S&S NEW LETTER May 2008

Transcription

1 S&S NEW LETTER May 2008

2 <New Regulations> (Decree101) Decree101. 2, ,, dying breed? MPI ,000 2~3%. deadline?.. JVC. Deadline approaching Decree 101 on re-registration, conversion and registration for replacement with investment certificates by enterprises with foreign owned capital pursuant to Law on Enterprises and Law on Investment, dated 21 September 2006 (Decree 101) Background The Law on Enterprises (LOE) came into effect on 1 July 2006 to provide unified regulations in respect of domestic and foreign invested companies. Article of the LOE and Decree ND-CP of the Government dated 21 September 2006 (Decree 101) entitle foreign-invested enterprises (FIEs) established under the old Law on Foreign Investment (LOFI) to opt to re-register to operate under the new LOE and the new Law on Investment (LOI). There is a time limit of two years after the effective date of the LOE for FIEs to re-register. As such, existing FIEs have until 1 July 2008 to carry out re-registration. The main advantage of re-registration is that re-registered FIEs will begin to operate under the new unified sets of regulations, while FIEs which opt not to re-register will remain creatures of the old LOFI and will become a 'dying breed' as their investment licenses eventually expire. Why no re-registration? Notwithstanding the re-registration requirement, according to the Ministry of Planning and Investment's statistics, as of January 2008, only 2-3% out of 6,000 FIEs had-registered or applied to do so. This, even though there are only a few months left until the deadline, and when they have had 18 months to comply with the re-registration requirement. Why is this? For most existing foreign investors in Vietnam, the positives of making the transition will greatly outweigh the negatives. However, the circumstances of each investment project need to be considered. In particular, re-registration may not be so straightforward for joint venture. Excuses, excuses 2

3 ? ; -, - JV JV. JV -, JV parties., 75%, 65%. JV party JV parties ( ), party.. -., WTO commitment. tax,. The primary reasons for FIEs not re-registering seem to be the following: Although the re-registration process looks simple and straightforward, the process of preparing the documents and lodgement to the licensing authority is actually quite lengthy and timeconsuming. With respect to joint venture FIEs, re-registration may necessitate re-negotiation of the joint venture documents, particularly provisions on management and control. This will usually not be desirable. Under the LOFI, certain matters must be decided by unanimous approval of the joint venture parties (which appears to include any decision to re-register). The LOE does not provide for unanimous approval, requiring only 75% approval for most important matters and 65% approval for other matters. Therefore, in practice, a conflict between the joint venture parties can arise when the minority partner in the FIE prefers not to re-register (in order to preserve its position under the unanimous approval principle), but the majority partner wishes to do so, in order to achieve more management control. Unfortunately, this conflict can be resolved only by unanimous decision of the parties. There are still uncertainties in relation to the rights and obligations of FIEs before and after re-registration. Although the relevant regulations provide that all investment incentives of FIEs will remain the same after re-registration, some investors are concerned that some of these rights and incentives may (in fact and in law) be affected by Vietnam's commitments to the WTO. This issue is most relevant to FIEs which currently enjoy tax incentives on the basis of their export activities or that are licensed under the LOFI to conduct import and distribution activities. Consequences of failing to re-register 3

4 ,.,.. Decree101,, tax code.,.., ( ), X,? ( ).? 2.. MPI news, Existing FIEs opting not to re-register will become corporate 'dinosaurs' in the new legal system. While permitted to continue to operate in accordance within their prescribed scope of business and for the duration stipulated in their investment licenses, non-re-registering FIEs will be restricted from amending their licensed business lines/sectors or licensed duration. Amendments of other contents of the investment licenses must be made and processed in accordance with the new LOI. Decree 101 provides for non-re-registering FIEs to retain their current names, seals, bank accounts and already-registered tax codes. In all other respects, non-re-registering FIEs will be subject to regulations of the new LOI and LOE. This gives rise to some uncertainty for these FIEs. It may require some considerable time and resources for non-re-registering FIEs to assess their rights and obligations under the new laws versus the restrictions of Decree 101 and the provisions of the old LOFI. For example, if non-transitioning FIE 'X' has a Charter that incorporates by reference various provisions from the old LOFI (eg 'board voting must be conducted in accordance with the LOFI'), is FIE 'X' entitled to continue to conduct board voting in the 'old way' or must it adopt the 'new way' under the new LOE? This is significant because many aspects of corporate regulation (voting, in particular) are treated very differently under the old regime and the new investment-enterprise regime. (See the article at Part 3.4 of this issue of the VLU in this regard). The only way to achieve certainty on these points is for FIEs to re-register. So why not just re-register and make life easy? Extension possible? From the issuance of the LOE, the business community has raised objections to re-registering, complaining that the two-year period is too tight. As the deadline approaches, the question therefore is in the air as to whether the Government will extend the deadline. There are some indications both ways, with the MPI declaring in a recent news article that the deadline would not be extended, but also a recent suggestion that the Government will extend this period for at least one more year. In practice, if any companies carry out the re-registration after 30 June 2008, informal conversations with the DPI indicate that local authorities should accept the application file, however this guidance 4

5 , DPI,., Decree deadline ( : )., is not binding, and until a decree is issued, the official deadline for re-registration the remains 1 July Foreign residential ownership - a reality finally, or just more talk? Draft Housing Law of the Ministry of Construction permitting foreigners to purchase and own residential houses in Vietnam, dated 10 April 2008 (Draft Housing Law) The long wait Nearly a year ago, we reported in our May 2007 VLU issue on the Government s draft pilot scheme allowing foreigners to purchase residential houses in Vietnam. After 12 long months of drafting and redrafting, this scheme is finally to be submitted to the National Assembly for approval next month. Narrower than prior draft On 10 April 2008 the Draft Housing Law was discussed at the General Meeting of the National Assembly Economics Committee. The draft settled upon is somewhat narrower than prior drafts under consideration. The Housing Law Draft indicates that foreigners must fall into one of the seven categories and satisfy two conditions (listed below) to be eligible to purchase residential houses in Vietnam. According to the Draft, eligible foreigners will be allowed to buy apartments (note: not houses, notwithstanding the official title to the draft) in commercial housing development projects. However, the Draft stipulates that each foreign individual will be allowed to purchase only one apartment and he/she may sell the residence only after one year from obtaining the housing ownership certificate. The maximum duration for owning apartments for foreigners will be 70 years. This duration may be renewed once. The local provincial people's committee will be the only authority entitled to issue housing ownership certificates to the foreigners. 5

6 7 7. (i) (local ) (ii) (, UN ) (iii),,, ( ) (iv) (v) (vi) 5 5 (vii) ( ) Lucky seven Following are the seven groups of foreigners eligible to purchase apartments under the Draft: (i) foreign individuals directly investing in Vietnam according to the investment laws of Vietnam or holding management positions in enterprises (both local and foreign-invested enterprises) in Vietnam; (ii) foreign individuals who contribute to the country's development and have received the President's certificates of merit or medals, or have been granted titles as emeritus citizens of Vietnam; former Ambassadors, former heads of Consul Generals and former heads of international recognized organisations such as the United Nations organization in Vietnam; (iii) foreign cultural activists and scientists who are working in Vietnam and hold academic titles and/or academic distinctions awarded by Vietnamese organisations or foreign organisations in science-technology, health, sports, culture, or art fields; (iv) foreigners who are married to Vietnamese residents; (v) persons who are allowed to purchase houses according to special decisions of the Prime Minister; (vi) persons who have been living in Vietnam for five years or more and who do not fall into categories (i) to (v) above; and 7 (i), i ~ v 1 residence permit. Vi 5 (vii) foreign-invested enterprises operating in Vietnam, excluding those operating in the real estate sector, who will be allowed to buy residences for their employees. Two more conditions if you want to buy In addition to falling in one of the categories set out above, the following two conditions also met by foreigners wishing to buy residences in Vietnam: (i) foreign businesses must have an investment license/certificate granted by authorised agencies of Vietnam; and foreign individuals (a) who fall into categories (i) to (v) must have been granted a residence permit proving that they have been living or working in Vietnam one or more years, and (b) who fall into category (vi) must be certified by the local authority where they reside to have been living in Vietnam for five years or more; and 6

7 (ii), Decree ? 18, work permit. Work permits work permit.. Work permit., work permit., (ii) the purchased residence is an apartment in a commercial housing development project and not within a prohibited area or an area in which residence and movement of foreigners is restricted. Again, note that stand-alone houses still appear not to be permitted to be purchased or owned by foreigners under the Draft. The Draft is planned to be approved during the 3 rd session of the National Assembly which commences on 6 May While short of permitting unfettered ownership of residential dwellings by foreigners, the Draft represents a significant shift from prior law, and opens the door that many foreigners have been waiting for. Foreigners working in a foreign land Decree ND-CP of the Government on the employment and administration of foreigners working in Vietnam, dated 25 March 2008 (Decree 34) On 25 March 2008, the Government issued Decree 34 providing further guidelines under the Labour Code for foreign workers in Vietnam. Of particular import in terms of topics covered by Decree 34 are work permits for foreigners and the lifting of the cap on foreign workers. Who can work here? Under the Decree, all foreigners who are 18 years of age or older, fit to work, with no criminal record, and who are managers or experts directly managing businesses in Vietnam, may work in Vietnam, provided they obtain and maintain a valid work permit. Work permits In most instances a foreigner must obtain a work permit issued by the relevant local Department of Labour. The application process for the work permit should be commenced by the employer prior to the arrival of the foreigner in Vietnam, whenever this is possible. The period of the work permit should be the same duration as that of the proposed labour contract for the employee, or as set out in the terms of his or her appointment letter. In special cases where there is no labour contract, the period of the work permit must be the same duration as that of the contract or other document between the Vietnamese party and the foreign party. As an example, if the foreigner is acting as representative of a foreign non-governmental organisation, the period of the work permit is the same as that of the operating certificate for the 7

8 , work permit. 36,. Work permit. - - work permit - ( 6 ) ( ) - 3-2, 1, BoM - -, domestic assistants( 7 report ) - project. The total duration of a work permit in any case may not exceed 36 months, after which it must be renewed. When applying for a work permit, a foreigner must furnish the following documents: the labour contract, draft labour contract, or other document confirming the terms of employment as agreed between the parties a letter (in standard form) from the employer requesting that a work permit be issued a legal record from the foreigner's previous country of residence or from Vietnam if they have resided here for more than six months a curriculum vitae (in standard form) a health certificate any certificates of specialisation or expertise (this is usually the tricky bit requiring consularisation notarisation, etc) and recent photos. Exemptions Foreigners who are not required to obtain work permits for employment in Vietnam include the following: those working for less than three months those who are members of a limited liability company with two or more members, or owners of a one-member limited liability company, or members of the board of management of a shareholding company foreign lawyers who have been granted a certificate to practise law in Vietnam (phew!) foreign students, spouses of high ranking government or diplomatic officials, and domestic assistants (provided that the employer of such persons provides a report to the relevant local Department of Labour seven days prior to the commencement date of their employment) those entering Vietnam to offer services, in certain, yet unspecified, circumstances. 8

9 3% 3%. 3%. Decree % rule Decree34, ( ), 20%, executive directors,., Decree WTO,,. Abolishment of 3% cap Of huge significance to foreign companies in Vietnam, Decree 34 has removed the cap which had previously existed with respect to foreigners working for enterprises in Vietnam. Prior regulations - resoundly criticised by the foreign investment community since their very issuance - provided that the number of foreigners employed by any company in Vietnam could not exceed 3% of the total number of employees. As managers of foreign companies in Vietnam are often foreigners with expertise and management expertise, and therefore seen as necessary - at least in the start-up phases of operation for foreign companies - the 3% cap has been viewed as unreasonable and practically unworkable. Under Decree 34, it appears that the Government has seen the light on this point, and enterprises in Vietnam are now allowed to hire an unlimited number of foreigners. So we have the proverbial 'one step forward' again, after the initial back-step. 20% rule for Vietnamese managers Although Decree 34 is not entirely clear on this point, it seems to also require, in cases where a company routinely transfers managers in and out of Vietnam from abroad (which, in our view, would cover most foreign investors who post expats to Vietnam), that at least 20% of the total number of the managers, executive directors and experts of the enterprise must be Vietnamese citizens. This requirement notwithstanding, Decree 34 specifies that at least three foreign managers, executive directors and experts are guaranteed to be permitted to work to work in a foreign enterprise. Unlisted companies another conundrum for foreigners 2007 saw a significant increase in the purchase of shares and other equities in Vietnamese enterprises, particularly by foreign investors, resulting in an escalation both in the quantity and value of shares of domestic companies. Since Vietnam's accession to the WTO on 11 January 2007 more foreign investors are clearly choosing Vietnam as a lucrative investment destination; however, the laws currently governing foreign investment, particularly in unlisted Vietnamese enterprises, remain unclear and inconsistent. Changing tide 9

10 , Decision36(1999 ) 30%.,,. Decree139. ( ),, WTO. Decree , Decision3539, 49% official letter % official letter 63 40%. Decision 3539, Official letter Decree 139 Prior to the implementation of both the 2005 Law on Enterprises (LOE) and the 2005 Law on Investment (LOI), Decision 36/QD-TTg dated 10 June 1999 (Decision 36) permitted foreign investor to buy a maximum of 30% of the shares or equity in unlisted Vietnamese enterprises operating in certain sectors. The LOE and the LOI, in contrast, generally treat foreign investors and Vietnamese investors equally in terms of their rights to invest in, make capital contributions to and purchase shares in unlisted enterprises. Decree 139 implementing the LOE (Decree 139), issued in the fall of last year, further hammers home the change in prior law by allowing foreign investors to make capital contributions and to purchase shares in unlisted enterprises without limit, subject (only) to ownership ratios set forth in industry-specific laws (such as banking); in cases of equitisations of State owned enterprises: and in the WTO schedule and conditional sectors listed in the LOI. Confusion reigns post-loe and LOI The 'subject tos' noted above are significant, and clearly qualify Decree 139's 'general application to foreign investment, but it is the impact of subsequent legal instruments promulgated by State bodies at lower levels that is resulting in the current confusion and uncertainty regarding foreign investment in unlisted local companies. As examples: On 8 November 2007, the Ministry of Finance issued Decision 3567/QD-BTC (Decision 3567) regarding the organization and management of trading of securities in unlisted public enterprises. This decision purports to limit foreign ownership in unlisted public companies to the same percentage as listed companies, ie 49%. On 3 March 2008, the Prime Minister published Official Letter 319/TTg-KHTH (Official Letter 319) concerning anti-inflammatory measures generally, but including the setting of a cap on foreign investment in unlisted public enterprises at up to but not exceeding 49%. This same cap was specified at 40% in Official Letter 63/TB-VPCP on 11 March 2008 (Official Letter 63), reflecting an agreed action item arising from a recent meeting between the Government and several State bodies. Clarity needed 10

11 .,,. DPI official letter , Decree49 Decree209.. (MoC). MoC,,... Decree. Decree 1, MoC. Decree209 Ultimate clarity on this issue will only be achieved once Decision 3567, Official Letter 319 and Official Letter 63 - and perhaps other local-level pronouncements - are reconciled and codified into a decree, circular or other appropriate legal instrument amending or at least distinguishing itself from Decree 139. In the interim, and technically speaking, the Law on the Promulgation of Legal Instruments dated 12 November 1996 requires lower level instruments inconsistent with higher level instruments to be repealed or suspended from implementation. However, convincing lower level DPI officers to ignore recently published Government letters presents an interesting challenge to foreign investors. Examination of safety of construction works On April 18, 2008, the Government issued Decree 49/2008/ND-CP on amendment of and addition to some articles of Decree 209/2004/ND-CP on management of quality of construction works. When incident is occurred with respect to construction work items and construction works, the inspection and certification of satisfaction of the safety conditions must be conducted before the construction work items or construction works are used. The Ministry of Construction shall be responsible for guiding the inspection and certification of satisfaction of the conditions of forcebearing safety and certification on the compliance of the quality of construction works. The Ministry of Construction shall certify the satisfaction of quality of construction works at the request of the State body or proposal of the investors on the basis of the request of construction work insurance organization, organizations or individuals who purchase, manage or use the construction work. In case where the technical designs are changed without changing the basic designs or change of the drawings for construction and without changing the last designs, the investor may change the designs. Contractors who supervise the construction of works may sign the adjustment of the drawings for construction with respect to the contents as accepted by the investor and shall have to bear the responsibility for their decision. Besides, investor may draft new model minutes for checking and taking over [the construction works]or use model minutes for checking and taking over [the construction works] as stipulated in the standards for construction of works and checking and taking over, but the minutes must comply with the contents of this Decree. Within 1 years as from the date on which this Decree takes effect, the Ministry of Construction shall promulgate detailed regulations on categories and grades of construction works in the regulations 11

12 Decree55,,. complaint, ( ).,,.,,. 4 11, Circular on technical standards for construction. In the period for which these regulations have not been promulgated, the method for classification and arrangement in accordance with grades of construction works as stipulated in appendixes of Decree 209/2004/ND-CP shall still be applied. This Decree shall be of full force and effect after 15 days as from the date of its publication on Cong Bao. Protecting consumer's rights According to Decree 55/2008/ND-CP dated April 24, 2008 of the Government, any action to commit breach of the lawful rights and interest of consumers shall be dealt with promptly, if causing damage, the compensation shall must be made. When organizations and individuals trading goods and services receive complaints from consumer, they shall have to issue receipt and shall settle the complaints within 7 working days as from date of receiving the complaints. In case where it is urgent, the time-limit for settling the complaints shall be 3 working days. The receipt may be made in writing or . Organizations and individuals trading goods and services are prohibited to force customers in goods-selling agreement. The advertisement, sales promotion, display of products which cause mistakes to customers about goods and services shall also be prohibited. Such organizations and individuals shall have to provide information on goods and services promptly, truthfully and accurately to the customers. This Decree shall be of full force and effect after 15 days as from the date of its publication on Cong Bao. Guiding the provision of foreign exchange services On April 11, 2008, the State Bank issued Circular 03/2008/TT-NHNN guiding the provision of foreign exchange services by credit institutions. In order to be considered and permitted to provide foreign exchange services in the domestic market, the business of non-banking credit institutions must generate profit for 5 consecutive years next to the year these non-banking credit institutions register such business activities. In case they wish to provide foreign exchange services in the international market, their business must generate profit for the last three years. When providing the foreign exchange services, credit institutions must formulate the transaction process as well as measures for management of risks and internal control. The transaction process must clearly state the contents and steps for conducting transactions as well as assigning the responsibility and power of the levels in conducting the transactions. This Circular shall be of full force and effect after 15 days as from the date of its publication on Cong Bao. 12

13 Decree 40, ; (i), (ii),, (iii), (iv).. 6.,.. Producing and trading alcohol According to Decree 40/2008/ND-CP, in order to be issued with permit for production of alcohol, enterprises shall have to satisfy the following conditions: (i) enterprises have registered to produce alcohol; (ii) Having lines of machinery and equipment and technical process for production of alcohol, which ensure the quality, hygiene and safety of foods; (iii) Owning or having the use right of alcohol brand in Vietnam; (iv) Persons who directly participate in production of alcohol must be healthy and not having infectious disease. Enterprises shall only be permitted to conduct the production and trading activities as from the date of issuance of permit. If the enterprise fails to carry out its production activities within 6 months as from the date of issuance of production permit without giving proper reasons, the production permit shall be revoked. Organizations and individuals trading alcohol shall be responsible for provision of information about their alcohol products at the request of the competent body as well as on the mass media with respect to composition, contents, adverse effect and so forth. Organizations and individuals producing alcohols by hand shall have to register its business in accordance with the law. This Decree shall be of full force and effect after 15 days as from the date of its publication on Cong Bao. 13

14 <Currently issued Official Letters>,.,.,,,,,,, VAT invoice VAT., VAT invoice VAT.. VAT,.., Making depreciation of fixed assets According to the prevailing regulations, a long term land use right is a special intangible fixed asset which an enterprise shall record in the accounting books at historical cost price but shall not depreciate. In case where a company purchase a house together with land use right to be used as headquarter of the company, and after that the company demolishes the house to build new headquarter, the value of the land use right must be separated and shall be recognized as intangible fixed asset in accordance with the original price, without making depreciation. The value of demolished house shall be calculated as other expense in the period. (According to Official Letter 1539 TCT/CS dated April 21, 2008 of GDT). VAT According to the prevailing regulations, with respect to goods and products produced for exchange, gift, promotions or advertising or payment of workers instead of wages, for internal consumption not used for production and trading, or used for production and trading of goods and services which are not subject to VAT, the establishment must prepare added value invoices (or sales invoices) on which items are fully recorded and VAT is calculated as in the case of the invoice for selling goods to customers. In case where a company purchases a automobile to give as gift to a general hospital, the company shall have to issue VAT invoice, recording full criteria and calculating VAT the same as when issuing invoice to client. The company shall have to clearly record on the invoice that goods is for giving as gift without collection of money. At the same time, the company shall have to declare and pay VAT to the State budget. Taxable price of the automobile to be given as gift shall be determined in accordance with the price of automobile of the same kind or equivalent at the time of giving as gift, the input VAT of automobile shall be declared and deducted in accordance with the law. (According to Official Letter 1536 TCT/HT dated April 21, 2008 of GDT). CIT incentives According to the prevailing regulations, if a business establishment conducts a number of types of business operations during its period of entitlement to CIT exemption or reduction, it 14

15 ,., x (, / ). 28%.,. unit. unit. 2, business., proper expense.. proper expense.. must conduct separate accounting for the business operations entitled to tax exemption or reduction. If it fails to do so, the part of its income entitled to tax exemption or reduction shall be fixed as equal to total taxable turnover multiplied by the percentage of revenue from business operations entitled to tax exemption or reduction over total aggregate turnover in the tax period. Therefore, if a company registers and is permitted to purchase shell of shrimp and crab to export, this activity shall not be subject to reduction of and exemption from CIT, but subject to a CIT rate of 28%. In case where the company fails to conduct separate accounting for this business, income from production and business activities entitled to reduction of and exemption from tax shall be calculated as above. (According to Official Letter 1402 TCT/HT dated April 9, 2008 of GDT). Declaration and payment of CIT According to the prevailing regulations, units implementing the dependent cost-accounting system shall only be obliged to register taxes at the locality without being obliged to declare and pay taxes at the locality; the main business establishment shall declare and pay taxes on behalf of the units implementing the dependent cost-accounting system. In case where a company is located in an industrial zone and the company has two branches implementing the dependent cost-accounting system in other locality, the company shall be responsible for declare and pay CIT at the headquarter of the company for the business conducted by the company and the business conducted by the two branches. (According to Official Letter 1400 TCT/HT dated April 9, 2008 of GDT). Calculation of expense According to the prevailing regulations, expenses not relating to creation of turnover and taxable income in the tax period shall not be calculated as proper expense. Expense paid for traveling and living of employees and officers [currently working for branch in foreign country] when they come to Vietnam to work shall not relate to turnover and taxable income of the company in Vietnam. Therefore, the company shall not be permitted to calculate these expense as proper expense when determining CIT taxable income. This expense shall be calculated as expense of the branch in foreign country. (According to Official Letter 1318 TCT/HT dated April 3, 2008 of GDT). 15