Classifying business lines under VSIC and Provisional CPC

Under the current forms applicable to investment procedures to obtain an Investment Registration Certificate or a registration of an acquisition by a foreign investor, the foreign investor and the target company must specify the business lines of the target company according to both Vietnam Standard Industrial Classification (VSIC) and Provisional Central Product Classification (Provisional CPC). The VSIC is based on the International Standard Industrial Classification, not the Provisional CPC. Therefore, there might be some discrepancies among the scope of services under the VSIC and the Provisional CPC. In other words, when registering business lines, foreign investors might face the issue where the scope of a class under one classification might not be covered by a corresponding one under the other classification.

Decree 40/2019 - New Amendments To Environmental Protection Regulations In Vietnam

Decree 40/2019 amending four separate decrees on environment protection takes effect from 1 July 2019. Below are some of the key amendments introduced by Decree 40/2019:

· The term “Industrial zones” is expanded to include all kinds of zones, such as export processing zones, high-tech zones, or industrial areas.

· “Main works or items of a project” is the main project component specified in the feasibility study of the project.

· List of projects subject to environmental impact assessment (EIA) is adjusted. For example, investment in a golf course is now subject to EIA. Certain projects which do not have wastewater treatment work or waste treatment work are exempted from post-construction examination. Only residential projects with capacity of 2000 (instead of 500) or more inhabitants are subject to EIA. Only hotel projects with capacity of 200 rooms (instead of 50) are subject to EIA.

· Industrial manufacturing is classified in various sectors with different level of risks to the environment. Development of manufacturing projects with very high risks to the environment is subject to consultancy with environmental experts and scientists, and appraisal of EIA reports of these projects must be conducted by an appraisal panel.

Latest proposed amendments to the Investment Law 2014

The latest proposed amendments to the Investment Law 2014 submitted to the National Assembly in June 2019 include the following points, among others:

· The Investment Law will not apply to PPP projects which will be subject to a separate law.

· Investment conditions are not separated into two groups (1) operational conditions which apply to the operation of an investment project and (2) market access conditions which apply to foreign investors who wish to invest in sectors/industry which have market access restrictions.

· The proposed definition of foreign-controlled enterprises is removed (http://tinyurl.com/y2nl4ork). Accordingly, the regime regarding deemed foreign-invested enterprises under the Investment Law2014 remains unchanged. This should be a major relief for transactions which have relied on existing definitions of deemed foreign-invested enterprises.

· A foreign investor which incorporates a “start-up innovative” enterprise will not need to obtain an Investment Registration Certificate.

· Foreign investors investing in public companies or securities companies under the Securities Law are not subject to the investment conditions and investment procedures under the Investment Law 2014.

· Outbound investments by Vietnamese investors are now subject to more restrictions. The draft amendments include sectors where outbound investments are prohibited or subject to conditions (including financial services, securities, real estates and technologies).

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Is amendment to an Investment Registration Certificate (IRC) necessary when a foreign investor acquires a company in Vietnam

When a foreign investor incorporates a company in Vietnam, the foreign investor needs to (1) apply for an IRC for an investment project (the Project), and (2) apply for an Enterprise Registration Certificate for the project company which implements the investment project (Project Co). In addition to the investment project, the IRC usually records details of the foreign investor (the original investor) and the Project Co.

When a new foreign investor acquires a Project Co by purchasing equity interest from the original investor, the new foreign investor does not need to obtain an IRC. Instead, the new foreign investor needs to register the proposed acquisition in accordance with a separate procedure under the Investment Law. To avoid duplicating licensing procedures, Article 46.4 of Decree 118/2015 provides that when a foreign investor acquires a Project Co, the Project Co is not required to amend the IRC issued to such Project Co before the time of acquisition. While Article 46.4 of Decree 118/2015 provides for a clear legal ground for not amending the IRC in this context, it does not sit well with other provisions of the Investment Law 2014. This is because being the owner of the Project Co is not necessarily equal to being the owner/investor of the Project. An IRC is defined as a document or a digital copy recording the registration information of the investor concerning an investment project. The content of an IRC includes, among others, name and address of the investor of the project. Accordingly, even if new foreign investor is the owner of the Project Co, if the IRC still records the information of the original investor as the investor of the Project, the original investor could theoretically claim to have the rights (and obligations) over the Project as provided by law.

This post is contributed by Le Thanh Nhat, a trainee at Venture North Law.

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Vietnam Business Law