Vietnam Legal Update April 1998

Transcription

1 Vietnam Legal Update April 1998 In this issue: Part 1: New Legal Instruments: 1.1 List of Legal Instruments obtained from 16 March to 15 April List of Legal Instruments obtained before 16 March 1998 (not included in our Vietnam Legal Update of March 1998) Part 2: Summary of Selected New Legal Instruments: 2.1 Insurance: Circular 26/1998/TT-BTC of the Ministry of Finance Providing Guidelines for Completing Procedures for Application for Certificates Certifying that all Conditions and Criteria for Operating an Insurance Business have been Satisfied dated 4 March 1998 ( Circular 26 ) 2.2 Insurance: Circular 27/1998/TT-BTC of the Ministry of Finance Providing Guidelines for Sale of Insurance and Management of Insurance Premiums dated 4 March 1998 ( Circular 27 ) 2.3 Insurance: Circular 28/1998/TT-BC of the Ministry of Finance dated 4 March 1998 on Activities of Insurance Agents and Associates ( Circular 28 ) 2.4 Foreign Exchange: Decision 88/1998/QD-NHNN7 of the State Bank of Vietnam on Addition to the Principles for Determination of Forward and Swap Exchange Rates by Credit Institutions Authorised to Conduct Forward and Swap Exchange Transactions dated 28 February 1998 ( Decision 88 ) 2.5 Foreign Exchange: Official Letter CV-NHNN7 of the State Bank of Vietnam Implementing Decision QD-TTg dated 21 March 1998 ( Official Letter 249 ) 2.6 Land: Decree ND-CP of the Government dated 21 March 1998 on Amendments of and Additions to Clause 1 of Article 4 of Decree 87-CP of the Government dated 17 August 1994 on Land Tariffs ( Decree 17 ) 2.7 State Loans: Circular TT-BKH of the Ministry of Planning and Investment dated 27 March 1998 Guiding the Implementation of Decision QD-TTg of the Prime Minister on the Credit Plan for Investment in 1998 ( Circular 03 ) 2.8 Representative Offices: Decis ion QD-BTM of the Ministry of Trade dated 28 March 1998 issuing the Regulations on Work Handling by the Ministry of Trade with respect to Organizations and Individuals Relating to the issue of Licenses to Import and Export Goods; Opening of Representative Offices of Vietnamese Enterprises Overseas; Opening of Representative Offices of Foreign Economic Organizations in Vietnam ( Decision 0385 ) Part 3: Features: 3.1 Security for Performance of Obligations in the Construction Industry 3.2 Clarification of new Decrees Encouraging Foreign Investment Part 4: Did You Know? 4.1 Value Added Tax 4.2 Commercial Law Part 5: Publications

2 2 This publication is copyright. Except as permitted under relevant laws, no part of this publication may be reproduced by any process, electronic or otherwise, without the specific written permission of the copyright owner, The material contained in Vietnam Legal Update is intended to inform you of recent legal developments in Vietnam. It is not intended, and should not be relied upon, as legal advice. Should you wish further information in relation to any legal instrument or matter mentioned in this Update, please do not hesitate to contact any of the offices listed below: Hanoi Bill Magennis 50 Trieu Viet Vuong Street Hanoi, Vietnam Ho Chi Minh City Nigel Russell Suite 607, Saigon Tower 29 Le Duan Boulevard Ho Chi Minh City, Vietnam Phone: Mobile: Fax: bill@melb.phillipsfox.com.au Phone: Mobile: Fax: nigel@melb.phillipsfox.com.au Vientiane Todd Dirksen and Mary Flipse DFDL Mekong Commerce Building No. 1 Luang Prabang Road, Vientiane, Laos Phnom Penh David Doran DFDL 45 Preah Suramarit Boulevard Phnom Penh, Cambodia Phone: Fax: to dfdllaos@loxinfo.co.th Phone: Fax: dfdl-pp@bigpond.com.kh We also refer you to the following websites for further information regarding and investment in Vietnam: http//

3 Part 1: New Legal Instruments 1.1 List of new legal instruments obtained from 16 March to 15 April Decree 20/1998-ND-CP of the Government dated 31 March 1998 on Development of Trading in Mountainous, Island and Ethnic Areas. 2. Directive 16/1998-CT-TTg of the Government dated 31 March 1998 on Settlement of Recommendations by the Enterprises. 3. Circular 41/1998-TT-BTC of the Ministry of Finance dated 31 March 1998 Providing Guidelines for Aggregation and Control of State Budget Revenues Via State Treasury (replaces Circular 24-TC-KBNN of the Ministry of Finance dated 13 May 1997). 4. Circular 40/1998-TT-BTC of the Ministry of Finance dated 31 March 1998 Providing Guidelines for Control, Allocation and Payment of State Budget Expenses Via State Treasury (replaces Circular 20-TC-KBNN of the Ministry of Finance dated 25 April 1997). 5. Circular 39/1998-TT-BTC of the Ministry of Finance dated 31 March 1998 Providing Guidelines for Import Duty Levied on Property Brought Back to Vietnam of Organizations and Companies Performing Tasks in a Foreign Country. 6. Decision 70/1998-QD-TTg of the Government dated 31 March 1998 on Collection and Use of Fees Collected From Public Education and Training Institutions under the National Education System. 7. Decision 383/1998-QD-BTC of the Ministry of Finance dated 30 March 1998 on Amendment of and Addition to Names and Tax Rates of Some Items in Import Tariff. 8. Decision 386/1998-QD-BTC of the Ministry of Finance dated 30 March 1998 on Amendment of Tax Rates of Some Items of Group 2710 in Import Tariff. 9. Circular 38/1998-TT-BTC of the Ministry of Finance dated 30 March 1998 Providing Guidelines for Preparation of Budget Estimate, Use and Finalization of State Budget for Compensation for Damages Caused by State Servants, Authorised Persons of State Bodies and the Bodies Carrying Out Litigation Procedures. 10. Circular 37/1998-TT-BTC of the Ministry of Finance dated 28 March 1998 Providing Guidelines for Payment of the Additional Charges in Respect of Petrol and Oil into the State Budget (replaces Circular 13/1998-TT-BTC of the Ministry of Finance dated 5 February 1998). 11. Decision 68/1998-QD-TTg of the Government dated 27 March 1998 on Pilot Establishment of SOEs in Training and Studying Institutions.

4 12. Circular TT-BKH of the Ministry of Planning and Investment dated 27 March 1998 Guiding the Implementation of Decision QD-TTg of the Government on Credit Plan for Investment in Decision 15/1998-QD-BVGCP-TLSX of the Government Price Committee dated 27 March 1998 on Rate of Additional Charge of Imported Petrol and Oil. 14. Decision 67/1998-QD-TTg of the Government dated 26 March 1998 on Transfer of State Management Task of Vocational Training from the Ministry of Education and Training to the Ministry of Labour, War Invalids and Social Affairs. 15. Agreement Between the Government of the Socialist Republic of Vietnam and the Government of the United States of America Regarding the Operations of the Overseas Private Investment Corporation in Vietnam (effective on 26 March 1998). 16. Directive 13/1998-CT-TTg of the Government dated 26 March 1998 on Strengthening Guidance and Implementation of Labour Protection Activities in the New Circumstances. 17. Joint Circular 03/1998-TTLT-BLDTBXH-BYT-TLDLDVN of the Ministry of Labour, War Invalids and Social Affairs, Ministry of Health, VN General Confederation of Labour dated 26 March 1998 Providing Guidelines for Declaration and Investigation of Labour Accidents. 18. Resolution 47/1998-NQ-UBTVQH10 of the National Assembly Standing Committee dated 25 March 1998 on Amendments of and Additions to Turnover Tax Rates with Respect to Some of the Branches in Turnover Tariff. 19. Decision 66/1998-QD-TTg of the Government dated 25 March 1998 on Approval of Protocol to Implement the First Commitments within the Framework of the Head of Agreement on ASEAN Service Cooperation. 20. Notification 262/1998-VGCP-VP of the Government Price Committee dated 24 March 1998 on Establishment of Centre for Evaluation Consultancy and Services under the Government Price Committee. 21. Circular 04/1998-TT-BYT of the Ministry of Health dated 23 March 1998 Providing Guidelines for Implementation of Control of Food Safety and Hygiene in Alimentary Services and Business. 22. Official Letter 305-CP-KTTH of the Government dated 23 March 1998 on Additional Charge with Respect to Petrol and Oil. 23. Circular 35/1998-TT-BTC of the Ministry of Finance dated 21 March 1998 Providing Guidelines for Procedures for Import Duty Exemption with Respect to Organizations and Individuals Operating in Petroleum in Accordance with Law on Petroleum.

5 5 24. Official Letter 249/1998-CV-NHNN7 of the State Bank of Vietnam dated 21 March 1998 on Implementation of Decision 37/1998-QD-TTg on Foreign Exchange Control. 25. Circular 36/1998-TT-BTC of the Ministry of Finance dated 21 March 1998 Providing for Financial Regime of the Civil Aviation Administration Centre of Vietnam. 26. Decree 17/1998-ND-CP of the Government dated 21 March 1998 on Amendments of and Additions to Clause 2 of Article 4 of Decree 87-CP of the Government dated 17 August 1994 on Land Tariffs. 27. Circular 34/1998-TT-BTC of the Ministry of Finance dated 21 March 1998 on Additions to Circular 42-TC-TCT dated 1 June 1995 on Registration Fees. 28. Decision 326/1998-QD-BTC of the Ministry of Finance dated 21 March 1998 on Amendment of Tax Rates of a Number of Goods under Group 2710 in Import, Export Tariff. 29. Circular 03/1998-TT-BCN of the Ministry of Industry dated 20 March 1998 Providing Guidelines for Import of Chemicals in 1998 in Accordance with Decision 11/1998-QD-TTg of the Government dated 23 January 1998 on Import and Export Management in Circular 03/1998-TT-NHNN5 of the State Bank of Vietnam dated 20 March 1998 Providing Guidelines for Implementation of Issuance of Operation Licenses to Financial Companies in State Corporation (applicable to state corporations established under Decision 91-TTg dated 7 March 1994). 31. Circular 05/1998-TT-BTM of the Ministry of Trade dated 18 March 1998 Providing Guidelines for Implementation of Decision 55/1998-QD-TTg of the Government dated 3 March 1998 on Approval of List of Exports Subject to Import, Export Business Permits. 32. Decision 63/1998-QD-TTg of the Government dated 18 March 1998 on Approval of Development Orientation for National Urban Water Supply Up to the Year Official Letter 269-CP-KTN of the Government dated 17 March 1998 on Result of Tendering of Project for Reform of Electricity Networks of 3 Cities (Hanoi, Haiphong, Namdinh) Using Loans Granted by ADB. 34. Circular 32/1998-TT-BTC of the Ministry of Finance dated 17 March 1998 Providing Guidelines for Implementation of Tax Policy and State Budget Revenues with Respect to Public Service SOEs. 35. Circular 31/1998-TT-BTC of the Ministry of Finance dated 17 March 1998 on Amendments of Circular 47-TC-TCT dated 18 July 1997 on Collection, Payment and Management of Fees for Issuance of Business Licenses (with respect to small-size enterprises with the capital lower

6 6 than the legal capital). 36. Circular 33/1998-TT-BTC of the Ministry of Finance dated 17 March 1998 Providing Guidelines on the Regime of Allocation and Usage of Contingencies for Reduction of Goods' Prices in Stock, for Bad Debts, for Decrease of Securities Prices in State Owned Enterprises. 37. Directive 11/1998-CT-TTg of the Government dated 16 March 1998 on Implementation of Decree 10/1998-ND-CP of the Government and Improvement of Procedures for Foreign Direct Investment. 38. Circular 02/1998-TT-BKH of the Ministry of Planning and Investment dated 16 March 1998 Providing Guidelines for Process and Procedures for Issuance of Investment Preferential Certificate in Accordance with Decree 07/1998-ND-CP of the Government dated 15 January 1998 Implementing the Law on Encouragement of Domestic Investment (amended) (replaces Circular 06-UB-QLKT of SCCI dated 27 September 1995 and Document 2367-BKH- QLKT of the Ministry of Planning and Investment dated 27 May 1996). 39. Decision 299/1998-QD-BTC of the Ministry of Finance dated 16 March 1998 Promulgating Regulations, Tariff and Compulsory Insurance for Civil Responsibility of Owners of Vehicles. 40. Decision 297/1998-QD-BTC of the Ministry of Finance dated 16 March 1998 Issuing Stamps and Printing, Control and Use of Stamps for Imports. 1.2 List of legal instruments obtained before 16 March 1998 (not included in our Vietnam Legal Update of March 1998) 1. Decision 123/1998-BKH-QD of the Ministry of Planning and Investment dated 14 March 1998 on Establishment of The Center Foreign Direct Investment Monitoring in Hanoi and Ho Chi Minh City. 2. Decision 124/1998-BKH-QD of the Ministry of Planning and Investment dated 14 March 1998 on Functions, Duties, Powers and Organization of South Representative Body of The Center Foreign Direct Investment Monitoring. 3. Official Letter 900-VPCP-HC of the Government Office dated 14 March 1998 on Reference Number of State Administrative Management Documents. 4. Decision 0321/1998-QD-BTM of the Ministry of Trade dated 14 March 1998 Promulgating Detailed Regulations on Implementation of Decrees 12-CP dated 18 March 1997 and 10/1998-ND-CP dated 23 January 1998 of the Government in Relation to Import, Export and Sale of Products in Vietnam and Processing of Foreign Invested Enterprises and Parties to Business Cooperation Contract. 5. Official Letter 88/1998-CV-NCKT3 of the State Bank of Vietnam dated 13 March 1998 on Reporting on Mortgage of Land Use Right for Loans Granted to Organizations and Citizens.

7 7 6. Decision 96/1998-QD-NHNN1 of the State Bank of Vietnam dated 13 March 1998 Regulating Interest Rate on Deposits in Foreign Currency of Credit Institutions and State Treasury at the State Bank (replaces Decision 83-QD-NH7 of the State Bank of Vietnam dated 24 March 1995). 7. Circular 04/1998-TT-BTM of the Ministry of Trade dated 12 March 1998 Providing Guidelines for Import of Components of Motorbikes in the Form of IKD. 8. Decree 15/1998-ND-CP of the Government dated 12 March 1998 Promulgating the List of Commodities of Vietnam for the Purpose of Implementation of Agreement on Program for Common Effective Preferential Tariff (CEPT) of Asean Countries. 9. Official Letter 153/1998-CV-TTr4 of the State Bank of Vietnam dated 12 March 1998 on Complying with Regulations on Interest Rates and Foreign Exchange Control. 10. Official Letter 154/1998-CV-TTr4 of the State Bank of Vietnam dated 12 March 1998 on Reducing Outstanding Loans with Respect to Loans Exceeding 10% of Self-sufficient Capital and Reserve Fund. 11. Decision 95/1998-QD-NHNN5 of the State Bank of Vietnam dated 12 March 1998 on Amendments of Circular 03-TT-NH5 on Finance Leasing Companies dated 9 February Directive 01/1998-CT-BXD of the Ministry of Construction dated 12 March 1998 on Strengthening Improvement of Administrative Procedures in Construction Industry. 13. Official Letter 750-TCHQ-GSQL of the General Department of Customs dated 12 March 1998 on Reform of Administrative Procedures in Customs Procedures. 14. Circular 29/1998-TT-BTC of the Ministry of Finance dated 11 March 1998 Providing Guidelines on Financial Management to Implement Regulations on National Reserve Control Issued with Decree 10-CP of the Government dated 24 February 1996 (replaces Circular 72- TC-VI of the Ministry of Finance dated 26 August 1994). 15. Official Letter 725-TCHQ-GSQL of the General Department of Customs dated 10 March 1998 Providing for Implementation of Customs Professional Procedures. 16. Official Letter 40/1998-CV-NCKT3 of the State Bank of Vietnam dated 10 March 1998 Providing Guidelines for Implementation of Decision 39/1998-QD-NHNN1 dated 17 January 1998 on Interest Rates on Loans in Vietnamese Dong of Credit Institutions to Economic Organizations and People and Interest Rates on Deposits in USD of Economic Organizations. 17. Circular 02/1998-TT-BCN of the Ministry of Industry dated 9 March 1998 Providing Guidelines for Test and Inspection of Pressure Equipment and Folk-lift in Industry.

8 8 18. Decree 14/1998-ND-CP of the Government dated 6 March 1998 on Management of State Property. 19. Circular 28/1998-TT-BTC of the Ministry of Finance dated 4 March 1998 Providing for Insurance Agent and Associate Activities. 20. Circular 26/1998-TT-BTC of the Ministry of Finance dated 4 March 1998 Providing for Procedures for Issuance of Certificate of Satisfying Norms and Conditions for Insurance Business Operation. 21. Circular 27/1998-TT-BTC of the Ministry of Finance dated 4 March 1998 Providing for Insurance Operation and Insurance Fee Management. 22. Official Letter 1271-BKH-DTNN of the Ministry of Planning and Investment dated 3 March 1998 on List of Areas In Which Investment is Encouraged (amending Decree 10 of the Government dated 23 January 1998). 23. Notification 41-TB-VPCP of the Government Office dated 2 March 1998 on Opinion of the Deputy Prime Minister Ngo Xuan Loc at the Meeting on Business Situation of Vietnam Airline Corporation. 24. Decision 846-QD-UB of Hanoi People's Committee dated 28 February 1998 Promulgating Working Regulations of Hanoi People's Committee. 25. Official Letter 496-QLD of the Ministry of Health dated 28 February 1998 Providing Guidelines for Import and Export of Medicines for Official Letter 537-TC-QLCS of the Ministry of Finance dated 28 February 1998 Providing Guidelines on Implementation of Decision 100 TC/QLCS of the Ministry of Finance dated 23 January 1997 Issuing the Regulations on Administration and Settlement of Property in respect of which a Decision on Confiscation is Made and the State Ownership is Established. 27. Decision 139/1998-QD-BLDTBXH of the Ministry of Labour, War Invalids and Social Affairs dated 25 February 1998 Promulgating Standards for Individual Protection Equipment for Special Jobs of VNPT. 28. Decision 905/1998-QD-UB-NCVX of Ho Chi Minh City People's Committee dated 23 February 1998 Providing for State Management with Respect to Press Activities in HCMC. 29. Official Letter 167/1998-CV-QLNH5 of the State Bank of Vietnam dated 21 February 1998 (relating to the implementation of foreign exchange control regulations). 30. Decision 680-QD-UB of Hanoi People's Committee dated 17 February 1998 on Assigning

9 9 Tasks to Branches and Districts to Implement and Supervise Domestic Organizations Which are the Objects of Land Leasing and are Using Land to Sign Land Lease Contracts and Pay Land Rent. 31. Official Letter 138/1998-CV-NHNN1 of the State Bank of Vietnam dated 16 February 1998 on Penalty Interest with Respect to Insufficient Compulsory Reserve (to uniformly implement Decisions 396 and 397 of the State Bank of Vietnam dated 1 December 1997). 32. Decision 72/1998-QD-BLDTBXH of the Ministry of Labour, War Invalids and Social Affairs dated 10 February 1998 Promulgating Standards for Individual Protection Equipment for Special Jobs of Hydro-meterological Industry. 33. Decision 508-QD-UB of Hanoi People's Committee dated 3 February 1998 on Approval of the Charter of Club for Hanoi Tourist Enterprises.

10 10 Part 2: Summary of Selected New Legal Instruments 2.1 Circular 26/1998/TT-BTC of the Ministry of Finance Providing Guidelines for Completing Procedures for Application for Certificates Certifying that all Conditions and Criteria for Operating an Insurance Business have been Satisfied Dated 4 March 1998 ( Circular 26 ) According to Circular 26: * insurance enterprises; * insurance broking organisations; and * insurance agents wishing to operate an insurance business in Vietnam must: 1. apply for a Certificate issued by the Minister of Finance certifying that all criteria and conditions for operating an insurance business have been satisfied (the Certificate ); and 2. complete formalities for establishment and registration of business or apply for an investment license (in case of a foreign organisation) after the Certificate has been issued in accordance with the applicable laws. The Circular prescribes both general and specific conditions based upon which the above entities will be considered for issue of a Certificate. The specific conditions depend on whether the applicant is a: * State-owned insurance enterprises; * Joint stock companies; * Joint venture companies; * foreign insurance company branches; or * 100% foreign owned insurance enterprises. Each of these types of applicant is required to pay an application fee in order to obtain a Certificate in accordance with Article 21 of Decree 100 of the Government on Insurance Business dated 18 December This fee shall not be included in the enterprise s legal capital. 2.2 Circular 27/1998/TT-BTC of the Ministry of Finance Providing Guidelines for Sale of Insurance and Management of Insurance Premiums dated 4 March 1998 ( Circular 27 ) Circular 27 permits: * insurance enterprises and insurance broking organisations legally established and operate in Vietnam; and * insurance agents and associates having entered into agency and association contracts with insurance enterprises to conduct activities of advertising and offering insurance to customers for participation and sale of insurance products strictly in accordance with the provisions of the laws and those set out in Circular 27. Sales of insurance are permitted to be conducted: * directly by insurance enterprises; * through agents, insurance associates and broking organisations; and * through tendering process. Circular 27 also details the procedures for submitting and registering insurance premiums with the Ministry of Finance and prescribes how to manage insurance premiums with respect to different types of insurance as follows: * compulsory insurance: rules, terms, premium schedules and scale of premium rates of the Ministry of Finance must be observed. * personal insurance: premium schedules must be submitted by insurance enterprises and approved by the Ministry of Finance * other insurance: premium schedules must be registered with the Ministry of Finance before they are applied. Circular 27 came into effect on 19 March 1998.

11 Circular 28/1998/TT-BC of the Ministry of Finance dated 4 March 1998 on Activities of Insurance Agents and Associates ( Circular 28 ) In accordance with Circular 28, from 19 April 1998: * any individual satisfying all conditions stipulated in Article 1.9 of Decree 74 of the Government dated 14 June 1997 on Insurance Business; and * any economic organization being a legal entity, established and operated legally in Vietnam may respectively conduct insurance agency or associate activities pursuant to an agency or association contract signed with an insurance enterprise. Such a contract is required to contain the provisions set out in Part IV of Circular 28. Circular 28 also sets out various rights and obligations of insurance enterprises, insurance agents and insurance associates. 2.4 Decision 88/1998/QD-NHNN7 of the State Bank of Vietnam on Addition to the Principles for Determination of Forward and Swap Exchange Rates by Credit Institutions Authorised to Conduct Forward and Swap Exchange Transactions dated 28 February 1998 ( Decision 88 ) Supplementing Decision 16 dated 10 January 1998, Decision 88 specifies the maximum spot exchange rate for each term of less than one month which shall be used, from 3 March 1998, by the general directors or directors of the credit institutions authorised to deal in foreign exchange to determine forward and SWAP exchange rates between Vietnamese Dong and US Dollars, as follows: Less than 1 week: 0.25% From 1 week to 2 weeks: 0.5% From 2 weeks to 3 weeks: 0.75% From 3 weeks to 4 weeks: 1% 2.5 Official Letter CV-NHNN7 of the State Bank of Vietnam Implementing Decision QD-TTg dated 21 March 1998 ( Official Letter 249 ) Further to Decision 37 and Official Letter 157 on Foreign Currency Control, Official Letter 249 provides more detailed guidelines for the opening of foreign currency deposit accounts and compulsory sales of foreign currency to the banks by economic organisations. Official Letter 249 allows organisations with branches, in addition to one foreign currency deposit account which has been opened by its head office, to open an additional foreign currency account with respect to each branch if it deems necessary. Organisations having two or more foreign currency deposit accounts at various banks which must be maintained are required to complete the formalities to register such accounts at the municipal or provincial State Bank s branch where their head offices are located in accordance with the prescribed form before 5 April According to Official Letter 249, the foreign currency from the following sources does not need to be sold to banks: * Legal capital contribution of foreign invested enterprises; * Amount retained for foreign currency expenditures for the requirements defined in projects funded with official development aid; * Domestic and foreign loans of economic organizations used for foreign currency expenditures; or * Other amounts currently in foreign currency deposit accounts opened at banks used for necessary requirements such as performance bonds, escrow deposits, amounts of foreign currency directly allocated from the State Budget, necessary amounts to meet regular expenditures of the maritime, aviation, post and insurance sectors, monies collected in trust of foreign agents, monies of non-refundable projects or aid for which a plan for foreign currency expenditures has been approved, and insurance premiums deposited by employees working abroad through a labour control body or labour export body.

12 2.6 Decree ND-CP of the Government dated 21 March 1998 on amendments of and Additions to Clause 1 of Article 4 of Decree 87-CP of the Government dated 17 August 1994 on Land Tariffs ( Decree 17 ) According to Decree 17, which came into effect on 5 April 1998, local people's committees may stipulate prices for various categories of land lower than the minimum prices or higher than the maximum prices stipulated in the land tariff issued with Decree 87 and Decision 302/TTg of the Prime Minister dated 13 May 1996, by up to 50% of such prices. 2.7 Circular TT-BKH of the Ministry of Planning and Investment dated 27 March 1998 guiding the implementation of Decision QD-TTg of the Prime Minister on the Credit Plan for Investment in 1998 ( Circular 03 ) According to Circular 03, new projects in the following fields shall be granted loans by the State for investment: * power, mechanics; export manufacture; * deep-sea fishery; * processing of forestry products, agricultural products and marine products; * perennial industrial crops; * planting forests to be used as materials and transportation infrastructure; and * new fee-charging industrial and urban zones which are capable of capital recovery. The interest rate of 0.81% per month applies for any loans made in Vietnamese dong. Loans provided in foreign currency for the purpose of importing materials and equipment for investment projects bear a fixed rate of 8.5% per year. All investment projects of State-owned and non State-owned enterprises which have been recorded in the credit plan of the State, shall be permitted to take the assets formed by the loan capital as security for such loan. During the period in which such loan has not yet been paid, the enterprises shall not be allowed to transfer, buy, sell or mortgage the assets created by the loan capital from the investment credit in accordance with the State plan. This new rule obviously has considerable potential to undermine the ability of some investment projects to raise finance from non-state sources. Credit capital for investment in accordance with the State plan may NOT be loaned: * for contribution to legal capital for joint venture projects; or * for set-off against medium term and long term loans under credit contracts which are entered into by Stateowned enterprises with credit institutions. 2.8 Decision QD-BTM of the Ministry of Trade dated 28 March 1998 Issuing the Regulations on Work Handling by the Ministry of Trade ( MOT ) with Respect to Organizations and Individuals Relating to the Issue of Licenses to Import and Export Goods; Opening of Representative Offices of Vietnamese Enterprises Overseas; Opening of Representative Offices of Foreign Economic Organizations in Vietnam ( Decision 0385 ) According to Decision 0385, the Ministry of Trade has made progress in its reform of administrative procedures relating to the approval process for licenses or extensions of license, for representative offices of foreign economic organizations in Vietnam. In order to simplify procedures further, Decision 0385 provides a list of relevant departments in the Ministry of Trade where an application file should be sent to directly, depending on in which country the head office of such organization is located.

13 The documentary requirements for the application for a license to open a representative office of a foreign economic organization have been simplified and now consist of: 1. Application (in prescribed form) prepared in 2 languages: one copy in Vietnamese and one in English or French; 2. Articles of association or documents evidencing the valid incorporation and operation of the foreign economic organization; and 3. Certification as to the legal capital of the foreign economic organization issued by a foreign competent juridical body. However, Decision 0385 does not state clearly whether the documents referred in 2 and 3 should be translated into Vietnamese and whether translations thereof should be notarised or not. Previously, a profile of the company and a copy of the investment license, or of a commercial contract, an economic contract or a scientific co-operation contract, was required to be included in the application file. In the case of an extension of a representative office license, only an application for an extension is required (previously a brief report on the operation of the representative office and a written opinion from the municipal or provincial people's committee in respect of the issue of such extension were required). The approval process is now 15 days (previously 30 days) as from the date of receipt of a proper application file in the case of issuing a representative office license and 10 days in the case of an extension. The Ministry of Trade is responsible for informing the applicant, in writing or by direct contact, if the application for the opening of a representative office or for an extension is not prepared in due form, within 3 days from receipt thereof. Although Decision 0385 provides that it shall be of full force from 28 March 1998, Article 2 states that it shall be amended in the future. Hopefully, any further amendments will not reduce the current joyfulness that Decision 0385 has just brought to investors.

14 Part 3: Features 3.1 Security for Performance of Obligations in the Construction Industry Increasingly, foreign invested enterprises (ie joint venture enterprises and 100% foreign owned enterprises) and foreign parties to business cooperation contracts ( Owners ) are contracting directly with Vietnamese and foreign invested contractors ( Vietnamese Contractors ), rather than through foreign companies, for design, supply, installation and/or construction work. Under such a contract, a Vietnamese Contractor is obliged to provide certain goods and/or services to an Owner. If the Vietnamese Contractor fails to perform its obligations adequately or in time, the Owner may suffer considerable losses, including lost revenue. It is obviously in the Owner s interests, therefore, to ensure that the Vietnamese Contractor is able to perform its obligations as required by the Owner and that, if the Vietnamese Contractor fails to do so, it will compensate the Owner for the Owner s losses. (Please see next month s issue of Vietnam Legal Update for a discussion of the damages which an Owner can claim in this situation under Vietnamese law.) As a matter of law, a contract between an Owner and a Vietnamese Contractor will be governed by Vietnamese law. Under Vietnamese law, the options for securing performance of a Vietnamese Contractor and, thereby, ensuring some level of compensation in the event of a failure to perform are generally very limited. We examine the following five options below: 1. Retention 2. Performance Bond 3. Guarantee 4. Escrow Deposit 5. Mortgage 1. Retention Retention of a percentage of payments owing to a Vietnamese Contractor is the most common and reliable method by which an Owner can secure performance by the Vietnamese Contractor. Retentions of around 10% are not unusual in Vietnam, compared to around 5% in most Western countries, reflecting the higher level of risk often associated with undertaking a construction project in Vietnam and engaging a Vietnamese Contractor. Under this mechanism, an Owner retains, say, 10% of each payment to be made to a Vietnamese Contractor, until the retention fund reaches, say, 10% of the agreed contract sum. The Owner is entitled to make deductions from this fund in amounts equal to the liquidated damages that the Vietnamese Contractor owes the Owner for delays in completion. The balance remaining is then released to the Vietnamese Contractor on terms agreed by the parties, eg 50% upon certification of practical completion of works, with the remaining 50% upon certification of final completion. Obviously, it needs to be borne in mind that the higher level of retention, the more difficult it will become for a Vietnamese Contractor to finance the performance of its obligations under a construction contract. Many Vietnamese Contractors survive on a hand-to-mouth basis. Unlike other forms of security for performance, Vietnamese law does not explicitly recognise a right for Owners to retain payments owing to Vietnamese Contractors. The practice of Owners and Vietnamese Contractors agreeing to such right is, however, well established.

15 2. Performance Bond According to Article 363 of the Civil Code, performance bonds in the form of money, precious metals, gemstones or other valuable objects can be used to secure the performance of a civil contract. In the context of construction contracts, Vietnamese Contractors frequently arrange bank guarantees in favour of Owners. The legal basis for this form of performance security can be found in the Appendix to the Regulations on Bank Guarantees issued by the State Bank of Vietnam with Decision 197 dated 16 September Item 2 of the Appendix provides that a bank (which may be a State-owned bank, joint stock bank, joint venture bank or branch of a foreign bank) may guarantee the performance of a Vietnamese Contractor (whether for supply of equipment or performance of works). In the event that the Vietnamese contractor fails to perform the contract or fails to pay the fines imposed on it then the guarantor bank is required to pay on behalf of the contractor. These provisions have recently been reinforced by Article 58.2 of the new Law on Credit Institutions dated 12 December 1997, which provides that credit institutions (including all the banks previously referred to) may provide guarantees for performance of contracts. Evidently, however, some Vietnamese banks may interpret their obligations under bank guarantees rather differently to how most Owners would understand those obligations. It seems that before agreeing to pay an amount claimed by an Owner under a supposedly unconditional and irrevocable bank guarantee, some Vietnamese banks may seek to make their own determination as to whether or not a guaranteed performance obligation has been discharged. 3. Guarantee Under Article of the Civil Code, a guarantee is defined as an undertaking made by a third party to an obligee [ie Owner] to perform an obligation on behalf of an obligor [ie Vietnamese Contractor] if the obligation falls due and the obligor fails to perform, or improperly performs, the obligation. The parties may agree that the guarantor will only be obliged to perform the obligation if the principal is incapable of performing it. The guarantor may guarantee an obligation in whole or in part. Unless agreed by the parties, the guaranteed obligation includes interest, penalties and compensation for damage. The guarantor is permitted to receive remuneration, if so agreed by the parties. Under this form of guarantee, the guarantor is required to actually perform the obligation in the event of a default by the obligor. In some cases, an Owner might find it useful to obtain such a guarantee from the parent company of a Vietnamese Contractor. 4. Escrow Deposit According to Article 365 Civil Code, an escrow deposit is a security mechanism under which an obligor deposits into an escrow or trust bank account money, precious metals, gemstones or commercial paper as a security for the performance of an obligation owned by it to an obligee. In the event of default, the obligee can claim the property as compensation for the non-performed obligation and any ensuing damages. While there is some further legal basis for escrow accounts in Vietnam (namely, Article 72 of the Law on Credit Institutions dated 12 December 1997) there are no specific legal guidelines governing the operation of such accounts. Nevertheless, some foreign bank branches do offer escrow facilities. One issue to consider is that, under Article 365 of the Civil Code, the depositor of the funds into an escrow account is described in Article 365 as the obligor, ie in this context, the Vietnamese Contractor. If this is, in fact, a requirement for a valid escrow arrangement, then its usefulness as a security measure may be significantly limited, as Owners may wish to deposit funds themselves into an escrow account prior to releasing those funds to Vietnamese Contractors on agreed terms.

16 5. Mortgage In developed economies, mortgages of property are a common form of loan security. Legal instruments issued in Vietnam over the past few years also recognise this form of security, although so many questions remain as to the requirements for a valid and enforceable mortgage over property located in Vietnam that foreign banks operating in Vietnam generally attach little, if any, value to such security. Vietnamese law, however, appears to go further than the law of many more developed economies by recognising mortgages of property as security for the performance of obligations other than the repayment of loans. This may mean that an Owner could take a mortgage of property owned by a Vietnamese Contractor as security for the performance of that Vietnamese Contractor s obligations under a construction contract. The analysis below, however, highlights the legal hurdles which remain to be clarified before mortgages of property can be considered a realistic form of security for performance in such a case Can a Vietnamese Contractor mortgage land use rights or other assets? In order to answer this question, it is necessary to examine the following laws and official documents: 1. Laws regulating performance of obligations and contracts Civil Code dated 28 October 1985 A mortgage is defined as a transaction by which an obligor uses immovable property under its ownership to secure the performance of obligations owed by it to an obligee (Article 346). Immovable properties are defined in Article 181 as properties which cannot be moved including land, buildings, construction works on land including fixtures, other assets attached to land and other assets designated as immovable by law. Article states that a mortgage of property may be used as security for the performance of civil obligations. Article provides that the mortgage of immovable property (other than land) may be non-possessory or possessory and that the mortgaged immovable property is to be held by the mortgagor unless the parties agree to designate the mortgagee or a third party to hold it. Regulations on Economic Contracts The Ordinance on Economic Contracts dated 25 September 1989 (Article 5) and the Decree on Economic Contracts dated 16 January 1990 (Article 2.1) provide that a mortgage may be provided to ensure performance of an economic contract. The distinction between civil obligations and obligations arising under an economic contract is very unclear, and possibly irrelevant for present purposes (see below). 2. Laws regulating State owned enterprises If the Vietnamese Contractor is a State owned enterprise, then it is necessary to consider the following laws: Law on State [Owned] Enterprises dated 20 April 1995 Article 6.2 provides as follows: State owned enterprises have the right to transfer, lease, pledge, and mortgage fixed assets under their entitlement to manage, but in respect of important plant and equipment as regulated by the Government this must be approved by the competent State management authority, on the principle of preserving and expanding capital...

17 Article 8.1.b provides that State owned enterprises are entitled to: pledge the value of the land use rights together with other assets directly owned by the enterprises at Vietnamese banks in order to borrow capital for business in accordance with the Law. Regulations issued with Decree 59 of the Government dated 3 October 1996 on Financial Management and Business Accounting for State Owned Enterprises Article 17 provides: 1. A State owned enterprise is permitted to... mortgage assets which it controls in an efficient manner in order to preserve and increase capital in compliance with procedures under State regulations. 2. The utilisation of assets for... mortgage must comply with the provisions of the Civil Code and other provisions of the State. Circular 1 of the State Bank dated 3 July 1996 on Procedures for Mortgage and Pledge of Assets Applicable to State Owned Enterprises and for Certification of Mortgage or Pledge Contracts and Guarantee for Bank Loans by Notary Public The preamble to this circular says that it is directed at: implementing laws relating to mortgage and pledge of assets and to facilitate enterprises borrowing loans for production and business activities and to ensure [security] of loans provided by credit institutions It is clearly assumed in these laws that a mortgage of land use rights and/or assets belonging to a State owned enterprise may only be provided by that State owned enterprise as security for a loan from a Vietnamese bank or other credit institution (and, arguably, not as security for the performance of a contract). Circular 3 of the Ministry of Planning and Investment dated 27 March 1998 Guiding the Implementation of the Decision 52 of the Prime Minister on the Credit Plan for Investment in Laws regulating land Article 4 provides as follows: All investment projects of state-owned and non state-owned enterprises which have been recorded in the credit plan of the State, shall be permitted to take the assets formed by the loan capital as security for such loan. During the period in which such loan has not yet been paid, the enterprises shall not be allowed to transfer, buy, sell or mortgage such assets formed by the loan capital from the investment credit in accordance with the state plan. This probably means that if a State owned enterprise mortgages its assets as security for a loan provided by the State in order to purchase and construct those assets, then it cannot mortgage those assets to an Owner (assuming this is, in fact, possible) until the loan has been repaid. Decree 85 of the Government dated 17 December 1996 Implementing the Ordinance on the Rights and Obligations of Domestic Organisations which have been Assigned or Leased Land by the State ( Decree 85 ) Article 13.1 provides that domestic economic organisations with land leased by the State shall have the right: to mortgage within the land lease term the value of the land use right and attached properties under their ownership on that land at Vietnamese banks to borrow capital for production and business development as prescribed by law. The value of the land use

18 right... shall be the land rent already paid by those organisations to the State. Again, this provision assumes that any mortgage provided by a domestic economic organisation which has been leased land by the State may only be in respect of a loan from a Vietnamese bank. 4. Laws regulating infrastructure companies developing infrastructure for industrial zones If the Vietnamese Contractor is developing infrastructure for an industrial park, then it is also necessary to examine the following laws regulating industrial parks. Article 26.3 of Decree 85 provides that organisations with land leased by the State for investment in infrastructure construction and business and for sub-lease in export processing zones or industrial parks shall have the right: to mortgage the value of the land lots which have not been sub-leased during the land lease term at Vietnamese banks to borrow capital for investment in infrastructure construction. This provision, which makes the same assumption as mentioned above, may be interpreted as limiting the Vietnamese Contractor s right to mortgage to only the right to use those parcels of land within the zone which it has not yet subleased. Regulations issued with Decree 36 of the Government dated 24 April 1997 on Industrial Zones, Export Processing Zones and High-Tec Zones These regulations include a list of powers vested in companies developing infrastructure for industrial zones (Article 14). This list does not include the right to mortgage property. Similarly, other laws specifically regulating the financing of industrial zone developments do not make any reference to infrastructure development companies being able to mortgage either their right to use land or their assets (see Circular 27 of the Ministry of Finance dated 25 May 1996 Providing Regulations for Infrastructure Development Companies and Management Boards of Industrial Zones, and Official Letter 19 of the Government dated 12 November 1997 on Sub-leasing in Industrial Zones). The absence of any such reference raises doubts about the ability of a company developing infrastructure for an industrial zone to mortgage even the right to use the land within the zone which has not yet been subleased, pursuant to Article 14 of Decree Official Documents specifically regulating the Vietnamese Contractor The official documents which are relevant here, as a minimum, are as follows: (1) Decision of Establishment; (2) Registration of Establishment; and (3) Charter Can the performance of obligations, such as those of a Vietnamese Contractor under a construction contract, be secured by mortgage? As mentioned above, the Civil Code and regulations on economic contracts provide a legal basis for mortgage of property in Vietnam. Under Article of the Civil Code, property may be mortgaged as security for the performance of civil obligations. Under the regulations on economic contracts, property may be mortgaged to ensure performance of an economic contract. The term civil obligation is not clearly defined in the Civil Code, but is understood by some local lawyers to mean

19 any obligation relating to property relationships arising from and in the field of consumption in response to consumption needs. An economic contract is defined as a written agreement which is commercial in nature between two organisational legal entities (or an organisational legal entity and an individual with business registration). In the words of one local lawyer, this means a contract governing property relationships arising from business activities for the purpose of earning a profit. Local lawyers opine: in the conditions of the market economy today, the difference between civil obligations and economic contracts is of minor significance. Certainly, in our experience, there is no clear consensus in relation to the nature and significance, if any, of the distinction between these two legal concepts. For present purposes, local lawyers believe the Civil Code relating to mortgages would apply. Another issue which arises, however, is the fact that all of the other legal instruments which regulate mortgages in Vietnam, of which we are aware (ie the legal instruments referred to above, and the Regulations issued with Decision 217 of the State Bank dated 17 August 1996 on Mortgage and Pledge of Assets, and Guarantee for Bank Loans - Decision 217 ), only contemplate mortgages provided as security for loans from Vietnamese banks. The purpose of limiting the power to mortgage in this manner may be directed more at preventing mortgages being issued in favour of foreign banks, than at precluding mortgages as security for performance of obligations other than loan repayments. In the opinion of local lawyers, however, this apparent limitation does not mean that it is impossible to obtain a mortgage as security for the performance of obligations other than the obligation to repay a loan from a Vietnamese bank. We suspect, however, that it does mean, at least, that it would be more difficult to arrange such a mortgage, as the relevant authorities, including the notary public, would be unsure as to the requirements and procedures applying to such a mortgage. Local lawyers say that the authorities would probably refer to the provisions applying to mortgages provided as security for loans from Vietnamese banks. We are not aware, however, of any mortgage having been provided yet in Vietnam securing the performance of obligations other than the obligation to repay a loan to a Vietnamese bank Can future assets be secured? While there does not appear to be any prohibition against a mortgage being provided over future assets, the assumption from the language used in each of the legal instruments referred to above is that the assets must exist at the time the mortgage is provided. Decision 217, for instance, requires the assets to be clearly identified and valued. Article 7.9 of that decision does provide, however, that assets which are formed from the funds provided by a loan may be mortgaged if the particular project is considered to be of national importance. Furthermore, we note that Official Letter 3108 of the Ministry of Finance dated 6 September 1996 provides that State owned enterprises which do not have sufficient assets for mortgage may mortgage future assets as security for loans from the State and National Investment Support Fund, subject to obtaining approval from the relevant authorities. This letter suggests that the authorities might be prepared to consider the concept of a mortgage of future assets in other circumstances also. In the opinion of local lawyers, however, it would be very difficult to arrange a mortgage of future assets What are the formalities relating to a mortgage? According to local lawyers, the following steps must be completed: Step 1: If the Vietnamese Contractor is a State owned enterprise, then the Ministry of Construction must approve