Under Decision 10 of Ministry of Trade (now Ministry of Industry and Trade) dated 21 May 2007 on publicizing roadmaps for goods trading and directly related activities (Decision 10), “foreign-invested company” (doanh nghiệp có vốn đầu tư nước ngoài) in Vietnam is not allowed to distribute drugs in Vietnam. Under Vietnamese law, “distribution” includes wholesale, retail sale, sale and purchase agency and franchising.
The current regulations are silent on the foreign ownership threshold in a Vietnamese enterprise that makes such Vietnamese enterprises become a foreign-invested enterprise under Decision 10. There are two possible interpretations:
(1) Only companies with more than 49% foreign ownership are regarded as foreign invested enterprises. This interpretation is based on Article 29.4 of the Investment Law and Article 11.3 of Decree 102 of the Government dated 1 October 2010 implementing the Enterprise Law (Decree 102); or
(2) Companies with even 1% foreign ownership are regarded as foreign invested enterprises.
In practice, different authorities seem to take different views at different times for different companies. However, it seems that:
(1) the authorities (especially those in Hanoi and Ho Chi Minh City) are increasingly take the more restrictive views on definition of foreign-invested enterprises; and
(2) for drug distribution business, the authorities seem to take more restrictive views than other sectors. The notable case is the view that the authorities take against Mekophar, a pharmaceutical company with shares listed in the Ho Chi Minh City Stock Exchange. It is reported that in March 2011 the Ministry of Planning and Investment took the view that Mekophar with 4.28% foreign ownership is a foreign-invested enterprise.
Pursuant to Decision 10, foreign-invested enterprises are allowed to import drugs. Under of the Government dated 12 February 2007 on import and distribution rights of foreign investors (“Decree 23”), if a foreign-invested enterprise is licensed to import drugs, it would be expressly allowed to:
(1) conduct the procedures to import drugs in its own name; and
(2) sell imported drugs to business entities, which have the right to distribute pharmaceutical goods in Vietnam.
A foreign-invested enterprise with drug import licence may operate substantially similarly to a company with drug wholesale licence. However, a foreign-invested enterprise with drug import licence would not be permitted to set up its own distribution network for its imported products and would not be able to purchase local drugs for wholesale business.
Under Decree 79 of the Government dated 9 August 2006 implementing the Law on Drugs (Decree 79), a foreign-invested enterprise with drug import activities would also need to obtain a Certificate of Satisfactions of Conditions for Drugs Business (Drug Trading Licence) for the drug import business from the relevant provincial Health Department. However, Decree 79 seems to suggest that only companies that are licensed to manufacture drugs or conduct wholesale trading of drugs can apply for a Drug Trading Licence for the drug import business. Further, Circular 47 of MOH dated 29 December 2010 on import and export of drugs and its wrapping (Circular 47) re-states that foreign invested companies in Vietnam holding the Drug Trading Licence are allowed to import drug materials for its drug manufacturing business and indicates that other drug import activities, unconnected to manufacturing will be governed by separate legislation to be issued by the Ministry of Health. However, it seems that there is no such subsequent legislation and as such Vietnamese law is still silent on whether a foreign investor can obtain a Drug Trading License to import drugs unconnected to its manufacturing business and without being a drug manufacturer or a wholesaler.
Vietnamese banking regulations do not provide for a clear definition of a financial lease (cho thuê tài chính). The lack of a clear definition may result in unnecessary legal risks for parties to a cross-border lease transaction (e.g., an aircraft lease). For example, if a cross-border lease is regarded as a financial lease, then the lease may need to be registered with the State Bank of Vietnam as a foreign loan.
Under the Law on Credit Institution 2010, the act of finance leasing is defined to be (1) the extension of medium and long-term credit; (2) on the basis of a finance leasing contract; and(3) satisfying one of the following conditions:
upon expiry of the lease under the contract, the lessee may take over ownership of leased assets or may continue to lease them under the agreement of the parties; or
upon expiry of the lease under the contract, the lessee shall have the priority right to purchase the leased assets at a nominal value less than the actual value of the leased assets as at the date of purchase; or
the minimum term of the lease of any single asset must equal at least 60% of the period necessary for depreciation of such leased asset; or
the total rent for any single asset stipulated in the finance lease contract must be equal at least to the value of such asset at the signing date of the contract.
The core business of a bank (a Bank) is to take monies (Deposits) deposited by its customers (Depositors) and to lend such monies to its borrowers. Therefore, legally, it is important to determine who owns the Deposits. Unfortunately, Vietnamese banking law is not clear whether after the Depositors make a Deposit with the Bank, the Bank or the Deposit owns the Deposit.
The case for the Bank
The most logical conclusion is that:
· the Bank is the owner of the Deposit;
· the Depositor is not the owner of the Deposit, but the Depositor has a contractual right to request the Bank to return the Deposit to the Depositor in accordance with the terms of the Deposit; and
· the borrower will own the Deposit after it borrows the same from the Bank.
In a recent post, we have discussed the concept of “wholesale” and “retail” as two forms of activities under the regulations concerning trading activities by FIEs in Vietnam. From the commercial perspective, “distribution” (phân phối) activities should involve the purchase or import of goods from suppliers for selling to customers. Thus, if an FIE has registered distribution business (i.e., wholesale or retail), it should naturally be able to import goods to sell within its distribution rights without being subject to further licensing requirements. However, this may not be justified from the legal perspective as the purchase of goods to sell in Vietnam or abroad by an FIE is classified as other forms of trading and should be licensed before implemented. Under Vietnamese regulations,
On 15 October 2018, the Government issued Decree 143/2018, which details regulation on compulsory social insurance (Social Insurance) applicable to foreign employees under the Social Insurance Law 2014. Before the issuance of Decree 143/2018, the Social Insurance Law 2014 only provides that foreign employees would be “allowed” to participate in Vietnam’s Social Insurance from 1 January 2018. For a long time, this vague regulation has given rise to concern as to whether the Social Insurance contribution for foreign employees is compulsory or voluntary. Decree 143/2018 now officially confirms that this is compulsory. In particular,
On 20 August 2018, the Ministry of Industry and Trade (MOIT) issued Circular 21/2018 to amend and supplement some articles of Circular 47 of the MOIT dated 05 December 2014 on management of e-commerce websites (Circular 47/2014) and Circular 59 of the MOIT dated 31 December 2015 on management of e-commerce activities via applications on mobile equipment (Circular 59/2015). Below are some notable provisions of Circular 21/2018.
Set out below are some legal issues in transfer of debts (Debts) from a credit institution (Originator) to a company licensed to trade debts in Vietnam (Debt Trading Co). Debt trading between a credit institution and a credit institution is useful for the credit institution to handle its bad debts or to issue assets-backed securities:
Credit institutions are allowed to negotiate loan interest rates based on market demand and supply and the creditworthiness without being restricted to maximum interest rate except in some cases. Meanwhile, interest rates of loans extended by non-credit institutions are subject to the maximum interest rate of 20% per annum under the Civil Code 2015. In practice, interest rates of consumer loans are quite high and could be higher than the maximum rate of 20% per annum. If the interest rate of the Debts is higher than 20% per annum, it is not clear at law whether the Debt Trading Co, upon owning the Debt, can continuously charge such interest rate;
In September 2018, the Government issues Decree 117/2018 on protection of customers information in banking sectors replacing Decree 70/2000. Decree 117/2018 applies to confidentiality, storage and providing of information by credit institutions and foreign bank branches (collectively referred to as CI) relating to the deposit and asset of customers with the CI. The following points are notable:
· Decree 117/2018 does not apply to, among other things, information, which is classified as State secrets and which is governed by State secrets regulations. Under the old Decision 151/2003 of the Ministry of Police, information regarding customer deposits with a CI is classified as “State secret” at secret level. It is not clear if this classification still remains valid since Decision 45/2007 of the State Bank, which is based on Decision 151/2003, does not list customer deposit information as a State secret. Decree 117/2018 does not clarify this uncertainty;
Decree 9/2018 introduces a new approach regarding trading activities of foreign invested enterprises (FIE) in Vietnam. In particular, wholesale of most goods is not subject to the requirement of Trading License (Giấy Phép Kinh Doanh). However, Decree 9/2018 is still uncertain on the category of wholesale versus retail activities. A clearer definition of these concepts is important because an FIE conducting retail activities must apply for a Trading License with the Ministry of Industry and Trade (MOIT).
Under Decree 9/2018,
“wholesale” means the activities of selling goods to (a) wholesalers, (b) retailers, and (c) other traders, organizations; exclusive of retail activities;
“retail” means the activities of selling goods to (a) individuals, (b) households, and (c) other organizations for consumption purposes.
There are some issues arising from the above definitions under Decree 9/2018:
The Enterprise Law 2014 provides that in a meeting of the Board of a joint stock company (JSC), a Board director may authorise another person to attend if such authorisation is approved by the majority of members of the Board. However, the Enterprise Law 2014 is silent about the ability of a Board member to authorise another person to vote for such Board member if the Board decides to pass its decision by way of collecting written opinion of Board members.
Under the Law on Construction 2014, a dispute relating to a construction contract can be resolved through mediation, by a commercial arbitration or court “in accordance with law”. This standard wording seems to allow parties to a construction dispute in Vietnam to select arbitration to settle the dispute. However, Circular 26/2016 of the Ministry of Construction provides that a dispute relating to quality of a construction work will be resolved in the following steps:
A new Decree (Decree 108/2018) was issued on 23 August 2018 to provide various amendments to the existing business registration regulations under Decree 78/2015. Decree 108/2018 will take effect from 10 November 2018. Here are some notable changes:
Decree 108/2018 makes it clear, which is not in Decree 78/2018, that the following documents in the registration application are not required to have company stamp on them: enterprise registration application; notice of changes to enterprise registration; and decision, resolution, and meeting minutes.
A new Law on Cybersecurity (Luật an ninh mạng) (the CSL 2018) will come into effect from 1 January 2019 in Vietnam. Not only providing measures to secure the cyber-environment which to some extent has been regulated by the Law on Cyber-information Safety dated 19 November 2015, the CSL 2018 also includes various provisions to control the contents posted or published on the cyber-network. Below are some salient issues of the CSL 2018.
Scope of the CSL 2018
The CSL 2018 applies to all agencies, organizations and individuals involving in the protection of cybersecurity, which is broadly defined as the assurance that activities in cyberspace not causing harm to the national security, social order and safety, lawful rights and interests of agencies, organizations and individuals. In particular, the CSL 2018 will apply to overseas organisations, which have users residing in Vietnam such as Google or Facebook.
The CSL 2018 covers all networks of IT infrastructure, telecommunication, Internet, computer systems, databases, information processing, storage and controlling systems, and regulates activities of every enterprise providing services in cyberspace and Internet users including e-commerce, websites, online forums, social networking and blogs.
Operators of information system (Chủ quản hệ thống thông tin)
The CSL 2018 imposes various obligations on an operator of an information system. Under the Law on Cyber-information Safety according to which, an operators of information systems means any agencies, organizations or individuals having directly managing authority to an information system.
A new Law on Competition (Competition Law 2018) will take effect from 1 July 2019 in Vietnam. Some key changes in the Competition Law 2018 are as follows:
Broader scope of application: The Competition Law 2018 now governs any activities whether by Vietnamese or foreign entity or individual which have or may have the “competition restraining impact” to Vietnam market. Competition restraining impact means impact which excludes, reduces, distorts or hinders competition in the market. Under the Competition Law 2018, the competition authority of Vietnam now has clear authority to deal with offshore activities and transactions which has impact on Vietnam market. In addition, the Competition Law 2018 now also apply to public service units such as hospitals, or schools which are technically not enterprises.
Besides the principle of honesty, companies are required to compete with each other in accordance with the principles of justice and fairness.
Relationship with other laws: Contrary to the old competition law, the new Competition Law 2018 will not prevail other laws in case such other laws have regulations on action in restraints of competition, form of economic concentration, activities of and dealing with unfair competition.
Under the new Competition Law 2018, a State agency is prohibited not only from forcing but also from “requesting or recommending” enterprises or individuals or organisations to perform or not to produce and sell specific goods, provide and use specific service, or produce and sell goods to or provide and use services of specific enterprises.
Decree 71/2017 replaced Circular 121/2012 on corporate governance of public join-stock company (Public JSC) since 1 August 2017. Decree 71/2017 does not have its own criteria for being an independent director but refers to the criteria under the Enterprise Law 2014. The table below compares the old criteria of an independent director in a Public JSC with the new criteria under the Enterprise Law 2014. Although in some areas, the Enterprise Law 2014 provides stricter criteria, the Enterprise Law 2014 contains certain major omission (e.g., including omission to exclude managers of an affiliate or representatives or related persons of a major shareholder in a Public JSC from acting as an independent director of a Public JSC).
Under a recent announcement in Official Letter No. 4486/UBCK-GSDC dated 20 July 2018, the State Securities Commission of Vietnam (SSC) requires public companies, securities companies, asset management companies, and securities investment funds (quỹ đầu tư chứng khoán) (i) not to conduct any illegal offering, transaction or transaction brokerage relating to virtual money (tiền ảo) which should include cryptocurrencies like Bitcoin and to (ii) adhere to the legal regulations on anti-money laundering.
The above official letter was based on Directive 10/CT-TTg of the Prime Minister dated 11 April 2018. Both of them once again confirm the view of Vietnamese government on virtual money that was stated by the State Bank of Vietnam in its press release dated 27 February 2014 about Bitcoin in Vietnam:
(a) virtual money is not currency; and
(b) virtual money is not a legal tender.