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Changes to the Law on Foreign Investment in Vietnam

A new foreign Investment Law (FIL), was passed by the National Assembly on 16 May 2000 and took effect from 1 July 2000.  The significant changes are as follows:-


  • Establishment and Organisations Issues

o    Registration and Licensing of Business
The new law provides for a category of business that can be undertaken based on registration alone, in which case the registration of the issuance of the investment license must be done within 30 days.
In the case where the businesses need to be evaluated before licensing, the licensing should be done within 45 days.

o        The Principle of Unanimous Consent in Joint Ventures

The new FIL deletes requirement for unanimity except for:

- Appointment and dismissal of the General Director and the First Deputy General Director

- Amendments to the Charter

- Joint venture parties may agree to make other matters subject to unanimous approval of the Board

For other issues, the Board of Management of the joint venture enterprise may pass resolutions if representatives holding at least 51% of the Charter capital of the enterprise agree.

o        Reorganization of Business Structures

Foreign businesses will be allowed to change their existing form of investment, by way of division, separation, merger or consolidation, the condition for the procedures of which will be decided by the Government.

o        Dissolution of Foreign-Invested Enterprises

Under the new law termination will be allowed in accordance with the conditions for termination stipulated in the joint-venture contract, the Charter of the enterprise, or by agreement between the parties.

  Assignment of Interest

Wholly foreign-owned enterprises which wish to sell an interest in their company no longer have to give a right of first refusal to Vietnamese businesses. 

  • Land Issues

         Compensation for Land Clearance

Where the use of land contributed to a joint venture by the Vietnamese side is its share capital, the Vietnamese party will be responsible for 

- compensation for land clearance

- completion of all the procedures to be able to exercise the land use right

Where the State leases the land, the State will be responsible for site clearance and for completion of all the procedures to be able to lease the land.

o        Mortgage of Land and Property Attached to Land

Foreign business will be allowed to grant mortgages over land use rights and assets attached to the land to banks permitted to operate in Vietnam (including foreign bank branches).

o        Effect of Dissolution or Bankruptcy on Land of a Foreign-Invested Enterprise

The new FIL clarifies that upon dissolution or bankruptcy, the residual value of the land use right which the Vietnamese party has contributed to the joint venture capital will belong to the assets of the enterprise to be liquidated.

  • Financial Issues

 o        Foreign Currency

Under the new FIL a three-tier system applies:-

- every foreign investor will have the right to purchase foreign currency from its commercial bank for the purpose of making payments for current transactions and for other purposes that may be permitted by law.

- support for foreign currency balance will be provided to infrastructure projects and some other essential projects

- foreign currency balance of important projects will be ensured by the government from time to time.

o        Opening a Banking Account at a Foreign Bank

A foreign enterprise will be permitted to open any account at a foreign bank.

o        Establishing a Reserve Fund

The requirement to establish reserve fund equal to 5% of after-tax profits has been abolished.  Reserve and other similar funds are now discretionary.

  • Tax

o        Carrying Losses Forward

The new FIL permits foreign parties to Business Cooperation Contracts (BCCs) to carry forward losses from one tax year to offset profits in any of the following five years.  Foreign branches have not been included under this law at this moment, however, there is a current proposal before the Ministry of Finance to allow it.

o        Profits Remittance Tax

The new remittance tax rate are as follows:-

- 3% tax rate imposed on profits remitted abroad in respect of foreign investors whose contribution to the prescribed capital of a foreign invested enterprise or a BCC is at least US$10 million.

- 5% tax rate imposed on profits remitted abroad in respect of foreign investors whose contribution to the prescribed capital of a foreign invested enterprise or to a BCC is from US$5 million to US$10 million.

- 7% tax rate imposed on profits remitted abroad in respect of foreign investors whose contribution to the prescribed capital of a foreign invested enterprise or to a BCC is less than US$5 million. 

  • Import Duties

o        Import Duty Exemption

Investment projects and projects implemented in areas of especially difficult socio-economic conditions will be exempted from import duties on raw materials, materials and components imported for production purposes, for a period of five years after the commencement of production.

  • Investment Guarantee Measures

o        Project Guarantee

The new FIL allows the government to enter into guarantees for any project within the principles of the Fil.


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