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1 May 2012 edition contents Can new solutions reduce difficulties for production and business? Special lending in cases of insolvency 1 3 In brief: In this edition we cover the proposed restructuring plan for credit institutions, new requirements for special lending in cases of insolvency and the proposed amendments to forex regulations. We also examine solutions to reduce difficulties for production and business, further guidance in relation to the Law on Minerals and the implementation of the Law on Food Safety. Heightened 6 accountability for food traders and manufacturers Credit institution 9 restructuring plan Law on Minerals - 10 further guidance has arrived Proposed amendments 13 to forex regulations New legal instruments 15 The material contained in Vietnam Legal Update is intended to inform readers of recent legal developments in Vietnam. It is not intended, and should not be relied upon, as legal advice. Should readers wish further information in relation to any legal instrument or matter mentioned in this issue, they are encouraged to contact one of our Vietnam offices (details at the end of this issue). Visit subscribe to (or take a free tour of) Vietnam Laws online database a searchable database of over 3,500 of our English translations of Vietnamese laws regulating investment and business access free translations of a selection of Vietnamese laws read the Vietnam Legal Update from 2012 back to complete with index of contents and search function find out more about our practice in Vietnam Visit find out more about the Allens network and our international practice Allens is a leading international law firm in South East Asia, China, and Australia. Allens offers one of the most comprehensive legal networks in Asia and Australia with offices in Beijing, Brisbane, Hanoi, Ho Chi Minh City, Hong Kong, Jakarta, Melbourne, Perth, Port Moresby, Shanghai, Singapore, Sydney, Ulaanbaatar and, via our integrated global alliance with Linklaters, we have access to lawyers in 27 offices across 19 countries. Allens' Vietnam practice is led by resident partners Bill Magennis, Thomas Miller, Hop Dang and Robert Fish. Our in-country team consists of international and local lawyers and legal translators. We encourage feedback from our readers regarding the Vietnam Legal Update. Please direct all enquiries, comments and suggestions to us via at VLU@allens.com.au Allens Arthur Robinson- Vietnam Laws May 2012

2 1 Can new solutions reduce difficulties for production and business? Resolution 13 of the Government on new solutions to reduce difficulties for production and business and to support the market dated 10 May 2012 (Resolution 13) The Vietnamese economy is currently encountering difficulties despite positive endeavours of the Government, private industry and social groups. The growth rate of the economy in the first months of 2012 is less than for the same period of 2011 and the number of Small and Medium-Sized Enterprises (SMEs) in Ho Chi Minh City and Hanoi that have ceased operation and found themselves teetering on bankruptcy from January to April 2012 has materially increased. As a result, on 10 May 2012, the Government issued Resolution 13 with the aim of reducing difficulties for enterprises, facilitating production and business, assisting market development and gradually restructuring the economy. It is hoped that this 'supporting package' of the Government will reduce many of the difficulties currently associated with production and business in Vietnam. Through Resolution 13, the Government is implementing the following 5 groups of solutions: To defer for 6 months payment of VAT for April, May and June 2012 This solution applies to the following enterprises which currently pay VAT via a tax credit method: SMEs, excluding those conducting business in the lotteries, securities, finance, banking or insurance sectors, or producing goods and services subject to special sales tax ("SST") and also excluding enterprises classified as Grade I 1 or Special Grade 2 belonging to Economic Groups and Corporations; and labour intensive enterprises employing many workers in the sectors of producing and processing agricultural, forestry and aquatic products, textiles, leather footwear, electronic components, and construction of socio-economic infrastructure. To reduce by 50% land rent payable in 2012 This solution applies to some economic organisations and enterprises operating in the commercial and services sectors which currently lease land from the State for which, in 2012, the land rent unit price must be fixed in accordance with Decree 121 of the Government 3 on collection of land and water surface rents. 1 According to the classification scheme under Joint Circular 23/2005 of MOLISA and MOF dated 31 August According to Decision 185/TTg of the Prime Mininster dated 28 March Decree 121 of the Government dated 30 December 2010 amending Decree 142 of the Government dated 14 November 2005.

3 2 To defer for 9 months payment of Corporate Income Tax (CIT) This deferral applies to CIT payable for the years 2011 and earlier which has not already been paid to the State budget (excluding the amount of CIT deferred pursuant to Decision 04 of the PM dated 19 January ) for the enterprises prescribed in clause 1(a) and (b) of Resolution 13, and for enterprises manufacturing mechanical engineering products which are the materials for further production or manufacture, and for enterprises conducting sea transportation (including transportation by both inland waterways and by sea), and manufacturing steel or cement. Through deferred payments and exemptions, Resolution 13 aims to ease the economic burdens currently faced by Vietnamese enterprises To exempt business registration fees To exempt business registration fees for the year 2012 for family households engaged in fishing and for family households engaged in salt mining. To defer for a maximum of 12 months payment of land use fees by investors To defer for a maximum of 12 months payment of land use fees by investors whose projects are experiencing financial difficulties. Provincial people's committees must report to the standing committee of the people's council to consider and make a decision on the duration of specific deferrals for each project and project group. In addition, the following policy under the authority of the Ministry of Finance will apply upon the consideration and decision of the National Assembly: 4 Decision 04 of the PM granting an additional 3 months deferral of CIT payable in the first and second quarters of 2011 for SMEs and for labour intensive enterprises dated 19 January 2012.

4 3 to reduce by 30% CIT payable in the year 2012 by SMEs excluding those conducting business in the lotteries, real estate, securities, finance, banking or insurance sectors or producing enterprises classified as Grade I or Special Grade belonging to Economic Groups and Corporations and the enterprises prescribed in clause 1(b) of Resolution 13; and to exempt VAT paid on the basis of a fixed level of turnover, and personal income tax (PIT) and CIT payable for the year 2012 for individuals and family households leasing accommodation to workers and students; for family households providing child care services; and for individuals, family households and organisations providing shift meals for workers, on condition that such taxpayers retain the rents and prices for all the above-mentioned services at the same level as they were at the end of Other State authorities such as the Ministry of Planning and Investment, the Ministry of Industry and Trade, the Ministry of Agriculture and Rural Development, the State Bank of Vietnam and other ministries, agencies and localities are also assigned tasks by Resolution 13 of taking effective measures to promote disbursement of investment capital to the projects and programs which they manage and of ensuring disbursement to the correct entities and in accordance with regulations. The State Bank of Vietnam is authorised to consider and provide regulations to lower lending interest rates, prioritising the sectors of agricultural and rural development, SMEs, enterprises producing export goods and support industries, and to take other necessary solutions, appropriate to each type and sector of production and business, in order to facilitate borrowing by enterprises to service production and business, particularly where the borrowing enterprise is experiencing financial difficulties but has developmental potential or products which satisfy market requirements. Special lending in cases of insolvency Circular 06 regulating special loans to credit institutions dated 16 March 2012 (Circular 06) A recent Circular issued by the Governor of the State Bank of Vietnam (State Bank) has opened the door for credit institutions in financial difficulties to access special loans from the State Bank or other credit institutions, in an effort to prevent such credit institutions from threatening the stability of Vietnam's financial system. However, it is currently unclear as to what impact this would have on other credit institutions that are in a stronger financial position. Types of Special Loans Circular 06 sets out the requirements and procedures for access to two types of special loans as follows: to credit institutions which have become insolvent thereby threatening the stability of the credit institution system (Type 1 Special Loan); and to credit institutions which are in danger of becoming insolvent as a result of other 'serious breakdowns' (Type 2 Special Loan).

5 4 No control for credit institutions making special loans There are some unclear provisions under Circular 06 that may limit the power of lending credit institutions to control the terms on which either type of special loan is provided, including that: the State Bank has the power to decide whether to provide a special loan itself or require another credit institution to make such special loan. There does not appear to be any mechanism by which a credit institution can refuse such decision of the State Bank though one would hope that, at least in the case of private banks, the decision would in fact be a 'request'; the State Bank's decision covers not only when a loan is to be made but it also dictates the amount and term of the loan, the interest rates and the respective rights and obligations of the borrower and lender. Circular 06 provides that the State Bank will 'decide' the amount of the special loan based on the level of insolvency of such borrowing credit institution but no further guidance has been provided about how the insolvency level will affect the amount (eg. a credit institution with a high level of insolvency will be in greater need of a large loan but will have greater difficulty in paying it back so it is not clear whether a high level of insolvency leads to a smaller or larger loan); and the Prime Minister has the power to make a decision to convert the special loan to capital contribution or share purchase by the State Bank or lending credit institution (as the case may be) in the borrowing credit institution, upon which the special loan is considered terminated. Circular 06 provides no guidance on whether such decision requires the consent of the lending credit institution. Subordination of all debt to payment of special loans In addition, Circular 06 provides that special loans have priority for repayment before all other debts of the borrowing credit institution, including debts secured by assets, which means that the vulnerable position of weaker banks may be further exacerbated since stronger credit institutions may be reluctant to lend, even prior to a special loan arrangement being put in place, in case they find their loan subordinated to a State Bank mandated special loan. Restriction on use of proceeds of special loans The lending credit institution is afforded protection by the restriction requiring the borrower to only use special loan proceeds to pay out deposits with such credit institution to depositors who are individuals. The Governor of the State Bank may make a decision in a specific case on use of special loan proceeds to pay out deposits of other entities, although a borrowing credit institution is strictly prohibited from using special loan proceeds to pay out deposits of its related persons.

6 5 Application procedures Before a borrowing credit institution can apply for a special loan, it must first have a written request from the relevant supervising entity proposing a special loan to the borrower. The supervising entity for a borrower of a Type 1 Special Loan is the special controlling board and for a borrower of a Type 2 Special Loan it is the provincial State Bank branch. The borrowing credit institution is required to submit in its application form, among other things, a report on ability to repay and on measures applied by the borrower aimed at ensuring ability to repay, the actual status of the borrower as at the date of the request (certified by the relevant supervising entity), a written undertaking that the borrowing credit institution will use the special loan proceeds for the correct objective and will repay the loan on time, a plan for paying out deposits, and a plan and method for repaying the special loan. Other terms There are some further specific regulations on the terms of two different types of special loans as follows: Type 1 Special Loans interest rate is determined by the State Bank on a case by case basis; and term of the loan as determined by the State Bank is not to exceed two years. This may be extended as decided by the State Bank of Vietnam but for no more than an additional two years. Type 2 Special Loans interest rate is the refinancing interest rate announced by the State Bank from time to time (currently 12%); and term of the loan as determined by the State Bank is not to exceed one year which may be extended as decided by the State Bank of Vietnam but for no more than an additional one year. When making a decision on extension of either type of special loans, the State Bank can either extend the special loan with the existing special loan lender or require another credit institution to provide the extended loan. Effective date Circular 06 came into effect from 1 April 2012 and replaces Decision QD- NHNN1 of the Governor of the State Bank dated 1 September 1998 issuing Regulations on providing assisting loans and their recovery from shareholding credit institutions and Decision QD-NHNN1-Tym dated 11 November 1999 amending the earlier Decision 18 of These decisions are not publicly available so we cannot compare them against the provisions of Circular 06.

7 6 Heightened accountability for food traders and manufacturers Decree 38/2012/ND-CP of the Government dated 25 April 2012 detailing the implementation of the Law on Food Safety (Decree 38) The Law on Food Safety has been effective for nearly one year, however only recently did the Government issue Decree 38 to detail its implementation. As food safety is considered an important issue, the Ministry of Health (MOH) undertook lengthy consultations with, and considered opinions and comments of, food related organisations and the public. Decree 38 will take effect from 11 June Under the Law on Food Safety, in order to manufacture or trade food products, a manufacturer or trader must obtain a certificate on satisfaction of business conditions on food safety (except if they are under the exemption cases as provided by law) and the quality of their food products must have been registered with the relevant authorities. In addition, food products must comply with other regulations for circulation in the market. In this article, we briefly discuss some of these conditions under Decree 38. Certificate of satisfaction of business conditions on food safety Under the previous regulations on food safety, a certificate on satisfaction of conditions on food safety was issued by a heath authority (ie. the MOH or relevant Department of Health (DOH) of the province or city where the food manufacturer or trader was located). However, under Decree 38, the authority to issue a certificate on satisfaction of business conditions on food safety is now vested in different authorities in charge of state management in respect of food products in each relevant sector. Under Decree 38, the general delegation of authority of the relevant authorities in respect of food products is as follows: (i) (ii) (iii) The MOH: food additives, food processing aids, bottled water, natural mineral water, functional food, micro nutrient fortified food, and food packing utensils, food packaging materials and food containers; The Ministry of Agriculture and Rural Development: products in agricultural, forestry and aquatic sectors, salt mining, meat and meat products, fresh milk materials, eggs and egg products, honey and honey products, genetically modified food, and food package and containers under their state management; and The Ministry of Industry and Trade: wine and spirits, beer, soft drinks, processed milk, vegetable oil, processed flour and starch, bread, jam, confectionary and their packages and containers. The above ministries are responsible for the issuance of regulations to specific authorities regarding the issuance and revocation of certificates of satisfaction of food safety conditions in their management sectors.

8 7 Unlike its predecessor, Decree 163/2004/ND-CP, Decree 38 clearly provides that the issuance of certificates of satisfaction of conditions on food safety is applicable to each production or trading establishment, and to each independent production plant in any one locality of the food trader or manufacturer. Decree 38 contains stringent requirements for food packaging and labelling as well as detailed registration procedures, and clarifies that these apply to each location in which a manufacturer produces food products Two procedures for registration in respect of food products (i) The subject of the registration procedures Decree 38 clearly sets out two declaration and registration procedures applicable to food products: (i) declaration of conformity with technical regulations and registration of the declaration of conformity with technical regulations (registration of conformity with technical regulations), and (ii) declaration of conformity with food safety regulations and registration of the declaration of conformity with food safety regulations (registration of conformity with food safety regulations). Registration of conformity with technical regulations is applicable to prepackaged processed food, food additives, food processing aids, food packaging materials and food containers for which an authority has issued technical regulations. For example, the MOH has issued a number of technical regulations in respect of certain food or food related products, such as alcoholic beverages, food additives, edible ice and fermented milk products. As such, any entities manufacturing or trading those products must carry out the procedures of registration of conformity with technical regulations with the relevant authority. By contrast, registration of conformity with food safety regulations is applicable to food and food related products for which no technical regulations have been issued. (ii) Registration authorities Under Decree 38, the authority of the MOH or relevant provincial DOH to register the declaration of conformity with technical regulations or the declaration of conformity with food safety regulations is also dependent on

9 8 the type of food in question. Accordingly, registration of conformity with technical regulations or food safety regulations applicable to functional foods, food processing aids, and import products being pre-packaged processed food, food packaging materials and food containers must be conducted with the MOH. The registration of conformity with technical regulations or food safety regulations of food or food related products, other than those subject to the authority of the MOH, shall be conducted with the DOH of the province where the trader or manufacturer is located. (iii) Documents required for registration procedures Decree 38 sets out the documents required for the above two registration procedures applicable to different types of food products. In respect of registration of conformity with technical regulations, Decree 38 sets out the required documents for declaration based on the confirmation of a certifying organisation or self-assessment by the food producer or trader itself. Documents required for registration of conformity with food safety regulations vary according to whether the food products are imported or locally manufactured products or whether they are functional or micro-nutrient fortified foods. (iv) Term of confirmation of the authority After having received the valid application documents, the MOH or DOH must issue a receipt for a declaration of conformity with technical regulations or a certificate of declaration of conformity with food safety regulations, as applicable, within the statutory time provided by Decree 38. The term of validity of such a receipt or certificate is 3 years, or 5 years if the trader or manufacturer has also been issued with a certificate relating to quality management under any international standards such as a HACCP or ISO If at the expiration of the validity of the receipt of certificate there are no changes in the food production or processing methods affecting quality criteria or food safety limits as already declared, a food manufacturer or trader must periodically re-register its declaration of conformity with technical regulations or of conformity with food safety regulations upon the expiration of its receipt or certificate. However, if there is any change in the food production or processing methods affecting quality criteria or food safety limits as already declared, then the food manufacturer or trader must repeat the process of registration of conformity with technical regulations or with food safety regulations with the relevant authority. Labelling food products In general, pre-packaged food must have a label containing the compulsory contents as prescribed by law. Further, the compulsory contents must satisfy certain criteria

10 9 as provided under Decree 38. For example, the information on a food label must correctly reflect the nature of the product, must be truthful, accurate and clear, and must not be misleading. A label of functional food and micro-nutrient fortified food must contain certain additional compulsory contents such as a disclosure of the nutritious components, the biologically active ingredients, their effect on health and clear directions on usage. With respect to the practice on the shelf life of food products, Decree 38 has a specific provision on how to record the shelf life of food products on their labels. In respect of functional food, food supplements, health protection food, medically nutritious food, micro-nutrient fortified food and other perishable food, it is compulsory for the shelf life to be recorded either as 'expiry date' or 'to be used up until [date]'. The shelf life of other foods may be recorded as 'best used before [date]', as appropriate. The difference of these two ways of recording the shelf life is that foods for which the label records 'expiry date' or 'to be used up until [date]' are prohibited to be sold in the market beyond the expiry date; while food labelled 'best used before [date]' is still permitted to be sold in the market if: (i) the producer is able to prove to the authority that such food is safe; and (ii) the recording of the shelf life is changed to either 'expiry date' or 'to be used up until [date]' Credit Institution Restructuring Plan Decision 254-QD-TTg approving the Plan on Restructuring the System of Credit Institutions in the Period (Decision 254). On 1 March 2012, the Prime Minister issued Decision 254. Decision 254 is a broad-brush statement of objectives and proposed solutions to improve the solvency, competitiveness and profitability of credit institutions (being State-owned and local and foreign invested private banks and finance companies and finance leasing companies). The Decision also covers People's Credit Funds and micro-finance institutions. Decision 254 delegates responsibilities to the State Bank of Vietnam (SBV), Ministry of Finance (MOF), various other Ministries as well as credit institutions themselves to implement the objectives and solutions set out in the Decision. Specifically, the SBV is charged with formulating and submitting to the Government plans for developing the banking industry until 2020 and for preventing the dollarisation of the economy. It is also to coordinate with relevant Ministries, agencies and organizations to formulate a Decision to be issued by the Prime Minister prior to 1 July 2012 that regulates capital contribution and the purchase of shares by the SBV. The MOF is to coordinate with the SBV to prepare and submit to the Prime Minister for approval a plan to deal with bad debts of credit institutions and the raising of charter capital of State-owned commercial banks up to however no deadline is set for submission of this plan. With respect to bad debts of State-owned commercial

11 10 banks, the Decision sets a target of achieving a bad debt ratio of below 3% as well as a ratio of loan balances over capital not exceeding 90%. One stated objective in the Decision is to endeavour by the end of 2015 to have formed at least one or two commercial banks on a scale and with professional expertise equivalent to other banks in the APEC region. This will be done by implementation of a number of measures including the merger of existing banks and the accelerated equitisation of State-owned commercial banks (with specific reference to the Vietnam Bank for Agricultural and Rural Development). At the same time, the Decision sets out the principle that State-owned banks are to be the driving force in the credit institution system and are to achieve competitive ability, domestically and internationally. In respect of restructuring, the Decision requires that credit institutions be classified into three categories, 'healthy', 'temporarily insolvent' and 'weak' with high level solutions for restructuring credit institutions in each category. For weak (read 'insolvent') credit institutions, one solution is for the SBV and other credit institutions to provide these with special loans 'in accordance with law'. On 16 March 2012, the SBV issued Circular TT-NHNN (Circular 06) which provides that the SBV may make or may direct another credit institution to make a 'special loan' to a credit institution which is insolvent or in danger of becoming insolvent. 6 Of interest to foreign investors is a proposal in Decision 254 to increase the share ownership limit of foreign credit institutions in shareholding commercial banks. The Decision sets out an implementation schedule with various targets for each year up to While the objectives set out in the Decision are admirable and reflect an understanding that urgent reform of Vietnam's credit institutions is critical, it remains to be seen whether the objectives can be achieved and whether there is sufficient resolve within and adequate coordination between Government institutions to achieve this reform. Law on Minerals further guidance has arrived Decree 15/2012/ND-CP of the Government dated 9 March 2012 providing detailed regulations for implementation of Law on Minerals (Decree 15) Eight months after the effective date of the Law on Minerals a number of regulations have been issued, including Decision 2427 and Notification 02/CT-TTg of the Prime Minister on Strengthening the State Management regarding Exploration, Exploitation, Processing, Usage and Export of Minerals, reported in our January edition of VLU this year. Recently, Decree 15 was issued by the Government providing a more detailed picture of the legal system for Vietnam's mineral sector. Below are noteworthy points set out in Decree See our commentary on Circular 06 in this edition

12 11 Reporting regime Under Decree 15, any entity licensed for a mineral operation must, no later than five business days after the end of the year, lodge a report on the operation of the project for the previous year with the Department of Natural Resources and Environment in the locality of the mineral operation. For entities licensed by the Ministry of Natural Resources Environment (MONRE), the report must also be lodged with the General Directorate of Geology and Minerals. Decree 15 does not provide for the content of the report, leaving it for MONRE to issue the form of the report. In areas where mineral mining rights are not subject to auctions, entities must apply for selection to MONRE. The entity selected will be subject to the same reporting requirements as all other entities licensed for mineral operation. Determination of areas containing minerals not subject to auction of mineral mining rights The Law on Minerals requires that mineral mining rights must be subject to auction except for certain type of minerals. 7 Decree 15 sets out clearly which areas and minerals are not subject to auction of mineral mining rights including the following: the area contains minerals ensuring energy security comprising coal, uranium or thorium; the area contains limestone or clay rock used as raw materials for the manufacture of cement, or contains minerals which are additives during the manufacture of cement and which have been identified as sources of raw materials for cement plant projects; or the area contains minerals which have been identified as sources of raw materials to be supplied to mineral processing plant projects for which the Prime Minister has provided approval or consent in principle; 7 In our April edition of VLU, we reported on Decree ND-CP on Auctions of Mineral Mining Rights, which provides detailed guidance as to how these auctions should operate.

13 12 the area contains minerals within national border belts, or is a strategic area for national security and defence; there is an investment project for construction of works within the area as prescribed in the Law on Minerals; the area with minerals to be used as raw materials for common construction materials has been identified as an area for mining to supply raw materials servicing the maintenance and repair of technical infrastructure works; the area is one in which exploration and mining of minerals has been restricted; the area is a mineral operation area for which the State authority issued a mineral exploration licence or a mineral mining licence prior to 1 July 2011; and other cases as decided by the Prime Minister. Selection of entities for licensing for mineral exploration in an area not subject to auction of mineral mining rights The Law on Minerals sets out conditions applicable to organisations applying for mineral exploration licences in areas not subject to auctions of mineral mining rights. Decree 15 provides further that in cases where there are more than two eligible organisations applying, the organisation which satisfies the following conditions (or satisfies them to the greatest extent) shall be selected to be licensed: As at the time of consideration of the application, the entity has the highest ratio of equity to total investment capital required to implement the exploration proposal. The entity has already invested capital in a basic geological survey of mineral reserves in the area for which a mineral exploration licence is proposed. The entity undertakes that on receipt of exploration results, it will mine and use the minerals for domestic manufacturing requirements in conformity with the approved mineral master plan. If organisations are equally matched when applying the above criteria, the organization which lodged its application file first, as recorded on the receipt slips, shall be selected to be licensed for mineral exploration in the applicable area. Application files for licences for mineral operations, for approval of mineral reserves and for closure of mines Decree 15 also specifies the forms of documents to be submitted and procedures to be conducted regarding the applications for mineral operations, for approval of mineral reserves and for closure of mines. However, it has left MONRE to issue the exact template for each document to be submitted.

14 13 Proposed amendments to forex regulations Draft Ordinance on Amendments of the Ordinance on Foreign Exchange Control (Draft Ordinance) The State Bank of Vietnam (SBV) has recently released the Draft Ordinance which provides for a number of amendments to the Ordinance on Foreign Exchange dated 13 December 2005 (Forex Ordinance). According to the SBV, 6 years after implementation, the Forex Ordinance needs to be revised to reflect current foreign exchange activities and to create a more complete and adequate legal framework for the State to manage these activities. Another purpose of the amendments is to make the Forex Ordinance consistent with other current legislation, including the Law on Credit Institutions, the Law on State Bank, the Law on Investment and the Law on Management of Public Debt. In this article, we look at some changes proposed in the Draft Ordinance. Direct and indirect foreign investment into Vietnam The Draft Ordinance amends the current definitions of 'foreign direct investment' and 'foreign indirect investment' under the Forex Ordinance to make them consistent with the definitions under the Law on Investment. Accordingly: 'Foreign direct investment in Vietnam' is defined as when a non-resident invests investment capital and participates in management of the investment activities in Vietnam. 'Foreign indirect investment in Vietnam' is defined as when a non-resident invests in Vietnam via the purchase and sale of securities and other valuable papers, by contributing capital and/or purchasing shares via securities investment funds and other intermediary finance institutions in accordance with law but without direct participation in management of the investment activities. The Draft Ordinance clarifies rules in respect of movements of investment capital in respect of direct and indirect foreign investment which are not entirely clear under the existing legislation. 8 Under the Draft Ordinance, with respect to foreign direct investment, the foreign invested company in which the foreign investor makes a direct foreign investment must open an account at a permitted bank in Vietnam. This account is no longer required to be in foreign currency and can be opened in Vietnamese Dong. According to the SBV, this is because Vietnamese investment laws now allow foreign investors to contribute capital in Vietnamese Dong. The Draft Ordinance requires that all capital transfer transactions relating to foreign 8 See Decision 88/2009/QD-TTg of the Prime Minister dated 18 June 2009 (Decision 88) and Circular 131/2010/TT-BTC of the Ministry of Finance dated 6 September 2010 on (Circular 131). See also our October 2011 edition of Vietnam Legal Update for a discussion on the existing legislation relating to capital accounts.

15 14 direct investment must be made via this account, including 'contribution of investment capital, remittance of principal investment capital, profit and other lawful revenue'. The above requirement seems to indicate that payments for transfers of capital in a Vietnamese foreign invested company between a foreign seller and foreign buyer can no longer be made offshore directly between the foreign parties and will need to be made in Vietnam and via the account of the target company. To date, the SBV have expressed this view in a number of its official letters and the Draft Ordinance seems to confirm this view. According to the SBV, this requirement will enable the Vietnamese government to control the capital flow relating to foreign investment in Vietnam. There are no substantial changes with regard to foreign indirect investment. The foreign investor will still be required to open a VND indirect investment capital account for the purposes of its indirect investment in Vietnam. Offshore indirect investment The Draft Ordinance introduces new regulations in respect of offshore indirect investments to deal with investments by Vietnamese organisations and individuals in offshore securities. Accordingly, when permitted to conduct offshore indirect investments, a Vietnamese resident is permitted and required to "open and use an account, to transfer the investment capital abroad, to transfer principal capital and lawful profit from the offshore indirect investment activity back to Vietnam" in accordance with the regulations to be issued by the SBV. Foreign loans Under the Draft Ordinance, only enterprises, credit institutions and foreign bank branches can borrow loans from overseas. Other forms of 'economic organisations' (which is the term currently used in the Forex Ordinance and includes, for example, co-operatives) and individuals are no longer permitted to borrow foreign loans. With respect to individuals, we note that although currently individuals are permitted under the Forex Ordinance to borrow foreign loans, in practice due to the lack of implementing regulations, it is not possible for them to do so under the existing regulations. According to the SBV, restricting individuals from obtaining offshore loans is necessary in the current circumstances where Vietnam has not fully liberated foreign exchange transactions and still needs to control and manage offshore loans to ensure a safe foreign debt level. This is also consistent with the Government's policy to reduce dollarization of the Vietnamese economy. The SBV further noted that if an individual implements an investment project requiring foreign loan capital, such individual can set up an enterprise in accordance with the law for this purpose. The Draft Ordinance will be submitted to the Government and is expected to be submitted to the National Assembly for approval.

16 15 Legal instruments recently uploaded on to the Vietnam Laws online database Vietnam Laws online database (available at is an online searchable database containing English translations of more than 3,500 Vietnamese laws. Legislation recently uploaded includes: Joint Circular 20 on registration of mortgages of land use rights and landattached assets, 18 November 2011 Decision 254 approving the Plan on restructuring the credit institution system in the period , 1 March 2012 Circular 52 on disclosure of information on the securities market, 5 April 2012 Decree 38 implementing the Law on Food Safety, 25 April 2012 Decision 857 on short-term lending in foreign currencies by credit institutions and foreign bank branches to resident borrowers, 2 May 2012 Circular 14 stipulating 15% as the maximum VND short-term lending interest rate for the sectors of agricultural and rural development, production and trading export goods, production and trading by small and medium-sized enterprises, and development of support industries, 4 May 2012 Notice 83 on Plan to shorten the securities settlement cycle from the present 1530 on T+3 to 0900 on T+3, 8 May 2012 Circular 01 on procedures for issuing foreign contractor permits and management of foreign contractors in the construction sector, 8 May 2012 Resolution 13 on solutions to reduce difficulties for production and business and to support the market, 10 May 2012 Draft Amendments to Ordinance 28 dated 13 December 2005 on Foreign Exchange Control, 14 May 2012 Circular 05 classifying telecom services, 18 May 2012 Decision 1081 reducing State Bank interest rates to 12% (refinancing), 10% (discount) and 13% (repo interest rate), 25 May 2012 Beijing Brisbane Hanoi Ho Chi Minh City Hong Kong Jakarta Melbourne Perth Port Moresby Shanghai Singapore Sydney Ulaanbaatar Circular 30 dated 28 September 2011 as amended by Circular 17, reducing maximum interest rate for VND on-call deposits and term deposits under one month to 3%, and for term deposits of one or more months to 11%, 25 May 2012 Hanoi Suite 401, Hanoi Tower 49 Hai Ba Trung Street, Hoan Kiem District Hanoi, Vietnam T F Bill.Magennis@allens.com.au Hop.Dang@allens.com.au Ho Chi Minh City Suite 605, Saigon Tower 29 Le Duan Boulevard, District 1 Hi Chi Minh City, Vietnam T F Thomas.Miller@allens.com.au Robert.Fish@allens.com.au