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[Investment in Vietnam] Regulation on “The first time of investment in Vietnam” is full of contradictions(07/02/2012 05:20:53)

Pursuant to the Law on Investment 2005, a foreign investor who invests in Vietnam for the first time is obliged to have an investment project. In fact, they still can make a detour to avoid this regulation.

The concept “The first time of investment in Vietnam

“The first time of investment into Vietnam” is the regulation applied to the investor who invests into Vietnam as a citizen or a legal entity from a certain country in general and from country or territory who is member of the World Trade Organization in particular. While the procedure of application for investment certificate is applied only to the local investor whose investment project’s value is over 15 billions dong, it is applied to all foreign investors no matter the scale of their investment projects.


investment in vietnam industrial park

The above regulation helps the Government control foreign investment projects from the licensing stage, Thus, this is considered as a technical instrument to protect the domestic production, because regarding a foreign investment in vietnam industrial park project, in the course of applying for the license, the investor should made a guarantee of financial ability and account for their capacity of meeting investment conditions (applied to conditional investment projects) for consideration of competent authorities.

Full of contradictions

Due to the lack of official explanations, the concept “The first time of investment in Vietnam” has been construed in different ways and created contradictions consequently. First of all, the contradictions exist within the Law on Investment itself and between the Law on Investment and the Law on Enterprises. Although the regulation “The first time of investment in Vietnam” requires an investment in vietnam industrial park project, the Law on Investment, however, the Law on Investment allows that “foreign investors can apply the same investment conditions as required to local investors who owns 51% and over in the charter capital of an enterprise” (Section 4, Article 9 of the Law on Investment).

This content is also clearly stated in the Decree No. 139/2007/ND-CP providing guidelines on implementation of the Law on Enterprises. Accordingly, if an enterprise to be established has the capital ownership ratio of foreign investors not exceeding 49%, the establishment will be implemented under the regulations in the Law on Enterprises and the Decree No. 88/2006/ND-CP issued on August 29, 2006 by the Government regarding business registration, now replaced by the Decree No. 43/2010/ND-CP investment in vietnam industrial park.

The contradiction can be found in some guidelines of competent state authorities. At the beginning of 2009, in an official letter, the Ministry of Planning and Investment referred to Article 50 of the Law on Investment and Article 56.3 of the Decree No. 108/2006/ND-CP to instruct the establishment procedure of an joint venture company of which the capital ownership of the foreign investor does not exceed 49% the chapter capital. For such joint venture, foreign investors are still required an investment in vietnam industrial park project and have to comply with the procedure in the Law on Investment to obtain investment certificate. This means these investors are obliged to have investment projects and and comply with required procedures even though their capital ownership occupies 1% of charter capital in the joint venture only.


Besides, the regulation “The first time of investment in Vietnam” is not strictly applied in case of capital contribution and share transfer in Vietnamese enterprises. For instance, Decree No. 139 regulates that a foreign investor purchasing shares of the founding shareholder of a joint stock company or taking capital assignment from members who contribute capital of a limited liability company is just obliged to do the procedure of registration of changing founding shareholder or capital contribution member. Also, Decree No. 108/2006/ND-CP regulates that capital assignment in Vietnamese enterprises will be carried out under the procedure of member/shareholder registration according to the Law on Enterprises Law and other related investment in vietnam industrial park regulations (Article 65).

Thus, even for foreign investors as the applicable subject of the regulation “The first time of investment in Vietnam”, the requirement of an investment project will be eliminated if this investor invests in Vietnam in the form of capital contribution or share transfer.

Pursuant to the Decree No. 4646/BKH-DTNN recently promulgated by the Ministry of Planning and Investment, share transfer and capital contribution in Vietnamese enterprises will continuously be carried on under the above mentioned regulation. The only case that foreign investor is obliged to follow investment procedure is when they acquire the whole contributed capital of the owner of an one-member limited liability company in order to become the new owner of such company.

Such regulation on share transfer or capital contribution leads to a contradiction that, after completing the procedure of share transfer or capital contribution, capital of the foreign investor in the enterprise shall possibly exceed 49% meanwhile its form is still a domestic enterprise.

Make a detour

To minimize of investment procedure, foreign investors can make a detour with two steps. First, they make a deal with one or more Vietnamese investors to set up an enterprise with its business line which they intend to invest in Vietnam. Secondly, after establishing the enterprise, foreign investors will re-purchase shares or acquirecontributed capital of Vietnamese investors in such enterprise.

By this way, foreign investors may enjoy many benefits such as more simple procedure, without being required investment project and guarantee of financial ability as required under the regulations of the Law on Investment. Thus, the goal investment in vietnam industrial park that the regulation “The first time of investment in Vietnam” set, has not been met in some ways.

Nguyen Thi Phuong Chung - Nguyen Huu Phuoc (P&P)

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