The National Assembly recently adopted the Law on Investment ("LoI") which will take effect on 1 July 2015. The LoI specifies that investment procedures and conditions that a corporate entity must fulfil vary depending on the percentage of foreign-owned capital in that entity. In particular, Article 23 of the LoI provides that a company must comply with investment procedures and conditions applicable to foreign investors if:
a) 51% of charter capital or more is held by foreign investors, or the majority of the general partners are foreigners if the company is a partnership;
b) 51% of charter capital or more is held by companies mentioned in item (a); or
c) 51% of charter capital or more is held in aggregate by foreign investors and companies mentioned in item (a).
Other than the entities specified above, corporate entities should comply with investment procedures and conditions applicable to domestic investors.
This amendment appears to be a clear attempt by the National Assembly to resolve ambiguity and confusion over what level of foreign investment defines a "domestic" or "foreign" investor. While it remains to be seen how licensing authorities will interpret and implement this provision, this will hopefully clarify the confusion caused by inconsistent interpretation of when an investment certificate is (and is not) required as a result of foreign shareholding. This also signals an attempt by the National Assembly to address more complex shareholding structures where foreign investors may invest in Vietnam through intermediate levels.
However, there are a few issues to watch out for. First, we will need to consider what implementing regulations are introduced with respect to the LoI and by which ministries and state bodies to see how this provision will be executed in practice and its impact on foreign investment.
It also remains to be seen how the LoI would interact with other laws and international treaties. For example, although Article 29.4 of the current Investment Law dated 29 November 2005 provides that the procedures application to domestic investors should apply if Vietnamese investors hold 51% of charter capital or more in that company, which goes further than Vietnam's WTO Commitments, Article 29.4 in practice has not been properly implemented by many licensing authorities. In such cases, these entities have not been treated as domestic investors for licensing purposes and the restrictions in respect of foreign investment set out in the WTO Commitments still applied. While the National Assembly cannot pass laws that impede Vietnam from fulfilling its obligations under international treaties, WTO Commitments serve as a floor and not a ceiling and the National Assembly may provide for more rights to foreign investors.
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