contents February 2009 visit visit

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1 February 2009 contents Part 1 Selected new legal instruments 1.1 Taxing matters busy times at the MOF And you thought PIT, CIT and VAT were it Tech transfer clarifying decree finally issues 8 Part 2 Feature Foreign corrupt practices act 11 Part 3 Did you know? 3.1 The wind-up or is it wind-down? The joys of everyday lending Honey, I shrunk the banks! Land use rights - now you see em, now you don't 17 Part 4 What's new online? Subject categories and new laws in Vietnam online databases 19 Search function for Vietnam Legal Update 20 Part 5 Get to know us Spotlight on Ashley Phelps 21 The material contained in Vietnam Legal Update is intended to inform readers of recent legal developments in Vietnam. It is not intended and should not be relied upon as legal advice. Should readers wish further information in relation to any legal instrument or matter mentioned in this issue, they are encouraged to contact one of our Vietnam offices (details below). visit Bangkok Beijing Beijing IP Brisbane Hanoi Ho Chi Minh City Hong Kong Jakarta Melbourne Perth Phnom Penh Port Moresby Shanghai Singapore Sydney to subscribe to (or take a free tour of) Vietnam Laws online database-searchable database of over 3,500 of our English translations of Vietnamese laws regulating investment and business to access free translations of a selection of Vietnamese laws to read the Vietnam Legal Update from 2009 back to complete with index of contents and search function to find out more about our practice in Vietnam visit to find out more about the Allens Arthur Robinson network and our international practice 2008 Allens Arthur Robinson - Vietnam Laws Hanoi Suite 401, Hanoi Tower 49 Hai Ba Trung Street, Hoan Kiem District Hanoi, Vietnam T F bill.magennis@aar.com.au Ho Chi Minh City Suite 605, Saigon Tower 29 Le Duan Boulevard, District 1 Ho Chi Minh City, Vietnam T F nigel.russell@aar.com.au

2 Allens Arthur Robinson is a leading international law firm in South East Asia, Greater China, and Australia. With 15 offices in Bangkok, Beijing, Brisbane, Hanoi, Ho Chi Minh City, Hong Kong, Jakarta, Melbourne, Perth, Phnom Penh, Port Moresby, Shanghai, Singapore and Sydney, Allens has the most extensive network, and the most lawyers on the ground, of any law firm in Asia. Allens' Vietnam practice is led by resident partners Bill Magennis, Nigel Russell and Thomas Miller. The team in Vietnam includes 25 other lawyers from Australia, the United States, Finland and Vietnam. We encourage feedback from our readers regarding the Vietnam Legal Update. Please direct all enquiries, comments and suggestions to Lee Baker in our Ho Chi Minh City office at lee.baker@aar.com.au 2008 Allens Arthur Robinson - Vietnam Laws February 2009

3 part 1 selected new legal instruments 1.1 Taxing matters busy times at the MOF As noted in our December 2008 issue of VLU, the year of the water buffalo (beginning 2009) was always slated to be a big one for tax changes in Vietnam. The added complexity of trying to deal with the economic downturn resulting from the global financial crisis has meant that the Ministry of Finance (MOF) has found itself working overtime on tax-related legislation. Four of our last five VLU issues have covered tax topics, and with the laws finally on the books and seeing their beginning stages of implementation this edition is no exception. In this article, we give further consideration to personal income tax (PIT), corporate income tax (CIT), and value added tax (VAT). Following, in the next article, is a discussion of the foreign contractor tax, which impacts all of these taxes. Given the plethora of recent legislation - and the confusion already raised in certain areas - we have also provided 'Law Maps' of the recent legal instruments issued in each of the PIT, CIT and VAT areas. The idea is to bring a little order to the seemingly chaotic tax regulations in Vietnam. PIT - delay? defer? forgive? forget? As reported in our December issue, there was media speculation of a delay in the introduction of the new PIT regime or at least a delay on the new tax on transfer of securities. This speculation initially proved groundless, with the MOF issuing an official letter on 2 January 2009 providing specific guidelines on withholding, declaring and paying PIT on listed and unlisted shares. Subsequently, in mid-january, specific regulations were issued by the MOF guiding PIT registration, withholding and tax declaration and finalisation for insurance agents. However, in February, the MOF made its latest move, with the issuance of Circular 27 of 2009 (Circular 27) and Official Letters 1823 and 1845 (PIT Official Letters) providing for a 'deferment' of time for payment of PIT. Touted as a move to stimulate spending, the proposed deferment has been a source of considerable confusion fuelled by a lack of clarity in the relevant instruments and questions as to the effective timing for these new measures. The relevant new PIT laws are set out in the PIT Law Map which follows: 2008 Allens Arthur Robinson - Vietnam Laws February 2009 Page 1

4 Law QH12 of the National Assembly on Personal Income Tax (PIT) dated 21 November 2007 Decree ND-CP of the Government on PIT, dated 8 September 2008 Circular TT-BTC of the Ministry of Finance on PIT, dated 30 September 2008 Decision QD-BTC of the Ministry of Finance issuing standard forms for receipts for PIT, dated 12 November 2008 Official Letter 42- BTC-TCT of the Ministry of Finance regarding withholding PIT on transfers of securities, dated 2 January 2009 Circular TT-BTC of the Ministry of Finance Guiding PIT registration, withholding tax, and tax declaration and finalisation applicable to individuals being insurance agents, dated 21 January 2009 Circular TT-BTC of the Ministry of Finance on Deferment of time for payment of PIT, dated 6 February 2009 Official Letters 1823-BT-TCT and 1845-BTC-TCT of the Ministry of Finance on Guidelines on implementing deferment of time for payment of PIT, dated 18 February 2009 The upshot According to Circular 27 and PIT Official Letters, organisations with a responsibility to deduct and pay PIT on behalf of tax payers must not deduct the PIT from income earned between 1 January 2009 to 31 May If such tax has already been deducted, it must be returned to the tax payers. For avoidance of doubt, PIT otherwise payable on salaries, profit from real estate and stock transactions, and other investment returns is subject to deferment until 31 May Issues of interpretation Despite the promulgation of Circular 27 and the two PIT Official Letters, several elements of the deferment scheme and its legal efficacy remain unclear. For example: Circular 27 specifies that the deferment applies to income earned from 1 January 2009, however, the Circular is stated to be effective 45 days after its signing date, which would be 23 March On its face, this means that a withholding organisation (such as an employer) will still have to deduct, declare and pay PIT in accordance with the current (or is it 'old?) Decree 100 and Circular 84 for any income earned between 1 January and 22 March On the other hand, Official Letter 1823 stipulates that withholding organisations must return any PIT already deducted from income earned on or after 1 January 2009 no later than 28 February It seems that withholding organisations are therefore stuck between a legal 'rock and a hard place' they will breach either Circular 27 (by returning the withheld PIT before 23 March 2009) or Official Letter 1823 by returning the withheld PIT after 23 March 2009; Both Circular 27 and Official Letter 1823 state that the deferment does not apply to 'nonresidents' and go on to provide a new definition of 'non-resident' which is, in part, inconsistent with the 'residence' definitions used elsewhere in the PIT Laws. As such, it appears that there may be foreign individuals who are 'resident' and paying PIT as 'residents' under the PIT Law 2008 Allens Arthur Robinson - Vietnam Laws February 2009 Page 2

5 who will be treated inconsistently as 'non-residents' under the new legislation (for example because they leave Vietnam before 30 June 2009) solely for the purposes of the deferment. The big question - what happens in June? By May 2009 the Government has stated that it will submit to the National Assembly a decision regarding the amount of PIT eligible for the deferment of payment. It is believed that the National Assembly will decide then if the payments will be waived permanently and completely or simply deferred. No doubt, everyone (particularly those who have spent their refunded PIT to stimulate the economy!) will be eagerly awaiting the National Assembly's response. CIT recent circulars When we reported in our December issue on the new CIT regime, we were still waiting on the issuance of the CIT Circular. Subsequently, Circular 130 of the MoF providing guidelines for the implementation of the law on corporate income tax (Circular 130) was issued on 26 December 2008 and provides detailed practical guidance (including examples) as on how the new CIT regime is to work. In particular, Circular 130 provides detailed guidance on determining assessable income, the basis for tax assessment and the declaration and payment of tax in connection with capital assignments and transfers of securities as well as real property transfers. Fast paced legislative calendar Even after the frantic flurry of CIT law issuance at the end of 2008 (see also prior issues of the VLU), the new year brought no rest for the CIT legislators at the MOF. As with PIT, in the context of the economic downturn, the MOF issued further circulars in January providing for: (i) (ii) a reduction and deferment of CIT for small and medium sized enterprises for the fourth quarter of 2008 and for all of 2009 (Circular ); a deferment of CIT for each quarter of 2009 for enterprises producing or processing agricultural, forestry or seafood products, textiles and garments, footwear and electronic components (in Circular ); and (iii) a nine-month extension of time for payment of CIT payable and arising in 2009 on income from the manufacture of mechanical engineering products being means of production; manufacture of certain building materials (bricks, tiles, lime and paint); construction, assembly and installation; tourism services; food products businesses; and fertilizer business (in Decision and Circular ). The 'full monty' of relevant new CIT laws appears in the Law Map below: 2008 Allens Arthur Robinson - Vietnam Laws February 2009 Page 3

6 Law QH12 of the National Assembly on Corporate Income Tax (CIT) dated 3 June 2008 Decree ND-CP of the Government providing detailed provisions for implementation of the Law on CIT dated 11 December 2008 Circular TT- BTC of the Ministry of Finance providing guidelines for implementation of the Law on CIT and Decree ND-CP of the Government dated 11 December 2008 implementing the Law on CIT dated 26 December 2008 Circular TT-BTC of the Ministry of Finance on Reduction and deferment of CIT pursuant to Resolution NQ- CP of the Government dated 11 December 2008 on urgent solutions for alleviating the economic downturn by preserving economic growth and ensuring the welfare of society, dated 13 January 2009 Decision QD- TTg of the Prime Minister Issuing tax solutions for implementing the policy on stimulating investment and sales in order to alleviate the economic downturn and relieve hardships for enterprises, dated 21 January 2009 Circular TT-BTC of the Ministry of Finance guiding implementation of the extension for payment of CIT in Year 2009 applicable to enterprises in a number of business lines dated 22 January 2009 VAT lots of action VAT has also been a source of intense legislative activity. In our January VLU issue, we reported in some detail on the Law on VAT, which became effective 1 January Further detail has now been added by Decree 123 of the Government on value added tax dated 8 December 2008, and by Circular 129 of the Ministry of Finance dated 26 December These and other new VAT laws appear in the following Law Map: 2008 Allens Arthur Robinson - Vietnam Laws February 2009 Page 4

7 VAT Law Map Law QH12 of the National Assembly on Value Added Tax dated 3 June 2008 Decree ND-CP of the Government making detailed provisions for implementation of the Law on VAT, dated 8 December 2008 Circular TT-BTC of the Ministry of Finance Guiding implementation of a number of provisions of Law on VAT and guiding implementation of Decree ND-CP of the Government making detailed provisions for implementation of the Law on VAT, dated 8 December 2008 Circular TT-BTC of the Ministry of Finance Guiding implementation of Law on VAT in accordance with the List of Goods of the Preferential Import Tariff List, dated 26 December 2008 Circular TT-BTC of the Ministry of Finance on refund of VAT pursuant to Resolution NQ-CP of the Government dated 11 December 2008, dated 13 January 2009 Decision QD- TTg of the Prime Minister Issuing tax solutions for implementing the policy on stimulating investment and sales in order to alleviate the economic downturn and relieve hardships for enterprises dated 21 January 2009 Circular TT-BTC of the Ministry of Finance Guiding implementation of the reduction of VAT applicable to a number of goods and services in which business enterprises are meeting difficulties, dated 22 January 2009 Circular TT-BTC of the Ministry of Finance Providing Guidelines for Reduction of 50% of VAT Rate in accordance with the List of Goods of the Preferential Import Tariff List,dated 30 January 200 As seen above, implementation of the new VAT law has also been impacted by the economic downturn, spurring the MOF s issuance of a series of VAT circulars providing policies and changes aimed at alleviating the negatives of the situation. These circulars provide for (among other things): VAT refunds for entities producing and conducting business in export goods which have exported goods for which the foreign party has not yet made payment via a bank; and from 1 February to 31 December 2009 a 50% reduction on the 10% VAT rate applicable to a number of goods and services 'in which business enterprises are meeting difficulties' including coal, basic chemical, mechanical engineering products being means of production, automobiles and automobile components, ships, casting moulds, explosives, grindstones, artificial plywood, industrial concrete products, tyres, neutral glass tubes, products cut or rolled from certain metals, automatic data processing machines and their accessories, cargo handling, domestic transportation, hotel and certain tourism activities and printing. The relevant HS codes entitled to the reduction are detailed in Circular 18/ Allens Arthur Robinson - Vietnam Laws February 2009 Page 5

8 VLU correction Section 1.2 of our January issue of the VLU incorrectly stated that the new VAT Law had added certain objects as 'taxable'. In fact, the items listed therein are non-taxable objects under the new VAT law. We apologize for this error. 1.2 And you thought PIT, CIT and VAT were it Circular TT-BTC of the Ministry of Finance providing guidelines on performance of tax obligations applicable to foreign organisations and foreign individuals doing business or having income in Vietnam, dated 31 December 2008 (Circular 134) In addition to the myriad new pieces of PIT, CIT and VAT legislation, there is another a new tax law, also effective 1 January 2009, governing 'foreign contractor tax'. New Circular 134 replaces the former Circular TT-BTC of the Ministry of Finance (MOF), dated 11 January 2005 (Circular 05), and provides guidelines for the taxation of foreign organisations not having Vietnamese legal entity status and foreign individuals doing business or having income in Vietnam. Circular 134 also replaces Circular TT-BTC dated 4 February 1999 providing guidelines for collection of freight tax for foreign transportation firms carrying out cargo transportation by vessels in Vietnam. Special tax treatment Vietnam distinguishes between the taxation of foreign economic organizations and individuals carrying out business activities in the forms of investment permitted under existing regimes (eg the Law on Investment regime, banking, law), on the one hand, and those carrying out business activities without or outside those forms, on the other. The latter are commonly referred to as 'foreign contractors', and the taxation regime applicable to them has become known simply as the 'foreign contractor tax', rather than the mouthful 'tax on foreign organisations not having Vietnamese legal status as stated above (thank goodness!). Foreign contractor tax is not a separate tax in and of itself (like PIT, CIT and VAT are); rather it is a designation of who the tax payer is. The tax(es) that are paid by foreign contractors are the same as those payable by other tax payers, ie PIT, CIT and/or VAT, so these laws are just as relevant to foreign contractors as anyone else. Who s caught and who s not? Circular 134, by its terms, assesses foreign contractor tax on the following persons or entities: foreign business organisations with or without a permanent establishment in Vietnam, and foreign business individuals, whether they are residents or non-residents of Vietnam, doing business in Vietnam or having income arising in Vietnam on the basis of a contract, an agreement or an undertaking which is either: (i) (ii) between such foreign contractor and a Vietnamese organisation or individual, or foreign contractor; or with other foreign contractors to carry out part of the scope of work of such other foreign contractors. Circular 134 expressly does not apply to: (i) (ii) foreign organisations or individuals conducting business in Vietnam in accordance with the Law on Investment, the Law on Petroleum or the Law on Credit Institutions; foreign organisations or individuals supplying goods to Vietnamese organisations or individuals, not associated with services provided in Vietnam, under certain prescribed conditions; 2008 Allens Arthur Robinson - Vietnam Laws February 2009 Page 6

9 (iii) foreign organisations and individuals having income from services performed and consumed outside Vietnam; (iv) foreign organisations or individuals providing certain specified services (examples include advertising and marketing services, training services, and investment services). Mechanics of payment As noted previously, the taxes payable by foreign contractors under Circular 134 include PIT, VAT and CIT. Specifically, VAT and CIT are assessed against foreign contractors and sub-contractors who are economic organisations; and VAT and PIT are assessed against foreign contractors and sub-contractors who are individuals. Under Circular 134, a foreign contractor may pay VAT under the 'tax credit' method, and pay CIT on its actual income, if it meets the following criteria: (i) (ii) it has a permanent establishment in Vietnam or is a resident of Vietnam; the period of conducting business in Vietnam pursuant to the contractor's or sub-contractor's contract is 183 days or more as from the date on which such contract took effect; (iii) it uses the Vietnamese accounting system. In such a case, the Vietnamese party signing a contract with a foreign contractor must notify the tax office (within 20 business days from the date of signing the contract), that such foreign contractor or sub-contractor will pay VAT in accordance with the tax credit method, and CIT on the basis of a declaration of revenue and expenses in order to calculate CIT-taxable income. If a foreign contractor does not meet any of the above criteria, it must pay VAT under the 'direct calculation' method, and CIT on a deemed percentage of turnover. In this case, the Vietnamese party must also (within 20 business days from the date of signing the contract), register with the tax office to pay tax on behalf of the foreign contractor. Minimal changes in rate from prior law The table below sets out the rates of VAT and CIT payable by various business sectors under the old and new law. VAT Business line Added value as % of turnover under Circular 05 (prior law) Added value as % of turnover under Circular 134 Services Machinery and equipment leasing business, and Not categorised 50 insurance. (a) Construction and assembly and installation where the tender included supply of materials, machinery and equipment in the construction work. (b) Construction and assembly and installation where the tender did not include supply of materials, machinery and equipment in the construction work Trading: distribution and supply of goods, raw materials, supplies, machinery and equipment in Vietnam. 10 Not being categorised (likely to be treated like other business) Transportation and other business and production Allens Arthur Robinson - Vietnam Laws February 2009 Page 7

10 CIT Business line CIT rates as a % of taxable turnover under Circular 05 (prior law) CIT rates as a percentage (%) of taxable turnover under Circular 134 Trading: distribution and supply of goods, raw materials, supplies, machinery and equipment associated with services in Vietnam. Services, lease of machinery and equipment, insurance Construction. 2 2 Other production or business activities and transportation (including sea and air transportation). Lease of aircraft, aircraft engines, aircraft spare parts and sea going vessels. 2 2 Not categorised 2 Reinsurance. Not categorised 2 Assignments [transfer] of securities. Not categorised 0.1 Loan interest Income from royalties Tech transfer clarifying decree finally issued Decree 133/2008/ND-CP of the Government implementing the Law on Technology Transfer dated 31 December 2008 (Decree 133) After nearly a two-year delay, the issuance of Decree 133 on the last day of 2008 has finally nailed down some of the dangling issues left open by Law 80 of the National Assembly dated 29 November 2006 on Technology Transfer (Law on Technology Transfer), specifically regarding the registration, approval, and contents of a technology transfer agreement (TTA) in Vietnam. As such, things thankfully should be a bit clearer in this area for To register or not? Prior to the passage of the Law on Technology Transfer, registration of TTAs was compulsory, for such contracts to be legally valid. Effective July 2007, compulsory registration was done away with, except in cases of so-called 'restricted technologies'. The problem has been that no listing of, or definition for, 'restricted technologies' as ever been formally issued, and confusion has reigned with investors over this matter for over than a year. As usual, the list of restricted technologies had been expected in the form of an implementing decree or in a separate legal instrument 'any day now'; however, there were more than the usual delays in this case. Now, courtesy of Decree 133, we have the list, attached as Appendix II to the Decree. It is relatively limited in numbers and includes both technologies transferred into Vietnam and technologies transferred out of Vietnam. Incentive enough? Notwithstanding the existence of the list and that registration is clearly now optional for nonrestricted technologies, the reality is that in the past, certain incentives were granted companies who registered their TTAs. Moreover the laws are not crystal clear on the matter. The Law on Technology provides that parties have the right to register rather than obligation to register. However, by inserting the words 'as the basis for the parties to enjoy the incentives stipulated in this Law and in other relevant laws', the Law on Technology Transfer has imposed the obligation of registration on parties. Decree 133 simply implements the Law on Technology Transfer Allens Arthur Robinson - Vietnam Laws February 2009 Page 8

11 A list of some of these, as incentives set out the Law on Technology Transfer, and is therefore 'internally inconsistent'. (i) income tax exemption for any entity contributing capital by an invention patent licence [and/or] technology licence; (ii) import duty exemption on goods imported for direct use in scientific and technological development research or in renovation of technology, such goods to comprise machinery, equipment, accessories, materials and transportation facilities not yet able to be produced domestically; technologies not yet able to be created domestically; and scientific data and textbooks; and (iii) VAT exemptions for specialized use machinery, equipment and transportation facilities in the category not yet able to be produced domestically which service performance of a technology transfer contract. Two-step process Under Decree 133 transfer of restricted technologies now requires (i) tentative approval from Ministry of Science and Technology (the MoST); and (ii) a permit following execution of the TTA, but prior to the actual transfer of the technology. The timeline for lodging an application for obtaining both the tentative approval and a permit is set out below: Signing of technology transfer agreement Application for approval lodging Lodging of permit application Transfer of technology 30 days 60 days 10 days Issuance of approval by MoST Issuance of permit by MoST As outlined, an application for approval of the transfer of a restricted technology is to be submitted by the applicant to MoST before the execution of a TTA. MoST must respond in writing within 30 days from the date of receipt of a valid application, either granting approval or refusing the application. In the event an application for approval is refused, MoST is required to provide written reasons for such refusal. Once written approval has been granted by MoST, the relevant parties may enter into the TTA. After the TTA has been signed, one of the signatories must submit a further application to MoST for issuance of a technology transfer permit. Within 10 days from the date of receipt of a valid application for a permit, MoST must issue its decision to either grant the permit, or, in the event of a refusal, a written response specifying the reasons for same. The applicant must submit its application for a technology transfer permit within 60 days after the signing date of the TTA. Payment in cash or in kind The parties to a TTA may agree to pay technology transfer fees by way of: (i) a lump sum payment; 2008 Allens Arthur Robinson - Vietnam Laws February 2009 Page 9

12 (ii) periodic instalments in the form of money or goods, contribution of the total value of the transferred technology as capital to investment project, periodical payment equal to a percentage of the net selling price, payment equal to a percentage of the net revenue or pretax profit; or (iii) a combination of both. These payment methods are the same as under the prior law, and in practice, all three methods are utilised. Strictly 'off limits' In addition to the 'restricted technologies' list, ie, 'prohibited technologies', Decree 133 (in Appendix III) also contains a list of technologies, the transfer of which is prohibited. Again, this list covers both transfers into Vietnam and from Vietnam abroad. The prohibited technologies are generally dangerous ones, or ones related to security or military matters. Who's in charge? Just 'who does what' of tech transfer matters in terms of approvals for technology transfer in Vietnam? The 'big three' authorities in Vietnam with responsibility in the area of technology transfer are as follows: (i) (ii) MoST is the authority responsible for issuing technology transfer permits and recording the registration of TTAs in the case of restricted technologies; the Department of Science and Technology (DoST) is the authority responsible for issuing the Certificate of Registration of TTAs with respect to technologies which are not restricted; (iii) The National Office of Intellectual Property (NoIP), under MoST, is the authority which receives applications for registration of the assignment of industrial property objects. This registration is required if a technology transfer is a transfer of ownership rights involving protected industrial property rights. NoIP is included because in such case the transfer of ownership of the industrial property rights must also be carried out in accordance with the Law on Intellectual Property Allens Arthur Robinson - Vietnam Laws February 2009 Page 10

13 part 2 feature foreign corrupt practices act This month, we take a break from our current 'court case commentaries' Feature and turn the focus to corruption, always a hot-button topic in Vietnam - no matter which country an investor is from. The specific topic discussed herein is the Foreign Corrupt Practices Act (FCPA) of the United States, and its implications for Vietnam. A new look at the FCPA and Vietnam Since 2007, enforcement actions under the Foreign Corrupt Practices Act (FCPA) have increased significantly with 38 actions in 2007 and 33 actions in When compared with only five actions in 2004, 12 in 2005, and 15 in 2006, the last two years represent a major shift in the level of prosecutions by both the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ), the two US government agencies permitted to investigate and prosecute FCPA violations. The relevant question for us is what does this mean for Vietnam and foreign investors operating in Vietnam? In terms of locations for 2008 FCPA enforcement actions, Vietnam ranked fourth: Nigeria, Iraq and China, ranked 1 st, 2 nd and 3 rd respectively. In terms of incidences of domestic public corruption, Vietnam ranked 121 st out of 180 countries on the 2008 Corruption Perception Index prepared by Transparency International. Not such a great set of figures. The FCPA what is it really? The FCPA is a law of the United States of America (United States Code 78dd-1 et seq.) which makes it illegal to offer or provide money or anything of value to officials of foreign governments or foreign political parties with the intent to obtain or retain business. While the FCPA applies only to those entities and persons under the jurisdiction of the United States, the means to determine such jurisdiction are unusually broad-reaching. The FCPA s anti-bribery provisions apply to 'issuers' and 'domestic concerns' as defined in the FCPA. The term, 'issuer', covers any business entity that is registered under 15 U.S.C. 78l or that is required to file reports under 15 U.S.C. 78o (d). Under this definition there are about 1,500 foreign companies, whose shares are traded on US securities exchanges, who are deemed 'issuers' for purposes of the FCPA. The term 'domestic concern' may be even broader in its scope under the FCPA. The term includes any US citizen, national, resident, and any business entity that is either organized under the laws of one of the states of the United States or which has a principal place of business in the United States. Lesser known, but still important in terms of enforcement actions, are two additional provisions set out in the FCPA: the books and records provision and the internal controls provision. Under the books and records provision, the books and records and accounting documents of an entity within the FCPA s scope must be accurate and clearly evidence company's transactions and sale of assets. Under the internal controls provision, a covered entity must take affirmative accounting measures to prevent and detect FCPA violations. These provisions become even more significant when prosecution of an act for bribery under the FCPA is difficult for authorities to fully substantiate. Under these additional provisions, it is not necessary to establish that the violation resulted from a corrupt payment, thereby thus making it much easier for authorities to bring and 2008 Allens Arthur Robinson - Vietnam Laws February 2009 Page 11

14 maintain these charges. Understandably, the penalties for violations of such provisions are less severe compared to penalties for violations of the bribery provisions. FCPA enforcement redefined Recent trends in both the types of acts that are being caught under the FCPA and the way in which the FCPA is currently being enforced should put foreign investors, who are subject to the FCPA s jurisdiction (Subject Foreign Companies) and operating in Vietnam, on notice that their business dealings may be scrutinised more closely by the DOJ and SEC. In 2007 and 2008, FCPA investigations were distinguished by certain trends not significant in years prior to this period. These trends are expected to continue to dominate FCPA investigations going forward. In no specific order of importance, these trends are: increased cooperation between US and foreign governments in the investigation and prosecution of FCPA violations; increased amounts and severity of penalties applied to FCPA violations; expanded scope of investigations to include indirect acts of bribery via 'consultants' and shell companies; increased prosecution of individuals under the FCPA provisions; and increased FCPA litigation coupled with private legal actions. Increased cooperation between US and foreign governments In 2008, anti-bribery prosecutors from around the world met in Paris for the first time to discuss ways in which to increase collaboration in international investigations. Also in 2008, The DOJ sent at least 45 letters to foreign governments invoking the terms of Mutual Assistance Legal Treaties executed with the US. In addition, the DOJ has sent its own representatives to numerous foreign countries throughout 2008 to assist investigators and prosecutors in other countries with their own local efforts. Under Vietnam's Anti-Corruption Law, Vietnam has undertaken to implement treaties on preventing and fighting corruption of which Vietnam is a member. Designated Vietnamese agencies are authorised to exercise their specific duties and powers to cooperate internationally in providing judicial assistance to prevent and fight corruption. Increased anti-corruption prosecution by foreign governments, on their own, has also heightened the profile and ramifications of such violations. One recent case prosecuted by Japanese authorities spawned prosecutions of government officials in Vietnam. In 2008, Japanese prosecutors obtained guilty pleas from Pacific Consultants International (PCI) and four of its senior executives under Japan's Unfair Competition Prevention Law. The four defendants admitted to bribing senior Vietnamese government officials in order to secure contracts for road projects backed by Japanese aid money. In February 2009, two senior Vietnamese officials were arrested. Mr Huynh Ngoc Sy, former director of the Ho Chi Minh City Department of Transport, and former director of the East-West Highway and City Water Improvement projects, and his deputy, Mr Le Qua, were charged with "abuse of power" for illegally taking more than USD820,000 in bribes to secure the road contracts for PCI. Query whether such corruption in Vietnam would have come to light if not for the prosecutorial actions by the Japanese authorities against PCI and its individual defendants. Increased FCPA Penalties Before 2008, the highest recorded FCPA penalty amount was the USD44.1 million amount paid by Baker Hughes, Inc. in 2007, pursuant to a settlement agreement with the DOJ and SEC. In 2008, that record was shattered when Siemens AG was required to pay out more than USD1.9 billion to 2008 Allens Arthur Robinson - Vietnam Laws February 2009 Page 12

15 settle its claims with both US and German authorities. This penalty amount does not reveal the extent of the financial impact on Siemens AG as a result of the corruption investigations. Investigation documents filed by the authorities and Siemens AG indicate that about another USD1 billion was spent by Siemens AG throughout the investigation and negotiation process on costs for legal fees, auditing fees, productive time lost to interviews, document translation, document preservation and copying, and development of an anti-corruption kit for 162 Siemens AG entities worldwide. It is expected that increased penalties and settlements will continue to play a major role in the enforcement arsenal of various anti-corruption authorities. Expanded scope of investigations A typical practice for Subject Foreign Companies, especially in Asia, that do not wish to run afoul of the FCPA restrictions, has been to use intermediaries to perform tasks which might otherwise put a Subject Foreign Company at risk of violating the FCPA's anti-bribery provisions. Often times a Subject Foreign Company will engage a 'consultant' to act on its behalf to obtain or retain business opportunities. Subject Foreign Companies often form the view that, fees paid to these consultants are legitimate business expenses, allowing the Subject Foreign Company to deny knowledge of any wrongdoing on the part of the consultant company. In the past, this process may have insulated a Subject Foreign Company from direct prosecution for violation of the FCPA's provisions, but the FCPA enforcement agencies have recently added more weapons to their arsenal. Now, the DOJ and SEC may combine suspected FCPA violations with other counts that require less evidence to substantiate. These include counts under the FCPA, such as conspiracy to violate the FCPA and violations of the FCPA's books and records provision and internal controls provision. In addition, where applicable, authorities are also including charges under other federal acts, such as the Sherman Antitrust Act. By combining FCPA violations with other charges, the enforcement authorities have made it more difficult for Subject Foreign Companies to insulate themselves from potential prosecution. Increased prosecution of individuals Hefty fines may send a clear message to companies, but the impact of their corporate executives being marched off in handcuffs and orange jumpsuits is an image the SEC and DOJ hope will deter violations of the FCPA. The enforcement authorities have made a clear policy statement in 2008 that FCPA prosecutions will be against individuals as well as companies. In fact, 60% of the FCPA defendants in 2008 were individuals, including 4 persons involved in a prosecution stemming from violations in Vietnam. Bringing it home In September 2008, Nam Nguyen, Joseph Lucas, Kim Nguyen and An Nguyen were arrested on charges that they and their company, Nexus Technologies Inc. (Nexus), paid bribes to various Vietnamese officials in order to obtain lucrative contracts to supply technology and equipment to Vietnamese agencies, in violation of the FCPA. Nexus was a US (Delaware) registered company with offices in both the US and Vietnam. It purchased a wide variety of equipment and technology, including underwater mapping equipment, bomb containment equipment, helicopter parts, chemical detectors, satellite communication parts and air tracking systems, for export to agencies of the Vietnamese government. The indictment against Nexus alleged that for a period of nine years (from ), the four defendants conspired to bribe Vietnamese officials in order to obtain financially rewarding contracts. More than USD150,000 was allegedly paid by them to various Vietnamese officials, including officials from the commercial branches of the Ministries of Transport, Industry and Public Safety Allens Arthur Robinson - Vietnam Laws February 2009 Page 13

16 The conspiracy count against each of the individual defendants carries a maximum penalty of five years' prison and a fine of USD25,000 or twice the gain, whichever is greater, plus three years of supervised release. The FCPA counts against each of the individuals also carries a maximum of five years' prison, a fine of USD100,000 or twice the gain, whichever is greater, plus three years of supervised release. Nexus faces a maximum fine of USD2 million per count if convicted. Increased FCPA litigation and private actions As mentioned at the outset, there has been a significant increase in the number of FCPA prosecutions in the past two years. Additionally, there are over 100 cases currently in the pipeline undergoing investigation which may result in even further prosecutions. Prosecution of FCPA violations has been pushed to the front burner and the significant penalty amounts as described above continue to fuel the flames. Adding a private right of action would certainly spread the fire even further. Currently, there is no private right of action to prosecute FCPA violations it is only the DOJ and SEC which can bring charges under the FCPA. Nonetheless, enterprising lawyers have sought to capitalise on claims stemming from the FCPA violations. In recent years, suits have been filed, including securities fraud actions, shareholder derivative actions and claims by foreign governments and business partners. Moreover, there has been recent US congressional activity to provide for a private FCPA right of action. Although not passed in 2008, the Foreign Business Bribery Prohibition Act of 2008 was introduced last year to provide a limited right of private action under the FCPA. This bill sought to provide plaintiffs with a means to seek triple the amount of damages against 'foreign concerns'. However, the definition of 'foreign concerns' was limited to only foreign persons and businesses unaffiliated with US stock exchanges but who somehow managed to use instrumentalities of US interstate commerce (eg the US Postal Service) in furtherance of their bribery actions. Going forward It is apparent that Subject Foreign Companies need to be mindful of the recent trends in anticorruption investigations and prosecutions. Even those foreign companies not subject to the FCPA must also be aware of potential anti-corruption actions brought under the laws of their own country or the countries in which they conduct business. In respect of FCPA investigations, it is still often the companies themselves which alert the authorities of their own potential violations. By bringing such violations to light, companies often hope to work with enforcement authorities to negotiate what is termed a 'deferred prosecution agreement' (DPA). A DPA is generally less costly to a company than a full investigation and indictment under the FCPA. In this sense, companies are forced to become corporate watchdogs over their own actions Allens Arthur Robinson - Vietnam Laws February 2009 Page 14

17 part 3 did you know? 3.1 The wind-up or is it wind-down? Recent economic uncertainties have clearly had negative effects on many enterprises in Vietnam. As such, questions relating to winding-up and cessation of business are on the rise and the laws and procedures related to the same worth revisiting. What are the condition of, and procedures for, forcing a debtor in Vietnam into involuntary winding-up procedures? The when and the how According to Article 28 of the Law on Bankruptcy dated 15 June 2004 (LOB), still the governing law in this context, within 30 days from the date of acceptance of jurisdiction over a petition to commence bankruptcy procedures against an insolvent debtor, the court must issue a decision to commence bankruptcy procedures. Easy enough, it sounds, but on what grounds may the court make this decision? According to Article 13 of the LOB, a creditor has the right to file a petition to commence bankruptcy procedures against a debtor if the creditor can prove that the debtor has become insolvent. A debtor will be deemed to have become insolvent if both of the (seemingly simple) following conditions are established: (i) (ii) the debts of the debtor are due and owing; and the debtor is unable to pay. Criteria for 'debts' are further set forth by Resolution 03/2005/NQ-HDTP of the Judges' Council of the Supreme People's Court dated 28 April 2005 (Resolution 03). In particular, the creditor must prove: (i) (ii) the debts due are unsecured or only partly secured (only the unsecured amounts are counted); and the debts are clearly certified by the involved parties, accompanied by written evidence, and dispute-free. More creditor friendly? With respect to the requirements on the debts due, compared with the LOB dated 30 December 1993 (Old LOB), which is now repealed, the LOB appears to give creditors a bit more protection, by providing more viable conditions for them to file for commencement of bankruptcy procedures against their debtors. Previously, under the repealed Decree 189-CP dated 23 December 2004, implementing the Old LOB, the debtor would be deemed to have 'exhibited signs of bankruptcy' only if it had suffered losses in its business for at least two consecutive years. In the LOB, a creditor is required to prove only that it has requested repayment, and has not been repaid. The LOB does not require any threshold for the amount of the debt due, nor does it provide for a minimum period of time during which a debtor suffers losses and has been unable to pay Allens Arthur Robinson - Vietnam Laws February 2009 Page 15

18 New bankruptcy decree Theoretically under the LOB, a debtor of any mature amount, if unable to pay, could be made the subject of a bankruptcy proceeding at any time. Recently however, the Government has issued Decree 10/2009/ND-CP dated 6 February 2009 (Decree 10) stipulating administrative sanctions for the abuse of bankruptcy proceedings by unscrupulous creditors. According to Article 11 of Decree 10, a fine of between VND10 and 15 million will be imposed on any person or organisation which wrongly or maliciously files a bankruptcy affecting negatively the debtor's business and commercial reputation. However, given the difficulty in proving such violation, a bankruptcy dispute may still be able to find its way to the court before the debtors complaint could be addressed. Delay strategy for debtors? From another perspective, Resolution 03 stipulates a condition which, if exploited by the debtor, could delay the court in commencing bankruptcy procedures. That is, the debts due must be 'dispute-free'. In most cases, it would not be too difficult for a dispute to be generated over a debt. When a dispute is generated, accordingly the court may not accept jurisdiction over a petition to commence bankruptcy procedures. Therefore, requirement of a dispute-free status for the debts due could be used as a delay tactic by debtors who want to buy time or avoid the courts. Surely these new laws will begin to be tested by debtors and creditors alike in the months to come, given the current economic downturn. 3.2 The joys of everyday lending Until recently, Vietnamese Dong lending interest rates at credit institutions were subject to a cap of 150% of the basic interest rate published by the State Bank of Vietnam (currently 7% per annum). The cap was first introduced under Decision QD-NHNN of the State Bank of Vietnam (SBV) dated 16 May 2008, and the SBV has been taking serious measures to ensure that this restriction is complied with by the credit institutions. Exemption from cap? This situation may have changed with the recent issuance of Circular TT-NHNN by the SBV on interest rates on 'loans for everyday living' and on 'lending via issuance and use of credit cards' (Circular 01). According to Circular 01, credit institutions are now permitted to negotiate interest rates on 'loans for everyday living' and on 'lending via issuance and use of credit cards' in accordance with regulations on lending, capital market conditions and the credit ratings of borrowers. As such, although not expressly stated in the circular, it seems that the current cap on the lending interest rates by credit institutions does not apply to the above types of loans. A matter of semantics One issue is that Circular 01 does not define 'loans for everyday living' and on 'lending via issuance and use of credit cards'. While lending via issuance and use of credit cards seems more or less clear, the term 'loans for everyday living' is ambiguous. Although this term 'everyday living' is referred to in various legislation, there seems to be no definition of it in any legal instrument. Our enquiries at the State Bank of Vietnam indicate that 'loans for everyday living' are those for satisfaction of day-to-day living demands and are not for commercial, production, business or investment purposes. Most credit institutions seem to have taken this view and have announced their plans for finance lending with a trillion Vietnamese Dong worth of funds. 3.3 Honey, I shrunk the banks! In case you have wondered just how much the world's leading banks have shrunk over the past two years, the following graph (from Bloomberg) shows graphically just how so: 2008 Allens Arthur Robinson - Vietnam Laws February 2009 Page 16

19 3.4 Land use rights - now you see em, now you don't According to Thanh Nien newspaper (25 February 2009 issue), the Government Inspectorate has concluded that issuance of an investment certificate approving capital contribution in the form of land use rights, while the land has not been allocated and land use fee has not been paid to the State, contradicts Vietnamese law. Specifically, the newspaper reported that Binh Duong DPI had recommended issuance of investment certificates establishing two joint ventures, but in each of these cases, the Vietnamese parties had not been allocated with the land and paid the land use fee. What does the law really say on the issue? The legal dump Under the Land Law of Vietnam, a Vietnamese company may contribute land use rights to a joint venture only if it has been allocated with the land and paid the land use fees. However, the Law on Enterprises is silent whether an asset for capital contribution can be an asset to be formed in the future (ie not available at the time of issuance of the investment certificate). In practice, the licensing authorities have approved contribution of various fixed assets which would be formed in the future, such as new machinery and vehicles (provided their specifications are clear). Contribution of money is also classified as a future asset because the investor may have no such money on the date on which the investment certificate is issued. On this basis, one could argue that land use rights may - in fact, should - be considered as an asset to be formed in the future, because transferring the land use rights to a joint venture is a separate process which can only happen following the issuance of the investment certificate. As such, there appears to be a legal basis for the view that granting an investment certificate before the completion of land allocation and land use fee payment is not a breach of Vietnamese law Allens Arthur Robinson - Vietnam Laws February 2009 Page 17

20 HCMC following Binh Duong lead? We are aware of at least two current foreign-invested projects in Ho Chi Minh City which have been issued investment certificates before the land has been allocated and land use fee has been paid (in fact, even before the land has been cleared). For what it is worth, then, the Ho Chi Minh City authorities and Binh Duong authorities appear to be on the same page on this issue. At least for the time being Allens Arthur Robinson - Vietnam Laws February 2009 Page 18

21 part 4 what's new online? NEW subject categories in Vietnam Laws Online database Vietnam Laws online database on is an online searchable database of English translations of more than 3,500 Vietnamese laws relating to foreign investment and far beyond. Subscribers can search for legislation by subject category, keyword, date, issuing body, official number, legislation type, or advanced option. Translations can be viewed online, and also printed and downloaded (subject to terms and conditions). Laws recently uploaded on the Vietnam Laws online database include the following: from 2008: Decision 1096 dated 6 September 2004 regulating debt factoring by banks, as amended by Decision 30 dated 16 October 2008 Circular 08 on mail, document and parcel delivery services, 23 December Decision 121 with regulations on foreign investment in Vietnam's securities market, 24 December Circular 130 on corporate income tax, 26 December 2008 Circular 134 on foreign contractors tax, 31 December from January 2009: Decision 01 establishing the Hanoi Stock Exchange, 2 January Circular 03 on reduction and deferment of CIT for small and medium-sized enterprises and for some other sectors, 13 January Circular 04 on VAT refunds for export enterprises, 13 January Circular 05 deferring payment of import duty for some sectors, 13 January Decision 07 on conditions and procedures for establishment of universities (including foreign invested universities), 15 January Decree 05 on royalties tax, 19 January Circular 10 on insurers withholding and paying personal income tax on behalf of their agents, 21 January Decision 05 on issuance by Vietnam Securities Depository of securities code numbers to issuing organizations, 21 January 2008 Decision 16 on VAT, CIT and export duty reductions and extensions, 21 January Circular 12 implementing Decision 16 on deferment of time for payment of corporate income tax in year 2009, 22 January Circular 13 implementing Decision 16 on 50% reduction of value added tax in year 2009, 22 January Circular 15 reducing import duty on gasoline and some other oils from 40% to 35%, 22 January 2008 Allens Arthur Robinson - Vietnam Laws February 2009 Page 19

22 Decree 06 on administrative breaches in the alcohol and tobacco sectors, 22 January Circular 01 permitting banks to negotiate interest rates on credit cards, 23 January Decision 131 on the State's 4% interest rate subsidy on bank loans for working capital for production and business, 23 January Decision 172 reducing the basic interest rate from 8.5% to 7%, 23 January Decision 173 reducing the State Bank refinancing interest rate from 9.5% to 8%, the discount interest rate from 7.5% to 6%, and the overnight lending interest rate from 9.5% to 8%, 23 January Decision 174 reducing the interest rate from 8.5% to 3.6% payable to banks on their compulsory reserves for VND deposits, 23 January Decree 07 amending Decree 160 dated 27 December 2005 implementing the Mineral Law, 23 January from February 2009 Letter 660 on swap trading in non-convertible foreign currencies, 3 February Decision 151 establishing the Industrial Relations Centre, 5 February Circular 27 on deferment of time for payment of personal income tax, 6 February Decision 161 allocating ministries to head drafting committees and time-limits for submission of draft laws on this year's legislative program, 9 February Draft Regulations on representative offices of foreign securities institutions in Vietnam, 9 February Circular 03 on licensing of Commodity Exchanges, 10 February Circular 30 reducing import duty on aviation jet fuel from 40% to 30%, 11 February Decision 291 reducing the interest rate on State export and credit investment loans from 10.2% to 6.9% (and from 6.9% to 5.4% for foreign currency loans), 12 February Decision 211 on issuance of Government bonds denominated in USD on the domestic capital market, 13 February The list above is merely a recent snapshot of the wide range of new legislation now uploaded and available on Vietnam Laws online through February To view all laws uploaded, please visit Search function for Vietnam Legal Update All back issues of the Vietnam Legal Update from 1997 to the present are now available on There are two pages to the website's section on the VLU: Monthly VLU (for issues from April 2007) Monthly VLU Archive (for issues prior to April 2007, back to September 1997) Translations For English translations of Vietnam's legislation, past and current, subscribe to Vietnam Laws online database on Allens Arthur Robinson - Vietnam Laws February 2009 Page 20

23 part 5 get to know us Allens' 25 in-country lawyers hail from Australia, the United States, Finland and of course, Vietnam. In this section of the VLU, we shine the spotlight each month on a different lawyer from our Hanoi or our Ho Chi Minh City office, to give readers a glimpse of who we are beyond the office. This month, our featured lawyer is Ashley Phelps, the newest lawyer in our Ho Chi Minh City office, who recently joined us from Allens' Phnom Penh office. Ashley is an Australian lawyer who has been working in South East Asia since He joined Allens in the Perth office as a graduate in He was then seconded to the Firm's Singapore office in 2006 before spending a year in the Cambodian office and he has only recently relocated to Ho Chi Minh City. Ashley has been involved in advising on a variety of major construction projects around the region including in Indonesia, Thailand and Vietnam. He has also worked on a number of M&A transactions. In his spare time, Ashley enjoys trying out the restaurants in Ho Chi Minh City, planning his next holiday in Asia and perhaps trying to learn Vietnamese. Quote from the source: "I thrilled to finally be in Vietnam - although hopefully I work out how to cross the streets safely so that I am here long enough to get on top of Vietnamese law and perhaps (a greater challenge) Vietnamese language." 2008 Allens Arthur Robinson - Vietnam Laws February 2009 Page 21