The National Assembly of Vietnam on 17 June 2020 passed the Law on Investment 2019 (the “LOI 2019”) and the Law on Enterprises 2019 (the “LOE 2019”). Both the LOI 2019 and LOE 2019 are effective from 1 January 2021 and replace the Law on Investment no. 67/2014/QH13 issued by the National Assembly of Vietnam dated 26 November 2014 (“LOI 2014”) and the Law on Enterprises no. 68/2014/QH13 issued by the National Assembly of Vietnam dated 26 November 2014 (“LOE 2014”).
We are pleased to introduce the LOI 2019 and LOE 2019’s key changes.
KEY CHANGES OF THE LAW ON INVESTMENT 2019
The changes related to the conditions for foreign investors to invest in Vietnam, the procedures for M&A approval for foreign investors to acquire shares/capital contribution in economic organizations, the categories of investment projects subject to investment policy decisions. In particular:
- Updated list of conditional business lines: Under the LOI 2019, commercial arbitration, franchising, and logistics services are no longer considered conditional business lines. New conditional business lines are architectural services, data center services, electronic identification and authentication services, import press distribution services, fishing vessel registration, and fishing vessel crew training. Additionally, the LOI 2019 contemplates a list of business lines restricted to foreign investment, including business lines for which foreign investment is not permitted or business lines for which foreign investment is subject to conditions. The Government is entrusted to publish this list.
- New foreign ownership threshold: The LOI 2019 lowers the foreign ownership threshold from 51% to 50% to determine if an economic organization with foreign-owned capital must satisfy conditions prior to the investment. These conditions apply to economic organizations with foreign-owned capital establishing economic organizations, contributing capital, acquiring shares or equity, or investing on the basis of a business cooperation contract.
- Foreign investment M&A approval: The LOI 2019 removes the need for an M&A approval if the M&A transaction does not result in an increase of the foreign investors’ ownership ratio in the target company, even if the target company operates in the business sectors subject to market entry conditions applicable to foreign investors. The M&A transaction that results in an increase of the foreign investors’ ownership ratio in the target company and the foreign investor holding more than 50% of the shares or charter capital after the M&A transaction would be subject to an M&A approval.
- Investment projects subject to investment policy decisions: The LOI 2019 supplements the categories of investment projects which are subject to Prime Minister or provincial People’s Committee investment policy decisions. The additional projects subject to the investment policy decisions include projects invested by the foreign investors in areas subject to national security concerns and housing and urban area construction projects.
KEY CHANGES OF THE LAW ON ENTERPRISES 2019
The LOE 2019 introduces changes regarding reducing companies’ administrative procedures, expanding minority shareholder protection, and simplifying the management structure of single member limited liability companies.
- Removal of corporate seal notifications and reports on managers: The LOE 2019 reduces administrative procedures for enterprises by removal of 1) the notification requirement regarding corporate seal usage and 2) reports on changes to personal information of the enterprise’s managers.
- Minority shareholder protection – reduced threshold: The LOE 2019 allows a shareholder or a group of shareholders holding at least 5% of the total ordinary shares the right to request the convening of a General Meeting of Shareholders, in certain cases, and request the Board of Inspection to investigate issues relating to the management and administration of the company. This percent shareholder is reduced from 10%, as stipulated in the LOE 2014.
- Removal of required inspector in single member LLCs: Under LOE 2019, an inspector is no longer required in single member limited liability companies.
The Government of Vietnam will issue and amend the relevant decrees to provide guidance for the implementation of these new laws.
The information provided in this article is for information purposes only and is not intended to constitute legal advice should be obtained from qualified legal counsel for all specific situations.
Partner & Vietnam Managing Director
Partner, Vietnam Deputy Managing Director & Head of Ho Chi Minh City Office
Partner & Head of Hanoi Office