Vietnam Legal Update February 1998

Transcription

1 Vietnam Legal Update February 1998 In this issue: Part 1: New Legal Instruments: 1.1 List of New Legal Instruments issued from 16 January until 15 February List of Legal Instruments issued before 16 January 1998 (not included in our Vietnam Legal Update of January 1998) Part 2: Summary of Selected New Legal Instruments: 2.1 Foreign Exchange: Decision 37/QD/TTg of the Government on Measures for Foreign Exchange Control in the Current Circumstances dated 14 February 1998 ( Decision 37 ) 2.2 Domestic Investment: Decree 07/1998/ND-CP providing Detailed Regulations on the Implementation of the Law on Promotion of Domestic Investment dated 15 January 1998 ( Decree 07 ) 2.3 Technology Transfer: Official Letter 387 of the Office of the Government dated 4 February 1998 ( Official Letter 387 ) 2.4 Leasing of Premises: Official Letter 5702/UB-KT of the People s Committee of Ho Chi Minh City dated 31 December 1997 ( Official Letter 5702 ) and Notification 277/TB-KHDT-NN of the Planning and Investment Department of Ho Chi Minh City dated 4 February 1998 on Issue of Leasing Licenses to Enterprises with Foreign Owned Capital ( Notification 277 ) Part 3: Features: 3.1 Decree 10-CP on Foreign Investment 3.2 Foreign Investor s Conference 3.3 Comment on Progress of Legal Reform in Vietnam Part 4: Did You Know? 4.1 Salary Payments to Vietnamese Staff 4.2 Approval of Technology Transfer Contracts: Official Letter 387 of the Office of the Government dated 4 February 1998 ( Official Letter 387 ) 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 3 Part I: New Legal Instruments 1.1 List of Legal Instruments issued from 16 January 1998 to 15 February Circular 13/1998-TT-BTC of the Ministry of Finance dated 5 February 1998 Providing Guidelines for Collection and Payment of Additional Charges with Respect to Imported Petrol and Oil to the State Budget; 2. Decision 23/1998-QD-TTg of the Government dated 31 January 1998 on Establishment of State Monetary - Financial Council; 3. Decision 03/1998-QD-BVGCP-TLSX of the Government Price Committee dated 27 January 1998 on Rate of Additional Charges of Imported Petrol and Oil; 4. Resolution 02/1998-NQ-CP of the Government dated 26 January 1998 on Policies and Measures to Encourage Export and Laws Making Activities 5. Decision 20/1998-QD-TTg of the Government dated 26 January 1998 Promulgating Regulations on Financial Management in Respect of Vietnam Social Insurance; 6. Decree 11/1998-ND-CP of the Government dated 24 January 1998 Promulgating the Working Regulations of the Government (to replace Decree 13-CP of the Government dated 1 December 1992); 7. Decision 15/1998-QD-TTg of the Government dated 24 January 1998 on Transformation of VIET NAM AIR TRAFFIC MANAGEMENT into Public Service State Owned Enterprise; 8. Decision 19/1998-QD-TTg of the Government dated 24 January 1998 on Management and Implementation of Objectives and Tasks Set Out in the Former National Programs; 9. Circular 66/1998-TT-TCDL of the General Department of Tourism dated 23 January 1998 Providing Guidelines for Implementation of Decision 477-TTg of the Government dated 3 July 1997 on Additional Charges of Telecommunication Fees at Hotels; 10. Decision 12/1998-QD-TTg of the Government dated 23 January 1998 on Management of Rice Export and Fertilizer Import in 1998; 11. Decision 11/1998-QD-TTg of the Government dated 23 January 1998 on Management of Import Export Activities in 1998; 12. Decision 10/1998-QD-TTg of the Government dated 23 January 1998 on Approval of Orientation of Urban Development Master Plan in Vietnam Up to the Year 2020; 13. Decree 10/1998-ND-CP of the Government dated 23 January 1998 on Measures to Encourage and Guar antee Foreign Direct Investment in Vietnam; 14. Decree 08/1998-ND-CP of the Government dated 22 January 1998 Promulgating Regulations on Establishment of Foreign Business Associations in Vietnam; 15. Circular 11/1998-TT-BTC of the Ministry of Finance dated 22 January 1998 Providing for Tax of Programs and Projects Using ODA; 16. Directive 05/1998-CT-TTg of the Government dated 22 January 1998 on Strengthening Management of Investment and Construction;

4 4 17. Directive 04/1998-CT-TTg of the Government dated 22 January 1998 on Measures to Implement Copyright Agreement between the US and the SRV; 18. Official Letter 190-TC-TCT of the Ministry of Finance dated 21 January 1998 on Taxable Turnover Applicable to Construction and Installation Works in Postal Service; 19. Circular 09/1998-TT-BTC of the Ministry of Finance dated 20 January 1998 on Control and Use of Money Collected From Anti-Smuggling; 20. Decision 39/1998/QD-NHNN1 of the State Bank of Vietnam dated 17 January 1998 Providing for Interest Rate on Loans Denominated in Vietnamese Currency And United States Dollar Provided by Credit Organizations To Economic Organizations and People (to repeal in part Decision 197); 21. Decision 40/1998/QD-NHNN1 of the State Bank of Vietnam dated 17 January 1998 on Adjustment of Interest Rate of Re-financing of the State Bank of Vietnam for Credit Institutions (to repeal in part Decision 197 and 198 of the State Bank of Vietnam dated 28 June 1997); 22. Decree 07/1998-ND-CP of the Government dated 15 January 1998 Providing for Detailed Implementation of Law on Encouragement of Domestic Investment; 23. Notification 09-TB-VPCP of the Government Office dated 15 January 1998 on Opinion of Deputy Prime Minister Nguyen Tan Dung at the Working Session with the State Securities Committee; 24. Official Letter 136 TC/QLCS of the Ministry of Finance dated 15 January 1998 on Refund of Land Use Fees That Have Been Paid to the State Budget to Organizations Which Now Transfer to Lease Land of the State; 25. Circular 08/1998/TT-BTC of the Ministry of Finance dated 15 January 1998 Providing Guidelines for Pilot Financial System Applicable for Some Areas in Lang Son Border Gate; 1.2 List of Legal Instruments issued before 16 January 1998 (not included in our Vietnam Legal Update of January 1998) 1. Decree 06/1998/ND-CP of the Government dated 14 January 1998 on Amendments of a Number of Articles of Decree 37/HDBT dated 5 February 1990 Making Detailed Provisions for Implementation of Law on Vietnamese Nationality; 2. Decision 05/1998/QD-TTg of the Government dated 14 January 1998 on Control of National Objective Program; 3. Joint Circular 01/1998-TTLT-CN-NV of the Ministry of Industry and Ministry of Interior dated 13 January 1998 Providing Guidelines for Control of Business and Supply of Industrial Explosive Materials; 4. Directive 02/1998-CT-UB-KT of HCMC People's Committee dated 12 January 1998 on Speeding up Equitization of SOEs in the City; 5. Official Letter 39/QLD of the Ministry of Health dated 10 January 1998 Providing Guidelines for Cosmetic Import and Export; 6. Circular 06/1998-TT-BTC of the Ministry of Finance dated 10 January 1998 Providing Guidelines for Implementation of Financial Management with Respect to Lottery Companies;

5 5 7. Circular 01/1998-TT-BVGCP-TH of the Government Price Committee dated 10 January 1998 Providing Guidelines of Implementation of Decree 101-CP of the Government dated 23 September 1997 Making Detailed Provisions on Implementation of Law on Promulgation of Legal Instruments; 8. Official Letter 38/1998/CV-NHNN7 of the State Bank of Vietnam dated 10 January 1998 Amending Some Points re Foreign Currency Control in the New Situation; 9. Official Letter 31/1998/CV-NHNN7 of the State Bank of Vietnam dated 10 January 1998 on Adjustment of Foreign Currency Trading Activities in Foreign Currency Market; 10. Decision 20/1998/QD-NHNN1 of the State Bank of Vietnam dated 10 January 1998 Amending Regulations on Vietnamese Dong Position with Respect to Foreign Bank Branches Operating in Vietnam (amending Decision 380/1997-QD-NHNN1 dated 11 November 1997); 11. Decision 18/1998/QD-NHNN7 of the State Bank of Vietnam dated 10 January 1998 Promulgating Regulations on Foreign Currency Reserve with Respect to Credit Institutions Allowed to Do Business in Foreign Currency; 12. Decision 17/1998/QD-NHNN7 of the State Bank of Vietnam dated 10 January 1998 Promulgating Regulations on Currency Exchange Transaction Activities; 13. Decision 16/1998/QD-NHNN7 of the State Bank of Vietnam dated 10 January 1998 Providing for Principles to Determine the Exchange Rate for Forward and SWAP Foreign Currency Transactions of Credit Institutions Allowed to Perform Forward and SWAP transactions; 14. Decision 20/1998/QD-NHNN1 of the State Bank of Vietnam dated 10 January 1998 Amending Regulations on Vietnamese Dong Position with Respect to Foreign Bank Branches Operating in Vietnam (amending Decision 380/1997-QD-NHNN1 dated 11 November 1997); 15. Directive 01/1998/CT-NHNN7 of the State Bank of Vietnam dated 9 January 1998 on Adjustment of Activities of Foreign Exchange Bureaus; 16. Official Letter 24/CP-KTN of the Government dated 9 January 1998 on Adjustment of the Total Investment Capital for Thien Tan Water Supply Project in Dong Nai Province; 17. Official Letter 92/GSQL of the General Department of Customs dated 9 January 1998 on Certification of the Certificate of Origin of Locally Assembled Automobiles and Motorbikes; 18. Official Letter 29/CV-QLNH5 of the State Bank of Vietnam dated 8 January 1998 on Calculation of Status of Foreign Currency Exchange with Respect to SWAP transactions; 19. Circular 04/1998/TT-BTC of the Ministry of Finance dated 8 January 1998 Providing for Guidelines for Procedures for Repayment of Transportation Fees via Petrol and Oil Prices with Respect to Exported Petrol and Diesel; 20. Circular 03/1998/TT/BTC of the Ministry of Finance dated 8 January 1998 Providing for Collection and Payment of Fees for Registration and Management of Civil Status; 21. Official Letter 22/KTN of the Government dated 8 January 1998 on Implementation of Credit and Commercial Contracts for Hoang Mai Cement Plant Project in Nghe An Province;

6 6 22. Decision 03/1998-QD-TTg of the Government dated 7 January 1998 Promulgating Plan for Implementation of Dissemination and Education of Laws from 1998 to 2002 and Establishment of Council for Coordition of Dissemination and Education of Laws; 23. Regulations of the Ministry of Science, Technology and Environment dated 6 January 1998 on Control of Petrol Which is Imported and Circulated in Domestic Market; 24. Directive 02/1998/CT-TTg of the Government dated 7 January 1998 on Strengthening the Dissemination and Education of Laws at Present; 25. Official Letter 55/BKH-DTNN-KCN of the Ministry of Planning and Investment dated 5 January 1998 on Delegation to Issue Investment Licences; 26. Decision 03/1998/QD-NHNN3 of the State Bank of Vietnam dated 3 January 1998 Promulgating Sample Regulations on Organization and Operation of Internal Inspection and Auditing in Credit Institutions Operating in Vietnam; 27. Decree 01/1998/ND-CP of the Government dated 3 January 1998 on System of Local Healthcare Organizations; 28. Circular 01/1997/TT-BTC of the Ministry of Finance dated 3 January 1998 Providing Guidelines for Implementation of Service Fees and Broking Commissions in State Owned Enterprises; 29. Decision 01/1998/QD/BTC of the Ministry of Finance dated 2 January 1998 Promulgating Regulations on Control and Use of State Dividend and Money Originated From State Share Sale (to replace Decision 1256 TC/TCDN/QD of the Ministry of Finance dated 13 December 1995); 30. Joint Circular 97/1997/TTLT-BTC-BGTVT of the Ministry of Finance, the Ministry of Transport and Communications dated 31 December 1997 Providing for Financial Management System for Public Service SOEs Operating in Registration; 31. Circular 98/1997/TT-BTC of the Ministry of Finance dated 31 December 1997 Providing Guidelines for Dealing with Financial Issue of Administrative Units in State Owned Corporations; 32. Circular 96/1997/TT/BTC of the Ministry of Finance dated 31 December 1997 Providing Guidelines for Collection and Payment of Fees for Issuance of Mineral Operating Licences; 33. Official Telegram 6758/KTTH of the Government Office dated 31 December 1997 on Fertilizer and Rice Import Quota Up to 31 March 1998; 34. Circular 01/1997-TT-BCN of the Ministry of Industry dated 31 December 1997 Providing Guidelines for Contents of Feasibility Study and Design of Mines and Procedures for Evaluation and Approval of Mine Design; 35. Official Letter 1500/1997-KT-TC2 of the State Bank of Vietnam dated 31 December 1997 Providing for Cost Accounting for Purchase and Sale of Foreign Currency in Accordance with Foreign Exchange Position Mechanism; 36. Official Letter 1503/1997-KTTC2 of the State Bank of Vietnam dated 31 December 1997 Providing Guidelines for Cost Accounting for Pledged Foreign Currency;

7 7 37. Official Letter 3113/TDC of the Ministry of Science, Technology and Environment on Importation of Electrostatic Painted Lorry Bodies dated 30 December 1997; 38. Circular 23/1997/TTLT-BLDTBXH-BTC of the Ministry of Labour, War Invalids and Social Affairs, Ministry of Finance dated 30 December 1997 Providing for Salary Regime with Respect to Managers and Leaders of Enterprises Established Under Decision 90/TTg on Re-structuring SOEs dated 7 March 1993; 39. Circular 95/1997/TT/BTC of the Ministry of Finance dated 29 December 1997 Guiding and Clarifying Substances of Provisions in the Agreement on Doubled Taxation Avoidance between Vietnam and Other Signatories; 40. Notification 1037-NH6-TB of the State Bank of Vietnam dated 23 December 1997 on Permission to Circulate 1,000,000 Dong Treasury Note; 41. Directive 43-CT-UB-QLDT of HCMC People's Committee dated 11 December 1997 on Implementation of Decree 04-CP of the Government dated 10 January 1997 on Dealing with Administrative Offences in Management and Use of Land in Hanoi City; 42. Official Letter 4476/LDTBXH-TL of the Ministry of Labour, War Invalids and Social Affairs dated 8 December 1997 on Wage Conversion from USD to VND with Respect to Foreign Invested Enterprises.

8 8 Part 2: Summary of Selected New Legal Instruments 2.1. Foreign Exchange Decision 37/QD/TTg of the Government on Measures for Foreign Exchange Control in the Current Circumstances dated 14 February 1998 ( Decision 37 ) Pursuant to Decision 37, as from 16 February 1998, all economic agencies, including enterprises with foreign owned capital, companies, cooperatives and other economic agencies having foreign currency revenue earned from the sale of goods and services ( economic agencies ) and administrative and social-political agencies are permitted to open only one foreign currency deposit account kept at fixed levels at one credit institution authorised to deal in foreign currency in Vietnam. Upon receipt of foreign currency, these agencies must transfer their earnings to such foreign currency accounts. Where necessary, these agencies may open another foreign currency account provided that approval from State Bank is obtained. According to Decision 37, economic, administrative and social-political agencies with branches or subsidiaries operating in different localities may, if required, also open a foreign currency account for each of their branches at a branch of the authorised credit institution provided that all branches of such credit institution belong to the same network. Where there is no branch of the same credit institution in the locality, they may open the account at another credit institution provided that it is registered with the State Bank. Economic agencies permitted by the State Bank to open foreign currency accounts overseas may retain a certain amount of foreign currency in such accounts as approved by the State Bank. Economic agencies (except foreign invested enterprises which are not entitled to the assistance of the State Bank in meeting their foreign currency requirements) are entitled to use the foreign currency balance of their accounts by the last day of the month to meet their reasonable foreign currency requirements for the following month. The remainder must be sold to authorised credit institutions. Detailed requirements for the implementation of Decision 37 are as follows: * The closing of foreign currency accounts of economic entities and/or opening of the new account in accordance with Decision 37 must be completed by 31 March 1998; * The name of the credit institutions where these accounts have been opened and number of such accounts must be notified to the State Bank before 15 April 1998; * The compulsory sale of foreign currency by economic and social-political agencies to authorised credit institutions must be completed before 28 February This requirement does not apply to foreign currency revenue deriving from legal capital contributed by foreign invested capital enterprises, capital from overseas development assistance and loans of economic entities. Such foreign currency revenues are subject to applicable regulations on foreign currency control; * The future payment of foreign currency expenses by economic and social-political agencies are carried out by way of forward contracts entered into with credit institutions at an exchange rate within the margins stipulated by the State Bank. Decision 37 also allows economic, administrative and social-political agencies, upon sale of foreign currency to credit institutions, to buy back a minimum amount of foreign currency at the credit institution equal to the amount sold to pay for transactions permitted by the regulations on foreign currency control within 6 months.

9 9 The sale and purchase of foreign currency by credit institutions shall be carried out in accordance with the regulations on spot, forward and swap exchange transactions. The time-limit for forward and swap exchange transactions is 6 months. Decision 37 states that these agencies must give priority to expenses for importation of equipment for development of investment, essential materials and payment of loans by these agencies. Official Letter 157 was issued by the State Bank on 23 February It contains detailed provisions regarding the implementation of Article 5 of Decree 37 (dealing with required sales of foreign currency). 2.2 Domestic Investment Decree 07/1998/ND-CP Providing Detailed Regulations on the Implementation of the Law on Promotion of Domestic Investment dated 15 January 1998 ( Decree 07 ) Decree 07 replaces Decree 29 Providing Detailed Regulation on the Implementation of the Law on Promotion of Domestic Investment ( old Decree 29 ) and provides for a new form of domestic investment - investment under a BOT contract. In addition, the number of entities entitled to investment incentives is expanded. Enterprises which are jointly established by Vietnamese citizens and overseas Vietnamese or foreigners residing permanently in Vietnam are now also the subject to the Law on Promotion of Domestic Investment. Decree 07 enables domestic organizations, individuals, overseas Vietnamese and foreigners residing permanently in Vietnam to purchase shares from, or contribute capital to, enterprises in Vietnam including enterprises which are allowed to diversify forms of ownership. Decree 07 adds further measures to encourage and facilitate investment, such as the provision of guarantees or export credits to establishments manufacturing goods for export and the reduction of 50% of the minimum level requirement for working capital of import and export enterprises operating in regions defined in Decree 07. In addition, improvements have been made with respect to the allocation and leasing out of land to investors. Further new investment incentives include the exemption and reduction of land rent payable by investors for the construction of infrastructure works, and a series of tax incentives. Furthermore, the simplification of investment formalities and one door policy are set out in Decree 07 in order make investment procedures easier for potential investors Technology Transfer Official Letter No. 387 of the Office of the Government dated 4 February 1998 ( Official Letter 387 ) Pursuant to Official Letter No. 387, the Ministry of Science, Technology and the Environment ( MOSTE ) is permitted to continue approving technology transfer contracts which were lodged with MOSTE after 1 May For more details see Part 4 of this month's Vietnam Legal Update Leasing of Premises Official Letter 5702/UB-KT of the People=s Committee of Ho Chi Minh City dated 31 December 1997 ( Official Letter 572 ) and Notification 277/TB-KHDT-NN of the Planning and Investment Department of Ho Chi Minh City dated 4 February 1998 on Issue of Leasing Licenses to Enterprises with Foreign Owned Capital ( Notification 277 )

10 10 Official Letter 5702 and Notification 227 clarify and reduce procedural requirements relating to the leasing of premises to foreigners and overseas Vietnamese in Ho Chi Minh City. Such procedures are regulated by the Regulations on Leasing Premises to Foreigners and Overseas Vietnamese in Vietnam issued with Decree 56/CP dated 18 September 1995 (the Regulations ). Pursuant to these two new documents, foreign invested enterprises ( FIEs ) engaging in premises leasing business in Ho Chi Minh City as permitted in their investment licenses are now only required to inform the various administrative bodies upon commencement of their operations instead of obtaining a leasing permit from the City Housing Department. Detailed requirements are as follows: * Written notification must be sent to administrative bodies by the FIE in Form 1 of Notification 227 upon commencement of operation; * Terms of the lease contract may be agreed upon by the lessor and lessee provided that they satisfy provisions of the standard lease of Decree 56/CP; * Lease contracts are no longer required to be certified by the Housing Department; * Notification of lease contracts must be made to the Taxation Office for the purpose of tax payment; * On a quarterly year basis, FIEs engaged in premises leasing business must send reports on their leasing activities in Form 2 of Notification 227 to: - the Planning and Investment Department; - the Housing Department; and - the Taxation Office.

11 11 Part 3: Features 3.1 Decree 10-CP on Foreign Investment Foreign companies familiar with the investment environment in Vietnam will not be surprised by the issue of Decree 10 on Measures for Encouragement and Guarantee of Foreign Direct Investment in Vietnam dated 23 January 1998 ( Decree 10 ). This is the fourth set of changes in the basic laws regulating foreign investment in Vietnam since the first Law on Foreign Investment was promulgated in December That Law was amended in June 1990, and again in December 1992, and was then replaced in November 1996 by the new Law on Foreign Investment which is currently in effect. New regulations implementing the new Law were issued in April 1997 ( Decree12 ). This time, however, the need for change is probably more pressing. Foreign investment figures have been falling for some time, and more steeply so in recent months as a result of the regional economic crisis. In recognition of this dire situation, Decree 10 contains a range of substantial incentives aimed at attracting foreign investment. The decree also seeks to placate existing investors by clarifying a number of areas of persistent concern and confusion. Effective from 7 February 1998, Decree 10 is overwhelmingly positive in the message it sends to foreign investors. It contains strong assurances of the Government=s commitment to supporting foreign investment on Aa stable and long term and makes several dramatic improvements to the laws regulating foreign investment in Vietnam. The following changes will be of particular interest to foreign companies investing, or considering investing, in Vietnam: Adverse changes in law Any new law which would adversely affect the benefits enjoyed by a foreign investor under its investment license will not be applied. It remains to be seen how broadly this provision will be interpreted. Typically, however, the benefits stated in an investment licenses are limited to (1) the scope of permitted activities of the relevant project, (2) its duration, (3) the list of items which are exempt from import duty (this is simply a restatement of the then current law), (4) the rent payable (if land is being rented), (5) profit tax rates and concessions, and (6) withholding tax rate. Other benefits of fundamental concern to investors which are not addressed in the investment license, eg turnover tax and foreign currency privileges, presumably are not protected by this provision. Under Decree 12, an investor may also claim compensation in the event of an adverse change in law. Beneficial changes in law Any new law which provides for more favourable conditions than those specified in an investment license, will be permitted to apply in accordance with [Decree 10]. It is unclear what it is intended by these final words, but they may be interpreted as limiting the scope of this provision to only those cases already dealt with in Decree 10, ie in relation to profit tax (see below). Improved coordination Ministries, people s committees and other authorities are now required to obtain the approval of the Ministry of Planning and Investment before issuing any legal instrument affecting foreign investment. Pre 23 November 1996 projects Foreign investment projects licensed prior to 23 November 1996 (which is the date on which the new Law on Foreign Investment was issued) may apply for the benefit of the tax concessions provided for in Decree 12 or in Decree 36 on IZs, EPZs and HTZs. Clarification of projects which are encouraged New lists of projects which are specially encouraged, encouraged, conditional and prohibited have been issued, together with lists of geographical areas where investment is encouraged. Profit tax incentives

12 12 Projects which are specially encouraged or encouraged and which are entitled to a concessional rate of profits tax (ie 20%, 15% or 10%, determined in accordance with Decree 12) will now be entitled to such concessional rate for the whole duration of their license. Previously under Decree 12, concessional rates for these projects, as for all other projects, expired after a period of 10 to 15 years. The standard rate of 25% would then apply for the remainder of the project=s duration. Export Incentives Foreign invested enterprises which manufacture exports will be permitted to defer payment of import duties (rather than paying such duties at the time of import and then seeking a refund upon export). The ratio of manufactured goods which must be exported by a foreign investment project will be specified in its investment license (the MPI has been doing this for some time already). If the project fails to comply with this requirement for 3 consecutive years, then the MPI may withdraw its license. The Ministry of Finance will consider special tax treatment for projects manufacturing products which are sold to other enterprises for use in the process of manufacturing exports. Duty Free Imports Construction materials used in the construction of the fixed assets of a foreign investment project will be added back to the list of items which may be imported duty free (this item had been removed from the list in the new Law on Foreign Investment). Raw and other materials imported for manufacturing machinery and equipment will also be added to the list. Businesses engaged in defined industries (eg hotel, apartments, hospitals, banking and consultancy) will be permitted to import certain defined items once only on a duty free basis (provided that priority has been given to the purchase of such items from the Vietnamese market). 100% Foreign Owned Enterprises 100% foreign owned enterprises will be permitted to carry forward losses for up to 5 years, on the same basis as joint ventures are entitled to do so. Domestic Sales Foreign investment projects which are permitted to sell goods in the domestic market will be permitted to do so directly, or through an agent, anywhere in Vietnam. Foreign Currency Assistance Additional foreign currency privileges will be provided. Projects which do not manufacture essential import substitutes, construct infrastructure, nor qualify as specially important for the purposes of being able to purchase foreign currency, will be assisted by the State Bank for the first 3 years in order to purchase raw materials and spare parts and repay interest on loans. The State Bank may also consider providing assistance to enterprises providing services (such as tourism, hotels, office leasing, etc). Infrastructure Development The Government will ensure that technical infrastructure facilities are provided to the boundary of foreign investment projects. Enterprises developing industrial zones will be permitted to sublease land within the zone to foreign invested enterprises, which may then develop the land and sublease it to another enterprise. Inspections Inspection of foreign investment projects will be regulated more tightly, in accordance with defined procedures. In our opinion, the changes contained in Decree 10 represent a significant improvement in the incentives offered to, and environment for, foreign investment in Vietnam. It remains to be seen, however, how these new policy statements and legal provisions are translated into practice. 3.2 Foreign Investors Conference Prime Minister Phan Van Khai addressed over 500 foreign investors at a conference held at the Reunification Palace in Ho Chi Minh City on 4 February. Mr Khai acknowledged that foreign investors are encountering a wide range of

13 13 difficulties in Vietnam, and assured the audience that the Government is committed to supporting foreign investment in Vietnam on a stable and long term basis and will use its best efforts to address investors concerns. Mr Khai noted that the Government recently issued a new decree aimed at encouraging and assisting foreign investment in Vietnam (ie Decree 10). He said that further improvements for investors are in the pipeline. We have heard that a significant reduction of land rental rates is imminent. Representatives of foreign companies operating in Vietnam were invited to speak. Their comments included the following: * The day to day obstacles hindering the implementation of investment projects are defeating the commendable policy objectives of the Government. The reality of doing business in Vietnam does not reflect the stated policy. This is disillusioning many investors. * Inconsistent levying of import duties and inappropriate customs clearance procedures are creating major bottlenecks. * Mechanisms for dispute resolution are inadequate. * Foreign exchange regulations need to be clear, and enforced uniformly. * Wages for Vietnamese employees should be denominated in VND, rather than in USD, which is the current practice generally required by the authorities. * The high income taxes applying to local employees is a significant disincentive to employing and promoting local staff. * Tax laws are being applied inconsistently. The General Department of Taxation should issue tax guidelines, and not apply tax changes retrospectively. 3.3 Comment on Progress of Legal Reform in Vietnam The Vietnamese Government has issued a new decree on 23 January 1998 containing a range of incentives aimed at attracting foreign investment. The decree also seeks to placate existing investors by clarifying a number of areas of persistent concern and confusion. The changes will need to be implemented quickly and uniformly, as investors have been leaving, and staying away, in droves over recent months. The decree provides various tax concessions, import duty exemptions and foreign currency privileges for foreign investment projects (see Part 3.1 above). Most would agree, however, that the new decree is more a reaction to a desperate situation, than part of a concerted process of legal reform in Vietnam. Investment figures for 1997 plummeted by around 50% over the previous year=s figures and unless drastic measures are taken soon, the outlook for 1998 also looks bleak. Much of the downturn can be attributed to the economic crisis that has swept Asia since July last year. Vietnamese government officials have tried to put a brave face to the crisis, assuring the media that the absence of a stockmarket and of a freely convertible currency protects Vietnam from flights of foreign capital and from a rapid depreciation of the local currency, the Dong. But Korean, Indonesian, and Malaysian companies are amongst Vietnam s biggest investors, and many of their projects are now lying idle, starved of finance. Furthermore, the rapid depreciation of other regional currencies, compared to the as-yet-only token depreciation of the Dong, has left Vietnam looking much more expensive than its neighbours. Low labour costs are no longer the attraction they were 6 months ago. The free fall in regional currencies also means that Vietnamese exports, particularly rice, have become comparatively more expensive, and will be difficult to sell to overseas buyers.

14 14 The investment figures were beginning to slide, however, long before the Asian economic crisis took hold in July last year. Investor confidence in the strength of Vietnam s commitment to looking after foreign investors has been waning for some time. In a recent statement to the press, the new Prime Minister, Phan Van Khai, evidently recognising the problem, exhorted Vietnamese officials to treat foreign investors= problems as your own. Many of the complaints raised by foreign investors relate, in one way or another, to the inadequacy of Vietnam s laws and legal system. Over the past few years, investors have been deluged with thousands of laws, decrees, regulations, decisions, circulars and official letters regulating foreign investment activities in Vietnam. Many of these legal instruments are poorly drafted, containing inconsistencies and ambiguities which confuse and confound hapless foreign companies trying to understand them. Cynical observers say that much of the confusion is deliberate. The lack of transparency and certainty protects vested interests and authority, and provides easy avenues for corruption. It should be noted, however, that Vietnam began its legal reform process only recently, with the adoption of the doi moi policy in Compared to the early days of foreign investment, Vietnam s legal system is now much more developed and sophisticated in many areas. But while doi moi heralded a new era of economic openness to the outside world, it has not resulted in a wholesale legal reform process. Rather, legal reform in Vietnam has proceeded on a fairly piecemeal basis, and the rule of law is still struggling to find its footing. Several very important legal instruments were issued in 1997, including the Commercial Law, the Corporate Income Tax and Value Added Tax Laws, and the State Bank and Credit Institutions Laws. Other legal instruments clarifying taxation and foreign currency matters were also issued. These are certainly commendable developments, but for many Western investors, the process of legal reform is too slow and is leaving too many gaps - some would say gaping holes. For instance, the extent to which the Commercial Law (which came into effect on 1 January of this year) repeals prior laws and applies to the provision of services remains unclear. Regulations which will clarify these and other problems are apparently in the pipeline. Pending issue of these legal instruments, however, some officials say that the Law itself cannot be implemented or applied yet. Perhaps the most appropriate standard by which to assess the progress of legal reform in Vietnam is a regional one. In this respect, as in many areas, Vietnam still has a long way to go before it can hope to catch up to its neighbouring competitors. Unfortunately, the legacy of Chinese, French and Russian legal systems has not provided Vietnam with the same kind of legal foundations which countries such as Singapore and Malaysia have benefited from. Some of Vietnam s legal problems can be explained simply by inexperience. A new cheque law was introduced last year, but instead of encouraging people to use cheques, people are relying on cash more than ever. The legal requirements for issuing a valid cheque are just too complicated for most people. With serious shortages of foreign currency looming, the State Bank has introduced a series measures aimed at shoring up foreign currency reserves. But the barrage of circulars and directives which it has issued over the past few months, coupled with inconsistent enforcement, has rattled many foreign investment projects which are now struggling to find hard currency with which to pay for imported raw materials and repay foreign loans. Prospects for serious legal reform, however, are probably better now than at any time over the past few years. Membership of ASEAN is requiring Vietnam to conform with regional legal standards. Increased engagement with the United States and preparations to apply for membership of the WTO are also beginning to have some effect. Recent developments have added some momentum to this process. There are strong signs that President Clinton will soon recommend that the US Congress waive the Jackson-Vanik Amendment, which is currently restricting normal economic relations with Vietnam. A trade agreement and granting of MFN status should then follow.

15 15 The price that Vietnam will be required to pay in order to gain these benefits will inevitably include a commitment to substantial legal reform. The time is certainly ripe for Vietnam to make such a commitment.

16 16 Part 4: Did You Know? 4.1 Salary Payments to Vietnamese Staff - in Dollars or Dong? Pursuant to current labour regulations, salaries of Vietnamese staff working for foreign invested enterprises and representative offices must be denominated in United States Dollars in employment contracts, and paid in Vietnamese Dong. The relevant regulations are as follows: (1) Article 1 of Section II of Circular No.11-LDTBXH-TT issued by the Ministry of Labour, War Invalids and Social Affairs dated 3 May 1995 on Wages of Vietnamese Employees Working in Enterprises with Foreign Owned Capital and Foreign Organizations in Vietnam ( Circular 11 )...the minimum wage rate shall be expressed in United States dollars (USD per month). (2) Article 1 of Section III of Circular 11...Wages shall be paid to Vietnamese employees in Vietnamese bank notes in accordance with the purchase rate of United States dollars published by the State Bank of Vietnam at the time of payment. (3) Official Letter 1615/LDTBXH-TL of MOLISA dated 10 May 1997 Relating to Salary of Vietnamese Personnel Working for Foreign Invested Enterprises and Representative Offices ( Official Letter 1615 ) states that the salary of Vietnamese employees working in foreign invested enterprises and representative offices must be denominated in United States Dollars and carried out in accordance with the provisions provided for in Circular Approval of Technology Transfer Contracts: Official Letter 387 of the Office of the Government dated 4 February 1998 ( Official Letter 387 ) On 4 February 1998 the Office of the Government issued Official Letter 387 permitting the Ministry of Science, Technology and Environment ( MoSTE ) to approve technology transfer contracts which were lodged with MoSTE after 1 May Official Letter 387 follows Official Letter 1889/KGVX dated 18 May 1997 permitting MoSTE to approve technology transfer contracts submitted prior to 1 May Official Letters 1889 and 387 are responses to the current absence of legislation in relation to technology transfer. The legal situation at this point in time is as follows: In October 1995 the Civil Code was passed by the National Assembly of Vietnam and entered into force as from 1 July The Civil Code contains a number of provisions relating to industrial property and technology transfer in Vietnam. At the same time the Civil Code was enacted, the Ordinance on the Transfer of Technology into Vietnam and all subordinate legislation ( Old Legislation ) were repealed. A Decree Providing Detailed Regulations and Guidelines on the Implementation of Regulations of the Civil Code in Relation to Technology Transfer ( New Decree ) has been in process of drafting for the last two years. This New Decree is yet to be finalised and passed. Until this happens MoSTE will have to approve technology transfer contracts based on the Old Legislation. Such legislation must be read subject to the provisions of the Civil Code. It is possible that investors who prefer to wait and seek for approval under the long awaited New Decree may benefit from terms more favourable than those available under the Old Legislation.

17 17 Part 5: Publications The following publications on regulations affecting foreign investment and business registration in Vietnam and Myanmar are available through any of the offices listed below. If you would like to purchase any of these publications please contact us and we would be happy to send you an order form. Foreign Investment Laws of Vietnam Loose-Leaf Subscription Service 7 volume loose-leaf set including subscription service from to US$ Subscription service from to only US$ Subscription service from to only US$ Additional loose-leaf binders (each) US$30.00 Other Publications Circular on Guidelines for Foreign Investment in Vietnam (English) US$20.00 Circular on Guidelines for Foreign Investment in Vietnam (Japanese) US$20.00 Labour Code of Vietnam (Japanese) US$50.00 Insurance Legislation of Vietnam (English) US$20.00 Civil Code of Vietnam (English) US$60.00 Foreign Investment Law of Vietnam (English) US$15.00 Compendium of Labour Laws (English) US$ Foreign Investment Laws of Myanmar (loose leaf subscription) US$ CD ROM Foreign Investment Law Database (English and Vietnamese) US$ 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 Phnom Penh

18 18 Todd Dirksen and Mary Flipse DFDL Mekong Commerce Building No. 1 Luang Prabang Road, Vientiane, Laos David Doran DFDL 45 Preah Suramarit Boulevard Phnom Penh, Cambodia Phone: Fax: to dfdllaos@loxinfo.co.th Phone: Fax: dfdl-pp@bigpond.com.kh