The final draft of the casino decree (‘Casino Decree’) has been passed by the Ministry of Justice and Government’s Office. It is now on the table of the Politburo for their comments, which are as always, the most important. It is expected that the Casino Decree would be issued on 1 July 2016. Nevertheless, there is no absolute guarantee on this prospect. This is because in order for a decree to become effective, it must be publicized on Official Gazette first and waits for a 15-day period from the first publication on the Official Gazette.
For many reasons, the text of the Casino Decree has not been made public. The Ministry of Finance has been successful in keeping the draft Casino Decree under secrecy. Again, whether Vietnamese residents are permitted to enter casinos in Vietnam is a big question that may wait for decision of the highest level of Vietnam’s political system.
Recently, the Ministry of Public Security (MPS) has proposed a draft decree that lists casino as a conditional business which is subject to license of the MPS with respect to social orders. A very interesting point is that the draft decree only prohibits Vietnamese from playing on gaming machines. It is important to note that no such prohibition is mentioned with respect to Vietnamese’s playing in casinos. This may give a hint that Vietnamese may enter casinos if they are ‘permitted’. This fact corresponds to provisions of the new Penal Code that makes it very clear that only ‘illegal’ gambling is punished.
So, though not 100% sure, more likely that Vietnamese may enter casinos and gamble but with specific conditions.
At present, pending the issuance of the Casino Decree, all projects on casino are put on hold. we will follow up and keep you updated.
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Please do contact the author Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
THANK YOU!
Lawyer in Vietnam Oliver Massmann Asean Economic Community Impact on Real Estate Sector
Often compared to the European Union (EU), the AEC is a community formed in order to promote economic integration in South East Asia. The aim of this community is to create a market where member countries are able to develop competitively and cooperate with fewer barriers including free movement of goods, services, investment, freer flow of capital as well as substantial growth in workforce and demanding occupations. In order to achieve this, there are several tasks that need to be fulfilled such as diminishing the gap between developed and developing nations or enhancing communications connectivity and infrastructure.
Due to this, it is expected that the AEC would have a significant impact on the members’ economies in general, and on their real estate sectors in particular; and Vietnam is not an exception. Considering market fluctuations, it can be seen that an excessive amount of foreign capital has been invested into properties recently. In reality, until June 2015, a total of $16.6 billion from ASEAN investors had been poured into this market, despite the fact that AEC was not formed until December last year. This is partly because of the recently applied Housing Law and the Law on Real Estate Business which allow foreign investors to legally own, sell and transfer real properties. Regardless, the influence of AEC is undeniable. Also, similar trends were found in other ASEAN nations including Thailand or Singapore.
This has led many experts to predict that the involvement of Vietnam in AEC would result in prosperity in the real estate market. Vietnam can well compete with its ASEAN member countries in the Real Estate sector.
Vietnam has the most liberalized Real Estate Sector of all Asia allowing free hold ownership of land and houses for foreigners who are married to Vietnamese nationals.
There are still a number of challenges ahead of us such as weak management or lack of skilled labors and unclear procedures. As a result, although with its diversity, the ASEAN real estate market is an attractive destination to several investors, individual countries including Vietnam are required to improve systematically in order to compete in the global market.
Please do contact the author Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
The National Assembly of Vietnam invited Oliver Massmann to present on the Trans-Pacific Partnership Agreement and its Impact on Vietnam
VIETNAM – FIRST TIME IN HISTORY: THE NATIONAL ASSEMBLY OF VIETNAM INVITED OLIVER MASSMANN TO PRESENT IN VIETNAMESE LANGUAGE ON THE TRANS-PACIFIC PARTNERSHIP AGREEMENT AND ITS IMPACT ON VIETNAM ON JUNE 17th: HERE IS HIS PRESENTATION:
English:
Lawyer in Vietnam Oliver Massmann presenting to the Members of the National Assembly of Vietnam on the Trans-Pacific Partnership Agreement from Dr. Oliver Massmann
Vietnamese:
LUẬT SƯ OLIVER MASSMANN PHÁT BIỂU TRƯỚC CÁC ĐẠI BIỂU QUỐC HỘI VIỆT NAM VỀ HIỆP ĐỊNH ĐỐI TÁC XUYÊN THÁI BÌNH DƯƠNG from Dr. Oliver Massmann
I thank the Members of the National Assembly of Vietnam very much for giving me the opportunity to present. I am very happy about the very positive feedback the Members of the National Assembly gave me for my presentation. I feel very honored!
THANK YOU VERY MUCH!
Oliver Massmann
Rechtsanwalt in Vietnam Oliver Massmann Auslandsdirektinvestitionen (FDI)
Vietnam unterzieht sich fundamentalen Veränderungen um ein attraktives und wettbewerbsfähiges Fundament in Vorbereitung auf die kommende ASEAN Wirtschaftgemeinschaft (AEC) zu bilden, welches die EU-Vietnam FTA und die Transpazifische Partnerschaftsvereinbarung (TPP) beinhaltet.
Seit Juli 2015 traten eine Vielzahl von neuen Gesetzen in Kraft die Auslandsinvestitionen, Unternehmen, Grundbesitz und Eigentumsbeschränkungen von Ausländern regulieren.
Beispielsweise das neue Gesetz zu Investitionen und das neue Gesetz zu Unternehmen:
i) definiert auslandsfinanzierte Unternehmen
ii) Erleichtert M&A Tätigkeiten
iii) Reduziert die Zahl der Verbote und Bedingungen im Unternehmenssektor
iv) Reduziert gesetzliche Lizensierungszeiten für Unternehmen
v) Gestaltet die Unternehmensführung flexibler (wie z.B. mehrfache Stellvertretung und Verringerung der Wahlvoraussetzungen) und
vi) erzeugt günstigere Konditionen für Aktionärsklagen/Anlegerklagen
Darüber hinaus treten neue Gesetz und Regulierungen in Kraft die das Eigentum von Ausländern an Grundbesitz betreffen.
Ausländer können nun Appartements besitzen und erstmals Häuser kaufen. Sie dürfen nun auch Untervermieten und Grundbesitz erben.
Die durch das Inkrafttreten einiger internationaler Handelsabkommen, im besonderen EVFTA, eintretenden positiven Veränderungen werden von den EuroCham Mitgliedern begrüßt, da sie nicht nur das Unternehmen fördern, sondern auch zu Vietnams Wachstum beitragen.
Vietnam als attraktives FDI Ziel
Zusätzlich zu der Vielzahl an rechtlichen Änderungen besitzt Vietnam fundamentale Prinzipien die zu seinem Wachstum beitragen. Beispielsweise ist Vietnam mit 25% der 90 Millionen Einwohners zwischen 10 und 24 Jahren im Goldenen Zeitalter der demographischen Entwicklung. Das Pro Kopf BIP hat sich drastisch erhöht, da Vietnam die am schnellsten wachsende Mittelstandsklasse in Südostasien hat (12,9 % Wachstum pro Jahr zwischen 2012 und 2020). Aufgrund der hohen Lesefähigkeit der Bevölkerung und des Bildungsniveuas mit vergleichsweise niedrigen Löhnen, Konnexität und der zentralen Lage innerhalb des ASEAN wählen mehr und mehr Investoren Vietnam als ihren Mittelpunkt um die Mekong Region und die Region drum herum zu unterhalten.
Vietnams attraktives Profil wird durch die generelle Willkommenshaltung gegenüber Auslandsdirektinvestitionen (FDI) in den Produktionstätigkeiten reflektiert.
Die Verpflichtung Vietnams zur sukzessiven Öffnung der meisten Dienstleistungssektoren nach dem WTO Plan hat in 2007 begonnen und wurde in 2015 abgeschlossen.
Nationales Recht hat zudem den Zugang zum Markt auf andere Sektoren über die WTO Verpflichtungen hinaus geöffnet.
Beispielsweise war die Teilhaberschaft an öffentlichen Unternehmen durch Ausländer früher begrenzt auf 49 % und ist nun generell zu 100 % für ausländischen Anteilbesitz möglich. Vietnam gewährt auch
Zuschüsse für Investitionen inklusive Steuererleichterungen in Bereichen wie z.B. High Tech, Umwelttechnologie und Landwirtschaft, in denen europäische Unternehmen weltweit führen sind.
In 2014 hat Vietnam darüber hinaus 21.92 Milliarden Dollar als FDI verzeichnet mit insgesamt 1843 Investitionslizenzen für auslandsfinanzierte Projekte mit einem registrierten Kapital von 16.5 Milliarden Dollar, was einen Anstieg um 14 % im Vergleich zum Vorjahr darstellt.
Unter den Auslandsinvestoren stellt die EU eine zunehmend wichtige Quelle als FDI für Vietnam dar. „Nach Angaben der Auslandsinvestitionsagentur des vietnamesischen Ministeriums für Planung und Investment haben Investoren aus 23 der 28 Mitgliedstaaten der EU insgesamt Investitionen von 19.1 Milliarden Dollar in 1566 Projekte über 25 Jahre getätigt (Stand 15.12.2014).
Die EU steht aufgrund der starken Aktivität von insgesamt 587.1 Milliarden Dollar in FDIs in 2014 auf Platz 5 der FDI Partner von Vietnam.
Zusätzlich zu den FDIs wird die starke Handelsbeziehung zwischen der EU und Vietnam auch durch Programme wie z.B. MUTRAP, welches über 35.12 Milliarden Euro beinhaltet, deutlich.
MUTRAP half Vietnam in der Verhandlung über den WTO Beitritt und unterstützt Vietnam auch weiterhin bei der Umsetzung der Handelsverpflichtungen.
Bezüglich des Handels wird erwartet, dass sowohl die europäischen als auch vietnamesischen Unternehmen von EVFTA profitieren. Die FTA will sukzessiv die Zölle für über 99 % der Waren und Dienstleistungen abschaffen und auch weitere bilaterale Handelsmechanismen unterstützen.
Am 4.08.2015 haben die EU und Vietnam ein Freihandelsabkommen getroffen, welches mehr FDI in das Land locken soll.
Vietnams Top Handelspartner in 2013
Letzendlich wird das starke Engagement der EU in Bezug auf die Unterstützung Vietnams zur Modernisierung und Integration in die Weltwirtschaft durch die Hilfsprogramme wiedergespiegelt/ deutlich. Die EU hat im Einklang mit dem 2020 sozialökonischem Plan Vietnams ihre Hilfe um 30 % auf 400 Millionen Euro im Rahmen des mehrjährigen Richtprogrammes für die Zeit zwischen 2014- 2020 mit Fokusierung auf die Entwicklung von sauberer Energie in Vietnam erhöht.
Weitere Verbesserungen sind nötig.
Vietnams Entwicklung und Attraktivität bei ausländischen Investoren kann nicht geleugnet werden, da Vietnam fortwährend sein wirtschaftspolitisches Umfeld verbessert. Jedoch wurden, im Zeitpunkt des Verfassens des Artikels, Richtlinien für viele neue Gesetze noch nicht veröffentlicht, und Investoren nehmen Verzögerungen des Bewerbungsprozesses wahr. Wir erwarten eine Verbesserung der Bearbeitungszeiten sobald die Richtlinien in Kraft treten und die Beamten/Amtsträger sich an die Veränderungen gewöhnt haben.
Ein anderes Thema, welches durch unsere Mitglieder hervorgehoben wurde, ist, dass viele ausländische Invetsoren immer noch mit der vietnamesischen Bürokratie zu kämpfen haben. Steuererklärungen einreichen, Zollbefreiungen, Unternehmensregistrierungen und Lizensierungen, sowie weitere administrative Prozeduren werden oft verzögert, das Ergebnis ist unvorhersehbar und Unternehmen müssen Resourcen in die Administration stecken, die sie lieber in die Erweiterung ihrer Haupttätigkeit investieren würden.
Trotz der verbleibenden Hürden hat die vietnamesiche Regierung ihr Verständnis über die Probleme der ausländischen Investoren zum Ausdruck gebracht. Aufgrund des ansteigenden Zugangs ausländischer Investoren zum Markt wird erwartet, dass Auslandsdirektinvestitionen weiter fließen. Für die ausländischen Investoren wird das potenzielle Risiko wesentlich von der positiven wirtschaftlichen Entwicklung des Landes und seiner Grundsätze überwogen .
In diesem Lichte möchte die EuroCham in Verbindung mit einigen wichtigen Ratschlägen die Kernprobleme präsentieren, die ihren Mitgliedern aufgrund der Tätigkeiten in Vietnam begegnen.
EuroCham hofft auf einen konstruktiven Dialog und ansteigende Kooperation mit den respektiven Behörden bezüglich der angesprochenen Schwierigkeiten in diesem Artikel, um das wirtschaftspolitische Umfeld für alle Unternehmen in Vietnam weiter zu verbessern und um zur schnellen Modernisierung des Landes beizutragen.
Bei Fragen oder weiteren Informationen zu dem oben gesagten zögern Sie bitte nicht Oliver Massmann unter omassmann@duanemorris.com zu kontaktieren. Oliver Massmann ist der Generaldirektor von Duane Morris Vietnam, LL.C.
VIELEN DANK!
Lawyer in Vietnam Oliver Massmann Transfer Pricing in Mergers and Acquisitions
The Issue
In an acquisition, the transfer price is, in principle, negotiable. Unfortunately, if that price is agreed to be less than the face value of the sellers’ capital contribution to the charter capital (equity)]of the target, the licensing authority may not accept the acquisition and refuse to approve the acquisition. The acquisition may subsequently also be examined by the tax authority who may review the transfer price again to ensure that it reflects the ‘market price’ or the above ‘book value’ of equity. If the tax authority concludes that the market price or book value has not been reflected appropriately, it may refer to another transfer price it deems fit for tax management purposes. Exceptions can be made for a local company that has suffered from large losses. In our view, it is important that the law clarifies that the licensing authority cannot ‘review’ the transfer price, which is per se a purely commercial issue; and that only the tax authority may do so for taxation purposes. It should be clear that a transfer price determined not to reflect the market price or book value cannot be a ground for the licensing authority to block the transfer by refusing the issuance of its approval.
Moreover, tax liabilities arising from any M&A transaction also create concerns to the investor. Generally, any assignment of capital is subject to the standard capital gain tax rate (i.e. 22% corporate income tax of the profit derived from such assignment) while the sale of assets is subject to Value-added Tax (VAT) (at a default 10% rate) in most of cases. The personal income tax of the individual seller may be applied with various tax rates of between 5% and 20% for capital investment and capital assignment depending on the types of taxable income and taxpayer. The gain from the shares transfer in a public company may also be subject to tax at 0.1% of the gross sales proceeds.
Vietnamese tax regulations are also not clear on the capital gain tax (if any) applicable to an offshore acquisition (i.e. transfer between offshore seller and buyer of equity interest in an offshore target company which holds capital contribution in a Vietnamese company). The position of Vietnam’s General Tax Department (“GTD”) has once been that no Vietnam’s capital gain tax is applicable if all the following conditions are met: (i) the acquisition is entirely offshore, (ii) the capital of the offshore target in the onshore subsidiary remains intact, (iii) the offshore target and the onshore subsidiary do not receive any income from the acquisition and (iv) the investment certificate of the onshore subsidiary does not change. For example: see Official Letter 2268/TCT-CS of the GTD dated 28 June 2012. However, under a recent development of Vietnam’s tax law (in particular Decree 12/2015/ND-CP effective from 1 January 2015), the GTD has opined in some of its recently guidance (for instanceOfficial Letter 1595/TCT-DNL of the GTD dated 24 April 2015) that offshore acquisitions may also be subject to Vietnam’s capital gain tax. There has not been any specific guidance on how this application of Vietnamese capital gain tax is implemented in practice.
Potential gains/concerns for Vietnam
Capital gain tax is important for planning the structure of an M&A transaction. This lack of clarity regarding whether taxes are applicable, how they are applicable and/or the applicable tax rates creates uncertain financial obligations for investors. In practice, due to these ambiguities, transfer prices are often frozen for long periods of time. This impacts on the planned timescale of transactions and could lead to deals being stopped.
Furthermore, the ambiguous tax regulatory frameworks and the sole discretion of tax authorities on the tax liabilities lead the M&A parties to face difficulties in determining risks levels on this matter or even to the risk of tax arrears or accusations of tax evasion after the conclusion of an M&A.
Recommendations
We would like to make the following recommendations:
• Harmonise the interpretation of transfer price;
• Clarify and improve the regulatory frameworks on tax liabilities arisen from M&A transaction.
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.
Lawyer in Vietnam Oliver Massmann ALERT IMPRISONMENT/JAIL for Labour Law violation – New Penal Code sanctions – Unprecedented !
Lawyer in Vietnam Oliver Massmann ALERT IMPRISONMENT/JAIL for Labour Law violation – New Penal Code sanctions – Unprecedented !
On 27 November 2015, the National Assembly adopted a new Criminal Code No. 100/2015/QH13, which takes effective from 01 July 2016. This new Criminal Code will replace the old Criminal Code in 1999 and its amending / guiding documents.
Notably, the new Criminal Code provides new sanctions for violations in employment sector. Details of these sanctions are set out below:
Illegal dismissal of employees
In particular, if a person for his/ her own sake conducts one of the following behaviours that make dismissed employees or their families fall into difficult situations or go on strike, he/ she will be subject to monetary fine of VND10 million – VND100 million, non-custodial reform of up to 1 year or IMPRISONMENT/JAIL of 3 months to 1 year:
• Illegal dismissal of employees;
• Illegal issuance of decision on dismissing public servants; or
• Forcing, threatening the employees or public servants to quit their jobs.
The violating person will be subject to VND100 million – VND 200 million monetary fine or 1-3 year IMPRISONMENT/JAIL if he / she commits the crimes in either of the following situations:
• Dismissing 2 employees and more;
• Dismissing pregnant employees;
• Dismissing mothers of less than 12-month old baby; or
• Causing the dismissed employees commit suicide.
At the same time, the violating person may also be prohibited from holding certain professional positions within 1- 5 years.
Employment of employees under 16
Anyone who employs a person under 16 to do hard or dangerous work or work that involves contact with harmful substances in any of the following cases will be subject to a fine of VND 30 million – VND 200 million or up to 03-year non-custodial reform or 06 – 36 month imprisonment:
• The offender previously incurred a civil penalty or has a previous conviction for the same offence which has not been expunged;
• The offence results in bodily harm to 01 people who suffers from 31% – 60% physical disability;
• The offence results in bodily harm to 02 people or more who suffer from a total physical disability of 31% – 60%.
A sanction of 03 – 07 year imprisonment applies in the following cases:
• The offence has been committed more than once;
• The offence involves 02 workers or more under 16;
• The offence results in the death of 01 person or bodily harm to 01 person who suffers from over 61% physical disability;
• The offence results in bodily harm to 02 people, each of whom suffers from 31% – 60% physical disability;
• The offence results in bodily harm to 03 people or more who suffer from a total physical disability of over 61%.
A sanction of 05 – 10 year imprisonment applies in the following cases:
a) The offence results in the death of 02 people or more;
b) The offence results in bodily harm to 02 people or more, each of whom suffers from over 61% physical disability;
c) The offence results in bodily harm to 03 people or more who suffer from a total physical disability of over 122%.
The offender might also be subject to a monetary fine of VND 10 million to VND 50 million.
Evading payment of social insurance, health insurance, unemployment insurance for employees
A corporate legal entity who commits the following crimes is subject to monetary fine of VND 200 million to VND 500 million:
• The amount of insurance contribution evaded is VND 50 million to under VND 300 million;
• The offender fails to pay insurance for 10 – 49 employees.
A corporate legal entity who commits the following crimes is subject to monetary fine of VND 500 million to VND 1 billion:
• The offence has been committed more than once;
• The amount of insurance contribution evaded is VND 300 million to under VND 1 billion;
• The offender fails to pay insurance for 50 – 199 employees;
• The offender collects or deducts insurance contribution from the employees at the amount of VND 50 million to under VND 300 million or from 10 -49 employees but fails to pay insurance [to the authority].
A corporate legal entity who commits the following crimes is subject to monetary fine of VND 1 billion to VND 3 billion:
• The amount of insurance contribution evaded is VND 1 billion or more;
• The offender fails to pay insurance for 200 employees or more;
• The offender collects or deducts insurance contribution from the employees at the amount of VND 300 million to under VND 1 billion or from 50 – 199 employees but fails to pay insurance [to the authority].
Coercive labour
Any person that uses violence or threat of violence or other methods to force a person to work against his/her will, depending on each case, be subject to monetary fine of VND30 million – VND200 million, 06-month to 12-year imprisonment, or prohibited from holding certain positions or doing certain jobs within 01 – 05 years.
Action plan
What we recommend to you now:
• You should update your Internal Labour Rules
• You should inform your managing team about these new rules !
We are fully qualified to assist you with this work. Kindly let us know if you require our assistance.
—o0o—
Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above or should you request our assistance. Mr. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
Lawyer in Vietnam Oliver Massmann Trans Pacific Partnership Agreement – Ratification and Key Impact for Vietnam
If the TPP is ratified and goes into effect, what do you see as the key areas of impact on Vietnam and its economic future?
Answer: Vietnam would be the largest beneficiary of this trade pact. Statistics show that by participating in the TPP, Vietnam’s GDP would add an additional increase of 13.6% to the baseline scenario. According to the World Bank and other institutions, Vietnam’s GDP in 2020 will increase by USD 23.5 billion and USD33.5 billion in 2035. Export value will also increase by USD 68 billion in 2025. Vietnam’s real income by 2025 is also forecast to increase by 10.5%, leaving Malaysia’s as the second highest income rising country out of the TPP members far behind at 5.6%.
TTP will help Vietnam balance relationships with key markets, approach larger markets including the U.S, Japan, Canada, boost import-export, reduce import deficit, and attract foreign investment. In addition, TTP will also help Vietnam’s economy allocate its resources more effectively, enabling active supports to the processes of restructuring, innovation and improving regulations, and improve administrative reforms.
What industries do you see within Vietnam would benefit the most, and where do you see major risks to established industries if the TPP is ratified?
Answer: The TPP will have significant positive impact on Vietnam’s exports in textile, footwear, agriculture, forestry and fisheries sectors. This is due to major reduction in import duties for goods from Vietnam, especially in Japan and the United States. Supply chain established after the effectiveness of the TPP will also bring Vietnam a lot of new opportunities. Recently, many big corporations have chosen Vietnam as a part of their production chain of high tech products. The TPP will help to develop this trend.
The livestock industry will suffer from fierce competition as a result of the TPP. In Vietnam, the livestock industry is still small, not modernized, mainly household scale with participation of small and medium enterprises. Products have certain difficulties in meeting high quality and sanitary standards.
Textile industry is also a sector which bears negative impact from the TPP. The yarn-forward rule of origin makes Vietnam’s textile products difficult to be entitled with preferential import duties, as the domestic weaving industry has not well developed. Vietnam still has to import cloth and fabrics from non-TPP countries (for example, China). The textile industry sees this as an opportunity to re-structure the whole industry and improve the supply chain.
In your view, if the US does not ratify the TPP, do you see the RCEP as a replacement for Vietnam? And if so, what do you see as the major impacts (positive or negative) on Vietnam, as a result of implementing the RCEP without having a TPP?
Answer: I take a positive view that the TPP will sooner or later be ratified. However, in the unlikely worst scenario that the TPP will not be materialized, Vietnam will lose a great opportunity to integrate its economy deeper in the Asia- Pacific Region. RCEP has a lower level of trade liberalization and smaller commercial scale. RCEP does also not take a single-package approach, or in other words, it is not a comprehensive trade agreement which covers new issues of the era such as labour and environment standards, competition, SOEs, government procurement, IP rights, etc.) as the TPP. Thus, RCEP’s positive impacts on transforming Vietnam’s economy will not be as large as the TPP’s. Without the TPP, Vietnam will face strong competition from China – which is not a party to the TPP and this is Vietnam’s advantage over China. RCEP will put Vietnam in a disadvantaged situation in its relationship with China as a result of more liberalized and preferential bilateral trade from RCEP. Vietnam will no longer benefit from RCEP due to the similarities in the export structure between Vietnam and China.
If the TPP is ratified and goes into effect, do you see any effect with Vietnam – China trade? Especially given that there is already a trade agreement in place as part of the ACFTA.
Answer: Vietnam’s participation in the TPP will not harm Vietnam – China trade. I note that Vietnam has great trade deficits with China. However, while China is the biggest trading partner of Vietnam in terms of two-way trade, the United States is still Vietnam’s largest market. By being part of the TPP, Vietnam can take advantage of this opportunity to access to other TPP members’ market, improve its competitive capacity, thus reducing its reliance on China. Vietnam – China trade relations will then be improved towards better balance, stability and for mutual benefits.
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Please contact the author Oliver Massmann under omassmann@duanemorris.com if you have questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
Lawyer in Vietnam Oliver Massmann Transportation Business Requirements to apply for the badges: Which way for wholly owned foreign enterprises?
Requirements to apply for the badges
On 10 September 2014, the Government issued Decree No. 86/2014/ND-CP setting out conditions on transportation business (Decree 86) that automotive vehicles with designed capacity of 10 tones and above and from 7-10 tons must bear badges (the Badges). On 7 November 2014, the Ministry of Transportation and Communications (MT) issued Circular No. 63/2014/TT-BGTVT guiding Decree 86 (Circular 63), which requires that only enterprises having the Certificate of doing transport business by automotive vehicles can apply for the Badges.
Conditions to carry out transport business and the dilemma when applying for the Badges
According to Vietnam’s WTO Schedule of Specific Commitments in Services, foreign contribution in a joint venture doing transportation services must not exceed 49% of the total charter capital of that joint venture. Accordingly, enterprises with more than 51% foreign ownership do not have transportation business in their investment certificates, resulting in the impossibility to obtain the Certificate of doing transport business by automotive vehicles. This further leads to the fact that these enterprises will neither be able to apply for the Badges.
Moreover, Decree 86 creates the concept of ‘transport business with indirect money collection’ which is defined as ‘the transport business by automotive vehicles, in which the transport business units perform the transport phase and perform at least another phase in the process from production to consumption of products or services and collect freight through revenues from such products or services’ (Article 3.3). Circular 63 further requires trucks used by companies that carry out the transport business with indirect money collection to affix the Badges thereon when in traffic.
It is noted that some enterprises, considering their business nature, have to invest in specialized means of transportation to transport their own products between their locations and to their customers in Vietnam (for example, industrial gas products). Examples would be road tankers, special trailers and tube trailer, etc. that must be imported because their special designs make them impossible to be produced in Vietnam. Given high technical safety standards of international level, it is nearly impossible for enterprises to rent these special vehicles in Vietnam while relying on the same standards. Meanwhile, enterprises must still maintain their operation and cannot stop delivering their goods to the customers according to the terms of the contracts. However, according to Decree 86, from 01 January 2016, automotive means of goods transport with designed capacity from 10 tones must bear the Badges. Meanwhile, only enterprises having the Certificate of doing transport business by automotive vehicles can apply for the Badges. It is also contrary to the Vietnam’s WTO Schedule of Specific Commitments in Services which does not allow 100% foreign-owned enterprises to provide transport services.
It does also not make any business and legal sense if a manufacturing foreign invested enterprise which is allowed to import means of transport for its operations to serve its production activities is forced to register for professional transportation business or outsource this internal job to a professional business transportation company. In fact, thousands of other foreign invested enterprises have been long granted with the right to import means of transportation without any requirement on transportation business until the adoption of Decree 86. They have long maintained their trained driving staff and management personnel in compliance with their own internal policies. Thus, it is not so simple to switch to a new contractor and hire outside staff.
Which way for wholly-owned foreign enterprises?
Considering the abovementioned difficulties of enterprises with more than 49% foreign ownership doing business in crude oil products with special characteristics, the Ministry of Transport (MOT) has proposed to the Government to consider the issuance of the Badges for vehicles of these enterprises without requiring the Certificate of doing transport business by automotive vehicles, and at the same time consider the amendment of Decree 86.
Consequently on 30 March 2016, the Prime Minister issued Resolution No. 23/NQ-CP which clearly states that in the short term, the Government allows the MOT to issue the Badges to commodity carrying trucks of foreign invested enterprises with 49% foreign ownership or more for the purpose of the main production and business of these companies. For the next step, the MOT is responsible for incorporating the same regulations in the amendments of Decree 86.
This move of the Government has basically solved the abovementioned difficulties for enterprises with more than 49% foreign ownership so that they can keep operating as normal. This also ensures lawful right of doing business of foreign invested enterprises having transport services of goods produced by themselves to their customers, is in conformity with foreign investment encouraging policies of the Government and improves business environment in Vietnam.
Amendments of Decree 86 – What are in the current Draft?
The Government is now seeking public comments on the Draft Decree on doing business and conditions on doing transport business by automotive vehicles. This Draft Decree is essentially amending important points in Decree 86, among which is the requirement to apply the Badges for vehicles of enterprises doing transport business with indirect money collection.
In the current Draft Decree, internal goods transport is the activity of goods transport with indirect money collection and includes the following forms:
(1) Use of transport vehicles to transport dangerous goods according to the Government’s list of dangerous goods, transport of dangerous goods and authority to license such transport;
(2) Use of transport vehicles to transport cargos and overweight goods when in traffic on roads;
(3) Having 5 vehicles and more;
(4) Use of vehicles with permitted transported goods of 10 tons and above to transport goods.
Enterprises doing transport business with indirect money collection must satisfy conditions on means of transport, drivers, parking location and management of the driving staff as well as their vehicles.
Although the above is not yet effective, we can see that the Draft Decree has given much more clarity to the business of internal transport and conditions applied thereto. The Draft Decree is expected to be finally adopted in the upcoming months.
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Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
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Lawyer in Vietnam Oliver Massmann THE WORLD BANK REPORT ON RETAIL TARIFF INCREASE SOLUTIONS TO RECOVER ELECTRICITY OF VIETNAM
For the past few years, Vietnam has made the transition from a predominantly agricultural to a mixed economy with substantial development of commercial and industrial activities. Rapid growth in population and improvements in living standards together with the Government’s effort to improve access to electricity throughout the country have led to growing increase in the demand for electricity. This now poses a major challenge for Vietnam to maintain sustained growth of the power sector and to achieve energy security. Meanwhile, Vietnam’s electricity demand continues growing at double-digit number. Electricity infrastructure capacity is limited, operation of certain power projects has been delayed, and private investors are reluctant to invest in the sector due to their concern of low rates of return on equity and low feed-in-tariff. These factors, among others, have left the Electricity of Vietnam (EVN) with no option but to increase debts to cover its operation needs. This article studies and proposes some solutions to improve EVN’s operation in the coming years.
Current situation of the Vietnam’s power market
As of December 31, 2015, the total generation capacity in Vietnam’s interconnected power system was 141.34 billion kWh, an increase of 11.6% compared to 2014. During the period of 2011-2015, electricity generation output increases by 11%/ year on average. Meanwhile, according to World Bank’s report in 2014, Vietnam is one of the most energy intensive economies in the world, and more energy intensive than other countries in the Southeast Asia at the same level of development.[1] Electricity demand has grown at a rapid pace averaging 15% per year from 2008 to 2010 before dropping to 9% in 2011 due to the macroeconomic situation.[2] Electricity demand is expected to be twice as much as GDP growth between 2014 and 2020. The Power Development Plan VII (PDP VII) projects a strong increase in power demand to 2030.[3]
Amended PDP VII sets the target of electricity output in 2020 to be 235 -245 billion kWh, 352 – 379 billion kWh in 2025 and 506 – 559 billion kWh in 2030. In this amended PDP VII, in 2020, the targeted total capacity of power plants is 60,000 MW, in which electricity output from renewable energy sources will account for 9.9%. These numbers in 2025 will be 96,500 MW and 12.5% respectively. In 2030, a target of 129,500 MW being the total capacity of power plants and 21% of electricity output generated from renewable energy sources is also set.
Total investment in the power sector was US$2.6 billion in 2012 and slightly increased in 2013. This is relatively small compared to the investment requirements of about US$7.5 billion per year. Meanwhile, the Vietnam Government as well as state-owned enterprises in the sector is unlikely to invest more due to prohibition from investing in non-core businesses by state-owned enterprises. In addition, the total investment cost from 2014-2020 corresponding to the capacity requirements totals US$53 billion. Thus, most of the expected total investment during 2014- 2020, which is of about US$25 billion should come from private sector. EVN will then still need a substantial investment program, which is hard to be financed until 2020.
The role of EVN in the power market and its financial problems
EVN and its subsidiaries play a vital role in the power sector. Key activities of the subsidiaries are generation, transmission and distribution. EVN acts as the only off-taker from the generators. It incurred significant financial losses in both 2010 and 2011.
EVN’s operation results in 2012 were much better, from a loss of 12% of income in 2011 to a profit of 14% of income. The profitable results maintained in 2013, although the result in 2013 was not as good as in 2012 and investment was still far below the level of needs. EVN has also had a high and rising level of borrowing in foreign currency. EVN is in a total debt of VND86 trillion in 2007, increasing to VND284 trillion in 2013. Total debt is expected to increase from US$14.6 billion in 2014 to US$28.2 billion in 2020.
The reasons behind EVN’s unstable, inefficient and risky operation are largely beyond EVN’s control. In particular, we have to name hydrology, substantial devaluation in the Vietnamese dong against EVN’s major borrowing currencies, lack of strong Government’s commitments in adopting tariffs to cover full cost of power provision as main challenges to the power sector in general and EVN in particular.
In contrast, EVN’s subsidiaries in generation, transmission and distribution have a quite strong operational performance and are well managed. However, low tariffs and low level of equity have put them under considerable financial constraints.
These financial and investment challenges could be solved by appropriate actions from EVN, the Ministry of Industry and Trade – the parent ministry and the private sector. In the worst scenario that EVN could not fulfil its financial obligations, the Ministry of Finance – the guarantor of EVN’s loans must bear the payment responsibility for the loans, resulting in possible decrease in investment and increased levels of supply interruption accordingly.
EVN is not under immediate threat of insolvency. However, if the current delay in payment to its fuel suppliers due to a prolonged delay in increasing tariffs and a series of years with low rainfall continue, EVN could be placed under a much more serious financial pressure. Where its liabilities exceed its assets, insolvency is unavoidable.
EVN’s challenges and solutions
Challenges Solutions
Achieving sufficient level of private investment in the power sector to meet investment needs (1) Improving regulations on guarantees on the remittance of funds, licensing procedures, project appraisal mechanisms, negotiation process with EVN and reducing the numbers of required permits as much as possible;
(2) Maintaining dialogue with private sector;
(3) Improving the MOIT’s capacity to manage IPP projects; and
(4) Divesting GENCOs.
Addressing the current low retail tariffs to enable EVN to improve the electricity system, which in turn improves the reliability of power supply (1) Setting PPAs in line with international standards;
(2) Allowing market prices for new generation investment;
(3) Amending current regulations to attract more private investment; and
(4) Carrying out electricity tariff adjustments to the extent necessary. The tariff adjustment path should be phased over the next 3-4 years (about 40% in total) so that EVN could achieve full cost recovery and financial stability by 2018.
Improving operational efficiency at EVN (1) Appointing a senior EVN leader to coordinate among ministries and agencies to move the financial recovery plan forward;
(2) Better technical management by (i) maintaining a reasonable number of working staff to improve labor productivity; (ii) making use of older coal plants during poor rainfall season and efficiently managing capital program; (iii) enhancing service quality;
(3) Fully unbundling EVN into independent companies;
(4) Disposing non-core assets and focusing only on core business;
(5) Rehabilitating assets; and
(6) Improving governance.
Enhancing EVN’s capacity to manage financing risks (1) Increasing revenues arising from the implementation of cost-based tariffs;
(2) Negotiating with lenders to extend the loan terms;
(3) Establishing a stabilization fund to manage the risks that EVN faces; and
(4) Reducing foreign exchange risks.
We note that these above recommendations are not mutually exclusive. In other words, implementation of any single recommendation could facilitate the implementation and effectiveness of the others. Moreover, these recommendations are not exhausted considering the on-going changes in Government policies and power market situation.
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Please do not hesitate to contact Mr. Oliver Massmann under omassmann@duanemorris.com if you have any questions on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC.
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Lawyer in Vietnam Oliver Massmann at Meeting with new Prime Minister Nguyen Xuan Phuc Sustainable Foreign Direct Investment is what Vietnam needs most:
We highly appreciate the Government’s efforts to integrate into the world’s economy, in particular it is worth mentioning the recent conclusion of important trade pacts such as the EU- Vietnam Free Trade Agreement, the Trans-Pacific Partnership, the Vietnam –Korea Free Trade Agreement. Foreign business community is expecting from the Vietnamese Government to stay course on its path of international integration and implementation of its international commitments. Foreign investment is an effective channel to develop the country, thus the Government needs to adopt preferential treatment for foreign investors in terms of policies, land and human resources.
But foreign investment cannot come at the price of unlimited environmental pollution and GDP should not be the only indicator of a fast-growing country. The current serious environment pollution in China as a result of its hot development in the recent years is a big lesson that Vietnam must learn from. The magic term for Vietnam’s future is “Sustainable Foreign Direct Investment”. Vietnamese Government should focus on encouraging sustainable development. One form is renewable energy. However, there has been done too little to move foreign direct investment forward in the renewable energy sector. Lack of sufficient supporting regime, low feed in tariff, project bankability are among hindrances to development in the sector.
But in my view the major hindrance for development in the Renewable Energy sector is the will of the Authorities in charge to really implement commitments of international agreements like the Paris agreement and make things happen in Vietnam. I conclude: Nothing will move without the real will to do it. We need the will and real action to create a sustainable framework for Renewable Energies and sustainable Foreign Direct Investment.
I am confident that the new Government will walk its talk to this regard.
Please contact Oliver Massmann under omassmann@duanemorris.com if you have questions on the above. Oliver Massmann is General Director of Duane Morris Vietnam LLC.
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Omassmann