2009 Setting Up and Operating in VN

8/6/2019 2009 Setting Up and Operating in VN

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SETTING UP AND OPERATING IN VIETNAM

Russin & VecchiInternational Legal Counsellors

Ho Chi Minh CityOSC-VTP Building, 15/F8 Nguyen Hue Blvd, D1Tel: (84-8) 3824-3026

E-mail: [email protected]

HanoiHanoi Central Office Building, 11/F

44B Ly Thuong Kiet StTel: (84-4) 3825-1700

E-mail: [email protected]

BANGKOK - MOSCOW - NEW YORK - SANTO DOMINGO - TAIPEI - VLADIVOSTOK - WASHINGTON, DC - YUZHNO SAKHALINSK


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TABLE OF CONTENTS

PREFACE...................................................................................................................................................................III

GLOSSARY ............................................................................................................................................................... IV

CHAPTER ONE INVESTMENT REGIME ...........................................................................................................1

1.1 COMPREHENSIVE ENTERPRISES LAW (EL) AND INVESTMENT LAW (IL) .................................................1

1.2 FROM BTA TO WTO COMMITMENTS ........................................................................................................2

1.3 KEY ADMINISTRATIVE BODIES....................................................................................................................3

1.4 FOREIGN INVESTMENT GUARANTEES

.........................................................................................................4 1.5 GOVERNMENTS SPECIAL POLICIES FOR HIGH-TECH INDUSTRIES .............................................................4

1.6 LICENSING PROCEDURES (FOR DIRECT INVESTMENTS)..............................................................................5

1.7 FORMS OF DIRECT INVESTMENT .................................................................................................................6

1.8 ENTERPRISE .................................................................................................................................................7

1.9 INVESTMENT PREFERENCES AND INCENTIVES..........................................................................................10

1.10 CONDITIONAL INVESTMENT SECTORS AND INVESTMENT CONDITIONS...................................................11

APPENDICES TO CHAPTER ONE ......................................................................................................................14

CHAPTER TWO TAXES.........................................................................................................................................38

2.1 CORPORATE INCOME TAX (CIT) ...........................................................................................................38

2.2 EXPORT TAX AND IMPORT TAX .................................................................................................................41

2.3 VALUE ADDED TAX (VAT) ...................................................................................................................42

2.4 PERSONAL INCOME TAX ("PIT")...............................................................................................................43

2.5 TAX TREATIES ...........................................................................................................................................48

CHAPTER THREE ENVIRONMENTAL CONSIDERATIONS .....................................................................51

3.1 ENVIRONMENTAL LEGISLATION ...............................................................................................................51

3.2 STATE MANAGEMENT AGENCIES ..............................................................................................................51

3.3 ENTERPRISES AND ENVIRONMENTAL OBLIGATIONS ................................................................................52

3.4 BUILDING A FACTORY: COMPULSORY ENVIRONMENTALLY FRIENDLY FACILITIES ................................53

3.5 APPLICATION OF VIETNAMESE ENVIRONMENTAL STANDARDS ..............................................................54

3.6 RESPONSIBILITY OF ENVIRONMENTAL PROTECTION OF INVESTOR IN PRODUCTION, BUSINESS AND

SERVICE ACTIVITIES: .................................................................................................................................54

3.7 INVESTORS RESPONSIBILITY FOR ENVIRONMENTAL PROTECTION IN CASE OF IMPORTED PRODUCTS ..55

3.8 CORPORATE LIABILITY IN RESPECT OF ENVIRONMENTAL MANAGEMENT ..............................................55

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CHAPTER FOUR LAND AND CONSTRUCTION ............................................................................................57

4.1 FOREIGN INVESTED ENTERPRISES (FIES) AND LAND USE RIGHTS (LURS)....................................57

4.2 CHOOSING AND RENTING A LAND SITE: OUTSIDE VS. INSIDE AN INDUSTRIAL ZONE (IZ)/EXPORT

PROCESSING ZONE (EZ).......................................................................................................................................58

4.3 BUILDING A FACTORY OUTSIDE OF AN IZ ................................................................................................604.4 OBTAINING A CONSTRUCTION PERMIT .....................................................................................................61

4.5 SELECTING A CONTRACTOR......................................................................................................................62

4.6 CONSTRUCTION AGREEMENTS..................................................................................................................62

4.7 APPROVAL OF COMPLETION OF THE CONSTRUCTION WORK....................................................................62

4.8 REGISTRATION OF OWNERSHIP OF A FACTORY ........................................................................................63

4.9 THE RIGHT OF FIES TO PURCHASE AND OWN APARTMENTS IN VIETNAM...............................................63

CHAPTER FIVE LABOR ........................................................................................................................................64

5.1 BRIEF COMMENTS ON VIETNAMS LABOR FORCE ....................................................................................64

5.2 STATE MANAGEMENT AGENCIES ..............................................................................................................64

5.3 EMPLOYERS REPRESENTATIVE ...............................................................................................................64

5.4 GENERAL EMPLOYMENT CONDITIONS ......................................................................................................65

5.5 INDIVIDUAL AND COLLECTIVE LABOR AGREEMENTS ..............................................................................68

5.6 INTERNAL LABORRULES..........................................................................................................................69

5.7 TRADE UNIONS ..........................................................................................................................................70

5.8 WORK SAFETY ...........................................................................................................................................70

5.9 LABOR DISPUTE RESOLUTION ...................................................................................................................70

5.10 EMPLOYMENT OF EXPATRIATES ...............................................................................................................71

CHAPTER SIX PROTECTION OF INTELLECTUAL PROPERTY ............................................................72

6.1 CURRENT LEGAL FRAMEWORK.................................................................................................................72

6.2 THE BTA BETWEEN THE SOCIALIST REPUBLIC OF VIETNAM AND THE UNITED STATES OF AMERICA 74

6.3 THE TRIPS AGREEMENT ..........................................................................................................................74

6.4 ENFORCEMENT OF IPRS IN VIETNAM.......................................................................................................75

6.5 CURRENT ATTITUDES AND PROSPECTS.....................................................................................................78

APPENDIX TO CHAPTER SIX .............................................................................................................................79

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PREFACE

The information in this booklet will be helpful to a company investigating Vietnam as aninvestment venue. This booklet discusses material that would normally be on a site selectionteams checklist.

While this is only a summary, it provides the information necessary to understand Vietnamsinvestment landscape.

We hope that the material is useful. We would be happy to respond to specific questions, andto bring the information contained in this book to the next level of detail.

* * *

In this book, we define and abbreviate terms the first time that we use them. We have alsoprepared a Glossary for those readers who may not read from the beginning.

This booklet was written by lawyers from Russin & Vecchi.This version is current through June 2009.


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GLOSSARY

BOM Board of Management

BRC Business Registration Certificate

BTA US-Vietnam Bilateral Trade Agreement

CIT Corporate Income Tax

CLUR Certificate of Land Use Rights

DOLISA Department of Labor, War Invalids and Social Affairs

DOSTE Department of Science, Technology and Environment

DPI Department of Planning and Investment

EIA Environmental Impact AssessmentEL Enterprise Law

EP Economic Police

FIE Foreign Invested Enterprise

HCM City Ho Chi Minh City

IC Investment Certificate

IL Investment Law

IPR Intellectual Property Rights

JSC Joint Stock Company

LFI Law on Foreign Investment

LLC Limited Liability Company

LUR Land Use Rights

M&A Mergers and Acquisition

MCT Ministry of Communications and Transport

MMO Market Management Office

MOIT Ministry of Industry and Trade

MOF Ministry Finance


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MOLISA Ministry of Labor, War Invalids and Social Affairs

MOST Ministry of Science and Technology

MPI Ministry of Planning and Investment

MPS Ministry of Public Security

NOIP National Office of Intellectual Property

PIT Personal Income Tax

PM Prime Minister

SBV State Bank of Vietnam

SGM Shareholders General Meeting

SSC State Securities Commission

VAT Value Added Tax

VND Vietnamese dong

WTO World Trade Organization


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Chapter One

INVESTMENT REGIME his chapter sets out the framework for foreign investment. The framework is a point ofreference. Special projects will have special rules.

1.1 Comprehensive Enterprises Law (EL) and Investment Law (IL)The legal framework for doing business in Vietnam changed significantly for foreigninvestors on July 1, 2006 when the IL came into effect. The prior framework, wherebydifferent legal mechanisms applied to domestic and foreign investors, has largely disappeared.The EL created a unified legal framework to do business by providing similar businessvehicles from which both domestic and foreign investors can choose. The EL also provides

rather complete regulations on corporate governance.

The IL provides steps to obtain an Investment Certificate (IC), the rights and obligations ofinvestors, governmental assurances, investment incentives, state management of investmentand rules on investment abroad from Vietnam.

Licensing procedures are discussed in Section 1.6 below.

The IL distinguishes between direct investment and indirect investment. If an investor isdirectly involved in the management of the investment activities, it is considered to have adirect investment. The distinction exists to differentiate between investors that obtain an IC tocarry on investment activities and investors in, say, listed companies where there is no direct

participation in management. Indirect investment is governed by other laws.

As is normal practice, the EL and the IL need to be supplemented by implementingregulations. To date, they mainly include:

Government Decree No. 88/2006/N!-CP dated August 29, 2006 on businessregistration (Decree 88) which is mainly applicable to setting up a 100% domesticenterprise;

Government Decree No. 101/2006/N!-CP dated September 21, 2006 on guidelinesfor the re-registration, conversion and change of investment certificates of FIEs;

Government Decree No. 108/2006/N!-CP dated September 22, 2006 on details andguidelines on implementation of several provisions of the IL (Decree 108);

Government Decree No. 139/2007/N!-CP dated September 5, 2007 on details andguidelines on implementation of several provisions of the EL (Decree 139);

MPI Decision No. 1088/2006/QD-BKH dated October 19, 2006 on forms to carry outinvestment procedures; and

MPI Circular No. 03/2006/TT-BKH dated October 19, 2006 on details and guidelinesto implement some provisions of Decree 88, including forms to carry out businessregistration procedures (as amended on January 13, 2009).

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1.2 From BTA to WTO commitmentsThe BTA (US-Vietnam Bilateral Trade Agreement) adopted in December 2001 dramaticallyliberalized access to Vietnams market for US--and other--goods, services and investments. It

broadly improved the framework for protecting intellectual property rights which we discussin Chapter Six.

In many ways, the BTA anticipated Vietnams accession to WTO. The requirements of theBTA provided an introduction and road map to the terms that were incorporated intoVietnams WTO accession agreement. While some special conditions for US investorsremain, since Vietnams accession to WTO in January 2007, virtually all special conditionsthat existed under the BTA are now also available to all WTO members and possibly toothers.

In anticipation of Vietnams WTO accession, the National Assembly ratified Vietnams WTOcommitments by Resolution No. 71/2006/QH11 passed by the National Assembly on

November 26, 2006 (Resolution 71). This Resolution provides that, where there arediscrepancies between Vietnams WTO commitments and Vietnamese law, the WTOcommitments will prevail.

Vietnam has made commitments on a range of services. The WTO commitments adopt theclassifications of services in the United Nations Statistics Divisions Classification Registryi.The commitments and some of the regulations are in the Schedule of Specific Commitmentsin Services; other information on the regulations is in the Working Party Reportii. Vietnamscommitments to open the market in a specific service are generally unbound, none, or

conditional/restricted. There are no regulations, as yet, to differentiate between unboundand noneiii. Unbound has generally been interpreted to mean that Vietnam has made nocommitment in respect of such a service as a result of its WTO accession, and is free toimpose restrictions on foreign investment. None has been interpreted to mean norestrictions/conditions exist.

The legal environment for conditional or restricted investment in services has changed sinceWTO accession. Some has been positive, some negative. On the positive side, Vietnam allowsforeign investment in more industries. In addition, the application of WTO commitmentscreates a fairer investment environment. For example, government subsidies by way offavorable treatment to export industries or to investment in some (but not all) planning zones

have stopped or are being phased out.

iTo see the classifications, go to: http://unstats.un.org/unsd/cr/registry/regcst.asp?Cl=9&Lg=1

iiNotable pages of this Working Party Report include: pages 9 to 14 which report the discussions on theinvestment regime; pages 25 to 27 which report on pricing policies; pages 27 to 29 which report thediscussions on competition policies; pages 118 to 127 which report on (general) policies affecting trade in

services; pages 127-129 which report on transparency, publication and notifications.iii

The Government has actually drafted a Decree to clarify a number of commitments relating to investmentactivities. Under this draft Decree, unbound means Vietnam is free to impose restrictions stipulated in

Vietnamese regulations on foreign investment; and none means Vietnam cannot impose restrictions onforeign investment. A possible substitute to the draft Decree is a draft Resolution of the National Assemblyclarifying certain WTO commitments and also addressing essential changes in the EL and the IL.


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The negative points relate to a few services which could previously be licensed to foreigninvestors without restrictions, but which are currently conditional/restricted although therestrictions will mostly be phased out after a few years.

Section 1.10 contains a broader discussion of investment conditions including those imposedas a result of Vietnams WTO accession.

One of Vietnams WTO commitments to deal mainly with indirect investment affirms thatforeign investors may purchase shares of domestic enterprises. Under this commitment,

before 2008, the total equity that could be held by foreign investors in a domestic ownedenterprise that engaged in a committed service was limited to 30%. This 30% cap persists incase of purchasing shares by foreign investors in a joint-stock commercial bank. For othercommitted sectors and sub-sectors, this 30% cap has been replaced. The total equity that maynow be held by foreign investors in a domestic owned enterprise must be within thelimitations on foreign capital participation described in Vietnams Schedule of Specific

Commitments in Services in its accession to the WTO.

1.3 Key administrative bodiesThe Ministry of Planning and Investment (MPI) oversees all investment activities, includingforeign investment. The MPI is responsible for drafting legislation, developing policies,

providing guidance and consultation, and coordinating with other authorities. In addition, theMPI will evaluate important investment projects. The MPI is also the contact point for foreigninvested enterprises (FIEs)--that is, any enterprise with some foreign investment--in respect of

problems or issues that arise.

However, the provincial or cityiv Peoples Committees administer foreign investment andissue investment certificates (ICs) for almost every type of foreign investment within their

province/city. ICs are discussed in more detail at Section 1.6.

Although only provincial/city Peoples Committees and Management Boards of IZs have theauthority to issue ICs to foreign invested projects, some conditional projects and some largesize or important projects need approval in principle by the PM upon recommendation fromthe MPI and possibly other ministries. Projects that need the PMs approval are listed inAppendix 4 of this Chapter.

The Department of Planning and Investment (DPI), which administers investment activitiesfor the provincial/city Peoples Committees, is the contact point in the licensing process. TheDPI either registers or evaluates an investment. Registration is a simple licensing processfor a simple investment, while evaluation is reserved for a project that is conditionalv or large.

If an FIE is located within an industrial zone (IZ)vi, the FIE is administered by that IZsManagement Board. That is, an FIE in an IZ operates subject to the IZs rules onimport/export, environment, labor, etc., in addition to the general rules of the Government and

ivIn this book, by city, we mean a provincial city which has the same level of governance as a province.

vSection 1.10 of this Chapter discusses conditional projects.

vi There are different types of zones, namely industrial zones, economic zones, export processing zones andhigh-tech zones. We use the general term industrial zone or IZ to include all types, unless they arespecifically indicated in a particular context.


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the MPI. A Management Board is authorized to issue an IC for a project that will be located inan IZ that is within its administrative area.

Other, more specialized ministries are also involved in foreign investment. For example, for

high-tech projects, the Ministry of Science and Technology (MOST) plays an administrativerole. It develops the industrys particular policies for foreign investment, and assures that theapplication of foreign investment regulations is in harmony with the industrys own rules. It isoften consulted by the DPI, IZs Management Board or by MPI prior to actual licensing.

1.4 Foreign investment guaranteesArticle 4.2 of the IL expressly provides that the Government must treat domestic and foreigninvestors in all economic sectors equally before the law. Article 6.1 of the IL further providesthat the Government will neither expropriate nor nationalize investment capital, real propertyand other assets of any investor.

In addition, under Article 11.1 of the IL, in the event that law or policy subsequentlypromulgated provides larger benefits and incentives than those previously given to investors,those investors are entitled to the larger benefits and incentives. If changes adversely affectexisting investors, under Article 11.2 of the IL, the Government commits to adopt offsettingor particular measures, such as tax holidays or payment of compensation, in order toapproximate the same conditions that existed before the amendments. This undertakingappeared also in the prior law, and there are examples of Government adherence to thisundertaking.

While developing a more comprehensive IL framework, the Government has continued tointroduce or improve other laws that affect the business environment, such as the Law onConstruction 2003, Law on Competition 2004, Commercial Code 2005, Law on ElectronicTransactions 2005, Civil Procedures Code 2005, Law on Tendering 2005, Law on IntellectualProperty 2005, Law on Securities 2006, Law on Informatic Technology 2006, Law onVocational Training 2006, Law on Corporate Income Tax (CIT) 2008, etc.

1.5 Governments special policies for high-tech industriesVietnam especially encourages high-tech investments. High-tech projects enjoy the best

preferential treatment and incentives. For example, the tax rate is the lowest and the tax

exemption period is the longest. We discuss taxes generally in Chapter Two. Briefly, the CITrate for a high-tech project can be as low as 10%. Further, a company with a project to doresearch, to develop technology, or to train professionals in science and technology can beexempt from payment of land rent for a certain period of time.

A number of high-tech investment projects were licensed under the former Law on ForeignInvestment (LFI) in the Saigon High-Tech Park and other IZs. Since the replacement of theLFI by the IL (ie, as of July 1, 2006), as far as we know, no high-tech enterprise has beenestablished outside high-tech parks. The reason may be that the licensing procedures toestablish a high-tech enterprise are generally only available for investment in high-tech parks.

The Government issued Decree No. 29/2008/ND-CP dated March 14, 2008 on IZs, whichconfirms that a high-tech investment project can be located in any high-tech park, industrial


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zone or economic zone. The Law on High-Tech passed on November 13, 2008, effective as ofJuly 1, 2009, provides only general policies on high-tech investment. A legal framework forhigh-tech investment must continue to develop to address certain gaps, including amechanism to apply for high-tech status outside a high-tech park.

1.6 Licensing procedures (for direct investments)Generally speaking, foreign investors are able to choose all forms of business structures thatare available to Vietnamese investors. The main difference is that when a foreign investorinvests in Vietnam, it has to specify particular activities and scale of the project, and it mustapply for an IC. Depending on the nature of the project, a new IC can be obtained eitherthrough a registration process or through an evaluation process. As the words imply,registration is more simple. Evaluation means that the structure of the project must meetcertain criteria.

For an investment project in which investment capital is below 300 billion VND(equivalent to about US$17 million) and which is not a conditional project, onlyregistration is required.

For an investment project in which investment capital is 300 billion VND or more, orwhich is conditional, evaluation procedures apply.

Different projects may be licensed by different licensing authorities, depending mainly on theprojects locationvii.

An IC is project-specific in another sense. While certain documents are required to completeevery application, additional documents, such as an Environmental Impact AssessmentReport, land documents and permits, are required for certain projects.

An IC is issued for a foreign investor that invests for the first time in Vietnam. An IC willconcurrently be treated as a Business Registration Certificate (BRC) which is required to setup any enterprise in Vietnam. This treatment is different as between domestic investors andforeign investors. While all domestic investors require a BRC, not all projects invested bydomestic investors require an ICviii. While a BRC contains only particulars of businessregistration, an IC contains, in addition, particulars of a specific project.

An enterprise can perform more than one investment project at the same time. If an FIE has anew investment project, it will file another application for an IC for that project but need notestablish a new enterprise.

The statutory time limit for a licensing authority to consider and issue an IC is 15 workingdays if an IC is issued through a registration process. It is 20 to 25 working daysix if an IC isissued through an evaluation process. If an approval-in-principle by the PM is required, the

vii Despite different licensing authorities, Vietnam places no geographical limit on the operation of a properly

licensed enterprise.viii

A domestic project worth less than 15 billion VND (equivalent to about US$860,000) does not require an IC.ix The IL provides a time-frame of 30 to 45 days for the licensing authority to evaluate a project from receipt

of an application. Decree 108 specifies this to be 20 working days if an IC is issued by an IZ ManagementBoard, or 25 working days if issued by a provincial/city Peoples Committee.


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time limit is 37 working days. Efficiency in the licensing process has improved. Majorimprovements appear in Joint Circular No. 05/2008/TTLT/BKH-BTC-BCA dated July 29,2008 issued jointly by the MPI, Ministry of Finance (MOF), and Ministry of Public Security(MPS). Among other improvements, this circular reduces the time-frame from 15 working

days to issue a BRC to only five working days to issue both a BRC and a tax registrationcertificate. Despite these mandated time periods, there are variables and the process remainsquite bureaucratic. The time periods are not totally reliable.

An IC will, however, specify the privileges to which a preferential or especially preferential project is entitled in respect of tax holidays, tax reduction, etc.Investmentpreferences andspecial investment preferences are discussed in Section 1.9.

Enterprises in a special business may require a special license instead of an IC. An enterprisein a security business is issued a license by the State Securities Commission (SSC). A bankrequires a license issued by the State Bank of Vietnam (SBV). An airline requires a license

issued by the Ministry of Communications and Transport (MCT). In addition to an IC and anyspecial license, sub-licenses may be required for a project after an IC is issued. Forexample: a multi-level selling project requires a multi-level sales license; construction of afactory generally requires a construction permit; facilities and professional personnel of a

project involving medical services require certification.

1.7 Forms of direct investmentAs mentioned, foreign investors and domestic investors can choose among the same directinvestment forms. However, there are some restrictions on foreign investors depending on

investment sectors. There are sectors in which there is a cap on the percentage of capitalforeign investors can contribute. Frequently, where they exist, caps are industry specific.

Investors, including foreign investors, can choose the following forms of direct investment:

an enterprise in which foreign investors own 100% capital; a joint venture in which there are both domestic and foreign investors; an investment in the form of a Business Cooperation Contract (BCC), Build-

Operate-Transfer (BOT), Build-Transfer-Operate (BTO), or Build-Transfer(BT) contracts;

reinvestment in an existing business; purchase of shares or contribution of capital in an enterprise and participation in itsmanagement; investment in the merger or acquisition of enterprises; other forms of direct investment.

a)The first two forms of direct investment will result in the establishment of an enterprise asdiscussed in Section 1.8.1 below.

b)Investment through contracts: Investors may enter into a BCC to cooperate in business activities with an agreed form

of profit-sharing. This form does not create an enterprise. However, there are anumber of similarities between a BCC and an enterprise.


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Investors may also enter into BOT, BTO and BT contracts with State agencies toexecute projects on construction, expansion, modernization and operation ofinfrastructure facilities that relate to transportation, electricity generation, water supplyand drainage, waste treatment and other public services as stipulated by the PM.

c) Investment can take many forms beyond establishment of new projects. The IL alsorecognizes increasing capacity, upgrading technologies, raising product quality andreducing environmental pollution as forms of investment.

d)Investors may also invest in Vietnam by contributing capital or purchasing shares fromexisting investors.

e) In addition, investors have the right to merge or to acquire existing companies and branches. The merger and acquisition (M&A) of companies and branches must complywith the EL, the Law on Competition and other laws. Each case will have its own set of

conditions.

1.8 Enterprise1.8.1 Forms of enterprise

A single investor can operate its business through either a private enterprise (ie, a soleproprietorship) or a one-member limited liability company (LLC);

Two or more investors may set up a two-to-50-member LLC, a partnership or a jointstock company (JSC).

Appendix 1 at the end of this Chapter compares these business forms.

1.8.2 Enterprise nameThe rules on the name of an enterprise are fairly strict. In general, the name must containwords which have meaning in the Vietnamese language. An enterprise may use a foreignname provided that the foreign name can be translated from the Vietnamese name. In the caseof an FIE, the name in Vietnamese may contain words in a popular foreign language,

provided that such words are (part of) the foreign investors registered name (overseas). Thecorporate form of an enterprise such as Cng ty TNHH (Company Ltd. in English) andCng ty C" ph#n (Joint Stock Company in English) must be included. Two enterprisesmay not register the same, identical name within the same province. Some other rules apply.

1.8.3 Business lines and investment objectivesAn enterprise may have single or multiple business lines and investment objectives, subject tothe conditions regarding investment sectors as discussed in Section 1.10.1 below.

An investment objective or activity must be implemented within the time schedule registeredin the IC. Article 68.2 (a) of Decree 108 entitles the licensing authority to terminate a project

if implementation is delayed more than 12 months without approval.


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In the case of a project with multiple objectives, the IC may set out different investment preferential tax packages for different (groups of) activities. For ease of tax registration, anenterprise needs to account separately for investment activities with different preferential

packages.

1.8.4 Legal representativeEvery legal entity must have a legal representative. Generally, the legal representative has theright to enter into and perform all civil transactions that concern the entity.

In case of a sole proprietorship, the owner is the legal representative. A single legalrepresentative does not exist in the case of a partnership as any general partner can representthe partnership. In other forms of enterprises, the legal representative must be either the(General) Director or:

the President in a one-member LLC, which does not have a Members Council (ie,Board of Directors),

the Chairman of the Members Council in an LLC which has a Members Council, the Chairman of the board of management (BOM) in a JSC,

The legal representative must reside in Vietnam. If abroad for more than 30 days, the legalrepresentative must authorize another person to act. Such authorization must be documentedand filed with the licensing authority.

1.8.5 Corporate governance and controllersAn enterprises corporate governance is set forth in its charter (which is similar to acompanys bylaws or articles of association elsewhere). The charter must contain certain ruleson the management and organization of the company, as stipulated in the EL.

The EL introduces basic rules on corporate governance. In general, such rules followinternational norms. One notable rule, special to Vietnam, is the requirement that all JSCs andmost types of LLCs have controllers. Even though they are not part of the management,controllers have a considerable amount of power. In particular, a controller can exercisecontrol over almost all legal and financial affairs conducted by both management and theexecutive teams.

1.8.6 Operation term and dissolutionThe duration of an enterprise can be indefinite unless its charter provides otherwise.However, the duration of a foreign investment projectmay not exceed 50 years, although itmay be renewed. In special circumstances, the Government may grant a term up to 70 years.Presumably, upon expiration of the term of an investment project, foreign investors cancontinue to use theirenterprise to carry out other newprojects.


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An enterprise is dissolved in the following circumstances:

The operating duration, if a fixed duration is stated in the enterprises charter, expireswithout a decision to renew;

The owners of the enterprise decide to dissolve it; An enterprise lacks, for six consecutive months, the minimum number of members

required by law (ie, two members for a two-to-50-member LLC or three members fora JSC);

The BRC is withdrawn.An enterprise may be dissolved only after it pays all of its debts and other liabilities. If an

enterprise is unable to pay its debts when due, it may be subject to bankruptcy.

1.8.7 Enterprise capitalThere are several concepts of capital under the EL and IL:

Legal capital: The minimum capital that is required by law to form an enterprise. Investment capital: An amount of money and other assets needed to carry out the

investment activities.

Charter capital: An amount of capital that members or shareholders contribute orcommit to contribute within a certain period, stated in the charter.

Capital contribution: The portion of a companys charter capital that an owner or co-owners contribute.Enterprises in certain businesses as discussed in Section 1.10.2 (a) must meet a legal capitalrequirement, which simply means the business must have a minimum amount of chartercapital. A private enterprise has investment capital. A domestic enterprise other than a privateenterprise has charter capital. An FIE has both charter capitaland investment capital.

In case of a JSC, at least 20% of the charter capitalmust be contributed within 90 days fromthe date of business registration, and the remainder must be contributed within three years. Inother cases, there is no regulatory limit as to when a capital contribution must be made.

However, a proposed capital contribution schedule must be registered. This schedule shouldprove to be feasible if the project is subject to evaluation.

Charter capital is the real equity. Investment capitalmay include, in addition to chartercapital, non-equity capital such as loans and accumulated after-tax profits.

In addition, increasing the charter capitalis easier than decreasing it. In fact, a one-memberLLC is not allowed to reduce its charter capital.


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1.9 Investment preferences and incentivesAn investor, depending on the sector, is entitled to investment preferences and specialinvestment preferences (collectively investment preferences). The investment preferences

apply equally to domestic and foreign investors. They are based on various factors, but thelocation and the sector are the two major considerations.

1.9.1 Preferences based on locationsTax and other investment preferences are granted to investors in encouraged geographicallocations. They include geographical locations with socio-economic difficulties, geographicallocations withspecial socio-economic difficulties, economic zones, and hi-tech parks.

The list of geographical areas in which investment is encouraged is mentioned at Parts C and

D of Appendix 3 of this Chapter One.

1.9.2 Preferences based on sectorsSectors in which investors are entitled to investment preferences (both tax and non-tax)generally include:

Production of new materials or new energy; manufacture of high-tech products, bio-technology or information technology; mechanical engineering;

Farming and processing of agriculture, forest or aquatic products, salt making;production of hybrids, new plant varieties and/or animal breeds;

Use of high technologies or modern techniques; protection of the ecologicalenvironment; research, development and nourishment of high technologies;

Employment of a large number of workers; Construction and development of infrastructure, important and large-scale projects; Development of education, training, health care, physical training and sports and

national culture; Development of traditional crafts and industries; Other production and service sectors specified by the Government from time to time.

Decree 108 divides the above sectors into sectors/sub-sectors. Our Appendix 3 follows Decree108.

The situation regarding corporate income tax (CIT) preferences changed on January 1, 2009.CIT preferences are now limited to the following sectors only: use of high technologies,scientific research and technological development, development of especially importantinfrastructure for the State, software production, and the business of education and training,vocational training, health, culture, sports and environment.

Appendix 2 of this Chapter One lists criteria necessary to qualify for different CIT rates forbusinesses established as from January 1, 2009.


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1.10 Conditional investment sectors and investment conditionsReaders will see that investment conditions applicable to foreign investors are generally

broader than those applicable to domestic investors. However, foreign investors can enjoy the

same investment conditions applicable to domestic investors in case of an enterprise in whichdomestic investors own 51% or more of the charter capital. Decree 139 resolved this

provision of the IL so that it is now clear that an investment in which no more than 49% of thecharter capital is owned by foreign investors is treated as a local investment for registration

purposes.

1.10.1 Conditional investment sectorsUnder the IL, a foreign investment project in sectors or regions which may have an adverseeffect on national defence, national security, cultural and historical heritage, traditionalcustoms and morality, or the ecological environment, may not be licensed.

These are other sectors in which participation is conditional. The IL provides a general listof conditional investment sectors which apply to both foreign and domestic investment,including:

Projects that affect national defense, security, social order and safety; Financial and banking; Sectors that affect public health; Cultural, information, press and publishing; Entertainment services;

Real estate business; Survey, prospecting, exploration and exploitation of natural resources; ecological and

environmental projects;

Development of education and training; Some other areas as specifically provided.

The conditions that apply in most of the above sectors are in the nature of businessrequirements that an enterprise must meet after incorporation, rather than licensing conditions.

There are investment sectors that are conditional for foreign investors, in addition to theforegoing. They are listed in Appendix 5 at the end of this Chapter One. In some cases, an

investment in a sector in which Vietnam has made an undertaking under, say, its WTOcommitments, is treated as conditionalx.

1.10.2 Investment conditionsIn addition to conditional investment sectors as mentioned above, an investment conditionmay be based on other factors, such as forms of investment, nationality of the foreigninvestors, professional expertise of the investors, the scale of the investment project, types of

xSome sectors are not conditional under Vietnamese law (some are even encouraged) but have become

conditional, temporarily or permanently, based on Vietnams WTO commitments: services incidental toagriculture, sewage treatment, software production, processing and assembly of goods, maintenance andrepair of household equipment, market research, warehousing, tourism, etc.


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goods and services, the time of investment, or bases to acquire the investment premises.

Typical investment conditions include:

a)Conditions regarding minimum capital: There is no longer a minimum legal capital,calculated as a percentage of total invested capital, as was previously the case under therepealed LFI. A minimum amount of capital to establish an enterprise is currently requiredin only a few sectors, such as commercial banking, financial companies, finance leasingcompanies, international tourism, real estate, security, securities, and hospitals.

b)Conditions regarding nationality of the foreign investors: Some sectors (eg, trading andlogistics) require that the foreign investor belong to a country or territory that participatesin an international treaty to which Vietnam is a member and in which Vietnam hasundertaken to open the sectors.

c)Conditions regarding experience/license of investors: Some sectors, such as education,tourism, commercial advertisement, or most telecommunications services, require theVietnamese partner to be duly licensed in such sectors. A few sectors such as insurance,

banking, security or securities services, generally require the foreign investor to be anexperienced supplier of such services.

d)Conditions regarding limitation of foreign ownership via direct investment, including purchase of shares of, or contribution of capital to an existing domestic enterprise,presumably with an active management role:

The limitation in some particular areas is subject to industry-specific legislation, suchas the Law on Credit Institutions, Law on Civil Aviation, Law on Education, Law onSecurities, Law on Insurance Business, Law on Oil and Gas, etc. Most of these lawsdo not specify a limitation but generally refer to Vietnams international undertakings.

In case of an enterprise equitised or converted from a State-owned enterprise, thelimitation is regulated by legislation on the equitisation or conversion of State-ownedenterprises (usually from 10% to 49%).

The limitation accords with Vietnams WTO commitments in case of investment incommitted services. This limitation varies from service to service and is mostly phased

out after a few years. For example: for distribution services, the limitation is any rateless than 100% until it is phased out in 2009; for foreign investment in securitiesservices, the limitation is 49% until it is lifted in 2012; the limitation for warehouseservices and freight transport agency services is 51% until it is lifted in 2014; and thelimitation for maintenance and repair services of household equipment is 49% whichis raised to 51% in 2010 until it is eventually phased out in 2012.

e)Conditions regarding the limitation of foreign ownership via indirect investment, mainly inthe form of purchase of shares of, or contribution of capital in, an existing domesticenterprise, presumably without engaging in the enterprises management:

The limitation in some particular areas is subject to special legislation as discussed inparagraph (d) above. For example, under the legislation on securities, the limitation is


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currently 49% for the purchase of shares of a listed company.

In case of an enterprise equitised or one converted from a State-owned enterprise, thelimitation is regulated by legislation on the equitisation or conversion of State-owned

enterprises as discussed in paragraph (d) above.

The limitation is 30% in the case of shares of a joint-stock commercial bank. The limitation accords with Vietnams WTO commitments in case of investment in a

committed service sector (see the discussion in paragraph (d) above).

For sectors other than those mentioned above, or for sectors included above, but whichhave no specified limitation on foreign ownership, there are conflicting regulations.Briefly, while Decree 139 imposes no limitation on foreign ownership, a decisionissued by the PM does set a limitation of 30% in some sectors. Regulations to clarify

this conflict have not been issued. At this moment, the MPI, with its functions asbriefed at the beginning of Section 1.3, is often consulted if a foreign investment in asector is conditional but if no specified limit is provided.

There are other conditions such as those regarding forms of investment, need for approval in principle, need for professional practice certificate, the need for an economic-technicalfeasibility study, environmental impact assessment, capital contribution schedule, and theneed to legalize certain licensing documents.


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APPENDICESto Chapter One


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APPENDIX 1

COMPARISON OF FORMS OF ENTERPRISE UNDER THE ENTERPRISE LAW (EL)

A. Two-to-50-Member Limited Liability Company (LLC) and Joint Stock Company (JSC)

(Appendix 1.A) two-to-50-member LLC JSC

Characteristics A two-to-50-member LLC is an enterprise in which:

Members are organizations and/or individuals; thetotal number of members may not exceed 50;

Members are responsible for the enterprises debtsand liabilities up to the value of capital that they

have committed to contribute.

The company is not entitled to issue shares.

A JSC is an enterprise in which:

Shareholders are organizations and/or individuals; the minimumnumber of shareholders is three with no maximum number;

Shareholders are liable for debts and other property liabilities ofthe enterprise up to the value of the capital to which they

subscribe;

Charter capital is divided into shares.A JSC is entitled to issue securities to mobilize capital, includingcommon and preferred shares and bonds.

Appointments

to, selections of

boards,

management

Each member can appoint and dismiss a single ormultiple representatives of the Members Council.

The Members Council elects and dismisses the

Chairman.

The Members Council elects/dismisses,signs/terminates labour contracts with the (General)

Director, Chief Accountant and other seniormanagement as contemplated in the charter.

Each shareholder nominates its representatives to be elected to theManagement Board or Controller Board at a meeting of the

Shareholders General Meeting (SGM). The attending shareholderswill elect the nominees through cumulative voting.

The Management Board elects/dismisses, signs/terminates labourcontracts with the (General) Director, Chief Accountant and othersenior management as contemplated in the charter.


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Legal

representative

Either the Chairman of the Members Council or

(General) Director will also serve as the legalrepresentative as stipulated in the charter.

Either the Chairman of the BOM or (General) Director will also serve

as the legal representative as stipulated in the charter.

Board of

controllers

If the number of members reaches 11, a board of

controllers must be established, as discussed in Section

1.8.5.

The enterprise must have a board of controllers if:

The number of individual shareholders reaches 11; and/or There is an organizational shareholder that owns more than 50%

of the total shares of the enterprise.

Capital

Contribution

Schedule

The founding members must register a schedule of

capital contribution. Once registered, they must followthe schedule.

Founding shareholders must register and follow a schedule of capital

contribution, provided that they must contribute capital equivalent toat least 20% of the enterprises registered ordinary shares within 90

days of issuance of the BRC or IC; registered but unissued shares

must be issued within three years.

Quorumxi

Unless otherwisexii

provided in the charter, a meeting of

the Members Council can be held with:

Participation of at least 75% charter capital at firstconvening; or

Unless otherwisexiii

provided in the charter, a meeting of the BOM

can be held with:

Participation of at least 65% total voting shares at first convening;or


xi In case of a joint venture LLC or JSC, by virtue of Vietnams WTO commitments, the enterprise may provide in its charter any quorum to convene a meeting and any

mode to adopt a decision of the Members Council or the SGM. The meaning of a joint venture in this context is not clear. The WTO commitments and the IL seem

to mean a joint venture in which there are both foreign investors and domestic investors. Resolution 71 appears to include any joint venture, including those involving

only foreign investors and those involving only domestic investors.xii

The language of the EL (Articles 51.1 and 51.2) is unclear as to whether a charter can provide for a quorum lower than 75%/50%.xiii

The language of the EL (Articles 102.1 and 102.2) is unclear as to whether a charter can provide for a quorum lower than 65%/51%.


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Participation of at least 50% charter capital at secondconvening, to be held within 15 working days from thedate the first convening failed; or

Any quorum at third convening, to be held within 15working days from the date the second convening failed.

Participation of at least 51% total voting shares at secondconvening, to be held within 30 days from the date the firstconvening failed; or

Any quorum at third convening, to be held within 20 days fromthe date the second convening failed.

Resolutions Unless otherwise provided in the charter (eg, the members

can define which matters fall under which threshold and can

provide percentages different

xiv

from those mentioned below), a resolution of the Members Council requires an

affirmative vote equivalent to at leastxv

:

75% of charter capital in case of a written resolutionmade without holding a proper meeting;

75% of total capital contribution of attending members inthe following cases:

Sale of 50% or more of total assets, Amendment of the charter, Re-organization, and Dissolution;

65% of total capital contribution of attending members isrequired in other cases.

Unless otherwise provided in the charter (eg, shareholders can

define which matters fall under which threshold and can provide

percentages different

xvi

from those mentioned below), a resolutionof the BOM requires an affirmative vote equivalent to at least5:

75% of total voting shares in case of a written resolution madewithout holding a proper meeting;

75% of total voting shares of attending shareholders in thefollowing cases:

Decision on classes and number of shares to be offered,Investment or sale of 50% or more of total assets,Amendment of the charter,Re-organization, andDissolution;

65% of total voting shares of attending shareholders is requiredin other cases.

Title

documents

A members register with information of the enterprise and

the members must be made as soon as the BRC or IC isissued. This register must be kept at the head office.

A shareholders register must be made as soon as the BRC or IC is

issued. This register must be kept at the head office, or at theSecurities, Custody, Clearing and Payment Center.

xivThe language of the EL (Articles 52.2 and 52.3) is unclear as to whether a charter can provide for a vote lower than 75%/65%.

xv In case of a joint venture LLC or JSC, by virtue of Vietnams WTO commitments, the enterprise may provide in its charter a lesser required majority vote (including

the percentage of 51%) to adopt a decision of the Members Council or the SGM.xvi

The language of the EL (Articles 104.3 and 104.5) is unclear as to whether a charter can provide for a vote lower than 75 %/65%.


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In addition to other information, a capital share certificatemust include detailed information of the member. A member

can be an individual or an entity.

A share certificate may be either bearer or non-bearer. It mustprovide a summary of procedures required to transfer the share.

The enterprise may opt to sell shares without issuing share

certificates. In such case, information regarding shareholders as

recorded in the shareholders register shall be sufficient to certifythe fact of such shareholders ownership of shares.

Dividends Conditions to distribute dividends: (i) fulfill tax and otherfinancial obligations; and (ii) be solvent.

Dividends are distributed in proportion to the members

capital contributions.

Conditions to distribute dividends: (i) fulfill tax and other financialobligations; offset losses and set aside amounts for statutory funds

(eg, reserve fund for job-loss allowances, sick and maternity

allowances); and (ii) be solvent.

Notice of distribution of dividends is sent to all shareholders at least

15 days prior to distribution.

The level of dividends to which a dividend preferred share is

entitled is recorded on the share certificate. The level of dividends

of other classes of shares is subject to decision of the SGM.

Change incharter capital

A change in the charter capital requires a resolution passedin accordance with rules stated in the charter. This changemust be registered with the licensing authority.

The charter capital can be increased by:

Additional contribution by an existing member; and/or

A change in the charter capital requires a resolution passed inaccordance with rules stated in the charter. The change must beregistered with the licensing authority.

The charter capital (or registered shares) can be increased by

offering additional shares for sale.


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Undistributed profits earned from the companysoperation; and/or

Contribution by a party which is not an existing member.The charter capital can be decreased by:

After two years of operation, partial return of capital inproportion to members capital contribution; and/or

Redemption of the capital contribution of a member;and/or

Losses from the enterprises operation.

The charter capital (or registered shares) can be decreased by way

of deregistering shares which have not been issued after three years

from the date of issuance of the BRC or IC.

Transfer of

capital/shares

Capital can be freely transferred between/amongst members.

A member is entitled to transfer all or part of its capital to a

third party provided that:

The capital share is offered under the same conditions toall other members of the company and in proportion totheir share;

The capital share may be transferred to a non-member ifall remaining members fail to buy the capital share

within 30 days from the date of offer.

Shares can be freely transferred except that:

Within three years from the date of establishment, any transferof ordinary shares of a founding shareholder to any non-

founding shareholder is subject to approval by the SGMexcluding the vote of the transferring shareholder. When such a

transfer is approved, the shareholder acquiring the sharesbecomes a founding shareholder.

Preferred voting shares may not be transferredxvii.Any shareholder that owns 5% or more of the total ordinary sharesmust be registered with the licensing authority.

xvii To be transferable, preferred voting shares may be converted to ordinary shares in accordance with the enterprises charter. Preferred voting shares can only be

owned by either the Governments trustees or the founding shareholders. They exist for a maximum term of three years after which they must be converted into

ordinary shares.


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M&A related

issues

The number of the members after a transfer/allocation of

capital/shares mentioned herein may not exceed 50. If thereremains only one member, the enterprise must be converted

to a one-member LLC which has different rules in terms oforganizational structure, quorums, voting, etc.

Dilution of ownership of a Vietnamese member must notalter the limitation on foreign ownership discussed inSection 1.10.2 above.

The number of shareholders may not be less than three after an

M&A.

Dilution of the shareholding of a Vietnamese shareholder must notalter the limitation on foreign ownership discussed in Section 1.10.2

above.

Termination of

ownership

A member who votes against a decision of the Members

Council on matters involving the rights and obligations ofthe members or the Members Council, on re-organization of

the company, and on other matters specified in the charter,may leave the company by:

Redemption of its capital contribution by the company;and/or

Transfer of its capital contribution to the remainingmembers or to a third party if the enterprise does not or

cannot redeem the capital.

A member may also transfer all of its capital contribution, as

discussed above in Transfer of capital/shares.

If a member is dissolved or goes bankrupt, the enterprisewill either redeem its capital contribution or transfer it.

A member may not otherwise withdraw its capital.

A shareholder may withdraw its capital if all of its shares are

redeemed by the company or are transferred to others (as discussedabove in Transfer of capital/shares).

The JSC must redeem redeemable preferred shares upon satisfying

the conditions (if any) stated in the share certificate or upon theholders request.

A shareholder may not otherwise withdraw its capital.


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B. One-Member Limited Liability Company (LLC)

(Appendix 1.B) One-member LLC owned by an organization One-member LLC owned by an individual

Characteristics The enterprise is established/owned by an entity--foreign ordomestic.

The enterprise is a legal entity separate from the owner; the

owner is liable for the debts of the enterprise up to the

enterprises charter capital.

The enterprise is not entitled to issue shares.

The enterprise is established/owned by an individual--foreignor domestic.

The enterprise is a legal entity separate from the owner; the

owner is liable for the debts of the enterprise up to the

enterprises charter capital.

The enterprise is not entitled to issue shares.

Governance

structures

The owner authorizes a single representative or multiple

representatives to manage the enterprise.

If two or more representatives are authorized, they will,together, constitute a Members Council. In this type of

Members Council, a member represents a portion of the

owners capital, but does not own capital as in a two-to-50-

member LLC. One consequence is that, unless otherwise

stipulated in the charter, the quorum and votes are based on

the number of members, but not on the capital each owns.

If only a single representative is authorized, he or she will bethe President of the enterprise.

Apart from the President or Members Council, management

includes a (General) Director who is either appointed oremployed by the President/Members Council.

The owner is the President.

The President can concurrently be the (General) Director or

can hire another person to be the (General) Director.


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Legal

representative

The legal representative must be either the Chairman of the

Members Council, as appointed by the owner from amongthe members, or the (General) Director.

The legal representative must be either the owner/President or

the (General) Director.

Controllers There must be one to three controllers as discussed at Section1.8.5 above.

There are no controllers in this type of enterprise.

Change in

Charter Capital

The enterprise is not permitted to decrease the charter capital.

The charter capital can be increased by additional

contribution by the owner and/or contribution by others. Inthe latter case, the enterprise must be converted to a two-to-

50-member LLC within 15 days from the date on which newmembers contribute capital.

The enterprise is not permitted to decrease the charter capital.

The charter capital can be increased by additional

contribution by the owner and/or contribution by others. Inthe latter case, the enterprise must be converted to a two-to-

50-member LLC within 15 days from the date on which newmembers contribute capital.

Transfer of

capital

The owner is entitled to sell all or part of its capital share. If

the transfer of capital leads to an increase in the number ofinvestors, the enterprise must convert to a two-to-50-member

LLC.

The owner is entitled to sell all or part of its capital share. If

the transfer of capital leads to an increase in the number ofinvestors, the company must convert to a two-to-50-member

LLC.

Owners

documentation

required for

business

registration

For business registration, the owner must file:

(i) Copy of its certificate of incorporation (or an equivalentdocument such as business license or BRC);

(ii) Copy of its articles of association (or an equivalentdocuments such as by-laws or charter);

(iii) Copy of the passports (or Vietnamese identity card) ofits legal representative (eg, CEO or president), of the

signatory to the business registration application, and ofthe owners representatives in the LLC;

For business registration, the owner must file only a copy of

his/her passport or Vietnamese identity card.


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(iv) board resolutions on the establishment of the LLC;(v) List of the owners authorized representatives; and(vi) Letter of appointment of the authorized representatives.


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C. Private Enterprise and Partnership

(Appendix 1.C) Private enterprise PartnershipDefinition A private enterprise may be established and

owned by an individual (but not by an entity);

that individual can establish only one privateenterprise.

A partnership is an enterprise in which:

There are at least two partners who: are co-owners of the enterprise,jointly conduct business under one common name (general partners); in

addition to general partners, there may also be limited partners.

General partners must be individuals, and they are liable for allobligations of the partnership without limit. Limited partners are liable

for partnership debts up to their capital contribution. Limited partners

can be either individuals or entities.

Legal status A private enterprise is not a legal entityseparate from its owner; the owner is liable

for all of the enterprises activities with his or

her entire property. In other words, the owner

of a private enterprise has unlimited liability

for the private enterprises obligations.

A partnership is a legal entity.

Charter A private enterprise is not required to have a

charter.

A partnership is required to have a charter which must cover certain

mandatory matters as provided in the EL, Article 22.

Capital

contribution

The owner of a private enterprise is solely

responsible to contribute the investmentcapital. However, the owner is not required to

transfer ownership of his personal assets to

the enterprise.

General and limited partners must establish a capital contribution schedule,

and make payments as committed.

If a general partner fails to contribute capital in full and on time, thereby

causing losses to the partnership, that partner must compensate the

partnership for its losses.


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(Appendix 1.C) Private enterprise Partnership

If a limited partner fails to contribute capital in full and on time, theshortfall is regarded as a debt owed to the partnership; in that case, the

limited partner may be expelled by the Partners Council.

At the time he/it completes his/its full capital contribution, a partner shallbe granted a capital share certificate.

Internal

ManagementThe owner has full decision-making power inrespect of any business issue, even though a

director may manage the day-to-day business.

Partners are governed by a Partners Council, which shall select onegeneral partner as chairman. He shall concurrently be the (General)

Director, unless otherwise provided in the charter.

The Partners Council is entitled to decide all business matters of the

Partnership. Unless otherwise provided in the charter, important matters(defined in the EL and the charter) must be decided by at least three-

quarters of all general partners, and other matters must be decided by atleast two-thirds of all general partners.


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APPENDIX 2

APPLICATION OF CORPORATE TAX RATES/INCENTIVES FOR

ENTERPRISES ESTABLISHED AS FROM 1 JANUARY 2009xviii

CIT

rate

Application

Period

Criteria for CIT exemption

and reduction

Exemption

Period(from the first year of

taxable income, or the 4th

year counting from the

first year of sales/revenues,

whichever comes soonerxix

)

50%

Reduction

Period

25% Entire investmentperiod

Tax on every project unlessthe project qualifies for alower rate

None None

20% 10 years from thefirst year in whichthere aresales/revenues (thenthe rate reverts to25%) forinvestments ingeographical

locations with socio-economicdifficulties

(Investment in geographicallocations withsocio-economic difficulties, insectors other than high-technology, scientificresearch and technologicaldevelopment, development ofespecially important

infrastructure for the State,software production, and the

business of education andtraining, vocational training,health, culture, sports andenvironment)

2 years 4subsequentyears

xviiiIn case the Law on CIT (with effect from January 2009) would give an investor licensed before January

2009 more favourable tax incentives, that enterprise is entitled to the new more favourable tax incentives

(for the remaining years) under the Law on CIT.xix The rule on the first year in which the CIT exemption period begins, also applies to an existing enterprise

if the first year in which its CIT exemption period was to begin under the former Law on CIT, has not yetbegun.


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CIT

rate

Application

Period

Criteria for CIT

exemption and

reduction

Exemption

Period(from the first year of

taxable income, or the 4th

year counting from thefirst year of

sales/revenues, whichever

comes sooner)

50%

Reduction

Period

Investment in education,vocational training,health, culture, sportsand environment outsidegeographical locationswith socio-economicdifficulties or specialsocio-economic

difficulties


10% The whole term of aproject in education,vocational training,health, culture, sports andenvironment; or

15 yearsxx from the firstyear of sales/revenues

(after which the ratereverts to 25%) forinvestment ingeographical locationswith special socio-economic difficulties,economic zones andhigh-tech zones; andnewly establishedenterprises in hightechnology, scientificresearch andtechnologicaldevelopment,development of speciallyimportant infrastructurefor the State, andsoftware production.

Any investment ingeographical locationswith special socio-economic difficulties,economic zones andhigh-tech zones;

Investment ineducation, vocational

training, health,culture, sports andenvironment ingeographical locationswith socio-economicdifficulties or specialsocio-economicdifficulties; and

Newly establishedenterprises in hightechnology, scientific

research andtechnologicaldevelopment,development ofespecially importantinfrastructure for theState, and software

production.


xx In special cases of large-scale and new/high-tech investment, the PM may decide to apply this 10% CITrate for up to 30 years, based on a recommendation from the Ministry of Finance.


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In addition, investors are exempt from CIT on income earned from:

1. Performance of contracts for scientific research and technological development;2. Sale of products during a period of trial production, in accordance with the law;3. Sale of products made by applying technologies for the first time in Vietnam;4. Performance of technical service contracts which directly serve agricultural

development;5. Job training exclusively for ethnic minority people;6. Production and trading of goods or carry out service activities which are set up

exclusively for disabled people, post-detoxification and HIV infected people;7. Job training exclusively for ethnic minority, disabled people, children in

exceptionally difficult circumstances, and victims of social evils;8. After-tax profits/dividends distributed from activities of capital contribution, joint

venture or association with a domestic enterprise;9. Income (financed by sponsors) used for educational, scientific-research, cultural,

art, charitable, humanitarian activities and other social activities.


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APPENDIX 3

BUSINESS SECTORS AND GEOGRAPHICAL LOCATIONS ELIGIBLE FOR

INVESTMENT PREFERENCESxxi

A. Activities Eligible for Investment Preferences

I. Manufacture of new materials and production of new energy; manufacture ofhigh-technology, bio-technology, information technology products and

mechanical manufacturing:

1. Production of: soundproof, electricity-insulated or high heat-insulatedmaterials; synthetic materials used as a substitute for wood; fire-proofmaterials; construction plastic; glass fiber; special-use cement.

2. Production of non-ferrous metals and refining of cast iron.3. Production of moulds and prototypes for metal and non-metal products.4. Investment in the construction of new power plants, and in power distribution

and transmission.5. Production of medical supplies and equipment, construction of warehouses for

pharmaceutical products, stockpiling of medicines for human use in case ofnatural disasters and epidemics.

6. Production of equipment used to test toxic substances in foodstuffs.7. Development of the petrochemical industry.8. Production of coke and active coal.9. Production of: plant protection drugs, pesticides, disease preventive and

curative drugs for animals and aquatic creatures; veterinary drugs.

10. Materials for production of medicines including medicines for prevention ortreatment of social diseases; vaccines; biological products; medicines producedfrom pharmaceutical materials; eastern medicines.

11. Investment in construction of: facilities for biological experimentation,assessment of the applicability of medicines; pharmaceutical establishments tosatisfy good practice standards in producing, preserving, testing, and carryingout clinical tests of medicines, and in rearing and growing, harvesting and

processing of pharmaceutical materials.12. Development of: sources of pharmaceutical materials and production of

medicines from pharmaceutical materials; projects for research or tosubstantiate scientific grounds for prescriptions of eastern medicines and

formulation of standards for testing of prescriptions of eastern medicines;survey and statistics of types of pharmaceutical materials used to producemedicines; collection, inheritance and application of prescriptions for easternmedicines; finding, exploiting and using new pharmaceutical materials.

13. Production of electronic appliances.14. Production of machines, equipment and detail assemblies, mining, energy and

cement; production of large-sized lifting equipment; production of machinetools for metal processing and metallurgy equipment.

xxiThis list was issued together with the Governments Decree No. 108/2006/N!-CP of September 22, 2006detailing implementation of the Investment Law.


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15. Investment in the manufacture of high and medium voltage electric devices orgenerators of large capacity.

16. Investment in: production of diesel engines; investment in the repair or building of ships; equipment and spare parts for transportation ships andfishing ships; production of compressors and dynamic and hydraulicmachinery and spare parts.

17. Production of equipment, vehicles and machinery for construction, technicalequipment for the transportation sector, locomotives and carriages;

18. Investment in: manufacture of machine tools, machinery, equipment andcomponents for agricultural and forest production, machinery for food

processing; manufacture of irrigation equipment.19. Investment in the production of equipment and machinery for textiles,

garments and the leather industry.

II. Breeding, rearing, growing and processing of agricultural, forest and

aquaculture products; salt making; production of artificial strains, new plantvarieties and livestock breeds

1. Growing plants for pharmaceutical purposes.2. Investment in post-harvest preservation of agricultural products, preservation

of agriculture and aquacultural products and foodstuffs.3. Production of bottled or canned fruit juices.4. Production and refining of feed for cattle, poultry and aquatic resources.5. Technical services for planting industrial and forest trees, husbandry,

aquaculture, protection of plants and livestock.6. Production, multiplication or crossbreeding of new plant varieties or livestock

breeds.

III. Use of high technology and modern techniques; protection of the ecologicalenvironment; research; development and nurturing of high technology

1. Manufacture of equipment to respond to and deal with oil spills.2. Manufacture of equipment for waste treatment.3. Investment in construction of technical facilities and works; laboratories and

experimental stations to apply new technology to production; investment in theestablishment of research institutes.

IV. Labor intensive industries

Projects regularly employing between 500 and 5,000 employees.

V. Construction and development of infrastructure

1. Construction of infrastructure serving production and the business ofcooperatives and the life of communities in rural areas.

2. Investment in and commercial operation of infrastructure and investment inproduction in industrial complexes, industrial locations, rural trade villages.

3. Construction of water plants and water supply systems for civil and industrialuse; investment in the construction of water drainage systems.


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4. Construction and upgrading of bridges, roads, terminals, airports, seaports,railway stations, bus stations and parking lots; establishment of new railwayroutes.

5. Construction of technical infrastructure in dense population areas ingeographical areasdescribed in List C of this Appendix 3.

VI. Development of education, training, health care, physical training, sports andnational culture

1. Investment in the construction of infrastructure for education and trainingestablishments; investment in the construction of private schools and educationand training establishments at the level of pre-school education and tertiaryeducation.

2. Establishment of private hospitals.3. Construction of physical training or sport centers, training facilities and

physical training and sports clubs; establishment for production, manufactureand repair of equipment, supplies and equipment for physical training andsports.

4. Establishment of: national cultural houses; national dance, music and songtroupes, theaters, film studios, cinemas; establishment for manufacture andrepair of national musical instruments; maintenance and preservation ofmuseums, national cultural houses and culture and arts schools.

5. Investment in the construction of national tourist sites, ecological tourist sitesand cultural parks for sports, entertainment and recreational activities.

VII. Development of traditional trades and occupations

Building and development of traditional trades and occupations for production offine-art and handicraft, processing of agricultural products, foodstuffs and cultural

products.

VIII.Other manufacturing and service sectors

1. Provision of internet connection, access and application services and points toaccess public telephones in areas described in List C of this Appendix 3.

2. Development of mass transit, including transportation by ships, aircraft;railway transportation; road transportation of passengers by cars with 24 seats

or more; transportation of passengers by modern and high-speed vehicles byinland waterway; container transportation.

3. Investment in the relocation of production establishments to non-urban areas.4. Investment in the construction of class-l marketplaces and exhibition centers.5. Production of childrens toys.6. Activities to mobilize and lend capital to peoples credit funds.7. Legal consultancy, services of consultancy on intellectual property and

technology transfer.


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8. Production of various types of materials for production of pesticides.9. Production of base chemicals, purified chemicals, special-use chemicals and

dyes.10. Production of materials for production of detergents and additives for the

chemical industry.11. Production of paper, cartons, artificial planks from domestic agricultural and

forest materials; production of pulp.12. Weaving and fashioning of textile products; production of silk and fibers of all

types; tanning and leather processing.13. Investment projects on production in industrial parks established under

decision of the Prime Minister.


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B. Activities Eligible for Special Investment Preferences:

I. Manufacture of new materials and production of new energy; manufacture ofhigh-technology, bio-technology, information technology products and

mechanical manufacturing:

1. Manufacture of composite materials, light construction materials, valuable andrare materials.

2. Manufacture of high-quality steel, alloys, special metals, porous iron and steelbillets.

3. Investment in the construction of buildings using solar energy, wind energy,biogas, geothermic and tidal energy.

4. Production of medical equipment for analytical and extractive technology inthe medical sector, orthopedic equipment, specialized vehicles and equipmentfor the disabled.

5. Application of advanced technology, biotechnology for production of

medicines for human use that meet international GMP standards, production ofantibiotic materials.

6. Production of computers, telecommunications and communications andinternet equipment and key information technology products.

7. Production of semi-conductors and hi-tech electronic components; productionof software products, items of digital information; provision of services onsoftware, research into information technology and training of humanresources for information technology.

8. Investment in: production and manufacture of precision mechanicalengineering equipment; equipment and machines for examination and controlof industrial manufacturing safety; production of industrial robots.

II. Breeding, rearing, growing and processing agricultural, forest and aquacultureproducts; salt making; production of artificial strains, new plant varieties and

livestock breeds:

1. Afforestation, tending of forests.2. Breeding, rearing and growing agricultural, forest and aquaculture products on

uncultivated land, in unexploited waters.3. Fishing in offshore waters.4. Production of artificial strains, new plant varieties and livestock breeds of high

economic value.5. Production, mining and refining of salt.

III. Use of high technology and modern techniques; protection of the ecologicalenvironment; research; development and nursery of high technology

1. Application of high technology or new technology which has not yet beenused in Vietnam; application of bio-technology.

2. Treatment of pollution and protection of environment; production ofequipment to treat pollution and equipment to observe and analyze theenvironment.

3. Collection and treatment of wastewater, waste gas and solid waste; recyclingor reuse of waste.4. Research, development and nurturing high technology.


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IV. Labor intensive industries

Projects employing 5,000 or more persons on a regular basis.

V. Construction and development of infrastructure and important projects

Investment in the construction and commercial operation of infrastructure forindustrial parks, export processing zones, hi-tech parks and economic zones orimportant projects as decided by the Prime Minister.

VI. Development of education, training, health care, physical training and sports

1. Investment in the construction of facilities to treat people with tobacco or drugaddiction.

2. Investment in the establishment of facilities to prevent and control epidemics.3. Investment in the establishment of geriatric centers or centers that providerelief and care for the disabled and orphans.

4. Investment in the construction of centers of training for high-achievementsports, for sport training for the disabled, construction of sport facilities that

provide training and equipment to satisfy requirements to organizeinternational tournaments.

VII. Other manufacturing and service sectors

1. Investment in research and development (R

Documents

2009 Setting Up and Operating in VN