VietNamNet Bridge – Along-awaited Government decree provides guidelines for implementing the new Law on Investment which took effect back on July 1.

Decree No 108 is an important regulation for the business community, governing the establishment and operation of investment projects in Vietnam.

It also contains many provisions that should streamline and liberalise investment procedures. Many of these reflect comments, from investors and businesses solicited during the drafting process to make Decree 108 more business friendly.

Still, there are also aspects of the decree which require further clarification so that the full benefit of reforms offered by the Investment Law can be enjoyed by investors.

Devolution of authority

One of the major developments in Decree 108 has been the decentralisation of licensing authority from the Ministry of Planning and Investment.

In the future, management boards of industrial zones, export processing zones, high technology zones and economic zones will be responsible for licensing investments within those zones. For all other investments, provincial People's Committee will become the responsible authority.

All licensing applications would be submitted to these bodies which would then consult with other authorised agencies for needed input before issuing final approval.

Decentralization of licensing authority is designed to allow local agencies more control over projects in their areas. Over time, it is hoped that competition between authorities to attract investment would result in even more efficient licensing procedures.

Prime Minister's approval

Certain projects in sensitive sectors would continue to require approved by the Prime Minister prior to licensing, including projects relating to air- and seaports, mining, broadcasting, casinos and the tobacco industry.

Projects with capital greater than VND1.5tril in electricity, mining and mineral processing, road and railway construction and alcoholic beverages would also be subject to the approval, as would be foreign-invested projects in such sectors as post, delivery services, telecommunications networks and publishing.

Loan proceeds

Large scale projects, and projects in certain sensitive and conditional sectors are subject to "evaluation" by authorities prior to licensing. As part of this process, Article 45.3 requires the licensing body to "evaluate" the schedule on execution of investment capital.

It is not clear how this would operate in practice.

Investment capital comprises charter capital and loan proceeds. The old Law on Foreign Investment only required the investor's commitment on contribution of charter or "legal" capital, not loan capital.

In practice, the investor would borrow based on market and business conditions. Rarely could investors commit to an exact time when they would borrow.

Without clear criteria, the licensing authority may raise obstacles for investors to comply with this provision. Some licensing authorities might request the investor to show a bank's undertaking to lend money in future to make up the investment capital. Many banks will not do this, however, without considering specific conditions at the time of borrowing.

Under the old Law on Foreign Investment, each discrete foreign investment project involved establishment of a separate enterprise. Under the Investment Law, one enterprise can carry out multiple projects, which will simplify management and governance for investors.

Article 66.2 of Decree 108 provides for the transfer of an enterprise's project to another investor, without terminating the legal status of the transferring company.

In this case, the transfer should follow the "conditions and procedure" for transfer of ownership of capital share in an enterprise. However, transfer of a project is quite different to transfer of capital.

For instance, the seller may still own the company with some other projects and sell one project of the company to the buyer. That would involve a transfer of assets and business operations, rather than a transfer of capital or shares.

It is also not clear how the buyer can set up a new company for takeover, as envisaged in Article 66.4. A foreign investor cannot set up a new company without business operations before taking over the project of another company because the Investment Law requires a specific project for setting up a new company.

Lawyers of VILAF - Hong Duc

(Source: Viet Nam News)