On 25 and 26 November 2014, the National Assembly has adopted four fundamental laws bringing a radical change to the regulatory framework in doing business and investing in Vietnam. The key changes are highlighted below, which will enter into force as from 1st July 2015.
1. Law on Enterprise No. 68/2014/QH13 dated 26 November 2014 (“LOE 2014”)
Free to conduct any lines of business: Pursuant to the current Law on Enterprise regime, an enterprise may only conduct the business activities registered in its enterprise registration certificate. Under LOE 2014, an enterprise is free, in principle, to conduct any business activities which are not prohibited by the law. In case a business activity is conditional, the enterprise must satisfy the required conditions before carrying out such activity.
Free to decide the content of the corporate seal: Pursuant to LOE 2014, an enterprise may decide the content of its corporate seal and register the seal with the relevant authorities. Despite the debates of abolishing the seal between lawmakers, an enterprise is still required to use an official seal during its operation and be responsible for such usage.
More than one legal representative may be appointed: Under LOE 2014, an enterprise is permitted to appoint more than one legal representative. The rights and obligations of the legal representatives are equal before the law and the enterprise is required to register its legal representative with licensing authorities.
Decision making mechanism: LOE 2014 introduces a significant change relating to the company’s decision making mechanism. With respect to a limited liability company (with two or more members) the required quorum to convene a meeting of the members’ council reduces to presence of member(s) representing at least 65% of the charter capital, instead of 75% as set out the current law. Additionally, a resolution of the members’ council shall be passed through the collection of written opinions if it is approved by members representing at least 65% of the charter capital as opposed to 75% in the current regime.
Regarding a joint stock company, the quorum of the general assembly of shareholders is only 51% pursuant to the LOE 2014, instead of 65% in the current regime. Where a meeting is unable to be conducted for the first time because the 51% quorum, the meeting may be convened for a second time with a quorum of 33% as opposed to 51% in the current regime.
2. Law on Investment No. 69/2014/QH13 dated 26 November 2014 (“LOI 2014”)
Detailed list of prohibited and conditional investment activities: In line with the LOE 2014, the LOI 2014 also sets out the principal that both foreign and domestic investors are free to carry out any investment activities, except prohibited investment activities. Prohibited investment activities include business relating to illegal narcotics, chemicals and minerals as listed in Annex 2 of the LOI 2014 , prostitution, restricted plants and animals as listed in Annex 3 of the LOI 2014, human trafficking, human tissues, human parts and human cloning. Conditional activities include 272 activities listed in an annex 4 of LOI 2014. Conditional activities can be only modified by the Government.
Investment conditions and procedure applied in the case of foreign investors purchasing over 51% of the capital of a domestic enterprise: In the case of a foreign investor purchasing over 51% of capital in a domestic enterprise, the target enterprise is subject to the investment restrictions which are the same as those applied to foreign investors.
In the case of a foreign investor purchasing less than 51% of a domestic enterprise’s capital, the target enterprise is still considered a domestic enterprise and is not subjected to any of the restrictions applied to foreign investors.
Simplification to the investment procedure: The timeframe to issue an investment certificate is reduced to 15 working days from the submission of valid dossier while such timeframe is 45 working days under the current regime.
3. Law on Real Estate No. 66/2014/QH13 dated 25 November 2014 (“LORE 2014”)
The sales and leases of unrealized real estate assets by the developers must be secured by a credit institution: Article 56 of LORE 2014 requires real estate developers to have their sales and leases of unrealized real estate secured by credit institutions. The terms and fees of security are up to the parties’ consent formalized by contracts. These contracts are valid until the real estate assets are transferred to the buyers and/or the lessees.
Conditions to do real estate business: Enterprise registration and a minimum charter capital of VND20 billion:To qualify for conducting real estate business, either an individual or an organization must register as an enterprise with a minimum legal capital to be defined by Vietnam’s Government as being no less than VND20 billion as opposed to VND6 billion in the current law. There are some exceptions for the rule of enterprise registration, yet these exceptions are left to be defined by the Government in subsequent guidelines.
The date of transferring of housing ownership: Article 19 of LORE 2014 dictates the date of transferring housing ownership to be the date which the seller hands over the property to buyer.
4. Law on Housing No. 65/2014/QH13 dated 25 November 2014 (“LOH 2014”)
a. More relaxed rules for foreigners to own houses in Vietnam:
More foreigners are permitted to own houses in Vietnam, including (i) foreign organizations and/or individuals who invest to build residential housing in projects in Vietnam; (ii) foreign institutions including foreign invested enterprises, branches and representative offices of foreign enterprises, foreign investment funds, branches of foreign banks operating in Vietnam; (iii) foreign individuals granted entry into Vietnam.
There are no restrictions on housing types: Under the current law, foreigners can own only apartments, while LOH 2014 removes restrictions on which types of housing foreigners can own.
b. Some quotas are placed to restrict the number of foreign-owned and foreign-rented housing in communities:
The number of apartments leased to or in the title of foreigners shall not exceed 30% of the total apartments in an apartment block. For single-family detached houses, the number of such houses leased to or in the title of foreigners shall not exceed 250 houses per an area with the population size equivalent to a ward-level administrative unit.
Duration of ownership:Similarly to the pilot scheme, foreign individuals are allowed to own houses for a limited duration of 50 years with renewal option upon expiration. The expiration terms would be further detailed in the Government’s later guidelines. Foreign individuals who are married to Vietnamese citizens shall be entitled to freehold tenure.
Use of properties: Previously foreigners could only use residential properties for their personal residential purposes. Under LOH 2014, foreigners can now enjoy the same rights as Vietnamese citizens in ownership of residential properties, including rights to sub-lease, trade, inherit, and mortgage.
While the regulatory changes introduced aim to facilitate and enhance the business environment in Vietnam, the implementation of such changes are to be detaile
d in relevant implementing Government’s guidelines (decrees) in the future. Keep watching DFDL Vietnam Legal Brief for further regulatory updates and development for doing business in Vietnam
LOE 2014, LOI 2014, LORE 2014 and LOH 2014 will take effects from 01 July 2015 onward.