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Lawyer in Vietnam Dr. Oliver Massmann UNNECESSARY TAX AND CUSTOMS RELATED BURDENS ON INVESTORS

The Government has implemented principles and measures in order to create favorable economic environment for enterprises through the issuance of Resolution 35/2016/NQ-CP dated 16 May 2016. These principles include, among others:

  • The State shall ensure the stability, consistency and predictability of relevant policies.
  • Regulations on business shall be clear, transparent and achievable, and the State shall issue reasonable route maps for removal of unreasonable sub-licenses, fees and charges.
  • Competent authorities shall be in charge of examining regulations on tax, tax administration and customs and proposing adjustments to simplify process and save time and business costs.

Continue reading Lawyer in Vietnam Dr. Oliver Massmann UNNECESSARY TAX AND CUSTOMS RELATED BURDENS ON INVESTORS

Lawyer in Vietnam Dr. Oliver Massmann Public Mergers and Acquisitions: Market Analysis Overview

Largest / most noteworthy public M&A transactions in the past 12 months

Oil gas & Chemicals

In May 2017, Earth Chemical bought 100% stake in A My Gia Joint Stock Company at about USD79.2 million.

Financial

In July 2017, Vietnam International Joint Stock Commercial Bank bought 100% business of Commonwealth Bank of Australia (Ho Chi Minh Branch).

Other

Retail

  • Thai group Singha bought 25% and 33% stake in Masan Consumer Holdings and Masan Brewery respectively at a total of USD1.1 billion.
  • VinGroup bought Maximark at an undisclosed value.
  • In April 2017, Shinhan Vietnam Bank bought the retail business of ANZ at an undisclosed value.
  • In May 2017, Bien Hoa Sugar Company and Thanh Thanh Cong Tay Ninh Sugar Company bought 100% charter capital of HAGL Sugar at about USD58.52 million.

Food

  • In December 2016, Fraser & Neave (a Singaporean beverage company) bought 5.4% of Vinamilk’s shares at USD500 million.
  • In late 2016, Deasang Corp bought 99.99% stake in Duc Viet Food Joint Stock Company.
  • In November 2016, Kido Corporation bought 65% stake in Tuong An Vegetable Oil Company at about USD44.52.
  • In late March 2017, CJ Cheiljedang Corporation bought 20% stake in Saigon Trading Corporation at USD8.2 million, bringing its total ownership in Cau Tre Export Products Processing Joint Stock Company to 71.6%.
  • In May 2017, Kido Corporation bought 27% stake in Vietnam Vegetable Oil Industry Corporation, bringing its total ownership in the company to 51%.

Real estate

  • In June 2016, Mapletree Investments acquired Kumho Asiana Plaza project through the joint venture between Kumho Industrial and Asiana Airlines at USD215 million.
  • In July 2016, Mitsubishi bought the Manor Central Park project from Bitexco Group at an undisclosed deal value.
  • Also in July 2016, VinaCapital bought International Centre Building from Keppel Land Ltd. At USD13.8 million.
  • In September 2016, CapitalLand Vietnam bought Ho Chi Minh Cau Kho Land Plot project from River View Company Limited at USD51.9 million.
  • In the first quarter of 2017, Sulyna Hospitality bought 70% stake in a 4-start resort in Phu Quoc from Berjaya Land at USD14.65 million.
  • In the first quarter of 2017, An Gia Investment Corporation and its partner Creed Group bought 5 apartment blocks of La Casa Project of Van Phat Hung Corporation at about USD40 million.
  • In the same period, CapitaLand announced the purchase of 90% stake in CapitaLand Thanh Nien.

Insurance

  • In June 2016, FWD insurance company, a branch of Pacific Century, started the process of acquiring Great Eastern Vietnam after receiving the licence for this acquisition.
  • In June 2016, New Life RE bought Duxton Hotel from Low Keng Huat at USD49.2 million.
  • In April 2017, Aviva Insurance Corporation bought 50% stake of VietinBank Aviva Joint Venture Company from Vietnam Joint Stock Commercial Bank for Industry and Trade.

The major trends in the structuring of public M&A transactions

In Vietnam, M&A transactions usually take the form of either share or asset acquisitions, with share acquisition transactions outnumbering asset acquisition transactions.

Share acquisitions by foreign purchasers are commonly structured as offshore direct investments. The new investor can:

  • Acquire shares or capital contributions from an existing shareholder in the target (for example, a joint stock company, limited liability company, and so on).
  • Subscribe for newly issued shares of the target (for a joint stock company).
  • Make further capital contributions to the target (for a limited liability company).

In the case of an asset deal, a foreign purchaser must generally establish a new subsidiary in Vietnam.

In addition, M&A transactions can also take the form of a merger. One or more companies of the same type can be merged into another company by transferring all assets, rights, obligations and interests to the merged company, terminating the existence of the merging company.

The 2014 Enterprise Law sets out the types of business structuring that can be used by investors as a result of M&A transactions. In addition, the 2014 Investment Law is the first law that regulates M&A transactions and clearly provides that such transactions do not require an investment registration certificate. Now, the foreign investors must seek approval from the local Department of Planning and Investment of the transaction if the:

  • Target company operates in conditional business sectors applicable for foreign investors.
  • Investment leading to foreign ownership of the target company is 51% or more (in particular, from below 51% to more than 51% and from 51% to above 51%).

In other cases, the target company only needs to register a change of membership/shareholding at the Business Registration Division. This change has ended years of uncertainty and frustration faced by foreign investors seeking entry into the Vietnam market or expansion through M&A transactions.

The level/extent of private equity-backed bids in the past 12 months

Investment in the form of M&A transactions is still the most popular form compared with private equity investment. In recent months, private equity funds have been following the securities market in Vietnam, especially companies carrying out value chain operations. Consumer goods and infrastructure are the sectors that attract the most attention. However, due to limited publicly available information, it is not possible to fully assess the level of private equity-backed bids.

The approach of the competition regulator(s) in the past 12 months

The Vietnam Competition Authority under the Ministry of Industry and Trade (VCA) must be notified of the transaction if participating companies have a combined market share in the relevant market of 30% up to 50%. The VCA will then examine whether the calculation of the combined market share is correct and whether the transaction is prohibited (that is, whether the combined market share exceeds 50%, except in certain cases). The transaction can be conducted when the VCA issues a written confirmation that the transaction is not prohibited under competition law.

For more information on the VCA, see www.vca.gov.vn/Default.aspx?lg=2.

Main factors affecting the public M&A market over the next 12 months

The country’s deeper and wider integration into the world’s economy is offering new opportunities for M&A activities.

Another factor includes the high pressure faced by the government to privatise state-owned enterprises to meet requirements under signed trade pacts, especially the EU – Vietnam Free Trade Agreement, which is expected to come into force in 2019.

Encouraging signs for foreign investment include:

  • Reformed policies to allow wider access to foreign investors.
  • Formation of the ASEAN Economic Community at the end of 2015.
  • The conclusion of free trade agreements (FTAs).
  • Vietnam’s super rich population is growing faster than anywhere else and is on track to continue leading the growth in the next decade.
  • Equitization of state-owned enterprises will speed up.

The introduction of the new Investment Law, Enterprise Law and other laws and policies are creating an improved legal environment for investment and trade in general, and the M&A market in particular. However, the following factors also affect M&A transactions:

  • Divergent interpretations and implementations by local licensing authorities of international treaties such as Vietnam’s WTO Commitments.
  • Different licensing procedures applied to different types of transactions (for example, for foreign invested companies and domestic companies, public companies and private companies, and for buying state-owned shares or private shares).

Although legal and governance barriers, along with macro instability and the lack of market transparency are still the greatest concerns for investors, M&A deals in Vietnam are still expected to be one of the key, effective channels for market entry.

The major expected trends in the Vietnam M&A market include:

  • Bank restructurings.
  • Acquisitions and anti-acquisitions, particularly in the real estate sector.
  • Growing Japanese and Thai investment in Vietnam through M&A transactions.
  • Reform of SoEs.

***

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

 

Lawyer in Vietnam Dr. Oliver Massmann PUBLIC MERGERS AND ACQUISITIONS

FDI capital has been rising in the past few years. In the first 6 months of 2017, the total FDI capital to Vietnam is USD19.2 billion, an increase of 54.8% compared to the same period last year. Vietnam’s M&A market continues to be active in 2017 after reaching a record-breaking deal value of USD5.8 billion in 2016. The number of M&A deals amounts to 2,062 deals worth USD1.8 billion from January – May 2017, up 116.2% compared with the statistics last year.

Real estate continues to be the most attractive sector, with hundreds of millions of USD waiting to be poured into the market via M&A, especially in residential, offices, retail, hotel and industrial park segments. Main investors still come from Japan, Korea, Singapore, and particularly a rising number of investors from China recently. The retail, consumer goods, and industrial goods are also very active, with M&A deals accounting for 53% of total deals in 2016. This is partly due to an attractive market of about 93 million people with high purchasing power.

Notable deals in 2016 and first half of 2017 include the following:

  • Central Group (Thai Group) bought BigC Vietnam at USD1.1 billion
  • TTC Holdings (Thailand) bought Metro Vietnam at USD710 million
  • In March 2017, Siam City Centre bought 65% of Holcim Vietnam from LafargeHolcim at USD524 million
  • In April 2016, Mirae Asset (a Korean securities company) together with AON BGN Investment Company (an UK company) bought Keangnam Hanoi Landmark Tower at USD350 million
  • In December 2016, Fraser & Neave ( a Singaporean beverage company) bought 5.4% of Vinamilk’s shares at USD500 million

Note: Owner of Fraser & Neave is also owner of TTC Holdings

  • In January 2016, Mobifone bought 95% of AVG’s shares at USD400 million

Leading companies in the sectors are main target of foreign investors. They have the advantage of holding strong brands, strong market share or controlling significant natural resources.

We hope that the M&A will continue its trend when the Government speeds up the equitization of many state-owned enterprises, especially in power, infrastructure and telecommunication sectors. Experts forecast the total value of M&A deals in 2017 will reach up to USD6.2 -6.5 billion.

How to obtain control of a public company

The most common means of obtaining control over a public company are as follows:

  • The acquisition of shares/charter capital through:
  • buying shares/charter capital from the existing shareholders of the company;
  • buying shares/charter capital of a listed company on the stock exchange; and
  • public share purchase offer.
  • Through a merger. The 2014 Law on Enterprises sets out the procedures for company mergers by way of a transfer of all lawful assets, rights, obligations and interests to the merged company, and for the simultaneous termination of the merging companies.
  • Through the acquisition of assets.

There are restrictions on the purchase of shares/charter capital of local companies by foreign investors in certain sensitive sectors. In addition, the law is silent on merger or assets acquisition (e.g., business spin-off) transactions where a foreign investor is a party. Regarding other assets acquisition transactions, if the asset is a real property, foreign ownership right will be restricted according to real estate laws.

Securities of public companies must be registered and deposited at the Vietnam Securities Depository Centre before being traded.

Depending on the numbers of shares purchased, an investor can become a controlling shareholder. Under the Vietnam Law on Securities, a shareholder that directly or indirectly owns 5% or more of the voting shares of an issuing organization is a major shareholder. Any transactions that result in more than 10% ownership of the paid-up charter capital of the securities company must seek approval of the State Securities Commission (SSC).

What a bidder generally questions before making a bid

Before officially contacting the potential target, the bidder conducts a preliminary assessment based on publicly available information. The bidder then contacts the target, expresses its intention of buying shares/subscribing for its shares and the parties sign a confidentiality agreement before the due diligence process. The confidentiality agreement basically includes confidentiality obligations in performing the transaction. The enforcement of confidentiality agreements by courts in Vietnam remains untested.

A bidder’s legal due diligence usually covers the following matters:

  • Corporate details of the target and its subsidiaries, affiliates and other companies that form part of the target.
  • Contingent liabilities (from past or pending litigation).
  • Employment matters.
  • Contractual agreements of the target.
  • Statutory approvals and permits regarding the business activities of the target.
  • Insurance, tax, intellectual property, debts, and land-related issues.
  • Anti-trust, corruption and other regulatory issues.

Restrictions on shares transfer of key shareholders

Founding shareholders can only transfer their shares to other founding shareholders of the company within three years from the issuance of the Enterprise Registration Certificate. After then, the shares can be transferred freely. An internal approval of the general meeting of shareholders is always required if:

  • The company increases its capital by issuing new shares.
  • There is any share transfer of the founding shareholders within the above three-year period.

If the sale and purchase is a direct agreement between the company and the seller in relation to an issuance of shares, the selling price must be lower than the market price at the time of selling, or in the absence of a market price, the book value of the shares at the time of the approval plan to sell the shares. In addition, the selling price to foreign and domestic buyers must be the same.

When a tender offer is required

A tender offer is required in the following cases:

  • Purchase of a company’s circulating shares that results in a purchaser, with no shareholding or less than a 25% shareholding, acquiring a 25% shareholding or more.
  • Purchase of a company’s circulating shares that results in a purchaser (and affiliated persons of the purchaser), with a 25% or more shareholding, acquiring a further 10% or more of circulating shares of the company.
  • Purchase of a company’s circulating shares that results in a purchaser (and affiliated persons of the purchaser), with a 25% shareholding or more, acquiring a further 5% up to 10% of currently circulating shares of the company within less than one year from the date of completion of a previous offer.

There is no guidance on building a stake by using derivatives. In addition, the bidder cannot purchase shares or share purchase rights outside the offer process during the tender offer period.

The bidder must publicly announce the tender offer in three consecutive editions of one electronic newspaper or one written newspaper and (for a listed company only) on the relevant stock exchange within seven days from the receipt of the State Securities Commission’s (SSC’s) opinion regarding the registration of the tender offer. The tender offer can only be implemented after the SSC has provided its opinion, and following the public announcement by the bidder.

Making the bid public

The offer timetable is as follows:

  • The bidder prepares registration documents for its public bid to purchase shares.
  • The bidder sends the bid registration documents to the SSC for approval and, at the same time, sends the registration documents to the target.
  • The SSC reviews the tender documents within seven days.
  • The board of the target must send its opinions regarding the offer to the SSC and the shareholders of the target within 14 days from receipt of the tender documents.
  • The bid is announced in the mass media (although this is not a legal requirement).
  • The length of the offer period is between 30 and 60 days.
  • The bidder reports the results of the tender to the SSC within 10 days of completion.

Companies operating in specific sectors (such as banking, insurance, and so on) can be subject to a different timetable.

Offer conditions

A takeover offer usually contains the following conditions:

  • The terms and conditions of the offer apply equally to all shareholders of the target.
  • The relevant parties are allowed full access to the tender information.
  • The shareholders have full rights to sell the shares.
  • Applicable laws are fully respected.

An offer can also be subject to conditions precedent. Conditions precedent are set out in the share sale and purchase agreement or the capital contribution transfer agreement. There is no specific restriction on conditions precedent other than the requirement that they cannot be contrary to law and conflict with social ethics (although the legal definition of social ethics is unclear). The most common conditions precedent are:

  • Amendments to the charter/relevant licence of the target.
  • Obtaining necessary approvals to conduct the transaction.
  • Changes to the target’s management body.

Payment of the contract price will only be made after the conditions precedent are met.

Employee consultation

There is no requirement under Vietnamese law that the employees must be consulted about the offer. However, if a layoff is to be conducted, the employer must:

  • Prepare a labour usage plan.
  • Consult with the employee representative.
  • Notify the competent labour authority on the implementation of the labour usage plan.

When a tender offer is required?

A tender offer is required in the following cases:

  • Purchase of a company’s circulating shares that results in a purchaser, with no shareholding, or less than a 25% shareholding, acquiring a 25% shareholding.
  • Purchase of a company’s circulating shares that results in a purchaser (and affiliated persons of the purchaser), with a 25% or more shareholding, acquiring a further 10% or more of circulating shares of the company.
  • Purchase of a company’s circulating shares that results in a purchaser (and affiliated persons of the purchaser), with a 25% shareholding or more, acquiring a further 5% up to 10% of currently circulating shares of the company within less than one year from the date of completion of the previous offer.

Form of consideration and minimum level of consideration

Under Vietnamese law, shares can be purchased by offering cash, gold, land use rights, intellectual property rights, technology, technical know-how or other assets. In practice, acquisitions are most commonly made for cash consideration.

In cases of full acquisition of state-owned enterprises, the first payment for the share purchase must not be less than 70% of the value of such shares, with the remaining amount being paid within 12 months.

In transactions involving auctions of shares by state-owned enterprises, the purchaser must make a deposit of 10% of the value of the shares registered for subscription based on the reserve price at least five working days before the auction date included in the target company’s rule. Additionally, the purchaser must transfer the entire consideration for the shares into the bank account of the body conducting the auction within ten working days of the announcement of the auction results.

In the case of a public tender offer, the payment and transfer of shares via a securities agent company appointed to act as an agent for the public tender offer must comply with Decree 58/2012/ND-CP.

Delisting a company

If a company seeks voluntarily de-listing, it must submit an application for de-listing that includes the following documents:

  • A request for de-listing.
  • For a joint stock company:
    • the shareholders’ general meeting approval of de-listing of the stock;
    • the board of directors’ approval of de-listing of bonds; and
    • the shareholders’ general meeting approval of de-listing of convertible bonds.
  • The members’ council (for a multi-member limited liability company) or the company’s owner (for a single member limited liability company) approval of de-listing of bonds.
  • For a securities investment fund, the investors’ congress approval of de-listing of the fund’s certificate.
  • For a public securities investment company, the shareholders’ general meeting approval of stock de-listing.

A listed company can only de-list its securities if de-listing is approved by a decision of the general meeting of shareholders passed by more than 50% of the voting shareholders who are not major shareholders.

If a company voluntarily de-lists from the Hanoi Stock Exchange or Ho Chi Minh Stock Exchange, the application for de-listing must also include a plan to deal with the interests of shareholders and investors. The Hanoi Stock Exchange or Ho Chi Minh Stock Exchange must consider the request for de-listing within ten and 15 days from the receipt of a valid application, respectively.

Transfer duties payable on the sale of shares in a company

Depending on whether the seller is an individual or a corporate entity, the following taxes will apply:

  • Capital gains tax. Capital gains tax is a form of income tax that is payable on any premium on the original investor’s actual contribution to capital or its costs to purchase such capital. Foreign companies and local corporate entities are subject to a corporate income tax of 20%. However, if the assets transferred are securities, a foreign corporate seller is subject to corporate income tax of 0.1% on the gross transfer price.
  • Personal income tax. If the seller is an individual resident, personal income tax will be imposed at the rate of 20% of the gains made, and 0.1% on the sales price if the transferred assets are securities. An individual tax resident is defined as a person who:
    • stays in Vietnam for 183 days or longer within a calendar year;
    • stays in Vietnam for a period of 12 consecutive months from his arrival in Vietnam;
    • has a registered permanent residence in Vietnam; or
    • rents a house in Vietnam under a lease contract of a term of at least 90 days in a tax year.

If the seller is an individual non-resident, he is subject to personal income tax at 0.1% on the gross transfer price, regardless of whether there is any capital gain.

Payment of the above transfer taxes is mandatory in Vietnam.

Regulatory approvals

The investor will need to register the capital contribution and purchase of shares if either:

  • The target is operating in one of the 267 conditional sectors referred to in the 2015 Investment Law.
  • The capital contribution and purchase of shares results in foreign investors owning 51% or more of the target’s charter capital (in particular, from below 51% to more than 51% and from 51% to above 51%).

The local Department of Planning and Investment where the target is located must issue its final approval within 15 days from the receipt of a valid registration application. However, in practice, this procedure can take several months due to the workload of certain central authorities and the lack of clear guidance documents. Therefore, the registration requirement can cause substantial delays to the whole M&A process.

In other cases, the target company only needs to register change of membership / shareholders at the Business Registration Division.

Restrictions on repatriation of profits and/ or foreign exchange rules for foreign companies

If the target company in Vietnam already has an investment registration certificate, it must open a direct investment capital account at a licensed bank in Vietnam. Payment for a share purchase by a foreign investor must be conducted through this account. The account can be denominated in Vietnamese dong or a foreign currency. In addition, if the foreign investor is an offshore investor, it will also need to open a capital account at a commercial bank operating in Vietnam to carry out the payment on the seller’s account and receive profits.

If the target company in Vietnam does not have an investment registration certificate, the foreign investor will need to open an indirect investment capital account for payment to the seller and remittance of profits.

***

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

 

 

 

Renewable Energy Vietnam – Duane Morris – We get deals done:

  1. Describe the role of yourself/company/department within renewable energy in Vietnam. 

Duane Morris, as both advisor and advocate, guides clients through the complex legal, financial and political issues that pervade the energy industry. For both producers and policy-makers, as well as industry participants and consumers, Duane Morris attorneys help manage the dynamic challenges of the energy market. Our attorneys counsel our clients on regulations, transactions, litigation, project development, facility construction, financing, government relations and policy matters concerning energy. Our attorneys draw upon legal and industry experience with fossil fuels, nuclear power and renewable sources to find creative solutions to meet our clients’ needs. We have been involved in several renewable energy deals in Vietnam until successful close of the respective deal. We can get bankable deals done.

  1. Describe those individuals/companies/government departments with whom you operate mostly with?

Electricity Regulatory Authority of Vietnam, Institute of Energy, General Department of Energy, EVN, Ministry of Planning and Investment.

  1. Explain the purpose of each of these connections whether they be formal, contracted relationships or informal relationships

They are formal relationships, where I either acted as the Chairman of the Legal Sector Committee of EuroCham, or work on behalf of our clients to connect with the authorities to get better understanding of the regulations in the sector and propose necessary changes.

  1. Describe any customs or habits that are features of doing business in the renewable energy industry? Likewise describe any customs or habits that are features of doing business in Vietnam. Explain how these customs or habits are used?

Build and maintain relationship with Government officials at all levels (central, provincial) is a must. Meetings can be formal or sometimes invite them out for lunch/ dinner. Do not go into too much details of your project or investment plan in the initial meeting. Save it for the next meetings. The first one should only be for “getting to know each other” purpose.

Vietnam has a consensus-driven system, meaning everyone has to say something. Any person has veto right. Thus, to make sure that a decision in favor of your investment is made, you have to gain support of every person who has the decision-making right.

In addition, decision making process in Vietnam has to go through many levels and thus takes quite long. Be patient then.

You should always set up a meeting some weeks in advance. Although some officials are able to communicate in English, it is advised to have a translator/ interpreter.

  1. In your opinion, who are the ‘big players’ within the renewable energy industry within Vietnam? This applies to private companies, national companies, government departments etc. 

EVN as the sole off-taker and its generation companies are the main players in the sector. Besides, the General Department of Energy, the Electricity Regulatory of Vietnam (both under the Ministry of Industry and Trade) play an important role in setting regulatory framework.

  1. Explain any rules or laws that dictate how you must operate within the renewable energy industry and within Vietnam. 

Wind: Decision No. 37/2011/QD-TTg, Circular No. 32/2012/TT-BCT

Biomass: Decision 24/2014/QD-TTg, Circular 44/2015/TT-BCT

Solid-waste power: Decision 31/2014/QD-TTg, Circular 32/2015/TT-BCT

Solar: Decision 11/2017/QD-TTg, Circular guiding the Decision and promulgating the PPA is being drafted

There are a number of laws and documents regulating an investment in Vietnam. I just name some major laws: Investment Law, Enterprise Law, Labor Law, Commercial Law, Civil Code, etc.

  1. In your opinion, to what extent does a hierarchy exist within the renewable energy industry in Vietnam? 

The development of renewable energy industry does not catch up with economic development speed. Although the Government has set out the increasing role of this sector in the energy development plan, I am afraid that the Government may fail to meet its target due to lack of support policies and bankable PPAs.

  1. Describe the main changes that have occurred to the renewable energy industry in Vietnam in the last 10 years. 

The renewable industry in Vietnam is very young. Indeed, it only started developing since the adoption of the Wind Decision in 2011. Following that Decision, the Prime Minister continued completing the legal framework for the sector by introducing Biomass Decision and Solid-Waste Decision in 2014, and the latest Decision being the Solar Decision issued in April 2017. The adoption of these policies was the joint effort of many relevant ministries, including the General Director of Energy under the Ministry of Industry and Trade, which was established at the end of 2011 to improve state management in the sector.

In 2009,  the first factory producing solar panels with total investment of USD10 million came into operation in Vietnam. Later in 2010, GE Energy invested USD61 million to establish the first factory producing wind turbines in Hai Duong. This was considered as a boost for the renewable energy market. However, by 2015, renewable energy only accounted for 5% in the total energy output, in which there is no wind and solar power but only small hydro power.

FYI, the first wind power plant came into operation in 2012 in Binh Thuan with a capacity of 30 MW. Recently, the first solar plant in Dong Thap also commenced its operation.
***
Please do not hesitate to contact Dr. Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.

Thank you!

Investment Registration in Vietnam – Are we ready for the EU – Vietnam Free Trade Agreement?

The EU-Vietnam Free Trade Agreement (EVFTA) is expected to be ratified by all member countries by 2018 and take effect from 2019. It will create more opportunities and have a massive impact on the Vietnamese economy. In order to ensure full compliance with the EVFTA provisions, Vietnam’s legal system faces certain challenges. To shape the future and prepare for the fourth industrial revolution, it is vital for Vietnam to make reforms. This will prepare the way for transformation and to fully grasp the new opportunities that are coming their way.

What has been done?

Regarding the mechanism in dealing with the licensing process for a foreign invested company, different Chambers of Commerce in Vietnam have recognized significant improvement in the implementation of business and investment regulations since the effectiveness of the Enterprise Law No 68/2014/QH13 (Enterprise Law) and the Investment Law No 67/2014/QH13 (Investment law) on 1 July 2015.

In general, the Enterprise Law and Investment Law guarantee the principle of freedom of business. The licensing authority also fully complies with the prescribed time limit for the issuance of an Investment Registration Certificate (IRC) and an Enterprise Registration Certificate (ERC). These improvements have indeed improved the business and investment environment.

New laws applied in an ambiguous way?

Although there have been significant improvement in the implementation of the Investment Law, Enterprise Law and their guiding documents, there remain concerns about inconsistencies between implementation and enforcement of the current laws in certain aspects. The new laws are still holding back potential foreign investment due to many uncertainties. For example the business registration process contains issues as below:

  • Overlapping investment approvals and documents. – The procedures for investment registration are overlapped in terms of formalities and documents which are time consuming. The Investment Law and Enterprise Law set a timeline for the licensing authorities to provide the IRC (15 working days) and the ERC (3 working days). However there are many cases where authorities miss such deadlines. In addition, Decree No. 23 requires a trading license for foreign invested enterprises doing trading activities but it is not certain when such license will be issued from the application date (could be from two to several months).
  • Time limit for capital contribution. – The time limit for capital contribution regulated by law is too short (90 days). This timeline is not feasible especially for projects whose total investment capital is of high value.
  • Procedure for purchase of shares by foreign investors .- According to Article 46.2 of Decree No. 118/2015, a foreign investor is only required to obtain an approval from the Ministry of Planning and Investment under limited circumstances listed by law (e.g., purchasing 51% or more shares in a local company). However, due to the lack of specific guidelines, many foreign investors have been required to obtain an approval whenever they acquire new shares, even in a company not operating in a conditional sector.
  • Payments for transfer of shares/stakes. – According Article 36.3 of the Enterprise Law, payments for transfer of shares and receipt of dividends of foreign investors must be made through their capital accounts opened at banks in Vietnam. Furthermore, the State Bank of Vietnam requires different regulations for foreign direct investment (FDI) and indirect investment (FII). For instance, FDI payments are made to the project company’s direct capital account. Meanwhile, FII payments are made to the investor’s VND account. In fact, local banks have adopted different interpretations to these regulations, thus creating confusion for the investors.
  • Share Swaps. – The Enterprise Law does not provide for share swaps.

Calling to action

As analyzed above, the current system for an investment registration in some cases makes it difficult to enforce current laws. Accordingly, administrative reforms should be conducted to simplify procedures, namely:

Ø To require only 1 or 2 approvals for the investment registration. In doing so, electronic submission should be allowed and overlapping documents must be removed.

Ø To allow shareholders to decide the time limit for capital contribution, except for certain projects.

Ø To ensure that approval of share acquisition complies with the requirements listed by law only.

Ø The State Bank of Vietnam should provide a guidance on transfer of payments among banks.

Ø To adopt provisions relating to share swaps.

Conclusion

The EU-Vietnam economic relationship is a mutual cooperation. The EVFTA is among tools to facilitate investment and trade between the parties. With the EVFTA, each party aims at guaranteeing non-discrimination treatment. However, if the current laws continue being enforced as they are now, it may trigger possible violations of that principle. In order to avoid this, it is vital not only to determine the incompatible regulations and institutions in the local legal framework but also to adopt appropriate solutions. For example, the Government should enhance information exchange among state agencies to prevent overlapping documents and time consuming process, and improve a single window and inter-agency regime. The Government should also ensure that licensing authorities operate more efficiently according to the regulation.

***

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

Thank you!

 

 

 

Vietnam – Top Five Issues Affecting Real Estate Market

According to recent statistics, the property sector was behind the manufacturing and processing industry, which has so far attracted a total of USD12.84 billion, equaling 72.9 per cent of the total foreign direct investment (FDI) inflow to Vietnam.1

Laws governing real estate sector, including the Law on Real Estate Business 2014 (LREB) and the Law on Residential Housing 2014 (LRH) coming into effect on 1 July 2015. There are also other documents, for example, Decree No. 01/2017/ND-C P in effect on 3 March 2017 guiding the Land Law 2013 (Land Law). These new legislations set a legal framework for real estate industry. They have introduced breakthrough improvements by reducing investment barriers and expanding the scope of real estate business. Nevertheless, there are some remaining issues as analyzed below.

  1. Delay in issuing land use right certificate (LURC) for foreigners

Under Decree 99/2015, foreigners are not allowed to own houses in national defense and security areas indicated by the Ministry of National Defense and the Ministry of Public Security. Based on such list of areas, the provincial People’s Committee will direct local Departments of Construction to publish a list of commercial housing projects where foreign entities are not permitted to own houses (Foreign Ownership Prohibited Projects List). To date, such list has not been issued. Therefore, the provincial Department of Natural Resources and Environment has delayed the issuance of LURCs. This serious issue has caused confusion for buyers. Indeed, while the Government seems to have made a positive move in allowing foreigners to own a house in Vietnam, the lack of important guidance has shed doubts among foreigners who want to get in Vietnam’s real estate market.

  1. Uncertainties in the required approvals for residential developments

It is not clear in what circumstances a transfer of land is covered by allocation and lease by the State. In accordance with Article 32 of the Law on Investment (LOI), the in-principle investment decision (IDD) applies to projects which the State allocates or leases out land without auction, tendering or transfer. In contrast, the Land Law specifies that the only way an investment project receives land be by allocation or lease. It is uncertain under which circumstances a project can receive land by way of transfer. The absence of detailed guidelines continues to affect the normal business operations.

  1. Lengthy investment approval processes

A foreign invested company engaging in residential developments is required to obtain an IID or an in-principle investment approval (IIA) as well as an Investment Registration Certificate (IRC). If an IID is required, the IRC will be issued within 5 working days from the issuance of the IID. As the contents of both the IDD and IRC are related, the IRC requirement, in this case, is not relevant. On the other hand, for projects which require the IIA, the investor shall first obtain the IRC, set up a company and then apply for the IIA. There are circumstances where the investor has already set up the company but still not managed to get the IIA. This makes the investor unable to develop the project. In addition, the application process is complex, onerous in a sense that it takes at least 153 days. In particular, after the IRC is issued, the next step is to obtain an enterprise registration certificate, then a decision on selection of developer, the 1/500 planning approval and finally the IIA. Since the issuance of the IIA and IRC is based on the 1/500 planning approval, the requirement of an IRC it is unnecessary in case an IIA is already required.

  1. Restrictions on sources of capital

Under Article 69 of the LRH, developers of residential housing can only raise capital from sources such as loans granted by credit institutions, or financial institutions running business in Vietnam, capital contribution, investment cooperation, business cooperation, joint business, and association of organizations or individuals. It means that developers are no longer allowed to obtain capital from offshore credit and non-credit institutions. We think that there is no reason to limit the scope of residential investors to raise capital from legitimate sources. This issue, if remains existing, will affect the competitiveness of investors and their investment plan.

  1. The absence of detailed explanation of “foreign invested enterprise (FIE)”

There is inconsistency in the interpretation of an FIE among main laws governing real estate sector. The Land Law stipulates that FIEs are joint venture enterprises, 100% foreign invested enterprises, and domestic enterprises in which the foreign investor has invested via share purchase, merger, or acquisition. This regulation does not provide any ownership percentage. Meanwhile, the LOI states that, an economic organization with a foreign investment capital means an economic organization with a foreign investor being a member or shareholder, and enterprises with a foreign ownership of less than 51% will be treated the same as local ones. Different from the LOI and the Land Law, the LREB does not define a foreign invested enterprise. This inconsistency and lack of guidance result in confusion about which threshold defines a foreign invested enterprise in the LREB and create unnecessary obstacles for foreign projects.

Conclusion

Unfortunately, there are inconsistencies in the laws, which have caused confusion for buyers. In addition, the enforcement of current laws has been challenging due to the lack of specific guidelines. In fact, the restrictions provided in the legislations have limited the rights of investors and created barriers to foreign investment in the sector. Therefore, it is necessary to adopt consistent guidelines to avoid any delays. Vietnam should also continue to take steps to reduce administrative burdens, remove onerous requirements, and simplify complex processes. This is to ensure a bright future for Vietnam’s real estate industry.

***

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

Thank you!

 

 

 

 

VIETNAM – Gaming and casino laws – Where does Vietnam stand now?

On 20 January 2017, the Government issued a long-awaiting casino business Decree No. 03/2017/ND-CP. This Casino Decree for the first time allows local Vietnamese to gamble at specific casinos approved by competent authority on a 3-year trial basis. According to public media, only 02 casinos are open to Vietnamese individuals on a 3-year pilot 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.

Four days later, the Government issued Decree No. 06/2017/ND-CP, which also for the first time legalizesinternational soccer betting in addition to horse racing betting and greyhound racing betting. This Betting Decree together with the Casino Decree have fully opened the door for gaming business in Vietnam.

The issuance of these Decrees is the Government’s attempt to retain tax revenue resulting from casino activities and limit foreign currency loss to other neighboring countries. According to a survey, Vietnam loses about USD800 million in tax revenue annually from gamblers who cross the border to Cambodia. The loss may continue rising if the restrictions applied to local Vietnamese are not fully lifted in the future, as Vietnam’s ultra-rich population has been growing faster than any economy in the world (320% from 2006 -2016. The highest growth is expected to continue during 2016- 2026 (about 170%).

These Decrees take effect in the midst of rising tourists, especially mid- and high- income ones to Vietnam. In July 2017, the United Nations World Tourism Organization ranks Vietnam as the 7th country with highest tourism development speed, only after Nepal and Korea in the region. The General Statistics of Vietnam also announced that in the first six months of 2017, international tourists to Vietnam increase by 30.2% compared with the same period last year. Tourists from Asia mainly account for those visiting Vietnam, followed by European visitors. We expect an increasing number of gamblers from Macau, Hong Kong and China will visit Phu Quoc this year.

Almost right after the issuance of the Casino Decree, many foreign investors have looked at Vietnam’s casino market such as Las Vegas Sands, Banyan Tree, Crown, Chow Tai Fook and Sun City. Although the Casino Decree sets out a 3-year trial period, investors should not wait until such period lapses. The casino Decree is the best opportunity ever for them until now and they have been waiting for this for too long already (about 8 years). It could be risky to invest as no one knows what might happen after these three years. However, as said, the opportunity is out there and investors should rush to meet the 3-year deadline. The Casino Decree sets out very strict conditions for foreign investors to be qualified for the Certificate of registration of investment in casino-included entertainment complex, including the requirement that the project contain at least hotels, service, tourism, commercial and entertaining areas and conference centers. The minimum investment capital must be USD2 billion. Thus, for new investors, it will take them around two years to apply for the license and build the complex. For existing investors in Vietnam, they will need at least one year to expand the project to meet requirements in the Casino Decree.

History shows that casino establishments are often located in difficult economic-socio areas or areas where national security must be balanced. Thus, investors should consider these factors in addition to the investment project’s level of contribution to local tourism development and budget. Currently, there are seven licensed casinos in Lao Cai, Mong Cai, Do Son, Bac Ninh, Ha Long and Da Nang. Four complex resorts are now at the development stage, namely Van Don (Quang Ninh), Nam Hoi An (Quang Nam), Phu Quoc (Kien Giang) and Ho Tram (Vung Tau).

Casino business, as defined by the 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).

There are 2 types of gaming machines:

  1. Gaming machines used for prize-winning business for foreigners. These are defined as gaming machines with prizing programs and special equipment for casino games. Prize-winning electronic gaming machine means a specialized electronic device to play prize-winning games installed therein. The playing process between players and machines is entirely automatic.

Prize-winning electronic games are lottery games played on prize-winning electronic game machines by players who pay money and may win money.

  1. Gaming machines which the players receive prize not to be converted into cash or kind any form, or to be converted in small things such as toys, candies, etc. and not being gaming machines for prize-winning business for foreigners.

If an investor wants to do business in gaming machines Type 1 (import, distribute or do prize-winning business), they must have a Certificate of satisfaction of conditions for business issued by the Ministry of Finance. One of the conditions to get such certificate is they must have a “tourism residential establishment which has been classified as five star or higher by the competent authority”. An investor then needs to cooperate with such hotels in Vietnam on a BCC contract basis.

If an investor wants to do business in gaming machines Type 2, there is no restriction on foreign ownership. However, the machines must satisfy certain technical requirements and if they intend to open a gaming shop, such shop must also comply with conditions in law.

Meanwhile, casino business is also treated as a conditional business sector the satisfaction of which is evidenced by a certificate of satisfaction of casino business conditions (“Casino Business License”). A casino must be located inside a larger resort complex or the like. 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) if they are 21 year-old or above and has monthly salary of VND10 million (about US$440) or more, just to name a few conditions. Number of gaming tables and gaming machines depends on investment size. That is, for each US$10 million lot that the investor actually releases, a package of one gaming table and ten gaming machines are permitted.

Growing mid to high income people will have more demand for high class integrated resorts. If the Vietnamese are allowed to gamble, development in integrated resorts with casino is a smart decision to make profit in Vietnam. In addition, the government will benefit from tax payments from these resorts and casino businesses.

***

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

Thank you very much!

 

 

 

 

 

Vietnam Solar Power  – Taking stock of Vietnam’s solar energy potential – What you must know:

With the latest official issuance of a Solar Decision, Vietnam has made steady progress on its solar energy potential. The FIT is introduced in the Solar Decision to be 9.35 UScents/ kWh for grid-connected solar projects. The draft solar Power Purchase Agreement has also been recently introduced in a draft Circular guiding the Solar Decision by the Ministry of Industry and Trade.

This webinar offers valuable insights into the newly formulated framework for Solar PV in the country and covers:

  • The roles and obligations for EVN carried forward by the draft
  • The bankability of the draft solar PPA, its guarantee scheme and room for negotiation
  • Insights how to make most of the opportunity for PV in the market – the 30MW off-grid rule – Getting Solar Power Project done in reasonable time:

More information of the webinar can be found here: https://www.pvtrademissionvietnam.com/webinar;

Please do not hesitate to contact Dr. Oliver Massmann if you have any questions under omassmann@duanemorris.com. Dr. Oliver Massmann is the General Director of Duane Morris Vietnam.

THANK YOU!

 

 

 

 

Anwalt in Vietnam Dr. Oliver Massmann Investitionen – Transport – Logistik – Handel – Zoll – dramatische Veränderungen in Sicht: Die Auswirkungen des WTO Handelserleichterungsübereinkommen

Vor 65 Millionen Jahren, starben die letzten Dinosaurier aus. Dieses Ereignis verursachte dramatische Veränderungen für den Planeten und bot Platz für neue Arten auf der Erde. Ein ähnliches Ereignis mit ähnlichen Veränderungen steht Vietnam und allen anderen Mitgliedsländern der WTO bevor. Es handelt sich dabei um das Inkrafttreten des Übereinkommen über Handelserleichterungen/ Trade Facilitation Agreement (TFA) der WTO.

Was ist die TFA Übereinkunft?

Das TFA ist eine Übereinkunft  der WTO Mitgliedsländer, welche bei der neunten WTO Ministerkonferenz auf Bali, Indonesien, am 6. Dezember 2013, nach 10 jähriger Verhandlungszeit unterzeichnet wurde.

Zum Inkrafttreten des TFA müssen zwei Drittel der 164 WTO Mitglieder, nach Bildung eines nationalen Komitees für Handelserleichterungen, das Abkommen ratifizieren.

Im November 2015 wurde Vietnam das 60. Land welches das TFA Abkommen ratifizierte. Am 22. Februar 2017 erklärten Ruanda, Oman, Tschad und Jordanien gegenüber der WTO das Inkrafttreten der Übereinkunft, womit die Zahl der Ratifizierungen auf 112 anstieg, wobei nur 110 Ratifizierungen nötig gewesen  wären um das TFA wirksam werden zu lassen. Zum Entstehungszeitpunkt dieses Artikel hat die WTO schon 118 Ratifizierungen erhalten.

Was regelt die TFA Übereinkunft?

Das TFA hat die Beschleunigung des Warenverkehrs, die Freigabe am Zoll und die Zollabfertigung über Ländergrenzen hinweg zum Ziel und hilft dabei Handelskosten weltweit zu senken, sowie einen spürbaren Schub für das weltweite Handels- und Finanzsystem zu erzeugen.

Das TFA ist eine eigenständige Übereinkunft und enthält drei verschiedene Teile. Teil I enthält 12 Artikel welche allgemeine Regelungen zur Handelserleichterung enthalten. Teil II deckt spezielle und besondere Vereinbarungen für Entwicklungsländer und die am wenigsten entwickelten Mitgliedsländer. Der letzte Teil regelt institutionelle Vereinbarungen (z.B. die Einrichtung eines Komitees über Handelserleichterungen innerhalb der WTO und auf nationaler Ebene)  sowie sonstige Bestimmungen. Die TFA Übereinkunft wird dabei zusammen mit anderen rechtlich bindenden Vereinbarungen und multilateralen Verträgen über den Warenhandel wirksam sein.

Die Übereinkunft verlangt von ihren Unterzeichnern die Verfügbarkeit und sofortige Publikation aller Informationen über grenzüberschreitende Verfahren und Vorgehensweisen, die Verbesserung des Rechtswegs für Kaufleute, die Reduzierung von Zöllen und Formalitäten, die mit dem Import und Export von Waren verbunden sind, sowie die Beschleunigung und Verbesserung der Warenverkehrsfreiheit, um nur einige zu nennen. Die TFA Übereinkunft enthält auch Regelungen für die effektive  Kooperation zwischen dem Zoll und anderen, an der Erleichterung von Handel und Zollbestimmungen, beteiligten Behörden. Insgesamt ist also der Hauptzweck der TFA Übereinkunft die Vereinfachung und Harmonisierung der Zollverfahren unter allen WTO-Mitgliedsländern, was  Bürokratie abbauen soll, welche bislang Handel verlangsamt oder verhindert hat und damit den grenzüberschreitenden Warenverkehr erhöhen soll.

Anders als andere Handelsvereinbarungen nimmt die TFA Übereinkunft besonders Rücksicht auf Schwellen- und Entwicklungsländer, da sie diesen erlaubt einen eigenen Zeitplan zur Umsetzung der Übereinkunft aufzustellen. Industrienationen hingegen müssen unverzüglich die Bestimmungen der Übereinkunft umsetzen, Schwellenländer müssen dies nur tun, wenn sie  die  Verpflichtungszusage der Kategorie A unterzeichnet haben. Andere Verpflichtungszusagekategorien sind die Kategorie B, welche die Umsetzung nach einem bestimmten Zeitraum erfordert und Kategorie C Verpflichtungszusagen, welche die Umsetzung der Übereinkunft, nachdem sie mit technischer Hilfe und Aufbau nötiger Kapazitäten versorgt wurden, vorsieht. Basierend auf den letzten Statistiken der WTO waren 46% von 240 meldepflichtigen  Artikelpositionen an die WTO gemeldet worden, dabei gehen 40,5% auf das Konto der Kategorie A Unterzeichner, 3,3% auf das Konto der Kategorie B Unterzeichner und die verbleibenden 2,3% auf das Konto der Kategorie C Unterzeichner.Vietnam übermittelte schon am 31. Juli 2014 die  Kategorie A Verpflichtungszusage.

Warum ist die TFA Übereinkunft wichtig?

Der Einfluss der TFA Regulierungen kann verglichen werden mit der weltweiten Reduzierung und Auflösung von Zolltarifen. Gemäß der WTO kann die vollständige Umsetzung der TFA Übereinkunft die Handelskosten  um 14,3% durchschnittlich, während bei vielen Schwellen- und Entwicklungsländern (inklusive Vietnam) die höchste Reduzierung (zwischen 15,8-23,1%,) prognostiziert wird. Dies könnte ein jährliches Wachstum von bis zu einer 1 Billion US$ bedeuten.

In Verbindung damit ist die benötigte Zeit für den Import und Export von Waren (durch  gestraffte Zollabfertigung) stark gesunken. Die volle Umsetzung der TFA Übereinkunft sorgt auch für ein weltweites Exportwachstum in Höhe von 2,7% bis 2030 und generiert mehr Arbeitsplätze und Wachstum auf einer weltweiten  Ebene (z.B. mehr als 0,5% des weltweiten BIP Wachstums). Für Schwellen- und Entwicklungsländer wird ein jährliches Exportwachstum von  3,5% zusammen mit einem Wachstum in der Verschiedenheit der Exportgüter durch die TFA Übereinkunft.In US-Dollar: „die TFA Übereinkunft hat das Potenzial den Export von Waren aus Schwellenländern jährlich um bis zu 730 Milliarden Dollar wachsen zu lassen.“

 Die TFA Übereinkunft ist lebenswichtig und hat das Potential weltweite Zollpraktiken fundamental zu reformieren. Warum fundamental? Aus diesen Gründen:

  • Die TFA Übereinkunft enthält Bestimmungen über die Vereinfachung des schnellen Verkehrs von Waren über Grenzen, wie Regelungen über Vorauszahlungen und Vorabbearbeitung, welche die Freigabe von Waren sowie letzte  Feststellungen von Zollverpflichtungen, Steuern, Abgaben und Gebühren priorisiert.
  • Die TFA Übereinkunft hilft die Voraussagbarkeit von Regelungen und Prozeduren, welche mit dem Handel und Zoll verbunden sind, durch die zeitnahe Veröffentlichung relevanter Dokumente, bevorzugt im Internet und dem Aufbau von Auskunftsstellen für Anfragen beteiligter Parteien zu gewährleisten.
  • Die TFA Übereinkunft will harmonisierte Prozesse und Standards erzeugen welche Kaufleute in verschiedenen Ländern vertraute und vorhersagbare Zollabfertigungen finden lässt.
  • Die TFA Übereinkunft erkennt die Wichtigkeit von Wachstum und den Nutzen für jeden Mitgliedsstaat an. Dadurch sorgt es für eine spezielle und differenzierte Behandlung für Schwellen- und Entwicklungsländer um abzusichern, dass diese Länder nötige Unterstützung erhalten um den vollen Nutzen der TFA Übereinkunft zu haben. Zusätzlich wird eine Stelle der WTO zur Handelserleichterung die Schwellen- und Entwicklungsländer in ihren Bedürfnissen unterstützen.

Insgesamt demonstriert die Vereinbarung der WTO Mitgliedsländer bezüglich der Handelsreform, ein gewachsenes Vertrauen in die multilateralen Handelssysteme.

Was sind die Auswirkungen auf Vietnam?

Es wird erwartet, dass die TFA Übereinkunft die Wettbewerbsfähigkeit des Landes und der Unternehmen stärken wird.

Am 13. Oktober 2016 gab der Premierminister die Entscheidung No. 1969/QD-TTg aus, über die Annahme des „Plans zur Vorbereitung und Umsetzung der TFA Übereinkunft der WTO“ und benannte spezielle Verantwortlichkeiten jedes Ministeriums in den kommenden Jahren (Entscheidung 1969).

Entsprechend der Entscheidung 1969, ist das Finanzministerium die nationale Behörde zur Umsetzung der TFA Übereinkunft. Im besonderen ist das Finanzministerium verantwortlich, neben anderen, für:

  • Umsetzung nationaler Pläne über die Reichweite der Verfügbarkeit über Informationen des TFA;
  • Ausführung des „single-window“ Systems
  • Kategorisierung der Kategorie A, B und C Bestimmungen;
  • Anfrage zu technischer Unterstützung und Hilfe beim Aufbau nötiger Kapazitäten;
  • Erstellung eines Plans zur Umsetzung der Kategorie B und C Bestimmungen; und
  • Überprüfung wichtiger rechtlicher Rahmenbedingungen für weitere Zusätze.

Andere Ministerien sind zur Koordinierung mit dem Finanzministerium zur Umsetzung der TFA Übereinkunft beauftragt: das Ministerium für Transportwesen, das Gesundheitsministerium, das Ministerium für Forschung und Technik, das Das Ministerium für Landwirtschaft und ländliche Entwicklung, sowie weitere Ministerien.

Der Ausgabe der Entscheidung 1969 folgend, hat Vietnam einen Plan zur Umsetzung der Kategorien A, B und C formuliert. Der Premierminister unterzeichnete auf dem Nationalen Steuerungskomitee auch die Entscheidung zur formellen Etablierung  des „ASEAN Single Window“ sowie des „National Single Window“. Am 6. Februar 2017 gab die Regierung die Resolution No. 19/2017/NQ-CP über die Verbesserung des Unternehmensklimas und der nationalen Wettbewerbsfähigkeit. Der Premierminister sagte hierzu einmal: „Es ist nicht akzeptabel, dass es vier Tage benötigt um die Zollabfertigung für Exporte abzuschließen, was zweimal höher als der regionale Durchschnitt ist und vier Tage für Importe benötigt werden, während der regionale Durchschnitt bei drei Tagen liegt.“

Der Regierungsanweisung und der starken Dynamik für die Reform der Zollabfertigung folgend, welche durch die TFA Übereinkunft vorangetrieben wurde, hat Vietnam tausende Zollabfertigungen durchgesehen und tausende rechtliche Dokumente überprüft um sie mit den Vereinbarungen der TFA in Einklang zu bringen.

Die Regierung kann dabei nicht anders handeln, als in der Hoffnung vietnamesische Unternehmen in ihrer Wettbewerbsfähigkeit zu unterstützen. Diese Verbesserungen werden den grenzüberschreitenden Handel stark vereinfachen, damit Kosten und Zeiterfordernisse für vietnamesische Unternehmen sinken. Im allgemeinen wird erwartet, dass die Zeiterfordernisse für den Import von Gütern um anderthalb Tage  und Exporte fast um zwei Tage  reduziert werden. Die TFA Übereinkunft könnte die Handelskosten um 20% senken und die Handelsvereinfachungen werden den Unternehmen im formellen internationalen Handel helfen. Gemäß Herrn Nguyen Dinh Cung, Direktor des Central Institute for Economic Management, könnte eine Reduzierung um einen Tag in der Zollabfertigung die Einsparung von 1,6 Milliarden VND zur Folge haben. Es ist ein hoher Betrag vor dem Hintergrund der geschäftigen Zollabfertigungen in Vietnams Häfen.

Eine Menge Arbeit wurde also bislang zur Umsetzung der TFA Übereinkunft getan. Allerdings ist es immer noch ein langer Weg und wir haben gute Gründe dramatische Änderungen zu erwarten.

Wenn Sie Fragen zu diesem Thema haben, zögern Sie nicht Dr. Oliver Massmann via  omassmann@duanemorris.com zu kontaktieren.

Dr. Oliver Massmann ist der General Director of Duane Morris Vietnam LL.C

Vielen herzlichen Dank.

 

 

 

Vietnam – Transport – Logistics – Trade – Customs- Dramatic Changes ahead: The WTO Trade Facilitation Agreement – The IMPACT

 

Sixty-five million years ago, the last of the dinosaurs went extinct. The event caused dramatic changes to the planet and provided space for new species on earth. A similar event and change is about to happen in Vietnam and all other WTO members. It is the entry into force of the WTO Trade Facilitation Agreement (TFA).

What is the TFA?

The TFA is a document adopted by WTO member countries at the 9th WTO Ministerial Conference in Bali, Indonesia on 6th December 2013 after 10-year negotiation.

In order for the TFA to take place, two-thirds of the 164 WTO members have to notify their ratifications to the WTO after forming a National Committee on Trade Facilitation.

In November 2015, Vietnam became the 60th country to ratify the TFA. On 22nd February 2017, the TFA officially entered into force after Rwanda, Oman, Chad and Jordan submitted instruments of acceptance of the TFA to the WTO, bringing the total number of acceptances to 112 while only 110 ratifications are needed for the TFA’s entry into force. At the time of writing this article, there have been 118 ratifications received by the WTO.

What is the TFA about?

The TFA aims at expediting the movement, release and clearance of goods across borders, helping to cut trade costs globally and creating a significant boost for global trade and commerce system.

The TFA is a self-contained agreement and includes three separate sections. Section I includes 12 Articles covering a range of specific trade facilitation measures. Section II covers special and differential treatment for developing country members and least developed country members. The final section deals with institutional arrangements (i.e., establishment of a Committee on Trade Facilitation within the WTO and at a national level) and miscellaneous provisions. The TFA will interact with other legal commitments specified in the WTO Agreement and Multilateral Agreements on Trade in goods.

The agreement requires its members to ensure the availability and prompt publication of information about cross-border procedures and practices, mandates that rights of appeal for traders be improved, fees and formalities connected to the import and export of goods be reduced, customs clearance procedures be faster and conditions for freedom of transit of goods be improved, just to name a few. The TFA also contains measures for effective cooperation between customs and other authorities involved in the facilitation of trade and customs compliance issues. Overall, the main purpose of the TFA is to simplify and harmonize customs procedures among all WTO member countries, which will later result in cutting red tape that slows down and impedes international trade, thereby speeding up of the goods flow across borders.

Different from other agreements, the TFA pays particular attention to developing and least developed countries when allowing them to set their own implementation schedule. While developed countries have to immediately implement the agreement, developing countries will only have to implement the TFA provisions that they have designated as Category A commitments. Other categories of commitments are Category B commitments, which will be implemented after a given period; and Category C commitments, which will apply to the countries after they are provided with technical assistance and capacity building support. Based on the latest WTO’s statistics, there have been 46% of 240 notifiable article items notified to the WTO, of which Category A measures account for 40.5%, Category B measures account for 3.3% and the remaining 2.3% is for Category C measures.[1] Vietnam has already submitted to the WTO its Category A commitments on 31 July 2014.

Why is the TFA important?

The impact of the TFA implementation can even be compared with the worldwide tariffs reduction and elimination. According to the WTO, full implementation of the TFA can reduce trade costs by 14.3% on average with many developing countries and least-developed countries forecast to enjoy the highest reduction (15.8-23.1%) (including Vietnam). This could result in up to US$1 trillion of gains around the world annually. In addition, the time needed to import and export goods (thanks to streamlined customs procedures) is much more reduced. Full implementation of the TFA also adds 2.7% a year in global export growth by 2030, and creates more jobs and growth on a global scale (i.e., more than 0.5% to world GDP growth). For developing countries and least-developed countries, their annual exports will increase by 3.5% together with an increase in the diversity of exported goods because of the TFA implementation. In US dollar, “the TFA has the potential to increase merchandise exports of developing countries by up to 730 billion dollars per annum.”

The TFA is vitally important and has the potential to fundamentally reform global customs practices. One could question why. Here are some of the main reasons:

  • The TFA includes provisions on facilitating rapid movement of goods across borders such as advance rulings, pre-arrival processing, allowing the release of goods prior to final determination of customs duties, taxes, fees and charges.
  • The TFA helps to ensure the predictability of rules and procedures related to trade and customs by requiring its members to timely publish relevant documents preferably on the Internet and establishing enquiry points to respond to enquiries by interested parties.
  • The TFA aims at creating harmonized process and standards which traders find it familiar and predictable when doing customs procedures in different countries.
  • The TFA recognizes the importance of growth and benefits for every member states. Thus, it provides for special and differential treatment for developing and least developed countries to make sure these countries receive sufficient assistance to reap the full benefits of the TFA implementation. In addition, the WTO Trade Facilitation Agreement Facility will support developing and least developed countries in addressing their needs and concerns.

Overall, the agreement demonstrates the commitment of the WTO member states to trade reform, and increased confidence in the multilateral trading system.

Impacts on Vietnam?

The TFA is expected to boost national and business competitiveness as a result of Vietnam’s implementation of its commitments under the agreement.

On 13 October 2016, the Prime Minister issued Decision No. 1969/QD-TTg on approving the “Plan of preparation and implementation of the TFA of the WTO”, and identifying specific responsibilities of each ministry in upcoming years (Decision 1969).

According to Decision 1969, the Ministry of Finance (MOF) is the national agency to implement the TFA. In particular, the MOF is responsible for, among others:

  • Implementing national outreach plans to provide information on the TFA;
  • Operating the single-window system;
  • Classifying Categories A, B, and C provisions;
  • Seeking technical support and assistance for capacity building;
  • Formulating roadmap for implementation of Categories B and C provisions; and
  • Reviewing relevant legal framework for further amendments.

Other ministries are tasked with coordinating with the MOF in the implementation of the TFA: the Ministry of Transport, the Ministry of Health, the Ministry of Science and Technology, the Ministry of Agriculture and Rural Development, etc.

Following the issuance of Decision 1969, Vietnam has formulated plans to implement Categories A, B and C. The Prime Minister also signed the decision to formally establish on the National Steering Committee on ASEAN Single Window and the National Single Window regime on trade facilitation. On 06 February 2017, the Government also issued Resolution No. 19/2017/NQ-CP on improving the business environment and national competitiveness. The Prime Minister once said: “It is not acceptable to take 4 days to complete customs procedures for exports which is 2 times higher than the regional average, and 4 days for imports while the regional average is only 3 days.” Following the Government’s directive and strong momentum for reforming customs procedures caused by the TFA implementation, Vietnam has been reviewing thousands of customs procedures and revising several legal documents to bring them into conformity with its commitments in the TFA.

The Government cannot act otherwise if it hopes to help Vietnamese businesses to be competitive in the global marketplace. These improvements will greatly facilitate trade across borders, thereby reducing the costs in both time and money for Vietnamese businesses. In general, it is expected to reduce the time needed to import goods by over a day and a half and to export goods by almost two days.  For Vietnam, the TFA could reduce trade costs by 20% and trade facilitation measures will help businesses in formal international trade. According to Mr. Nguyen Dinh Cung, Director of the Central Institute for Economic Management, one-day reduction in customs clearance time could result in a saving of VND1.6 billion. It is a huge amount given the busy customs activities in Vietnam’s ports.

A lot of work has been done so far to implement the TFA. However, there is still a long way ahead and we have good reasons to expect further dramatic changes to come.

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

Thank you very much!

 

[1] https://www.tfadatabase.org/notifications/by-measure