lawyer – Page 7 – Duane Morris Vietnam

February 9, 2017 by Dr. Oliver Massmann

VIETNAM – REAL ESTATE – LAND USE RIGHTS LIMITATIONS FOR FOREIGNERS – OUTLOOK ON THE EUROPEAN UNION VIETNAM FREE TRADE AGREEMENT (EVFTA)

The real estate market in Vietnam has constantly been growing since the Law on Real Estate Business 2014 (LREB) and the Law on Residential Housing (LRH) were adopted. Initial barriers for foreign investors were partially removed with the new legislations and Decree No. 76/2015/ND-CP guiding the LREB dated 10 September 2015 and Decree No. 99/2015/ND-CP guiding the LRH dated 20 October 2015.

Nevertheless, enterprises’ expectations concerning access to properties and business development are not entirely satisfied.

Restriction on sources of capital

For residential housing projects, only the sources of capital enumerated in Article 69 of the LRH or Article 19 of Decree 99 are considered legitimate such as loans from Social Policy Bank, credit institutions and financial institutions currently operating in Vietnam or capital contribution, cooperation in investment, business cooperation, joint-venture and affiliation of organizations. As there is no mention of overseas capital except for the capital owned by the developer, raising capital then appears to be more complicated for real estate developers. Therefore, as there is no need to limit the developers’ ability to raise capital for legitimate sources, the Government adopt restrictive measures for illegitimate sources only and control the legitimacy of sources. Opening capital to off-shore credit institutions and non-credit institutions would greatly improve access to the real estate market.

An uncertainty remains as to define foreign invested enterprises (FIEs). Indeed, neither in the LREB nor in Decree 76 do we find a provision explaining the notion of FIEs. But the Law on Land (Land Law) 2013 states that FIEs are joint venture enterprises and enterprises wholly or partly owned by a foreign company without detailing ownership percentage. Under the Law on Investment 2014, the status of economic organization with foreign capital implies a foreign ownership of 51% or more. Therefore some details must be given as whether enterprises with less than 51% of foreign ownership are regarded as local investors or not.

Considering the lack of details, we can understand that any percentage of foreign ownership prevents enterprises to be local ones. This issue is of great importance for foreign investment transactions in the real estate market and must be clarified promptly.

The difference of treatment between foreign and Vietnamese real estate developers can be found in several aspects. First of all, Article 11 of the LREB does not permit foreign developers to transfer their land use right into creating plots for sale whereas Vietnamese developers are permitted. Article 57 of the same law limits FIEs to collect a maximum of 50% of the value of sale and purchase contracts while Vietnamese companies are entitled to 70% of the value. Finally, Article 10 of the LREB prohibits foreign developers to sell, lease or offer a lease-purchase and only opens the possibility of sub-leasing. This form of business is, however, open to Vietnamese developers.

Those differences between local and foreign developers should be removed as they create unfair competition and restrain the real estate sector in Vietnam.

Restrictions on land use right of foreign organizations and individuals

The LREB authorizes organizations and individuals to lease properties for use and to purchase or lease-purchase residential houses in accordance with the LRH. Article 160 of the LRH repeats the authorization but adds a few conditions. Organizations who want to own residential houses, must establish and maintain their presence in Vietnam although foreign individuals only need to have a valid passport affixed with entry stamp. The stricter requirement for foreign organizations should be up-lifted as it is unnecessary to fix conditions to own residential houses to organizations and not to individuals.

A very concerning contradiction must be solved as it deals with notarization of sale and purchase contracts. Article 93.3(b) of the LRH allows contracts for residential housing signed with a real estate business enterprise not to be notarized. However, Article 122 of the LRH stipulates that all contracts in relation to sale and purchase of residential houses must be certified or notarized. We could then understand that sale and purchase contracts for residential housing signed with real estate business should be notarized. However, Article 17.2 of the LREB states that real estate business contracts do not have to be notarized except contracts signed between two individuals/households.

A clearer provision should establish that notarization is not required in case a real estate business enterprise is a party to the sale and purchase contracts.

Limitation on foreigners’ purchase and ownership of real estate

Foreign individual and organizations are allowed to own a maximum of 250 individual residential houses in a ward according to Article 161.2(a) of the LRH. However, Article 76.4 of Decree 99 guiding the LRH, limits foreign individuals or organizations to possess maximum 10% of individual housing in each residential housing project. The Decree provision is then not consistent with the LRH.

In addition, pursuant to Article 159.2(b) of the LRH, foreign individuals and organizations are only prohibited from purchasing houses in national defense and security area. But pursuant to Article 75 of Decree 99, the prohibition is extended to all areas where foreigners are restricted from residing or travelling as provided under the Law on Residence and Travel. Once again, the Decree is restricting the conditions under the LRH.

In addition, Articles 77.1(b) and 77.2(b) provide additional restriction when granting the possibility of one-time expansion of residential houses owned by foreigners. Such restriction can have a serious impact on business development of developers and in the meantime on Vietnam’s competitiveness. Unlimited extensions should be granted with the exception of national defense and security areas only.

Another issue which causes many difficulties for developers concerns capital reserve. Indeed, Article 108.1(b) of the LREB requires that developers contribute 2% of apartment’s value for unsold apartments at the time of commissioning. Value is calculated based on the highest selling price of an apartment in the building regardless of the differences between the apartment of reference and the commissioned one. The requirement is not practical and should therefore be amended to refer to an apartment of the same category. Furthermore, establishing a mechanism to deal with such payments when apartments are sold at a later stage is necessary for the efficiency of the requirement.

Outlook on the EVFTA

Signed on December 2^nd 2015 and expected to enter into force by 2017, the EVFTA offers great opportunity to access new markets for both the EU and Vietnam. Not only Vietnam will foster more foreign investors but also welcome more enterprises in order to develop the European-Vietnamese Cooperation.

The Vietnamese Government has already started to amend the legislation with the Law on Enterprise 2015 and the Law on Investment 2014. Yet some further changes must still be made and we can expect the influence of the EU on opening the real estate market to facilitate enterprises’ establishment.

Most important issues

– Requirements of sources of capital are too restricted and prevent real estate developers from easily raising capital. In addition, the definition of foreign invested enterprise is not clear enough to determine the sources and the nature of transactions in the sector.

– Vietnamese and foreign developers are treated differently which creates unfair competition and restrains the real estate sector.

– The contradiction that sale and purchase contracts signed with real estate business enterprise have to be authorized must be up-lifted.

– Restrictions on foreigners’ purchase and ownership rights regarding the percentage of possession, the restricted areas and the possibility of extension are not consistent in the whole Vietnamese legislation and should be standardized.

***

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.

Thank you!

February 9, 2017February 9, 2017 by Dr. Oliver Massmann

VIETNAM TAXATION – OUTLOOK ON THE EUROPEAN UNION VIETNAM FREE TRADE AGREEMENT (EVFTA)

The recently formed Government has manifested its ambition to support reforms especially related to business. Short after the oath of inauguration, it organized a conference with Vietnamese enterprises leading to the issuance of Resolution 35/2016/NQ-CP dated 16 May 2016. The main focus was to improve the investment environment. Nevertheless, some difficulties remain and review of tax policies is required from some specific perspectives.

Granting tax incentives

The Government can grant preferential incentives to foreign enterprises through investment licensing or certificate, the most secure way for enterprises to obtain their incentives despite tax law amendments. However, some local tax departments do not agree with the Government’s policy on incentives and oblige enterprises to apply the current regulations regardless of enterprises’ incentives. This reluctance is a breach in the Government’s protection over investment and investors and must be prevented.

Official Letter 12404/BTC-TCT and Circular 96/2015/TT-BTC, both issued by the Ministry of Finance (MOF), grant Corporate Income Tax (CIT) incentives for enterprises established before 01st January 2014 and not yet operational. Some local tax departments have refused to recognize such incentives and asked enterprises to amend their charter while making their business starts in 2014 in order to be entitled to CIT incentives. This request is acting towards the MOF’s willingness to boost investment and should be dropped out.

According to tax offices, any project planning the increase of enterprises capacity or fixed assets is necessarily considered an investment if increase of capacity was equivalent to increase of capital. Tax authorities then rescind CIT incentives because they believe that investment certificates are no longer updated due to the increase. Yet, initial investment certificates do not mention capacity and should remain updated as long as increases solely concern enterprise capacity and not capital. A regulation should precise that project expansion may only be investment when there are adjustments on capital investment.

Decree 218/2013/ND-CP issued by the Government, extends preferential tax rate application to 15 years for investment projects under VND6 million (~ US$260,000). To ensure a fairer treatment towards businesses, different levels could be established such as 3 years of preferential tax rate application for projects between VND 10 to 20 billion (~ US$450,000 to US$900,000).

According to the draft Decree No. 12, bonuses and commissions granted based on sale volume are deductible expenses for enterprises. Nevertheless, agents being individuals or organizations must pay taxes on these sum of money as such expenses are related to business activities. It would be more convenient for agents to have their commissions and sale bonuses exempted of VAT invoices.

On the other hand, benefits granted to employees should be extended in part to their family: welfare or recreational expenditures, visa application fee for employees’ families, etc. Through these benefits, a longer relationship between the company and the employee is ensured. Expenses for employees’ families are deductible for companies if stated in labor contract or in companies’ Labor policy. Decree 218/2013/ND-CP should then be amended.

Resolving tax payment issues

Tax-related regulations are often amended and interpreted differently from one year to another. As tax inspections often take place a long time after the corresponding fiscal year, it seems impossible for companies to know what to comply with. Many enterprises have to pay penalties and high interests because of changing regulations between the time of tax payment and the time of tax inspection. Besides, many businesses are chased for unpaid taxes due to errors from the tax office, even though the taxes were duly paid. In the tax office, the members of the staff are not dedicated enough to reconcile tax obligations and payments.

An annual tax inspection or a change in the method of calculating penalties and late payment interests should be considered. In addition, the nomination of a task force exclusively for reconciling tax obligations and payments would be a good improvement.

Understatement of payable tax or overstatement of tax refund is liable to a fine of 20% of the difference between the tax payable and declared or paid tax amount. Households or individuals stated in Article 107 of the Law on Tax Administration are exempted from the fine. Enterprises are sometimes in overpaid position and are still charged with a fine when the inspection occurs regardless of the intention to make a false declaration or not. The implementation of clearer regulations would avoid confusion and wrongful declaration leading to fines in such cases.

Late tax payment is also subject to penalty . Yet, several contradictory documents have been issued and it became complicated to determine on what basis to calculate the late payment interest. Indeed, Circular 26/2015/TT-BTC issued by the Ministry of Finance states a rate of 0.05% per day accordingly to the deficit of the tax payable until the tax is fully paid, for taxes declared before January 1st 2015 and found insufficient after the same date. Circular 130 contends that the late payment interest is regulated for each period. The two documents provide inconsistent guidelines, thus putting enterprises in a very delicate situation.

Article 14 of Circular 78/2014/TT-BTC states that transfer of Limited Liability Company requires filling a form equivalent to real estate transfer, regardless of the percentage real estate represents in the company assets. Moreover, since indirect capital transfer is considered taxable income in Vietnam and in the country of origin, a double taxation in both countries applies. The system should be rethought and the application of deferred tax assets (DTA) should be considered.

Explaining VAT calculation and refund

Circular 130/2016/TT-BTC (Circular 130) provides a tax refund for short-term investment (under 12 months) with special provisions for businesses not executable within a year such as ship construction. Value Added Tax (VAT) can then be refunded for a few years only until the ship is completed and exported abroad, regardless of the total investment. This specific case should be extended to other similar industries.

Circular 130 is referring to declaration period for tax refund and elaborates the whole system around this notion without giving a clear definition and measurement. According to Circular 130, VAT is not refundable for domestic sale activities but is refundable up to 10% of the revenue generated by exported goods and services. However, the distinction is thin for enterprises doing both activities.

Besides, VAT refund for trading of imported and exported goods is not clearly explained in Article 1 of Circular 130., notably for determining the activities eligible for VAT refund. Circular 119/2014/TT-BTC adds that input VAT deduction requires non-cash payment except for gifts and donations, but excludes samples and test items.

In addition, some imported goods and services are subject to 5% VAT notably in health care industry according to Article 10.11 of Circular 219/2013/TT-BTC guiding the implementation of the Law on VAT. Article 10 of draft Decree guiding Law 106/2016/QH13 prevents businesses with 5% VAT to be entitled to VAT refund. The input costs related to such businesses being subject to 10% VAT and the input VAT not refundable are significant amount for enterprises to maintain their activities.

The services exported and “consumed outside Vietnam” have a VAT rate of 0%, whereas a VAT rate of 10% applies when such services are consumed in Vietnam. Tax authorities often focus on the place the service is performed more than on the place it is used. The notion of export services should be reviewed without allowing differing interpretation so that one definition – based on the location of the consumer – and one rule prevail.

Under the Vietnamese Law, warranty is a service the supplier provides at the expense of the buyer but not attached to goods or services delivery. Circular 103/2014/TT-BTC issued by Ministry of Finance made clear that warranty attached to goods delivered at Vietnam’s borders were not submitted to withholding tax. For the contracts signed prior to Circular 103, the situation is not clear and the Ministry of Finance should establish clear provisions. Furthermore, guidelines on provisions for foreign suppliers’ responsibility would help ensure the efficiency of free warranties for the buyer.

Circular 39/2014/TT-BTC sets out the criteria of issuing invoices as a condition to determine the finished date of service provision without explaining the term “finished”. It may depend on type, frequency or period (per month, per hour) of service. More details on the definition of finished service and the calculation of the payment time should be provided.

Outlook on the EVFTA

The EVFTA signed on December 2 2015, will offer great investment opportunities for Vietnam. With elimination of almost all tariff barriers (85% right after the EVFTA’s entry into force, 99% a few years after), the automotive industry as well as trades in sectors such as textile and footwear will be boosted.

The Government is already supporting foreign investment by implementing a favorable policy and strict respect of a stable economy and a controlled inflation. We can expect that the EU will influence the resolution of tax issues and will impose fixed and determined tax rules to apply in Vietnam.

Most important issues

– Local tax departments should be clearly guided about enterprises’ incentives and the notion of project expansion.

– The taxation system with declarations and incentives in several documents, is too complex for enterprises to comply with. The tax refund calculation method must be clearly stated to help taxpayers apply regulations properly.

– Granting VAT refund for business establishments exporting goods and services and not for businesses with output VAT at 5% may be regarded as discrimination in term of taxes among businesses.

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!

February 3, 2017 by Dr. Oliver Massmann

VIETNAM – PRIVATE SECTOR DEVELOPMENT – OUTLOOK ON THE EUROPEAN UNION VIETNAM FREE TRADE AGREEMENT (EVFTA)

The private sector is an intrinsic part of the economic and social development. Yet Vietnam does not have as many private enterprises as its neighboring countries.

Private enterprises enhance job creation, Gross Domestic Product and competitiveness. In order to achieve the private sector development, Vietnam should provide elements enhancing technological reform and innovation support, develop measures against corruption and finally encourage the return of Vietnamese young talents to Vietnam.

Encouraging innovation, international cooperation and global supply chain operation

The agriculture industry serves as a good example of differences we can find between Vietnamese industries and developed countries’ ones. In Vietnam, the agricultural sector is mostly made of small and medium enterprises (SMEs) with low product value and most of them did not invest in hi-tech equipment. Thus to raise productivity, not only technological reform, but innovation as well as investment in hi-tech sectors must be encouraged. Cooperation with foreign enterprises would accelerate the development and exploitation of new technology products, inventions, machinery that undoubtedly increase product value and competitiveness.

In addition, with establishment of international brands, Vietnamese enterprises could attend international fairs and exhibitions where they would approach other enterprises and techniques. Vietnamese enterprises would then be more likely to receive knowledge and to develop international cooperation with foreign enterprises. The Vietnamese Government and Vietnamese associations could co-organize business delegations to exhibit, outside Vietnam, its industry and production to compare the product value and understand the expected requirements.

Private enterprises do not manage to operate a complete supply chain which has a great impact on export. Indeed, it implies higher costs for finished products, longer delay for production and finally a decreased competitiveness. Policies aiming at promoting local investment and international cooperation for the acquisition of new techniques and technologies must be promulgated. With the Trans-Pacific Partnership, the EVFTA and all free trade agreements Vietnam has signed, new requirements are expected from Vietnam.

Fighting against corruption and supporting credit to SMEs

The Ministry of Planning and Investment noted that half of Vietnamese enterprises is having difficulties to obtain credits due to the lack of transparency in their operation, lack of transparency caused by unofficial payments to Government’s agencies. The Government has already manifested its will to combat corruption in the Directive 12/2016/CT-TTg issued by the Prime Minister in April 2016, which tasks Ministries, People’s Committees and the Government Inspectorate with direct inspection and handling corruption-related matters. Moreover, the Government is drafting a law to support SMEs and enhance their role in the global supply chain. A practical mean to control corruption could be to encourage the use of non-cash payments to Government’s agencies and to adopt business codes of conduct.

The Government has duties to enhance private enterprises’ development and businesses by encouraging account transparency and implementing preferential tax policies. To fulfill its duties and facilitate credit access for SMEs, the Government should also establish itself a link between enterprises in need for capital and credit institutions. Therefore in order to facilitate loan procedures, the Government should lower interest rates and require credit institutions increase loans to businesses.

Improving the Corporate Governance

Development of the private sector goes together with the improvement of the Law on Enterprise 2014, in which the Government’s policies appeared to be more comprehensive than in the previous Law on Enterprise 2005. Nevertheless, regarding the corporate governance, more efforts could be managed to reach international standards. Regarding the advantages, most of foreign private enterprises choose the form of Single-Member Limited Liability Company (SMLLC) to establish their presence in Vietnam.

The question of how a SMLLC manager exercises its powers shows the necessity to improve the corporate governance and integrity. Article 75 of the Law on Enterprise gives the manager a supreme authority in dealing with his business. However, the owner cannot directly use its power and must act through the Member’s council or the Company’s President which means that he only has the power to nominate the people acting on behalf of the company and ratify their decisions. The regulations should thus be more specific on what decisions require the owner’s approval and which do not.

A general clarification of provisions related to corporate governance will help the development of a clear and transparent business and contribute to promote integrity in businesses’ establishment and transactions.

Attraction and training of qualified workforce

Young talents such as Vietnamese students or young professionals overseas must be attracted back to Vietnam as they constitute a highly efficient mean to allow transmission of foreign know-how and considering the undeniable need for innovation. The Government should then encourage the promotion of talents’ knowledges especially those acquired abroad. In order to attract them, private enterprises should offer students or professionals a deserved remuneration and the opportunity to become part owners in businesses, as the best way to secure a lasting professional relationship.

In addition, for the enterprises to receive foreign knowledges and deepen the spillover effects, local workforce needs a specific training in order to meet with industrial requirements regarding productivity, products quality etc. It is only then that SMEs will be able to perform a complete supply chain. The Government should assist the creation of specialized schools and the development of intensive program centers in cooperation with local universities. Indeed, the private enterprises’ competitiveness starts with a highly qualified labor force.

Outlook on EVFTA

On December 02 2015, the EVFTA is signed and is planned to enter into force by January 2018. Under this agreement, almost all tariff lines disappear and many tax duties are reduced. For some products such as agricultural products, tariff rate quotas are put in place.

We can expect many consequences. Firstly, the consolidation of Vietnam’s privileged position in the ASEAN as one of few countries to have signed a free-trade agreement with the EU (except for Singapore which concern different trade). Secondly, Vietnam will have to meet more requirements especially in productivity, product value and workforce qualification. Then, a lot of investment will flow from Europe to Vietnam and will bring capital to more businesses helping them to finance innovative products and techniques and to perform a complete supply chain in the textile and footwear industry.

Finally, real wages of qualified laborers are expected to increase by up to 12%, leading to attract more students and young professionals overseas to Vietnam. The EVFTA will assist the Government in helping private enterprises through investment and expected requirements.

The most important issues

– The situation is, at the present time, precarious for SMEs. The development of private enterprises remains a priority and the EVFTA is expected to help the Government support private enterprises.

– Innovation is the key to access a complete supply chain and requires precise needs in order to perform it: young talents, favorable policies and capital.

– Education, by means of well thought programs and abroad studies, is necessary to prepare the workforce to embrace new requirements and increase products value and private enterprises’ competitiveness.

– Corruption is a drag in the private sector development because it limits credit access and discourages foreign investment. This issue also impacts the whole economy development and requires immediate reaction from the Government through mandatory measures.

– Reorganization of the corporate governance will benefit companies especially SMLLC by creating a clear and transparent business environment and promoting integrity.

***

Thank you!

February 2, 2017 by Dr. Oliver Massmann

VIETNAM TAX ISSUES – OUTLOOK ON THE EUROPEAN UNION VIETNAM FREE TRADE AGREEMENT (EVFTA)

Granting tax incentives

Official Letter 12404/BTC-TCT and Circular 96/2015/TT-BTC, both issued by the Ministry of Finance (MOF), grant Corporate Income Tax (CIT) incentives for enterprises established before 01^st January 2014 and not yet operational. Some local tax departments have refused to recognize such incentives and asked enterprises to amend their charter while making their business starts in 2014 in order to be entitled to CIT incentives. This request is acting towards the MOF’s willingness to boost investment and should be dropped out.

Resolving tax payment issues

Late tax payment is also subject to penalty . Yet, several contradictory documents have been issued and it became complicated to determine on what basis to calculate the late payment interest. Indeed, Circular 26/2015/TT-BTC issued by the Ministry of Finance states a rate of 0.05% per day accordingly to the deficit of the tax payable until the tax is fully paid, for taxes declared before January 1^st 2015 and found insufficient after the same date. Circular 130 contends that the late payment interest is regulated for each period. The two documents provide inconsistent guidelines, thus putting enterprises in a very delicate situation.

Explaining VAT calculation and refund

Outlook on the EVFTA

Most important issues

– Local tax departments should be clearly guided about enterprises’ incentives and the notion of project expansion.

– Granting VAT refund for business establishments exporting goods and services and not for businesses with output VAT at 5% may be regarded as discrimination in term of taxes among businesses.

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!

January 24, 2017 by Dr. Oliver Massmann

VIETNAM CASINO BUSINESS BREAKING NEWS – THE LAW IS ISSUED – VIETNAMESE CAN GAMBLE – WHAT YOU MUST KNOW:

On 20 January 2017, the Government issued a long-awaiting casino business decree No. 03/2017/ND-CP (Casino Decree) allowing Vietnamese nationals to gamble in the country fort the first time in history on this scale.

Here are the key features of the Casino Decree:

Casino business, as defined by Casino Decree, means prize winning games on (i) electronic gaming machine with prizes (i.e. – men vs. machine) and (ii) gaming table with prizes (i.e. – men vs. men).
Casino business is treated as a conditional business sector. Investors must apply for a licence which is evidenced by a certificate of satisfaction of casino business conditions (the Casino Business License in short).
A casino must be located inside a larger resort complex or the like. No separate casino sites are permitted. This requirement obliges the applying entities to go through 02 licensing processes, which are:

(i) An investment registration certificate for resort complex (IRC); and

(ii) A Casino Business License for the casino itself.

A Casino Business License’s term is within 20 years from the date of issuing the relevant IRC or in-principle approval of the investment. Another 10 year extension is permitted but still within the lifespan of IRC.
Conditions are various and somewhat ambiguous and discretionary including a US$2 billion of total investment capital. 50% of which must be contributed before issuance of the Casino Business License
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). Probably the Ho Tram Resort will join the list.
Local players are permitted to enter casinos if they essentially satisfy 05 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;

(iv) Not being objected in writing by siblings, spouses and/or biological and adopted parents to play at casinos;

Vietnamese currency is the only currency used for conversion transactions at casinos for local players.
For local players, entrance fee for a 24 hour participation is US$45 (or $1,100 for a monthly unlimited pass).
Number of gaming tables and gaming machines depends on investment size. That is, for each US$10 million lot that the investor actually released, a package of 1 gaming table and 10 gaming machines are permitted.

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!

January 20, 2017January 20, 2017 by Dr. Oliver Massmann

VIETNAM – GUIDE to Anti-Money Laundering

Member of Financial Action Task Force (FATF)?

No, Vietnam is currently not a member of FATF.

On FATF Blacklist?

No.

Member of Egmont?

No.

ML background in region
- Overview of country risks

Vietnam’s deeper integration into regional and world’s economy for the past few years has been a great opportunity for international money laundering crimes. However, money laundering activities only become clearly visible recently though bank accounts opening, securities trading, gambling, illegal transfer of foreign currencies out of the country, use of credit cards, etc. Combating money laundering becomes one of the top concerns not only for the State Bank of Vietnam but also other relevant authorities in Vietnam. According to a report of the State Bank of Vietnam, in 2012, suspicious transactions have a total value of VND51,000 billion, while in 2013 is VND79,000 billion and in 2014, the value goes up to VND119,000 billion. This shows an increasing and alarming number of transactions suspicious of money laundering. We note that the Law on Anti-money Laundering took effect on 01 January 2013. However, it seems that the anti-money laundering legal framework is still not sufficient, guiding implementation remains unclear, awareness of credit institutions of money laundering is low, ability to detect money laundering activities is weak, information technology in anti-money laundering activities is not sufficient, and especially punishment regime for violating acts of the AML is only formalistic. The Government, especially the State Bank of Vietnam is strongly recommended to tighten their regulations in this sector.

Key Directives / Legislative framework

Law on Prevention of and Anti Money Laundering No. 07/2012/QH13, issued by the National Assembly on 18 June 2012 (“AML”);
Decree No. 116/2013/ND-CP on detailing the implementation of certain provisions of the AML (“Decree 116”);
Circular No. 35/2013/TT-NHNN on guiding the implementation of certain regulations on anti- money laundering, issued by the State Bank of Vietnam on 31 December 2013 and amended by Circular No. 31/2014/TT-NHNN; and
Penal Code No. 15/1999/QH10 issued by the National Assembly on 21 December 1999, as amended by Law No. 37/2009/QH12.

Who are the regulators / monitoring authorities
- Who are affected / reporting entities?

According to the AML, the following state authorities are responsible for reporting, preventing, and fighting against money laundering activities:

SBV is mainly responsible to the Government for state administering the implementation of AML regulations;
Ministry of Public Security is responsible for collecting, receiving and investigating information of money laundering related crimes;
Ministry of Finance is responsible for implementing AML measures in insurance business, securities sector, prize-winning games and casinos;
Ministry of Construction is responsible for implementing AML measures in real estate business sector;
Ministry of Justice is responsible for implementing AML measures applicable to lawyers, legal practice organizations, notaries and notary public offices;

The People’s Procuracy and the People’s Court coordinate with other agencies in the investigation, prosecution, and resolution of money laundering crimes;
People’s Committees at all levels are responsible for conducting legal training on anti-money laundering in the province, co-ordinating with state authorities to implement policies, strategies, and plans to prevent and fight money laundering; and
The Anti-Money Laundering Steering Committee is responsible for assisting the Prime Minister in preparing strategy, plans, policies and programs in the process of preventing and fighting against money laundering.

Legal requirements for KYC
- Customer Due diligence

According to the AML, in which cases application of measures to identify clients are required depend on the types of entities and which business activities they are conducting. In particular:

– For financial institutions:

ü The clients open accounts or set up transactions with the financial institutions for the first time;

ü The clients who make infrequent transactions of high value or carry out the transaction of electronic money transfer but lack the information about the name, address, account number of the originator;

ü There are doubts about transaction or the parties concerned in transactions are related to the money laundering;

ü There are doubts about the accuracy or completeness of the clients identification information previously collected.

– For relevant non-financial institutions or individuals:

ü Doing business in prize-winning games, casinos: clients implementing high value transactions (i.e.¸ over VND60 million per day);

ü Doing real estate management services, brokerage; real estate transaction floor: when providing these services to the buyer, purchaser and asset owner;

ü Trading in precious metals and stones: when clients performing the sale and purchase transaction of precious metals and stones with value of over VND300 million per day;

ü Providing notary and accounting services, the lawyer’s legal service and lawyer practice organizations: when preparing the conditions for conducting the transactions to transfer the land use right, house ownership, management of money and securities or other assets of the clients; managing the clients’ accounts at banks, securities companies; administrating and managing the operation of the clients’ companies, and participating in the activities of purchase and sale of business organizations on behalf of clients;

ü Providing investment trust services: due diligence for the entrusting party;

ü Providing services of establishment, management and executive of enterprise; supplying registration office, address or place of business; supplying services of company representative : clients requesting such services;

ü Providing services of director and secretary provision of the enterprise to a third party: third party and director / secretary to such director;

ü Providing services of representative supply for shareholders: shareholders and representatives of such shareholder.

The abovementioned services providers/ entities must update the client identification information on a regular basis during the period of having relations with the clients.

In addition, clients must also be classified into different groups, product and services used, their place of residence or headquarter based on different risk exposure levels.

Reporting requirements / Obligations
- Record keeping

Records of clients’ transactions must be kept for at least 5 years from the date of the transaction. Records of customer identification, accounting documents and reports of high value transactions, suspicious transactions and transactions of electronic money transfer exceeding VND500 million or equivalent amount in foreign currency (for domestic transfer) or USD1,000 (for inbound or outbound transfer), must be kept for at least 5 years from the closing date of the transaction or the date of account closure or the reporting date.

Tipping off

The reporting entity/ individual is not allowed to inform a person involved in a suspicious transaction that it has reported or will report the transaction to the State Bank of Vietnam.

Whistleblowing

The AML only sets out regulations on reporting to the State Bank of Vietnam instead of whistle blowing.

Offences
- Enforcements

If the parties related to the transactions are included in the blacklist or there are grounds to believe that the transaction required to be performed is related to the criminal activities, the reporting entity/ individual must apply measures to delay the transaction within maximum 3 working days and must immediately report in writing and notify via phone to the competent State agencies and the SBV for cooperation. If the reporting entity/ individual does not receive any feedback from the competent State agencies after 3 working days, it can proceed the transaction.

In addition, the reporting entity/ individual must block the accounts or seal or temporarily seize assets of the individuals/ organizations upon having decision of competent state agencies under the law and make report on the implementation to the State Bank of Vietnam.

Penalties

Persons violating the AML are subject to administrative sanctions of up to VND250 million, discipline or criminal penalty depending on the nature and seriousness of such violations. The criminal sanctions varies from one year to maximum 15 year imprisonment, together with partly or wholly confiscation of assets, monetary fine of up to 3 times of the violated amount, abandonment of holding certain positions or titles from one to five years.

Internal procedures & training

Pursuant to Article 20 of the AML, reporting entities/ individuals must establish internal procedures on prevention and combating money laundering with the following contents:

ü Client acceptance policy;

ü Processes and procedures to identify clients, verify and update client information;

ü Transactions which must be reported;

ü The process of review, detection, handling and reporting of suspicious transactions; the way to communicate with the clients who make suspicious transaction;

ü Information keeping and security;

ü Applying temporary measures and principles of handling the cases of transaction delay;

ü Reporting and information supply regime to the State Bank of Vietnam and the competent state agencies;

ü Professional training on the prevention of and combating money laundering;

ü Internally controlling and auditing the compliance with the policies, regulations, processes and procedures related to the prevention of and combating money laundering, responsibilities of each individual and division in the implementation of internal rules in the prevention of and combating money laundering.

Sanctions
- International conventions

International cooperation in the field of prevention of and combating money laundering includes: (i) exchange of information on prevention of and combating money laundering; (ii) determining and blocking assets of the violating persons; (iii) performing judicial assistance and cooperation in extraditing money laundering offences; and (iv) other aspects. The process, procedures and cooperation methods are in accordance with international agreements to which Vietnam is a party.

CTF – Countering terrorist finance

The Ministry of Public Security is tasked with the preparation of a list of organizations and individuals related to terrorism and terrorist finance (“Blacklist”). The reporting entity/ individual must promptly report to the competent anti-terrorism authorities, and at the same time send reports to the State Bank of Vietnam upon detecting organizations and individuals to conduct transactions included in the blacklist or when there is evidence that other organizations and individuals commit acts related to the money laundering crime for terrorism financing.

At the same time, the reporting entity/ individual must apply measures to delay the transaction and block the accounts or seal or temporarily seize assets of the individuals/ organizations.

Anti bribery and corruption laws

Corruption is widespread throughout Vietnam. For information, Vietnam ranks 111 out of 168 according to 2015 Corruption Perception Index, a barely budge compared with its rank in 2014 (119^th) and in 2013 (116^th). Sectors most affected by corruption are Police; Public administration; Health sector, Judiciary; and Land management. Vietnamese government has acknowledged the negative impact of corruption on both Vietnam’s future prosperity and the Party’s own legitimacy, thus has adopted one of the most comprehensive and ambitious anti-corruption laws in Asia. The anti-corruption legal framework has significantly improved after the adoption of the Anti-corruption Law by the National Assembly in 2005 and the National Strategy on Anti-corruption to 2020.

However, in the last ten years of implementation, considering the increasing level of complexity of corruption cases, the current legal framework has been proved to be inadequate to combat corruption in Vietnam. This prompted the Vietnamese Government to refine the current regime to make the policies fully effective and operational in practice.

Draft Law provides a new chapter on Assets and Income Transparency and Control. Deputies to the National Assembly and People’s Councils, officials holding positions as from deputy head of division in People’s Committee of districts, Secretary, Deputy Secretary, Chairman, Deputy Chairman of People’s Committee, people who work in public companies, credit institutions, etc. must enumerate their assets and incomes. In case their actual assets and incomes are bigger than ones enumerated, the competent authorities shall request tax authority to collect taxes applied on the discrepancy between actual assets and incomes and the ones enumerated; initiate a law suit before courts.

A new section of “Anti-corruption at social organizations” is added. Chairman, General Secretary, Chief Accountant of a social organization must enumerate their assets and incomes.

Draft Law also provides a new chapter on “Forming a healthy and anti-corruption business culture.” Specifically, enterprises are liable to issue and implement a code of ethics internally in order to form a healthy and anti-corruption business culture. In its charter and operation policy, the enterprise is responsible to provide its internal control mechanism to prevent conflict of interests, bribery, abuse of powers and other corruption acts. Chairman of Board of Directors, members of Board of Directors, General Director, Directors, Head of Inspection Committee, Chief Accountant of a public company, credit institution, investment fund must enumerate their assets and incomes. Enterprises are liable to issue their policy on control of their management staff’s assets and incomes control.

There is no definition of “bribery” under Vietnam laws. However, in essence, it could be defined as an act of offering, promising, making or receiving money or anything of value (minimum threshold: VND 2 million (approx. US$ 100) to induce or influence an act/ omission or decision. The current laws only target people with positions and power (i.e., state officials). Please note the receipt of minimum VND2 billion is subject to death penalty.

Forthcoming issues/legislation

o Money transmitters

Money transfer transactions with nature mentioned under Customer Due Diligence and Record Keeping sections are subjects of the AML. The laws regarding these issue remain in force and there is no information that these rules will be revised in the short term.

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!

January 19, 2017 by Dr. Oliver Massmann

VIETNAM INSURANCE GUIDE

Market overview

Global

Member of International Association of Insurance Supervisors (IAIS) ?

Yes, Vietnam became member of IAIS in 2007.

Global regulators, bodies and legislation applicable to country

A project “ComFrame” set up by the Internationally Active Insurance Groups (IAIG related to IAIS), is planned to establish regulatory framework with mandatory standards. For now, it remains at the test phase but would become effective by 2019. Vietnam, as a member of the IAIS will have to comply with its regulations.

As a member of the WTO and WHO, Vietnam must also comply with regulations of these organizations with respect to insurance. In its bilateral / multilateral agreements such as Korea – Vietnam FTA, EU- Vietnam FTA, Hong Kong – ASEAN FTA, ASEAN- China FTA, ASEAN – Australia – New Zealand FTA, commitments on insurance are also binding on Vietnam

In addition, Vietnam is a member of the OECD, which issues guidelines and good practices of non-binding nature for member countries.

European (if applicable) Not applicable for Vietnam

Supervised by EIOPA?
Does Solvency II apply?
Key regulators and rulebooks

Domestic

Key regulators

The Ministry of Finance is in charge of the state regulation on insurance business. In addition, on 12 February 2009, the Ministry of Finance (MOF) issued Decision No. 288/QD-TTg to establish the Insurance Supervisory Authority (ISA) under the MOF. The ISA will assist the Minister of the MOF to regulate insurance business nationwide; directly govern and supervise insurance business activities and services related to insurance business in accordance with law.

In June 2009, Insurance Research and Training Centre (IRTC) under the ISA was established according to Decision No. 1379/QD-BTC . The IRTC is tasked with organizing scientific study and training on insurance and insurance market.

Laws and relevant court decisions/judgements

The following laws and regulations mainly govern insurance business in Vietnam:

Law on Insurance Business issued by the National Assembly on 09 December 2000, as amended by Law No. 61/2010/QH12 dated 24 November 2010 (Law on Insurance Business);
Decree No. 73/2016/ND-CP on guiding the implementation of the Law on Insurance Business issued by the Government on 01 July 2016 (Decree 73);
Decree No. 98/2013/ND-CP on administrative sanctions on insurance business and lottery business issued by the Government on 28 August 2013 (Decree 98);
Circular No. 195/2014/TT-BTC on guiding the assessment and classification of insurance companies issued by the Ministry of Finance on 17 December 2014 (Circular 195);
Circular No. 101/2013/TT-BTC on guiding the management and use of fund for policy-holders, issued by the Ministry of Finance on 30 July 2013 (Circular 101);
Decision No. 1826/QD-TTg of the Prime Minister on approving the Plan on “Restructuring the securities market and insurance companies” on 28 December 2012 (Decision 1826).

Key rules and requirements may include

Senior management responsibilities

Promulgation of legal instruments and implementing guidelines on insurance business; formulation of strategies, policies, master planning and specific plans for the development of the Vietnamese insurance market;
Issuance and withdrawal of licenses for establishment and operation insurers and insurance brokers, and of licenses for establishment of representative offices of foreign insurers and foreign insurance brokers in Vietnam;
Promulgation, ratification and guiding the implementation of insurance regulations, provisions, scales of premiums and commissions;
Supervision of insurance business activities via professional activities, financial status, enterprise management, risk management and compliance with the law on insurers and brokers; application of necessary measures to ensure that insurers satisfy the financial requirements and fulfil their undertakings to purchasers of insurance;
Organization of provision of information on the status of the insurance market and market forecasts;
International cooperation in the area of insurance;
Consent for overseas operations of insurers and insurance brokers;
Administration of the operations of representative offices of foreign insurers and foreign insurance brokers in Vietnam;
Organization of the formation and training of a workforce of insurance management personnel and insurance professional experts; and
Inspection and checks of insurance business activities; resolution of complaints and denunciations, and dealing with breaches of the laws on insurance business.

Whistle-blowing rules

There is no such rules specifically for the insurance sector.

Foreign ownership limit in an existing shareholding company

ü The maximum shareholding by an individual shareholder is limited to 10% of the charter capital of the target company;

ü The maximum shareholding by an institutional shareholder is limited to 20% of the charter capital of the target company; and

ü The maximum shareholding owned by a shareholder and related persons/affiliates in aggregate is limited to 20% of the charter capital of the target company.

Capital reserve requirements

Reserve funds

Insurers and insurance brokers must establish a compulsory fund to supplement their charter capital and ensure their solvency. Appropriations for the compulsory reserve fund shall be made annually at 5% of after-tax profits. The maximum amount of compulsory reserve fund is equivalent to 10% of the charter capital of the insurance enterprise or issued capital of the foreign branch.

In addition to this compulsory reserve fund, insurers and insurer brokers may establish other reserve funds from their after-tax profits of the fiscal year as determined in their charter. It is noted that after-tax profits must not be first shared among shareholders but only after 5% of such profits is contributed to the compulsory reserve fund.

Insurance reserves

Insurance reserve means an amount of money which an insurer must set aside to pay for its insurance liabilities determined in advance and arising from the insurance contracts which it has entered into.

Insurance reserve must be established for each type of insurance product or insurance contract with respect to that part of liability retained by the insurer or foreign branch. Specific amount contributed for insurance reserve is not yet provided by the MOF given the recent effectiveness of Decree 73.

Security deposit

Insurers must pay a security deposit into a commercial bank operating in Vietnam in an amount of 2% of the legal capital as specified for each type of insurance company (for example, a health insurance company must pay a security deposit of VND6 billion or USD270,000) within 60 days from the issuance date of the operating license in Vietnam. An insurance enterprise or foreign branch may only use its security deposit to meet undertakings to purchasers of insurance when its solvency is inadequate and upon written approval of the MOF. The whole amount of their security deposit can only be withdrawn upon termination of their operation.

Product specific legislation

Relevant advisory documentation or other requirements, including tax.

Life

Legal capital

ü For life insurance business (excluding unit linked insurance and retirement insurance) and health care insurance business: VND600 billion

ü Life insurance business and unit linked insurance business or retirement insurance business: VND800 billion

ü Life insurance business, unit linked insurance business and retirement insurance business: VND1,000 billion.

Qualifications of the appointed actuary

ü Not be prohibited from managing an enterprise according to Vietnam laws;

ü In the three consecutive years prior to the time of appointment:

o Not have been subject to an administrative penalty for a breach in the insurance business sector with the form of penalty being compulsory dismissal from his or her position as a manager or executive, approved by the MOF, or with the form of penalty being suspension from a position to which such person was appointed by an insurance enterprise, insurance broker or foreign branch;

o Not have been disciplined in the form of dismissal for a breach of internal rules on underwriting, assessment, compensation and indemnity, internal control, management of finance and investment or management of a re-insurance program in an insurance enterprise or foreign branch; or for a breach of the rules on professional insurance broking operations, on internal control or professional ethics of an insurance broker;

o At the time of being appointed as a manager or executive of an insurance enterprise or foreign branch, not be directly related to any case prosecuted by a competent agency.

ü Have undergone training as an appointed actuary, and have at least 10 years’ work experience as an appointed actuary in the life insurance and be a fellow of one of the Associations of Actuaries which are widely recognized internationally such as the Institute of Actuaries of England; the Society of Actuaries of the USA; the Institute of Actuaries of Australia; the Canadian Institute of Actuaries; or be a member of another Association of Actuaries which is an official member of the International Associations of Actuaries; or have at least 5 years’ work experience as an appointed actuary in the life insurance or health insurance sector from the time of becoming a fellow of one of the above associations.

ü Not have committed any breach of the professional ethics of actuaries.

ü Be an employee of the life insurer.

ü Be resident in Vietnam during the term of office.

Permitted scope of business

Life insurers are not allowed to do non-life business.

Life insurance products must be approved by the MOF in advance.

Insurance reserve

Insurance reserve for life insurance companies includes: actuarial reserve, unearned premium reserve, compensation reserve, profit distribution reserve, committed interest rate reserve and balance reserve.

Investment of idle capital from insurance reserves

Investments of idle capital from insurance reserves of insurance enterprises or foreign branches may be made directly by the insurance enterprise or foreign branch or by entrusting another entity to make the investment, but shall only be invested in Vietnam in the following sectors:

ü Purchase of Government bonds, Treasury bills, Treasury bonds, public bonds for construction of the Homeland, local authority bonds and Government guaranteed bonds without any restriction;

ü Deposits with credit institutions without any restriction;

ü Purchase of shares, bonds of enterprises and fund certificates but not to exceed 50% of idle capital from insurance reserves;

ü Real estate business in accordance with the Law on Real Estate Business but not to exceed 20% of idle capital from insurance reserves;

ü Capital contribution to other enterprises but not to exceed 20% of idle capital from insurance reserves.

General insurance

Under Vietnam laws, general insurance is called non-life insurance, which means the types of insurance products being property insurance, civil liability insurance and other products which are not life insurance.

Legal capital

– For non-life insurance business (excluding aviation insurance business and satellite insurance business) and health insurance: VND300 billion

– For non-life insurance business (including aviation insurance business or satellite insurance business) and health insurance: VND350 billion

– For non-life insurance business, including aviation insurance business and satellite insurance business and health insurance: VND400 billion

Qualifications of an appointed actuary regarding reserves and solvency of non-life insurer

ü Not be prohibited from managing an enterprise according to Vietnam laws;

ü In the three consecutive years prior to the time of appointment:

o At the time of being appointed as a manager or executive of insurance enterprise or foreign branch, not be directly related to any case prosecuted by a competent agency.

ü Be an associate of an Association of Actuaries which is an official member of the International Associations of Actuaries; or

ü Have at least five years’ work experience in the non-life insurance sector and have evidence of passing two exams of one of the following Associations: the Institute of Actuaries of England; the Society of Actuaries of the USA; the Institute of Actuaries of Australia, and the Canadian Institute of Actuaries, or evidence of passing exams of a training course or program on actuaries recognized by the above Associations as equivalent to two exams of the above Associations; and

ü Not have committed any breach of the professional ethics of actuaries.

Permitted scope of business

Non-life insurance companies are allowed to do health insurance business.

Insurance reserve

Insurance reserve for non-life insurance companies includes unearned premium reserve, claim reserve, and large loss fluctuation reserve.

Investment of idle capital from insurance reserves

ü Purchase of Government bonds, Treasury bills, Treasury bonds, public bonds for construction of the Homeland, local authority bonds and Government guaranteed bonds without any restriction;

ü Deposits with credit institutions without any restriction;

ü Purchase of shares, bonds of enterprises, fund certificates and capital contribution in other enterprises but not to exceed thirty five (35) per cent of idle capital from insurance reserves; and

ü Real estate business in accordance with the Law on Real Estate Business but not to exceed ten (10) per cent of idle capital from insurance reserves.

Reinsurance

Legal capital

– For non-life reinsurance business or both non-life reinsurance business and health reinsurance business: VND400 billion;

– For life reinsurance business or both life reinsurance business and health reinsurance business: VND700 billion;

– For business in all three types of life reinsurance, non-life reinsurance and health reinsurance, VND1,100 billion.

Qualifications of an appointed actuary regarding reserves and solvency of reinsurer

Same as in non-life insurance.

Permitted scope of business

ü An insurance enterprise or may transfer part but is not permitted to assign all of the liability for which insurance has already been accepted in an insurance contract to one or a number of domestic and foreign insurance enterprises, and other foreign branches;

ü The maximum level of the liability retained on each risk or on each separate loss shall not exceed 10% of equity.

ü If an insurance enterprise cedes reinsurance as appointed by an insured person, the maximum rate for re-insurance by appointment shall be 90% of the liability insured;

ü An insurance enterprise may accept reinsurance of the liability for which another insurance enterprise has already accepted insurance.

Insurance reserve

– For non-life reinsurance: unearned premium reserve, claim reserve, and large loss fluctuation reserve;

– For life reinsurance: actuarial reserve, unearned premium reserve, compensation reserve, profit distribution reserve, committed interest rate reserve and balance reserve;

– For health reinsurance: actuarial reserve, unearned premium reserve, compensation reserve, and balance reserve.

Investment of idle capital from insurance reserves

– For non-life reinsurance: same as non-life insurance

For life reinsurance and health reinsurance: same as life insurance and health insurance

Commercial insurance

Please refer to the Section on General insurance above.

Investment management and markets

Overview of relevant regulation affecting insurers’ investment portfolios, including Asset Liability Management (ALM).

An insurance enterprise can make investment from its equity, idle capital from insurance reserves and other lawful sources.

In addition to rules of domestic investment of idle capital from insurance reserves as mentioned above for each type of insurance business, the following principles apply:

ü It is not permitted to borrow loans for purposes of direct investment or entrusted investment in securities, real estate, or capital contribution to other enterprises;

ü It is not permitted to reinvest in any form [being lending to or reinvesting with] capital contributing shareholders (members) or related persons [affiliated persons] as defined in the Law on Enterprises, except for deposits with shareholders (or members) which are credit institutions;

ü It is not permitted to invest more than 30% of its investment capital sources in companies within one Group or within one group of companies with a mutual ownership relationship (this provision shall not apply to deposits at credit institutions and offshore investment capital sources in the form of establishment of enterprises or branches overseas);

ü In the case of investment entrustment, the organization accepting entrustment must be issued by the competent agency with a licence to carry out the activities of acceptance of investment entrustment in compliance with the contents of acceptance of investment entrustment.

An insurance enterprise may also make offshore investment but only to set up offshore insurance company or an offshore insurance branch. Such offshore investment must be approved by the MOF.

Enforcement and investigation

Rules of regulatory investigation

Insurance business activities must be checked without overlapping and no more than once in respect of one item in any one year with respect to enterprises (except for the case of an extraordinary or unscheduled check).

Complaints procedure

There is no specific rule on complaints handling procedure in insurance enterprises. Instead, such rules are as indicated in the insurance contracts and must follow relevant regulations of the Civil Code and economic agreements.

Complaints on administrative decisions will be handled according to laws on complaints and denunciations, which are applied for all sectors.

Redress, including Ombudsman service

Depending on the nature and seriousness of violations, the violators may be subject to administrative sanctions (warnings, monetary fines, suspension of operation, remedies) or criminal penalty. In case of causing damages, they must compensate according to Vietnam laws.

Insurance mediation compensation schemes

As indicated in the insurance contract. The insured person has maximum one year to claim for indemnity from the date of occurrence of the insured event. Upon occurrence of such insured event, the insurer must pay the indemnity with the time-limit stated in the insurance contract. If there is no statement in the contract, the time-limit is 15 days from the date of receipt of a complete and proper application requesting payment of indemnity.

Personal accident and health care insurance

– Personal accident insurance: the insurer must pay insurance proceeds to the beneficiary up to the sum insured, based on the actual injury of the person insured and as agreed in the contract.

– Health care insurance: the insurer must pay insurance proceeds to the beneficiary up to the sum insured, based on the costs of medical examination, treatment and convalescence of the insured person arising as a result of an illness or accident and as agreed in the contract.

Property insurance

– Property insurance below value: the insurer is only responsible to indemnify in accordance with the ratio of the sum insured to the market value of the insured property at the date of entering the contract.

Double insurance contracts

Upon occurrence of the insured event, each insurer is only responsible to indemnify in accordance with the ratio of the agreed sum insured to the total sum insured under all insurance contracts which the purchaser of the insurance has entered into. The total sum of indemnity payable by all the insurers will not exceed the value of the actual property damage.

Insolvency and policy-holder protection

Relevant resolution regime?

There is no separate insolvency regime for insurers. Instead, the Law on Bankruptcy which deals with bankruptcy and insolvency in all sectors will apply.

The general procedure to handle bankruptcy cases is as follows:

ü Filing the petition to the court to commence bankruptcy procedures (by creditors, employees, grass-root trade union, legal representative of the company, shareholders, Chairman of the Board of Management, etc.)

ü The court will handle the bankruptcy case according to its competence within 6 working days from the receipt of the petition. Decisions to open bankruptcy procedure must be sent to all relevant parties and published on local newspapers and the People’s Supreme Court web portal.

ü Calling for the meeting of creditors

ü Depending on the Resolution of the Creditors’ meeting, the company’s operation can be recovered or the court is requested to announce the bankruptcy.

ü Management and liquidation of assets are conducted by a liquidator or company that is appointed by the court and specializes in the management and liquidation of assets.

Data protection

There is no separate rule governing data protection in the insurance sector in Vietnam. Instead, Vietnam’s data protection laws are scattered in many legislations, which include the Civil Code, the Penal Code, the Law on Cyber Information Security, the Law on Information Technology, the Law on Telecommunications, the Law on Consumer Protection, the Law on E-Transactions and relevant Decrees guiding implementation of the mentioned laws. These laws include provisions to prevent, detect, stop and address spam, computer viruses and cyber-attacks, and protect information exchanged in cyberspace.

There is no consistent definition of “personal information” in Vietnam laws. General speaking, personal information could be any information that could be used to identify a specific person, including information on payment transactions.

Organisations processing personal information must take appropriate management and technical measures to protect personal information that they have collected and stored and ensure that the personal information is not lost, stolen, disclosed, modified or destroyed without consent.

Depending on the nature of violations of data protection policies, administrative fines (warning, monetary fine) and possible remedial measures or criminal penalties might apply.

Corporate governance

Managers and executives of insurance enterprises, foreign branches and insurance brokers are:

ü Chairman of the board of management (chairman of the members’ council or company chairman); members of the board of management (members of the members’ council);

ü Head of the inspection committee; head of the internal audit committee; inspectors (if the enterprise does not establish an inspection committee);

ü General Director (Director); Deputy General Director (Deputy Director);

ü Head of the internal control or audit division; chief accountant; branch directors; heads of representative offices; heads of professional sections; appointed actuaries (in the case of a life insurer or health insurer); appointed actuaries regarding reserves and solvency (in the case of a non-life insurer or foreign branch).

Allocation of these people must follow the below principles:

ü A member of the board of management or members’ council of an insurance enterprise or insurance broker is not permitted to concurrently be a member of the board of management or members’ council of an enterprise operating in the same sector (non-life insurance, life insurance, reinsurance or insurance brokerage);

ü The general director (director) or deputy general director (deputy director) of an insurance enterprise, foreign branch or insurance broker is not permitted to concurrently work for another insurance enterprise, foreign branch or insurance broker operating in the same sector in Vietnam; and the general director (director) of an insurance enterprise, foreign branch or insurance broker is not permitted to be a member of the board of management or members’ council of another insurance enterprise or insurance broker operating in the same sector in Vietnam;

ü The general director (director), deputy general director (deputy director), a branch director or a head of a representative office of an insurance enterprise or insurance broker is only permitted to concurrently be the head of no more than one branch or representative office or professional section of the insurance enterprise or insurance broker. The director or deputy director of a foreign branch is only permitted to concurrently be the head of no more than one professional section of such branch;

ü An appointed actuary of a life insurer or health insurer, an appointed actuary regarding reserves and solvency of a non-life insurer, of a reinsurer or of a foreign branch has the duty of organizing implementation of work to ensure the financial safety of the insurance enterprise or foreign branch. An appointed actuary or an appointed actuary regarding reserves and solvency has independent rights regarding his or her professional specialty and is not permitted to concurrently be the general director (director) or chief accountant.

Financial crime prevention

Member of FATF? On FATF blacklist?

Not a members of FATF and not blacklisted either.

***

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!

January 18, 2017 by Dr. Oliver Massmann

Vietnam – Power and Energy– Outlook on the European Union Vietnam Free Trade Agreement (EVFTA)

Vietnam has expressed its commitment to turn to clean and green energy while prioritizing domestic energy in respect with social, economic and energy security goals. The increasing demand of energy is pressuring Vietnam into developing local resources which requires attracting private investment.

Up to now, Vietnam is not self-sufficient to provide the energy corresponding to local demand. Therefore, in order to reach energy efficiency, Vietnam must put in place a double action: developing the local sector thanks to private investment, and set up management tools to reduce electricity waste by users.

A report issued by the “Made in Vietnam Energy Plan” commission, concludes that Vietnam can continue using indigenous energy resources (gas, coal, hydro, oil, wind, solar) until a future green energy is developed. As the fire-coaled sector is expected to be revived, renewal of coal power plants would slow down the air quality deterioration caused by older mega-power coal plants. Yet, other measures could be initiated by the Government.

Encouraging natural gas energy

Vietnam is endowed with natural gas whose use should be preferred to coal use. Indeed, natural gas is a more flexible, cheaper and cleaner fuel than coal. Pursuant to many international agreements encouraging green energy development, Vietnam will be more likely to find financing for renewable energy sector than for coal-fired one.

Investment in exploitation of natural gas should be greatly encouraged as it follows international treaties and is a good economic and environmental opportunity. The Government should then prepare policy and regulatory framework to further enhance foreign and local investment, technology and experience sharing, and to develop successful markets.

Furthermore, development of offshore gas-to-power appears to be another beneficial and economical alternative to imported coal. Not only the cost of natural gas exploitation is less expensive than the cost of clean coal import or production considering taxes and royalties related to gas pricing, but it would also attract more investors. In addition, it would release the State from heavy expenses since the International Monetary Fund estimated that health and environmental costs, with the current energy development plan relying on coal, would reach US$15 billion annually by 2030.

Developing Power Purchase Agreements (PPAs)

The German Agency for International Co-operation issued recommendations regarding wind and solar power purchase agreements (PPAs) for renewable energy. They include specific evaluation of costs and tariffs for PPAs to be more bankable. Ensuring their implementation is greatly encouraged to favor a lasting and sustainable development.

Companies which made public commitment to use renewable energy and any other large power consumer should be entitled to sign Direct Power Purchase Agreements (DPPAs) with power suppliers. We find for instance in the cases of Nike, Coca-Cola, Apple, Google etc., Vietnamese legislation does not allow DPPA. By changing this policy, there will be more foreign investment in the value supply chain of green energy.

Controlling electricity use and reducing energy waste

Through a more efficient use of electricity and reduction of energy waste, Vietnam would be considered a competitive and viable alternative for foreign direct investment. Granting tax incentives for individual households and businesses that reduce their energy use, encouraging solar or wind or any other renewable energy, would depressurize the distribution system and educate users.

Development of waste to energy system in local communities would allow a dual benefit: improve health and hygiene as well as increase power supply and facilitate its distribution. The carbon emissions would be automatically diminished.

Establishment of a Power Price Roadmap using market based pricing with variable pricing considering residential, commercial or industrial use, should prevail. A belief that energy price will remain subsidized by the Government supplants any efforts to promote energy efficiency investment and innovation. Then, knowledge of energy cost may induce consumers and investors to get more efficient equipment and processes.

Recommendations for Government’s regulations

In order to help the Vietnamese Government reach environmental goals, credit enhancement of the state-owned enterprise Electricity of Vietnam (EVN) should be developed. Guaranteeing that EVN will pay for renewable power supplies by increasing international donors will help ensure the projects’ feasibility and encourage investment.

A more sustainable plan can be implemented if enacted with proper policy and regulatory framework. The main recommendation to secure a greener future environment is to lower the part of coal power plants in the power development plan to 2030.

A flexible plan could be established to adjust the future demand and to stop the risk of a higher or lower demand than estimated. This plan should attract more foreign and local sources of investment and reduce reliability on foreign governments. However, establishing mandatory energy efficiencies and construction requirements for housing, office or retail development would also educate and have a positive impact on the renewable energy sector.

Outlook on the EVFTA

The EVFTA signed on December 2^nd 2015 is expected to enter into force by January 2018. Relations between Vietnam and the EU will be greatly intensified, especially since Vietnam is the 2^nd to sign such an agreement with the EU after Singapore, which does not compete in the same fields. Many investors will flow from the EU to Vietnam and bring new technologies and techniques.

A chapter in the EVFTA is dedicated to sustainable development and we can expect that the EU, a firm defender of green and clean energy, will influence Vietnam to review its power development plan in a foreseeable future.

Most important issues

– The coal-fired sector is to be revived according to the power development plan whereas cleaner and more economical alternatives are open to Vietnam.

– The International Monetary Fund has estimated that US$15 billion would be dedicated annually to health and hygiene costs. Air purification or stopping air quality deterioration is an issue to be solved urgently and threatened by the revival of coal energy.

– Allowing DPPAs would boost investment and innovation in green energy sector and depressurize the distribution system.

– Educating suppliers, users and investors through Power Price Roadmap, waste-to-energy system and tax incentives is the most effective way to ensure high observance of the Government’s measures regarding environment.

***

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!

January 16, 2017 by Dr. Oliver Massmann

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:

21 years old or above;
Monthly salary of VND10 million or more (equivalent to approximately US$440);
Entrance fee is VND1 million (US$44)/24 hours/a person;
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!

January 13, 2017 by Dr. Oliver Massmann

VIETNAM – INFRASTRUCTURE DEVELOPMENT – OUTLOOK ON THE EUROPEAN UNION VIETNAM FREE TRADE AGREEMENT (EVFTA)

The Government has enacted several laws in order to promote infrastructure development especially through private investment. The latest one, Decree 15/2015/ND-CP on public-private partnership investment (the PPP Decree), was very promising regarding the forms of contract concerned, the various sectors targeted, the State support or participation and tender requirements. As a matter of fact, its enforcement revealed that more efforts were needed to achieve a successful PPP program.

To implement the PPP Decree, many documents were adopted in various sectors: project development procedures with Circular 02/2016/TT-BKHDT and Decision No. 06/2016/TT-BKHDT issued by the Ministry of Planning and Investment; financial management of PPP projects with Circular 55/2016/TT-BTC issued by the Ministry of Finance; power and energy tackled by the Ministry of Industry and Trade in Circular 23/2015/TT-BCT and Circular 38/2015/TT-BCT and finally transport sector with Circular 86/2015/TT-BGTVT issued by the Ministry of Transport.

Transparency and clearance of the PPP program

The issues remaining after the PPP Decree implementation concern the viability gap funding (VGF) and the project development fund (PDF) which differentiate PPP projects from Build-Operate-Transfer (BOT) ones. Indeed, through availability payments incurred for PPP project, private operators are guaranteed with a profitable VGF regardless of the users’ fees and of the time before being profitable. Regulations on VGF and PDF should be established in order to fully control the PPP scheme.

Furthermore, infrastructure projects do not necessarily have to comply with PPP requirements since other contracts may be less demanding in terms of obligations and using incentives stated in the Investment Law of 2015. The idea, within the PPP program, is to attract private investors such as banks or credit institutions into financing highly-efficient projects and therefore relieving the State from the projects’ funding. This implies granting of more incentives to motivate foreign and local non-state banks.

Under the former regime concerning BOT contracts, a double licensing system was necessary for investors to qualify at selection stage and then for approval of the project and their own capacity. The new PPP Decree does not clarify the process therefore a simplified procedure should be adopted.

Some difficulties, stated during the development of the drafts of the PPP Decree, are restraining project lenders. The first one concerns the impossibility of a mortgage on land use right for foreign contractors in BOT contracts and the issue regarding the interpretation of the land law. A provision of this law stipulates that a mortgage of land use rights is only possible if all land rents have been paid, whereas in BOT contracts land is granted for free. The Government decided then that a mortgage under this circumstance was impossible as no rent has been paid. The PPP Decree seems to allow payment of a nominal rent but this does not solve the mortgage problem for BOT foreign contractors. A practical provision should allow a certain land security for private investors.

Uncertainty regarding Government’s guarantees

Another concern tackles the guarantee on convertibility and remittability of VND income. Without such a guarantee, some BOT projects would not be bankable and sponsors even with the guarantee of exchange rate might be left with a residual risk of unconvertible income. A clear position on guarantees of exchange rates for project with VND revenues would remove the uncertainty.

The governing law for projects with a foreign contracting party or guaranteed by a competent authority in case the parties are two Vietnamese entities, may be a foreign law if not contradictory to the Vietnamese conflict of law rules. There is an uncertainty as whether the Government guarantees offtake or revenues for PPP projects or contracts under foreign or international law.

Furthermore, projects in sectors such as transport, renewable energy as well as traditional thermal power projects should be prioritized and if PPP projects’ proposals were not satisfactory, this implies to attract more foreign investors to develop sustainable projects. In this idea, the Vietnamese Government should financially support projects through guarantees or profitable VGF. In addition, establishing new guidelines on the preparation of PPP program will enhance projects’ planning and financing.

Opportunities within the PPP program

Many PPP projects are signed or about to be signed and all information related to PPP programs are compiled in a dedicated website provided by the Ministry of Planning and Investment and the Authorized State Agencies (ASAs), the latest also having its own list of projects. Achieving a successful PPP program and promoting infrastructure development in Vietnam require more efforts which could start with letting investors choose between PPP Decree and Investment Law. Indeed, imposing the PPP Decree as the exclusive way of developing infrastructure would be counter-effective regarding economy competitiveness.

As power demand is increasing in Vietnam, coal-fired power projects are under negotiations to be set in place for the time renewable energy will be sufficient to replace coal-fired energy. Due to the Paris Agreement, private investors in the coal-fired power sector will be getting rarer to turn to green energy projects.

Finally, the road sector is vital for economy and climate and yet, the risk allocation and concession principles as well as precisions on the bidding process are still expected in the Vietnamese legislation. Those issues should be solved to allow foreign investors’ involvement in the development of transport infrastructure.

Outlook on the EVFTA

As the EVFTA, officially signed on December 2^nd 2015, is expected to enter into force by January 2018, many consequences will emerge. Concerning access to market, Vietnam will be in a privileged situation as the only country of South-East Asia (except for Singapore which does not stand as a direct concurrent) to have signed such an agreement. Both Vietnam and the EU will access a market of hundreds of millions people.

Besides, Vietnam and the EU’s commitments go further than the World Trade Organization’s ones especially in power/energy sector, maritime transport which shows a real effort to create the most sustainable and profitable environment for business and investment. In this idea, the Vietnamese legislation has been amended to become investor-friendly like the Law on Enterprises, the Investment Law and the PPP Decree. Some regulations still need development or implementation but we can expect new provisions and legislation with the entry into force of the EVFTA.

Most important issues

– The impossibility of a mortgage on land use rights for BOT foreign contractors must be rearranged urgently by allowing a certain form of land or building security to insure BOT projects.

– The licensing procedure for BOT investors and contractors should be simplified and regulations on VGF and PDF should be provided.

– A review of the Government’s guarantees and conditions of granting guarantees should be established as to avoid investors’ discouragement at the preparation phase.

– Investment in coal-fired sector might become rarer due to the Paris Agreement which encourages investment in green energy.

– The road sector investment is uncertain when it should be supported to allow foreign investors’ involvement in transport infrastructure development.

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Thank you!