The document discusses upcoming law reforms in Vietnam and their potential impact on foreign investment. Specifically, it analyzes two draft laws: (1) the draft law on investment, which proposes changes to licensing procedures that could create additional burdens for foreign investors; and (2) the draft law on enterprises, which aims to resolve ambiguities but leaves some issues unclear. Overall, the reforms aim to facilitate business but need integration and clarification to minimize inconsistencies and overlapping regulations that could undermine their goals or generate uncertainty.

1. Investment and Trade
By Oliver Massmann
Upcoming law reforms in Vietnam: blessing or curse for international investments?
Vietnam is a country undergoing economical transitions - so does the Vietnamese investment
law. Two upcoming law reforms are highly relevant for international investors: the draft law on
investment (Draft LOI) as well as the draft law on enterprises (Draft LOE).
1. The Draft LOI
The Draft LOI limits the governing scope of the LOI to direct investment activities only. Direct
investment under the draft includes: establishment of new company, investment in form of
contract, investment development, M&A activities (except securities under the Law on
Securities).
The purpose of the draft is to avoid the overlap between the LOI and the Law on Securities. The
LOI contains three key-changes, which are listed and evaluated in the following: (i) first-time
definition of foreign investor, (ii) modified licensing process and finally (iii) stipulation of
investment conditions.
• Definition of foreign investor: The Draft LOI provides a new and first-time definition of
foreign investor. According to article 3 (3) of the draft the foreign ownership cap to determine
whether a company is considered a foreign investor is 49%.
• Licensing procedure: Currently, foreign investors shall apply Investment Certificate which
also serves as business registration certificate of their company established in Vietnam. Under
the draft, the foreign investors shall firstly obtain business registration certificate and then apply
for Investment Registration Certificate. In other words the foreign investors must pass 2
different licensing procedures.
In the view of the international business community the new licensing procedures proposed
under the draft would create an additional burden on the investors as they need to process with 2
different licensing procedures. Furthermore its argued, if the foreign investors invest in a
conditional business which requires a sub- license, they would also follow an extra licensing
procedure. In consequence investment into Vietnam would be less attractive.

2. Although the draft does not require all projects to obtain Investment Registration Certificate, the
current proposed wording of the draft appears still too broad as almost all foreign invested
projects would be subjected to the Investment Registration Certificate.
• Investment conditions: It is provided under the Draft that the relevant ministries shall issue
list of investment conditions for each specific conditional investment sector.
2. The Draft LOE
The Draft LOE to amend the law on enterprises № 60/2005/QH11 issued by the National
Assembly of Vietnam has generally resolved ambiguous issues of the current Enterprise Law and
hence will create a detailed regulatory framework for both Vietnamese enterprises and foreign
investors to follow. Article 9.1 of the Draft LOE provides that the enterprises only can carry out
conditional business upon satisfaction to the relevant conditions of such business sector. This
provision stipulates that enterprises might choose and conduct businesses that are not under
conditional sectors at their own discretion, even if such business lines are not registered in their
BRC.
However, it remains unclear whether this provision implies that enterprises are free to conduct
non-conditional business without registration with the authorities or not - only time will tell.
3. Evaluation
In conclusion the initiated law reforms - aside the afore-mentioned criticism - offer a realistic
chance to facilitate international business in Vietnam and to promote legal certainty. However,
the two major drafts need to be thoroughly integrated into the legal context of Vietnamese trade
and investment regulations: The Draft LOI and the Draft LOE need to be well attuned among
themselves as well as in regard to existing regulations. At this point the Vietnamese legislator
needs to provide clarification in three respects:
• First, the notion of foreign investor provided in the previously mentioned drafts and expressed
in decision 88 and decision 552 of the Prime Minister guiding the acquisition of foreign
investors into domestic companies vary: two benchmarks are offered, a cap of 49% as well as a
cap of 51%.
• Second, the Draft LOI does not clearly stipulate whether the forms of investment governed by
the draft are only applicable to non-public companies and that other investments in public
companies will be governed by the Law on Securities.

3. • Third, a certain structural collusion between the elaborated drafts on LOI (i) and LOE (ii) on
the one hand and the commitments of Vietnam on joining World Trade Organization (WTO
Service Sector Commitments) on the other hand can be detected:
Oversea investors add to consideration that investment conditions or market access conditions
as set in the Draft LOI (see above) are already provided under the specialized regulations and
the WTO Service Sector Commitments. Thus, list of investment conditions issued by the
ministries would be unnecessary and might even lead to confusion, overlapping and
inconsistency.
International investors are concerned that the provisions on voting thresholds of multi-member
LLC of the current LOE and the Draft LOE (referring to a 65% of the shares) may trigger
uncertainty and confusion when compared with the provision on the same of Resolution 71 of
the National Assembly approving Vietnam’s accession to the WTO. In particular, Resolution 71
provides that a LLC is entitled to provide in its charter the majority vote necessary (including
51% majority) to pass decisions of the Members’ Council.
Should you have any question, please contact 15TUomassmann@duanemorris.comU15T;