards, technical regulations of the electric industry.

Unfortunately, the current Draft PPA does not include provisions protecting the interests of the seller in the abovementioned circumstances. It is quite risky for the producer if the output is ready to be fed to the grid but the connection is not available to do so. Absent a clear indication of whether the Draft PPA is a ‘take or pay” agreement, investors will find it difficult to secure and ensure the profits and revenue of their projects.

Dispute resolution

The Draft PPA allows either party to the agreement to bring the dispute to local courts for litigation and other energy-related state bodies of Vietnam (General Directorate of Energy and the Electricity Regulatory Authority of Vietnam) for mediation and resolution.

The Draft PPA does not provide for international arbitration to be an option to resolve the dispute. This could be a great concern for foreign investors, especially those of large utility scale projects.

Other key issues of concern

  • No Government guarantee to enhance the credit of EVN as the sole off-taker;
  • No provision addressing the risks of changes in applicable laws; and
  • The Draft PPA is required to follow a specific template, which is not bankable.

While the current Draft PPA leaves certain key issues unresolved, we note that this is only the first draft. Thus, it will be subject to potential revisions before its official adoption. We believe that with lessons learnt from the PPA for other renewable projects, the Ministry of Industry and Trade will complete the Draft PPA towards a mutually beneficial agreement for both the seller and the purchaser.

How to avoid EVN – The 30 MW rule

Considering the monopoly role of EVN as well as tough negotiation of the PPA, investors could still get out of this trouble. According to Article 1.2 of Circular No. 56/2014/TT-BCT promulgating methods to determine electricity generation price and examination steps of the PPA, the important requirement to negotiate with EVN is whether it is an on-grid or off-grid project. If it is an on-grid project with capacity of more than 30 MW or under 30 MW but voluntarily participating in the power market, the investor must negotiate with EVN. This means if the project is off-grid, there will be no requirement to negotiate with EVN. Therefore, if you are new to the market, an off-grid 30MW project or less is a smart option to test the water. Once you have built up your track record, you can go for larger scale projects.

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Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

 

 

VIETNAM – SOLAR POWER – AMAZING BREAKING NEWS – THE VERY FIRST SOLAR LAW – GOVERNMENT’S SUPPORTING REGIME FOR SOLAR POWER PROJECTS IN VIETNAM FINALLY OUT

 

On 11 April 2017, the Prime Minister officially approved the issuance of Decision No. 11/2017/QD-TTg on supporting regime for the development of solar power projects in Vietnam.

We note below some major points in this Decision:

Feed-in-tariff (FIT) rate

EVN is responsible for buying the whole electric output from on-grid solar power projects with the electric buying price at the point of electricity receipt to be 2,086 Vietnamese dong/kWh (equivalent to 9.35 UScents/kWh) (VAT excluded). This FIT only applies for on-grid projects with capacity of solar cell being over 16% or of solar module being over 15%.

There is no FIT for rooftoop solar power projects if such projects are not grid-connected. This is one of the differences compared with the previous Draft Solar Decision which sets a seperate FIT for rooftop projects when they are connected to the grid.

The FIT is based on the VND/USD exchange rate issued by the State Bank of Vietnam on 10 April 2017 (USD 1 = VND22,316). This FIT will be adjusted according to the fluctuation of the VND/USD exchange rate as specified in the standard Power Purchase Agreement (PPA) to be issued by the Ministry of Industry and Trade. We note that the solar PPA will have a term of 20 years from the commercial operation date of the solar plant and can be extended/ renewed based on regulations in effect at that time.

Investment incentives

Investment capital: Investors may mobilize capital from domestic or overseas organizations and individuals to invest in solar power projects.

Import duty: Solar power projects are exempted from import duty on goods imported to create fixed assets of the projects; components, materials and semi-finished products which are not available at home for the project’s operation.

Corporate income tax: solar power projects will also enjoy the same corporate income tax exemption and reduction as projects in sectors receiving investment incentives according to the current regulations on taxation. For example, corporate income tax rate of 10% will be applied for 15 years, tax exemptions within 4 years and tax reduction by 50% in the next 9 years.

Land: Solar power projects, lines and transformer stations connected to the national grid enjoy the same exemptions and reductions in land use, land rental as projects being entitled for preferential investment treatment. Such incentives, among other things, include exemption of land rental within 3 years from the operation date of the project.

Projects included in the Power Master Plan

The Power Master Plan, whether it is national or provincial, only applies for on-grid solar projects.

Projects of 50MW or below will be approved by the Ministry of Industry and Trade to be included in the Power Master Plan, while those of more than 50MW will be approved by the Prime Minister.

Thus, it could be understood that off-grid and rooftop projects do not have to be included in the Power Master Plan. This will save the investors the hassle of negotiating the PPA with EVN.

The Decision has effect from 01 June 2017 to 30 June 2019.

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Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

 

 

VIETNAM CASINO GAMBLING LATEST NEWS – VIETNAMESE ALLOWED TO GAMBLE:

The Ministry of Finance in Hanoi (MOF) just revealed some proposed contents of the long-waiting casino business decree (Casino Decree).

Only 02 casinos are open to Vietnamese individuals on a 3-year piloting scheme, which are located within complex resorts in Phu Quoc District, Kien Giang Province (South Vietnam) and Van Don District, Quang Ninh Province (North Vietnam).

Local players are permitted to enter casinos if they essentially satisfy 04 following conditions:

  1. 21 years old or above;
  2. Monthly salary of VND10 million or more (equivalent to approximately US$440);
  3. Entrance fee is VND1 million (US$44)/24 hours/a person;
  4. Not objected in writing by siblings, spouses and/or biological and adopted parents to play at casinos.

Investors or management companies must have at least 5 years of experience.

Minimum investment capital is US$4 billion (it is also rumored that this amount can be reduced to US$2 billion. No license is issued unless the investor has already injected 50% of the committed investment capital).

Only one casino for one project.

Depending on committed investment capital, the number of gaming machines and tables can be different.

For any casino projects licensed AFTER the issuance of the Casino Decree, for each US$10 million investment capital lot, enterprises are granted with a table and 10 gaming machines. For projects licensed BEFOREHAND, the number of gaming machines and casinos are subject to contents of their already issued investment certificates.

No specific timeline on when the Casino Decree will be issued.

We will keep updating you on latest developments!

If you have any question on the above, please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com, Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you very much!

 

 

Lawyer in Vietnam Oliver Massmann – Legal Alert TRADING AND DISTRIBUTION BY FOREIGN INVESTED ECONOMIC ORGANIZATIONS WHAT YOU MUST KNOW:  

 Status

 Following the issuance of the Investment Law (2014), the Government of Vietnam is speeding up the drafting of a new decree (the Draft Decree) guiding trading and distribution of foreign invested economic organizations (FIEOs) in Vietnam.  The Draft Decree, once issued, will replace Decree 23 on trading and distribution of foreign invested enterprises dated 12 December 2007 (Decree 23).

What is new in the Draft Decree?

Below are some new features introduced by the Draft Decree

  1. [Effective] expansion of business lines to be subject to baby permits;
  1. Demerger of baby permits from the investment registration certificate (IRC);
  1. Delegation of the licensing authority with respect to issuance of the baby permits to provincial department of industry and trade (DOIT);
  1. Setting out circumstances where FIEOs are exempt from baby permits;
  1. Clarification of criteria for establishing retail outlets including economic needs test (ENT);
  1. More detailed licensing process.

Detailed comments on the Draft Decree

  1. General understanding of baby permit requirements

For a general understanding, for some specific business sectors, the Investment Law requires foreign investor and their local companies to satisfy 02 layers of conditions before officially entering the market.  The first one is investment conditions (điều kiện đầu tư) and the second being business investment conditions (also know as business condition or baby permit), (điều kiện đầu tư kinh doanh).  Their major differences are presented in the below table:

Criteria Investment Conditions Business Conditions
Function Market access conditions applicable to foreign investment Professional conditions in order to actually conduct business or investment activities
Time of application Before investment in Vietnam After investment in Vietnam
Applicable Entities Foreign investors and FIEOs with 51% or more foreign ownership (if acting as an investor in another entity) Basically, all FIEOs and local companies.
Forms Investment registration certificates or ‘approval’ of the DPI in case of formation of new entities or acquiring existing local companies respectively Sub-licenses such as licenses, certificates, etc.  In case of trading and distribution by FIEOs, it is the approval for sale and purchase of goods of the DOIT.
Relevant  Authority DPI/industrial zone authorities at provincial levels. State bodies of many levels. In case of trading and distribution, the DOIT
  1. Expanded coverage of baby permit requirements

The Draft Decree makes a specific list of ‘purchase and sale of goods’ and ‘activities directly related to the purchase and sale of goods’ by FIEOs, namely:

  1. Trading (import and export) rights;
  2. Distribution;
  3. Commercial promotion services
  4. Commercial intermediary services
  5. Goods leasing services
  6. E-commerce services
  7. Logistics services;
  8. Commercial assessment services
  9. Goods auction services
  10. Goods and service bidding services
  11. Commodity exchange
  12. Other activities directly related to the purchase and sale of goods’.

For the purpose of this note, the above services/activities are collectively referred to as ‘Conditional Businesses’

Comparing with Decree 23, albeit referring to a variety of trading related activities (e.g. – advertisement, promotion, etc.), mainly subjects trading and distribution by FIEOs to baby permits.  Hence, with activities being specified as above, it is more likely that licensing authorities would request all Conditional Businesses to be subject to baby permits.  If this is the case, this fact can be seen as a ‘one step back’ in terms of relaxing licensing process for foreign investment.  Specifically, licensing authorities will be given discretion in granting baby permits for Conditional Businesses which are in fact fully opened to foreign investment.

  1. Demerger of baby permits from the investment registration certificate (IRC); 

Previously, investors applying to setup a trading/distribution FIE need only to obtain an IRC which simultaneously serves as a baby permit.  However, with the delegation of the IRC licensing authority from the provincial people’s committees to DPIs under the Investment Law, it is still unclear as to licensing process for issuance of baby permit.

The Draft Decree gives the answer.  DPIs and the DOITs are responsible for the IRCs and baby permits respectively.  DOITs are required to obtain approvals of the MOIT and, under some circumstances, relevant State bodies.  This new licensing process, when implemented, will effectively create a 03-layer approval for FIEs which are (i) IRCs at DPI; (ii) baby permits at DOIT and actually approvals at MOIT.  This is even more critical because in order for the DPI to issue IRCs including Conditional Businesses they, as a matter of practice, often seek the DOIT/MOIT’s greenlight.  As such, 04 rounds for approvals would be required for some service sectors that Vietnam has been open to foreign investors for years under its respective international treaties.

Issuance of a decree on trading rights and distribution activities of foreign invested economic organizations (FIEOs) in Vietnam.

  1. Delegation of the licensing authority with respect to the baby permits to provincial department of industry and trade (DOIT);

As said, the DOIT will be responsible for issuing baby permits.  In doing so, it must first seek greenlights of the MOIT.

  1. Baby Permit Exemption

There are roughly 04 possible scenarios where FIEOs are exempt from baby permits

a.FIEOs import/export/process or dispose products in accordance with its registered businesses or in combination with their registered services;

b.FIEOs already licensed to conduct trading and distribution rights;

c.FIEOs already licensed to provide logistics and commercial assessment services; and

d.FIEOs with foreign owner holding not more than 35% voting shares (in case of joint stock companies) or 35% charter capital or a lower voting ratio stipulated in charter (in case of limited liability companies).

With respect to FIEOs in item (b) and (c) above, it is not clear as to whether such exemption applies to FIEOs established before or after the effective date of the Draft Decree.

  1. Retail Outlet Criteria 

Retail outlets by FIEs are still subject to ENT criteria except for:

a.The first retail outlet;

b. A retail outlet other than the first one having area of less than 500m2 in commercial centers; or

c.Retail outlets other than the first one having total area of less than 500m2 in the same commercial centers.

The Draft Decree introduces more specific metrics to measure ENT criteria including geographic size of the relevant area, number of existing retail outlets, possible impacts of retail outlet to be applied on the stability of market, population density and possible contribution of the retail outlets to the socio-economic developments of the area.

  1. Licensing Process 

FIEOs send the application file to the licensing authority for issuance of baby permits per post, online or direct submission.

The licensing period varies by nationalities of the investors/FIEOs.  For example, investors from jurisdictions which have entered into international treaties with Vietnam on market access, the period for the MOIT and other State bodies to give opinions will be 07 working days only.  Other investors (e.g. – investors from BVI or other tax heavens) may suffer a 15-day licensing period.  The direct licensing authority (e.g. – the DOIT) will issue baby permits within 05 days from the date of receipt of greenlights of the MOIT and other relevant State bodies, if any.  In case of refusal, explanations must be given to the applying entities.

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

Lawyer in Vietnam Oliver Massmann Solutions for Management of State Owned Enterprises

 

Comments to Vietnam Investment Review on a recent MPI draft decree supporting the establishment of a state-level management Committee to steer SOEs

Vietnam’s Ministry of Planning and Investment has announced a draft decree highlighting the need to establish a committee exclusively in charge of managing state-owned enterprises (SOEs). Currently SOEs are managed by different localities, ministries, and sectors.

It is expected that this Committee will manage up to 30 economic and corporations. It will also separate the state’s role of state management from the role as a trader and a producer.

  • Do you think that the establishment of this Committee is good for Vietnam’s economic now? Why?

I believe the establishment of a Committee exclusively in charge of managing SOEs, separating SOEs from their managing Ministries is a positive move of the Government.

The Ministries will not be put in a position when they have to adopt policies to regulate all enterprises within their managing authority and at the same time having to care about their interests in their SOEs. With the establishment of the Committee, the Ministries will have no chance or no incentive to be biased towards SOEs. In other words, all enterprises will be treated equally, regardless of whether they are SOEs or private.

The proposal to establish the Committee is extremely important, especially when SOEs are proved to continue operating at loss, investment activities are inefficient, state ownership capital is poorly managed,all leading to loss of state assets. I note that SCIC was established with the expectation to perform the same duties of representing state ownership in SOEs. However, SCIC is only an agency under the Ministry of Finance, which makes it not of equal leverage with and independent of other ministries and unable to regulate big SOEs. Thus, it is necessary to have another independent Committee to take over SCIC’s responsibilities.

  • In many nations, is this model applied?

This model is very similar to that in Germany when there was reunification between East and West Germany. The current model in China is considered as closely similar to the proposed one in Vietnam. However, instead of only establishing a Committee at a central level, meaning the Committee will not take over SOEs under provincial management, Ministry of Public Security, Ministry of National Defence, public enterprises and state-owned commercial joint stock banks, such Committee in China is established at all levels, from central to provincial one.

It could be a good start to have the Committee at central level. I recommend that after a trial period to supervise the efficiency of the model, it should be implemented at all provincial level under central management as well.

  • Do you have any recommendations?

According to the Draft Decree, chairman and vice-chairmen of the Committee will be appointed by the Prime Minister. I am concerned that ministers or vice-ministers of other ministries may have to take the chairman or vice- chairmen position of the Committee concurrently with their minister role. This will not be efficient. Instead, the management of the Committee must include both Vietnamese and foreigners. I recommend at least one foreign expert who has worked as manager for private companies and has a success track record should be member of this Committee. I can recommend some people if the Government could approve the budget for this position. I myself am very willing to be a member of the Committee to assist. The foreign expert must not necessarily be the decision-making person, but at least (s)he is there to give advice to the Committee.

Members of the Committee must be independent. They should not comprise of representatives from selected ministries who have certain interest in some SOEs, or else neutrality cannot be ensured. The Committee must act as an investor responsible for all investment activities of state capital before the Government. Only by doing so can SOEs play the same game with same rules as in the private sector.

In addition, it is important to create an operation regime for this Committee towards transparency for public supervision. Transparency is a critical issue, especially for a Committee which holds huge state assets worth around VND5.4 quadrillion.
Please do contact the author Oliver Massmann under omassmann@duanemorris.com if you have any questions. Oliver Massmann is the General Director of Duane Morris Vietnam and the Chairman of the Legal Sector Committee of the European Chamber of Commerce in Vietnam (”Eurocham” Vietnam)

 

 

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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