New law sets definition for ‘foreign investor’
New law sets definition for ‘foreign investor’
A draft investment law clarifying the definition of a foreign investor in Vietnam, aims to improve the investment environment for foreign firms here.
The draft, discussed last week by the Ministry of Planning and Investment (MPI) and the drafting team, defines a foreign investor as an individual with foreign nationality, or an organisation established overseas and operated under overseas laws.
A foreign investor also includes enterprises established in Vietnam with 50 per cent of charter capital held by a foreign individual or organisation, or when 50 per cent of its members are foreign individuals, organisations, limited liability companies or partnership companies.
“The definition of a ‘foreign investor’ is an important foundation for applying investment conditions and procedures to foreign investors. This concept wasn’t clearly defined in the existing Investment Law issued in 2005. This has made it difficult for authorised agencies to apply investment conditions and procedures, salary schemes and land use to foreign investors and enterprises,” said Minister for Planning and Investment Bui Quang Vinh.
Under the existing Investment Law, a business entity would be referred to as a foreign invested enterprise if a foreign investor buys just 1 per cent of its share capital.
Additionally, Decree 102/2010/ND-CP, guiding the implementation of the law, regulated that only enterprises with foreign capital ownership surpassing 49 per cent are required to apply foreign investor investment and operations conditions, and follow the investment procedures applicable to foreign investors.
The lack of clarity led to new enterprises with less than a 49 per cent foreign investor stake being rejected in many cities and provinces across the country.
One victim of conflicting definitions was Mekophar Chemical Pharmaceuticals. Being 4.7 per cent foreign owned, the firm was classified as a foreign firm and it decided to delist from the stock exchange in July 2012, as foreign firms are barred from distributing and selling drugs in Vietnam.
According to the drafting team of the new law, the new minimum stake cap for foreign investors would enable them to enjoy similar investment conditions as locals.
“However, if they are considered truly foreign investors, they will be subject to strict regulations in doing business. For example, if they want to open more than one retail outlet, they will have to fulfill a number of procedures, which is not the case for locally-owned enterprises,” said a drafting team member.
Vinh said the MPI would seek feedback from local and foreign enterprises in Vietnam about the new foreign capital ownership definition.
A US-backed Hanoi-based investment consultant firm representative told VIR that Vietnam’s investment-related regulations, including this new foreign capital ownership cap, were theoretically good. However, implementation of such regulations was another problem.
Her firm has been trying to bring US investors and enterprises into Vietnam, but without success. “US investors are also concerned over a series of obstructions in Vietnam, such as cumbersome investment procedures, weak infrastructure, and unclear policy in attracting foreign direct investment,” she said.
Draft amendments to the Investment Law will be discussed by the National Assembly in May 2014 and expectedly adopted in November 2014.
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