May 03, 2014
The drafts of the amendments to the Investment Law and the Enterprise Law still fail to eliminate the discrimination between foreign investors/ entrepreneurs and domestic counterparts.
At a workshop held to solicit feedback on the draft forms of the amended Investment Law and Enterprise Law in mid-March, the provisions which favor domestic businesses over their foreign counterparts as well as the concept of foreign investment came under close scrutiny.
During the meeting, co-hosted by the Government Office, the Ministry of Planning and Investment in collaboration with the Vietnam Chamber of Commerce and Industry (VCCI), speakers highlighted discriminations against foreign investors/ enterprises in terms of procedures for business registration and market entry as well as business rights. As per the draft laws, foreign investors need to have a business registration certificate to apply for an investment certificate, meaning they must complete two different licensing procedures. It is not to mention that if foreign investors want to engage in conditional business sectors, they will have to apply for a sub-license.
The draft laws say investment certificates can be granted to only four categories of projects – including projects linked to the State’s allocation of land, land leasing or change the purpose of land use; projects in conditional business sectors; projects having to build reports on environmental impact assessment; and projects eligible for incentives and investment supports. However, such a regulation is prone to lead to a situation where the majority of foreign-invested projects are forced to obtain this paper, said Lawyer Nguyen Thanh Hien, director of Asia Trust Investment and Management Corporation.
Phan Duc Hieu, deputy head of the team in charge of editing the draft form of the amended Enterprise Law, admitted such an approach is insufficient. “The differentiation is unnecessary as it hampers foreign investment,” he said.
The discrimination against business rights (fields, location and scopes of business) aims directly toward the control of foreign investors in realizing the country’s social, political and economic goals. However, Hieu noted that the efficiency has been limited so far because what the concept of foreign investors/ entrepreneurs really means remains ambiguous.
For example, the Investment Law and its guiding bylaws occasionally state that foreign investors are those whose stake is 51% or above. Yet in other cases, it is said that those holding just a 1% stake is already a foreign investor. In fact, it is a tough job to make out what foreign investment really means when it comes to cross ownership or shared ownership if a case involves a second or a third generation.
Foreign investors are those holding a 50%-or-higher stake
To tackle the existing shortcomings, the draft forms of the amended Enterprise Law and Investment Law seek to eliminate all of administrative procedure discrimination against foreign investors and between foreign and domestic entrepreneurs. However, many have argued that it is necessary to retain the discrimination related to business rights, as long as it is consistent with international commitments.
According to Hieu, the foreign investment concept will undergo two fundamental changes. First, all the procedures specified in the Enterprise Law for business establishment, stake acquisition and capital contribution will be the same for both local and foreign investors. Naturally, foreign investment takes the various forms of capital contribution for establishment of a new company in Vietnam; acquisition of stakes in a local business; and purchase of shares from shareholders and members of a firm established in Vietnam.
Next, there will be no cap on how much a foreign investor can possess or acquire from a local company, with exceptions prescribed by specialized laws and international commitments.
The draft laws identify foreign investors as individuals having foreign nationality or organizations set up abroad in line with foreign laws.
In a company established in Vietnam, if one or more foreign shareholders possess 51% of the total ordinary shares or the charter capital, they are considered foreign investors. If most partners in a partnership are foreign nationals and private business owners are foreigners, they are also identified as foreign investors.
VCCI Chairman Vu Tien Loc said all entities, be they organizations or individuals, with foreign ownership of over 50% should be considered foreign investors. Thus, what foreign investors mean should factor in enterprises with foreign investment, making it no longer necessary to define foreign invested enterprises.
In case a business belongs to the second generation onwards (when investors are joint ventures, having both domestic and foreign shares and using their capital to form a venture of second generation or above with other entities), it will be hardly able to determine which part is domestic capital and which is foreign, Loc said.
Therefore, he suggested that if an entity is indentified as foreign investor (whose foreign stake is over 50%), all its subsequent acts (including investment for establishment of subsidiaries) should be considered as acts of a pure foreign investor. Otherwise, if an entity is identified as domestic investor (whose domestic stake is more than 50%), all kinds of capital it spends should be regarded as domestic capital. The same appliers to cross ownership.
Still, concerns persist. Lawyer Phan Anh Thong from the Vietnam International Arbitration Center wondered how the conversion process would be like when the cap on foreign ownership in local companies is expanded to over 50%, or vice versa. Will domestic entities that raise their foreign stakes to become foreign enterprises have to apply for an investment certificate?
(By Quang Chung)