Vietnam investment regulations – Definition of “Foreign investors”
There are more than one definition of foreign investors (nhà đầu tư nước ngoài) under Vietnamese law:
- Foreign investors are defined under the Investment Law to mean … “foreign organization or individual using capital in order to carry out an investment activity in Vietnam”. The definition under the Investment Law seems to suggest that only companies incorporated outside Vietnam can be regarded as foreign investors.
- However, in subsequent decisions of the Prime Minister (Decision 88/2009 and Decision 55/2009), foreign investors also include enterprises established in Vietnam with more than 49% of capital contributed by “foreign parties” (bên nước ngoài). It is not clear if the term “foreign parties” are the same as “foreign investors” in the Prime Minister’s decision.
- The Ministry of Finance on the other hand consider foreign investors to include “enterprises established in Vietnam with 100% foreign contributed capital”.
- The latest document (Decree 102/2001) does not provide a definition of foreign investors but provides that companies incorporated in Vietnam of which foreign investors own more than 49% will be subject to the same investment and business conditions as those applicable to foreign investors.
In summary, there are overlapping and confusing definitions of “foreign investors” under Vietnamese law. However, it is reasonable to conclude that such term will cover, among others, companies incorporated outside of Vietnam and companies incorporated in Vietnam of which foreign investors own more than 49%.
Under Article 84.2 of the Civil Code 2015, a branch (chi nhánh) of a legal entity has the duties to perform all or parts of the legal entity’s functions. However, a branch is not allowed under the Civil Code 2015 to act as an authorized representative of a legal entity. Accordingly, it is not clear in what capacity a branch would perform the functions of a legal entity.
Logically, in order for a branch to perform all or parts of the legal entity’s functions, either
Option 1: a branch could be allowed to act as an authorized representative of a legal entity under another law; or
Option 2: a branch could perform the functions of a legal entity in its own name and capacity. In other words, a branch can perform the functions of a legal entity without needing an authorization from the parent entity and the action (or inaction) of a branch will be deemed an action or inaction of the parent entity.
The term “economic organisation” (tổ chức kinh tế) was first introduced under the Investment Law 2014 and refers to, among other things, any company or organisation incorporated in Vietnam. Over time, the term “economic organisation” has been used consistently in other legislations and allows for a consistent application of the law. However, the Land Law 2024 has introduced significant confusion as to the meaning of the term “economic organisation”. In particular, it is not clear under the Land Law 2024, if the term “economic organisation” only refers to companies or organisations, which are not controlled by foreign investors and do not include companies or organisations which are controlled by foreign investors. The lack of clarity has important implication on how the Land Law 2024 is implemented. For example, if the term “economic organisations” under the Land Law 2024 includes organisations which are controlled by foreign investors then a foreign bank branch could have a clear legal basis to take mortgage over land use rights and assets attached to land.
The corporate bond crisis in Vietnam started in 2022 during which many corporate bonds issued before September 2022 under Decree 153/2020 were defaulted by the issuers (Pre-2022 Bonds). To facilitate the potential restructuring of Pre-2022 Bonds, in 2023, the Government issued Decree 8/2023 which allows for the bond issuers and the bondholders to agree to amend the terms of a Pre-2022 Bonds including the extension of the duration for the Pre-2022 Bonds to up to two years. However, the rights of a bondholder who disagrees with a restructuring proposal for a Pre-2022 Bond are not clear.
Under Decree 8/2023, the duration and the repayment schedule of a Pre-2022 Bond could be extended if the proposed extension is approved by bondholders representing 65% or more of the total number of outstanding bonds. Decree 8/2023 further provides that for bondholders who do not agree to changes in the conditions and terms of a Pre-2022 Bond (dissenting bondholders), the issuer is required to negotiate with the dissenting bondholders. If a dissenting bondholder does not accept the proposed negotiation plan, the issuer must fully fulfill its obligations to that dissenting bondholder in accordance with the original bond issuance plan. This requirement holds even if the proposed changes have been approved by the other bondholders who hold 65% of the outstanding bonds.
Under anti-money laundering (AML) regulations, reporting entities (e.g., credit institutions) are required to be aware of several key watchlists, maintained by relevant Vietnamese authorities, to ensure compliance with their AML obligations. This blog will introduce those watchlists and discuss specific requirements related to them.
Essential watchlists under AML regulations
Under AML regulations, the Vietnamese Government maintains the following watchlists:
(1) A Blacklist (danh sách đen in Vietnamese): including (a) list of organizations and individuals involved in terrorism and terrorism financing compiled by the Ministry of Public Security (MPS), and (b) a list of organizations and individuals designated as being involved in the proliferation and financing of the proliferation of weapons of mass destruction, compiled by the Ministry of National Defense (MND);
(2) A warning list/Grey list (danh sách cảnh báo in Vietnamese): A list of organizations and individuals compiled by the State Bank of Vietnam (SBV) to warn about those with a high risk of money laundering; and
(3) A list of Foreign politically exposed person (PEP List) (danh sách cá nhân nước ngoài có ảnh hưởng chính trị in Vietnamese): A list of foreigners who hold a senior position in foreign agencies, organizations, and international organizations, notified by the SBV.
There are no specific guidelines on how to access these watchlists or the procedure for screening data against them. However, except for the Grey List, which has not yet been published by the SBV, the Blacklist ((1)(a) and (1)(b)) and PEP List can be found via the national portals of the MPS, MND, and SBV (see embedded links).
Under the Housing Law 2023, a developer of a commercial housing project could raise financing from the following sources:
equity capital of the developer;
capital raised from joint venture, business cooperation, and contribution from other organizations or individuals (BCC Capital);
capital raised from issuance of corporate bonds, shares, and fund units;
pre-sale proceeds raised from sale and purchase agreements or hire and purchase agreements with regards to future houses signed with customers;
debt financing raised from credit institutions or finance organizations operating in Vietnam (bank loans).
In comparison with the Housing Law 2014, the Housing Law 2023 clearly includes capital raising from issuance of bonds and fund units but excludes pre-sale proceeds of leasing agreements for future houses. In this post, we will discuss each of the sources of financing for a commercial housing project. The Housing Law 2023 still does not allow a developer of a commercial housing project to raise debt financing from offshore lenders.