Vietnam's new investment law, which was passed on 26 November 2014 and takes effect on 1 July 2015 ("New Investment Law"), is expected to pave the way for increased foreign investment to flow into the country. A secondary goal of the New Investment Law, however, is to facilitate outbound direct investment by Vietnamese investors and to shed light on an area of the law that is currently not clearly defined. According to the Ministry of Planning and Investment ("MPI"), as of 31 December 2014, Vietnamese businesses have invested in 930 projects abroad with total registered investment capital of US$19.5 billion.
In an attempt to improve the legal regime on outbound investment and increase the pace of such investments, the Government has prepared a draft decree providing detailed guidance for outbound direct investment under the New Investment Law ("Draft Decree"). The Draft Decree, once effective, would replace Decree 78/2006/ND-CP ("Decree 78"), which currently regulates offshore direct investment by Vietnamese investors. While the Draft Decree reflects a step in the right direction by expanding significantly on the permitted use of foreign currency offshore by Vietnamese investors, the effectiveness of the Draft Decree will ultimately depend on the quality and timing of regulations and procedures for offshore remittance that the State Bank of Vietnam ("SBV") is responsible for preparing. Optimism with respect to the Draft Decree should therefore be tempered until such draft SBV regulations are available.
Loosened Requirements for Offshore Investment Procedures under the New Investment Law
The New Investment Law reduces paperwork and regulatory steps for outbound investment. Under the current investment law, an offshore investment project with a value of VND15 billion or more (approximately US$700,000) requires an examination process by the MPI in order to obtain an investment certificate. By law, this process technically takes 30 days for MPI to complete and grant an investment certificate. However, in practice, it may take several months. In contrast, under the New Investment Law, such an examination process only applies to projects with a value of VND800 billion or more (approximately US$37.2 million), and certain projects falling in conditional sectors such as banking, insurance, securities, newspapers, broadcasting, or telecommunications.
We note in passing that under the Draft Decree, the timing for issuance of an investment certificate for projects that do not require an examination process remains unchanged as provided for in Decree 78, that is 15 working days from the date the MPI has received a complete application dossier.
Transfer of Investment Capital Offshore under the Draft Decree
A major change in the right direction under the Draft Decree relates to expanding the permitted use of foreign currency overseas by Vietnamese investors for their projects.
Under Decree 78, Vietnamese investors are permitted to transfer investment capital offshore only when the following two conditions have been fulfilled: (i) the project has been granted an investment certificate from the MPI and (ii) the project has been approved by the relevant foreign local authorities.
Under Decree 78, the transfer of foreign currency offshore by Vietnamese investors before issuance of the investment certificate is permitted only in the limited circumstances of conducting a feasibility study or preparations for the project. However, Decree 78 also provides that the outbound remittance must be consistent with SBV regulations on foreign currency control and to date, the SBV has not promulgated clear guidance on this process which renders even these limited provisions of Decree 78 largely ineffective.
The Draft Decree delineates a list of activities with respect to which Vietnamese investors may remit currency offshore prior to issuance of an investment certificate. Of note, the Draft Decree explicitly authorises Vietnamese investors to make deposits and procure bank guarantees, as well as establishing representative offices.
The Draft Decree stipulates that payment in foreign currency can be made for the following activities:
i. market and investment opportunity research;
ii. field study and related document research;
iii. assessment, appraisement, selection and hiring of foreign consultants to help assess and appraise offshore projects;
iv. organisation and participation in related conferences;
v. establishment of representative offices related to establishing the project;
vi. participation in international bidding and paying deposits, bank guarantees or other financial guarantees pursuant to requirements of the bid-soliciting party;
vii. negotiating contracts; and
viii. other necessary preparation for the offshore project.
These expenses are included in the total investment capital of the project registered by the Vietnamese investor.
However, as in the case of Decree 78, the Draft Decree still requires that the transfer of foreign currency offshore for the above purposes be consistent with regulations on foreign currency control. The SBV is requested under the Draft Decree to provide detailed guidelines on such remittances. How (and when) the SBV crafts this guidance may go a long way to determining whether the liberalisation of the use of foreign currency under Decree 78 will translate into increased outbound investment opportunities for Vietnamese businesses.