On 26 March 2021, the Government issued Decree 31/2021/ND-CP (“Decree 31”) providing Guidance on enforcement of Law on Investment 2020 (“LOI”) and in replacement of the previous Decree 118/2015/ND-CP (“Decree 118”). Decree 31 covers a series of significant changes compared to the Decree 118, regarding market access and limitations for foreign investors, application process timeline and online lodgements, investment reports provisions and other important issues. We advise investors to peruse these regulatory changes and clarifications to make sure they are aware of their statutory responsibilities and market access requirements when investing in Vietnam.

In this article, we highlight some of the important changes regarding:

(i)     Regulations on market access for foreign investors

(ii)    Application procedures and

(iii)   Investment reports

Introduction

When establishing a Foreign Owned Enterprise in Vietnam, foreign investors go through 2 main procedures, composing of the application for:

• Investment Registration Certificate (“IRC”) and
• Enterprise Registration Certificate (“ERC”)

These certificates have the purpose of specifying the operational objectives and recognizing the legal capacity of an enterprise. For both procedures, foreign investors need to determine the company’s business lines, one of the must-have conditions to comply with at the outset. This is not only the basis for synchronous management by the Government with local investors through VISC code, but also the basis to identify the factors limiting market access and the factors affecting the fair competition with local investors in certain specific business fields in Vietnam.

In order to understand the legal framework for each procedure, investors should refer to the Law on Investment 2020 for IRC provisions and the Law on Enterprise 2020 for ERC and corporate governance provisions.

As LOI 2020 consists of general regulations by the National Assembly, in order to implement and understand these regulations in practice, the Government issued Decree 31 to clarify and supplement details of these matters that LOI 2020 has not mentioned.

Updates on market access limitation for foreign investors

Further to regulations laid down in LOI, Decree 31 specifies the List of business lines, mainly services, where foreign investors face limitations or “restrictions” when investing in Vietnam. This list consists of two parts and is documented in Annexure I of the Decree as below:

• Category A, comprising of business lines that are limited to foreign investors who carry out their business in Vietnam under any forms.[1] The list includes 25 business lines, the majority of which have not been committed for market entry under international treaties or considered as sensitive under national security, or are intended to protect local investors, state-owned enterprises such as: Press, Redundancy services, Public opinion polling, Production and trading of weapons, explosives, etc.

• Category B comprises business lines that have market access requirements for foreign investors. Foreign investors are permitted to do business in Vietnam if their operation scope is covered this list, however they must meet not only specific basic requirements that apply to foreigners but also conditions that apply to local-foreign investors in Vietnam, specified in the WTO Commitment and national laws. The detailed conditions for foreign investors will be uploaded on the Vietnam National Investment Information System (“National Online System”).

The most notable provision on this matter is that if a foreign investor wishes to invest in industries other than these mentioned above, they would be regarded as if they were a local investor.

As a result of this provision on market access limitation, foreign-owned companies established before the issuance of Decree 31 are permitted to continue operations with their registered business lines. Should they have any changes to their business lines, the new conditions mentioned above will be applied only to the new business lines. This helps foreign-invested companies continue their operations and safeguards them from being challenged by the authority on matters unrelated to the content that needs to be adjusted.

Increase in the investment conditions for foreign investors in Vietnam

In addition to the four conditions applicable to foreign investors in Vietnam specified in LOI, Decree 31 has added five additional conditions which investors must meet to enter the Vietnamese market:

(i)    Using land, labourers; natural resources, minerals

(ii)   Production and supply of public goods or services or state monopoly goods and services

(iii)  Owning and trading houses and real estate

(iv)  Apply forms of State support and subsidies to a number of branches, domains or development of regions or territories

(v)    Participating in equitization programs and plans for state-owned enterprises

In practice, the additional requirement of land using report, as mentioned in point i) above, is already strictly enforced by the licensing authority in Ho Chi Minh City and other provinces in Vietnam, where we note that the “costal land using declaration” (and related documents provision thereof) is a must-have (new) material in both the initial registration and capital/shares transfer processes of foreign investment in Vietnam.

Thus, up to the present time, foreign investors may be required to meet 9 conditions that apply exclusively to them to conduct business activities in Vietnam, and this number may increase further when both LOI and Decree allow some authorities to specify additional conditions.

Determination of the investor’s nationality and its effects

Decree 31 has filled several gaps in the last Investment Law, which had caused confusion for the licensing authorities in the past when determining citizenship, as well as the influence of nationality status when conducting investment activities in Vietnam.

• Investors with multiple citizenship (Vietnamese and international) have the right to choose whether to apply market access conditions and investment procedures to local or foreign investors. If an individual prefers the first option, they are not permitted to exercise the foreign investor’s rights and obligations.

• A foreign investor from a country or territory that is not a WTO member is subject to the same market access conditions as an investor from a country which is a WTO member, unless the law of Vietnam or the treaties between Vietnam and the specific country or territory include other regulations.

Accelerated processing time for investors’ applications

Decree 31 has addressed the issue of delay in response from both licensing authorities and foreign investors, by supplementing a regulation on the time to complete tasks by both parties as below:

• If there is request from the licensing authority for modification, supplementation, or clarification of the application, the written request must explicitly state the deadline to complete the above tasks. In case the investor fails to meet the stated time limit, the licensing authority has the right to consider ceasing the process;

• If the licensing authority seeks for opinions from other relevant authorities, the response deadline is also applied. Any silence in response to any questions of the licensing authorities would be interpreted as approval of the matter in question.

Evaluating objectively, the above provisions are both beneficial but also detrimental to the investors during the investment process implementation. As mentioned, this can speed up the processing of investors’ applications, but also has a disadvantage in that the investor may not meet the deadline set by the authority, causing the process to be suspended by the licensing authority.

Resolving fraudulent documents in relation to project implementation more strictly

Decree 31 removes the phrase “inaccurate” in the investment application forms, and only refers to “fraudulent”. Moreover, the investment implementation procedures according to Decree 31 will be applied to the authority for the investment activities, not only to investment registration form by investors as stipulated in Decree 118.

Regarding the scope of competence of the registration authority, Decree 31 stipulates with clarity that the notification of violations to investors must be prepared in writing. In addition, the registration authority has two new responsibilities: (i) reporting to the authority, the person who has competence to consider dismissing documents; and (ii) resolving the violation when under its competence.

Investors have the responsibility to comply with these regulations and bear “all” damage caused by provision of fraudulent documents. This provision reinforces investors’ responsibility to comply with all legal regulations from the outset, in order to avoid disadvantageous consequences.

Online application for IRC issuance and adjustment

This is a brand-new regulation compared to Decree 118, which details procedures for granting and adjusting IRC via National Online System. The online platform (https://fdi.gov.vn) has the ability to apply more advanced technologies to accomplish legal registration procedures as well as speed up the application process, and help foreign investors follow up easier and faster compared with the ordinary submission.

However, if the investors do not have a digital signature, the “online-process” is not as straightforward as intended, as it may take up to 20 working days to receive the final result (5 working days of online notification and 15 working days of comparing the hard copies with the electronic forms). The new method for lodging the application may not shorten the duration for investors compared to Decree 118 provisions in a significant way. Please refer to the below table comparing the online application process for companies having digital signatures and for those who do not: