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1 March 2014 edition contents Issue of valuable papers by credit institutions Further guidance on electronic gaming for foreign gamers 2 3 In brief: In this edition we cover a new circular on valuable papers issued by credit institutions, as well as new regulations on capital accounts for foreign indirect investment. We also discuss further implementing regulations on electronic gaming, as well as a recently issued circular on foreign workers in Vietnam. Capital accounts 5 becoming more prominent for indirect investors Implementing details for 7 work permits for foreigners New legal instruments 9 The material contained in Vietnam Legal Update is intended to inform readers of recent legal developments in Vietnam. It is not intended, and should not be relied upon, as legal advice. Should readers wish further information in relation to any legal instrument or matter mentioned in this issue, they are encouraged to contact one of our Vietnam offices (details at the end of this issue). Visit subscribe to (or take a free tour of) Vietnam Laws online database a searchable database of over 3,900 of our English translations of Vietnamese laws regulating investment and business access free translations of a selection of Vietnamese laws read the Vietnam Legal Update back to 1997 complete with index of contents and search function find out more about our practice in Vietnam Visit find out more about the Allens network and our international practice Allens is a leading international law firm in South East Asia, China and Australia. Allens offers one of the most comprehensive legal networks in Asia and Australia with offices in Beijing, Brisbane, Hanoi, Ho Chi Minh City, Hong Kong, Jakarta, Melbourne, Perth, Port Moresby, Singapore, Sydney and Ulaanbaatar and, via our integrated global alliance with Linklaters, we have access to lawyers in 27 offices across 19 countries. Allens' Vietnam practice is led by resident partners Bill Magennis, Hop Dang and Robert Fish. Our in-country team consists of international and local lawyers and legal translators. We encourage feedback from our readers regarding the Vietnam Legal Update. Please direct all enquiries, comments and suggestions to us via at VLU@allens.com.au. Allens Pte Ltd is incorporated in Singapore with limited liability, company reg no H. Our associated firm Allens is an independent partnership operating in alliance with Linklaters LLP Allens Vietnam Laws March

2 Issue of valuable papers by credit institutions Circular 34/2013/TT-NHNN dated 31 December 2013 on the regulation of the issue of promissory notes, bills of exchange, deposit certificates and bonds of credit institutions (Circular 34) Background The State Bank of Vietnam (SBV) issued Circular 34/2013/TT-NHNN on the regulation of the issue of promissory notes, bills of exchange, deposit certificates and bonds of credit institutions on 31 December 2013 (Circular 34). Circular 34 replaces Decision 07/2008/QD-NHNN (Decision 07) on the regulation of the issuance of valuable papers of credit institutions dated 24 March 2008 (as amended by Circular 19/2009/TT-NHNN dated 11 August 2009). Circular 34 took effect on 14 February What are Valuable Papers? Under Circular 34, the types of valuable papers that may be issued by a credit institution and a foreign bank branch include promissory notes, bills of exchange, deposit certificates and bonds. These all share the common characteristic that they are a certification of the debt repayment obligation from the credit institution to the holder of the valuable paper over an agreed fixed term with conditions on interest payment and other conditions. Key Changes While Circular 34 does not introduce many substantial changes to Decision 07, key changes include: Credit institutions and foreign bank branches can only issue valuable papers in Vietnamese dong. Decision 07 previously permitted credit institutions to issue valuable papers in foreign currency. That said, if a credit institution would like to issue corporate bonds in foreign currency it may issue international bonds to the international market pursuant to Decree 90/2011/ND-CP of the Government on Enterprise Bonds dated 14 October There is no formal distinction between short term valuable papers and long term valuable papers. Under Decision 07, short term valuable papers with a term of less than one year included promissory notes, short term deposit certificates and bills of exchange. Therefore, under Circular 34 it would appear that a credit institution can set the term of the different types of valuable papers. However, bonds must still have a term of one year or more. Circular 34 limits the participants that can purchase valuable papers in the primary market. Credit institutions, foreign bank branches and subsidiaries of credit institutions cannot participate in the primary market for the acquisition of valuable papers issued by a credit institution or a foreign bank branch. Foreign organisations and individuals as well as domestic organisations and individuals may participate in the primary and secondary markets Allens Vietnam Laws March

3 Reporting of the results of the issuance of valuable papers occurs every quarter. Under Decision 07, credit institutions were obliged to provide the SBV with advance notice prior to the issuance of short term valuable papers. This is not required under Circular 34. However, SBV approval for the issue of bonds is still required before the bonds are issued. Further guidance on electronic gaming for foreign gamers Circular 11/2014/TT-BTC dated 17 January 2014 guiding electronic game business devoted to foreign gamers (Circular 11) Following the issue of Decree 86/2013/ND-CP on electronic gaming for foreigners (Decree 86), which was discussed in our August 2013 edition, the Ministry of Finance recently issued Circular 11 to provide guidance on the operation of electronic gaming businesses. Number and type of gaming machines As noted in our August 2013 issue, an enterprise which conducts the business of electronic gaming must obtain a 'certificate of satisfaction of conditions for a gaming business ' (in addition to an investment certificate) (SC Certificate). The SC Certificate will reflect the type and number of gaming machines that an enterprise is permitted to have. Circular 11 lists the following seven types of gaming machines which an enterprise is permitted to operate: 1 coin slot machines; 2 roulette; 3 automatic baccarat; 4 electronic blackjack; 5 sic bo or tai xiu machines; 6 horse racing and mahjong; and 7 poker machines. Items 2-7 above are expressed to be permitted only if they are completely automated and do not require participation by members of staff. The total number of gaming machines of the enterprise must not exceed the permitted number stipulated in the SC Certificate. In addition, the number of gaming machines belonging to each of categories 2-7 above must not exceed 15% of the total number of gaming machines operated by the enterprise. No maximum percentage is applied to coin slot machines. Circular 11 also requires the enterprise to lodge a report to the Ministry of Finance, local Department of Finance, local Department of Culture, Sport and Tourism and local Department of Taxation, describing the total number and type of gaming machines, including the ratio of each type, within 5 business days from the date of commencement 2014 Allens Vietnam Laws March

4 of operation. Any variation in the number and type of each machine must also be reported to each of these Departments and Ministries. Origin and verification of gaming machines Circular 11 introduces new and stricter requirements on the origin and verification of gaming machines. These new measures require machines to be supplied by a licensed producer/supplier of gaming machines, and independently verified by an independent verification organisation. Each producer/supplier and independent verification organisation must be licensed to operate in Macau, as announced by Macau's Gaming Inspection and Coordination Bureau on its website from time to time. The Vietnamese enterprise engaged in electronic gaming must keep all relevant documents of the producer/supplier and the independent verification organisation verifying these requirements, and must provide these for inspection by local authorities from time to time. Back-up equipment for gaming machines Enterprises licensed with an SC Certificate are permitted to purchase back-up equipment for gaming machines. The following items are permitted to be purchased for replacement where necessary: Screens; Cash and token receipt systems; Prize payment systems; Archiving systems; and Circuit boards. All back-up equipment must be 100% new and cannot exceed 10% of the number of gaming machines operated by the enterprise for which that item of back-up equipment would be used. Where back-up equipment is used by an enterprise to replace items in gaming machines, that enterprise must keep detailed records specifying the type of gaming machine, the type of equipment and the reason for replacement. Procedures to obtain an SC Certificate Circular 11 sets out detailed procedures on how to obtain a new SC Certificate, and how to amend, re-issue or extend an SC Certificate. Accounting system and reporting Each enterprise operating electronic gaming equipment must conduct separate cost accounting for revenue, expenses and profit of its gaming business, and must separately monitor items related to the gaming business in its system of accounting books and financial statements. Circular 11 also requires an enterprise to submit to local bodies the following reports (in addition to its financial statements) on a quarterly and annual basis: 2014 Allens Vietnam Laws March

5 Report on the number and type of gaming machines; Report on the purchase, use, re-export or destruction of equipment of gaming machines; and Report on the status of operation of the gaming business of the enterprise. Despite the lack of official recognition of casino businesses in Vietnam, at least in respect of Vietnamese customers, Circular 11 indicates a potential increase in the Vietnamese government's support of certain types of electronic gaming. However, these regulations continue to apply only in respect of foreign players. Circular 11 took effect on 15 March Capital accounts becoming more prominent for indirect investors Circular 05/2014/TT-NHNN dated 12 March 2014 guiding the opening and use of indirect investment capital accounts for indirect investment activities in Vietnam (Circular 05) As our regular readers would be aware, issues related to capital accounts have been discussed in many of our previous editions of VLU. 1 However, the regulation of capital accounts is still a developing area of law, as can be seen in Circular 05, recently issued by the State Bank of Vietnam. A brief summary of Circular 05 Circular 05 provides that all transactions relating to indirect foreign investment in Vietnam by foreign investors must be conducted in Vietnamese dong (VND) via one indirect capital account held by the foreign investor at one authorised bank. Indirect foreign investment as defined by Circular 05, inter alia, covers the activities of capital contribution, purchase and sale of shareholding and capital contribution proportion in Vietnamese company, without directly involving in management of such company. Moreover, such definition also covers the purchase and sale of bonds and other types of securities on the Vietnam security market. Additionally, the balance of a foreign investor's indirect capital account is not permitted to be converted into a term deposit or savings deposit at a credit institution. If an investor wishes to remit overseas capital, profit and other lawful income gained from indirect investment activities, it is entitled to use the VND in its capital account to purchase foreign currency at an authorised credit institution and remit such foreign currency amounts abroad. Circular 05 also stipulates that, it is possible for a foreign investor to conduct direct and indirect investment activities in parallel. In this case, if the direct investment also requires the investor to have a capital account, the foreign investor then must maintain both a direct and an indirect capital account and use each account as appropriate. 1 See June 2009, August 2009, October 2010 and October Allens Vietnam Laws March

6 Circular 05 will take effect from 28 August 2014 and replace Circular 03/2004/TT-NHNN (Circular 03). Within 90 days from the effective date, foreign investors must commence use of an indirect capital account in order to conduct their indirect investment; otherwise, they will not be allowed to continue their current activities. Stricter requirements for capital accounts There are restrictions in the foreign exchange regulations that are designed to ensure tax is paid before moneys may be remitted off-shore; which is assisted by the requirement that sale proceeds be paid via Vietnamese accounts. It should, therefore, be expected that the Vietnamese government tends to support the idea of a capital account as a compulsory condition of the purchase of shareholding by foreign investors. As in other previous regulations, such as Decision 88/2009/QD-TTg of the Prime Minister dated 18 June 2009 and Circular 131/2010/TT-BTC of the Ministry of Finance dated 6 September 2010 on capital contribution and share acquisition of foreign investors in Vietnamese enterprises, foreign investors must have a capital account at a licensed bank in Vietnam before acquiring any shares or capital in Vietnamese enterprises. However, these regulations do not clearly specify how such capital accounts should be used by relevant parties in the process of share or capital acquisition. Therefore, there had previously been situations in which foreign investors opened various capital accounts at the same authorised bank or opened a capital account at more than one authorised bank and then used such capital accounts in their transactions. This situation has reduced the efficiency of control from the government on the activities of foreign investors. Therefore, Circular 05 now clearly states that a foreign investor must conduct its indirect investment via one capital account at one authorised bank. Whilst in some cases, this requirement may make the indirect investment process less convenient for foreign investors, it seems that the revision to Circular 05 will be more likely to assist the government to maintain better control and monitoring of the income and capital flow from the investments of foreign investors. Possible actions for indirect foreign investors As discussed above, a new point arising from Circular 05 is that it requires all transactions relating to indirect foreign investment must be conducted via one capital account only. Foreign investors, therefore, will need to begin making arrangements to modify their current indirect investment activities, to the extent necessary, in order to comply with the requirement to conduct all transactions via an indirect capital account within 90 days of Circular 05 coming into effect. Relevant regulations are silent on administrative penalties for failure to comply with the requirement to use a capital account. However, although no administrative sanctions are specified, investors should bear in mind that obstacles will likely nevertheless arise when attempting to remit capital overseas, as the bank may require the evidence of lawful indirect investment before it agrees to proceed with the overseas remittance. In addition, under Decree 202/2004/ND-CP (as amended by Decree 95/2011/ND-CP) of the Government dated 10 December 2004, which provides for Administrative Fines in 2014 Allens Vietnam Laws March

7 the Sector of Financial and Banking Activities, a fine between VND50,000,000 (approximately USD2,380) to VND100,000,000 (approximately USD4,761) will be imposed on a foreign investor for any remittance of foreign currency overseas or into Vietnam contrary to the law. Implementing details for work permits for foreigners Circular 03/2014/TT-BLDTBXH dated 20 January 2014 detailing the implementation of Decree 102/2013/ND-CP on foreign employees working in Vietnam (Circular 03) As outlined in our September 2013 issue, on 5 September 2013 the Government issued Decree 102/2013/ND-CP on foreign employees working in Vietnam (Decree 102). In January this year, the Ministry of Labour, War Invalids and Social Affairs issued Circular 03 which provides detailed guidance on the procedures for employing foreigners as well as various relevant standard forms. The Circular, and its accompanying standard forms, will be welcomed by companies that wish to employ foreigners but have been hampered by the lack of detaileded guidance since the issuance of Decree 102. Circular 03 took effect on 10 March Procedures to obtain approval for use of foreign employees As described in our September issue, Decree 102 requires that organisations or individuals wishing to hire foreign employees, seek annual approval from the relevant provincial People's Committee. Circular 03 introduces requirements for non-contractor employers which are different from those stipulated under Decree 102. Under Circular 03, approval must be sought at least 30 days prior to the proposed recruitment date, and the approval is sought from the Department of Labour, War Invalids and Social Affairs (DOLISA) of the province where the employer is located. The employer must seek approval using the standard form issued under Circular 03 which includes information on the working positions, the number of people, the level of qualifications and experience, the salary level and the duration of the jobs. Any changes to the arrangements approved by DOLISA, for example recruitment of foreigners to replace existing foreign employees, will be subject to further approval by DOLISA. It is not entirely clear how the requirement to report to DOLISA under Circular 03 fits together with the requirement under Decree 102 for an employer to make a similar report to the provincial people's committee. On the one hand, as DOLISA and the people's committee are related authorities, it does not appear that approval from both authorities should be required. However, other provisions of Circular 03 continue to refer to letters of consent from the people's committee itself, as opposed to DOLISA, supporting the possibility that an employer may need to obtain two separate approvals. It may be that, in practice, a letter from DOLISA will be accepted in substitution of a letter from the provincial people's committee. However, this remains to be seen Allens Vietnam Laws March

8 Circular 03 also provides detailed implementing procedures to be followed by contractors who wish to employ foreigners. These employers are subject to more stringent requirements including providing advance notice of the requirement to recruit workers. Work permit details In addition to providing a standard form application, Circular 03 provides further clarification on the information required in an application for a work permit, including specific information on the documents required to identify the necessary qualifications for foreigners working in Vietnam. The Circular also provides additional clarification on the duration of a work permit, specifying that the duration shall not exceed the term defined in the initial approval from the Chairman of the provincial People's Committee. Re-issuance of work permit Circular 03 sets out in more detail the circumstances and procedures for the re-issuance of a work permit. One of these cases is where there is a change in the working location of the foreign employee, which is defined in the Circular to mean that the foreign employee is transferred, full-time, to a branch, representative office or other establishment of the employer within the same province or city. Although not entirely clear, it appears that if a foreign employee is transferred to a representative office or branch of the employer in a different province to that stipulated in his work permit, the employee will have to obtain an entirely new work permit. Reporting obligations of employers Circular 03 imposes two reporting obligations on employers. Firstly, within the first five days of each quarter, the employer must submit a report on the status of foreign employment in the previous quarter. The Circular provides a standard form for this report. Secondly, if a foreign employee is sent to work in another branch, representative office or establishment of the employer, whether within or outside the province stipulated in the work permit, for at least 10 days within one month or for a total of at least 30 days within one year, the employer must report this to DOLISA Allens Vietnam Laws March

9 Legal instruments recently uploaded on to the Vietnam Laws online database Vietnam Laws online database (available at is an online searchable database containing English translations of more than 3,500 Vietnamese laws. Legislation recently uploaded includes: Circular 19 regulating purchase and sale of credit institutions' bad debts by Vietnam Asset Management Company (VAMC), 6 September 2013 Joint Circular 44 regulating quality standards of domestically produced steel and of imported steel, 31 December 2013 Decision 203 listing areas not subject to auction of mineral mining rights, 27 January 2014 Circular 16 dated 1 September 2010 on residential housing as amended by Circular 03 (defining net use area of an apartment to calculate its purchase price, and with a new Appendix 16 standard form contract for purchase and sale of an apartment in a commercial development), 20 February 2014 Decision 366 approving the Plan on formation and development of the Vietnamese derivative securities market, 11 March 2014 Circular 05 regulating opening and use of indirect investment capital accounts by foreign investors, 12 March 2014 Circular 08 with general provisions on maximum interest rate for loans in certain economic sectors, 17 March 2014 Decision 499 fixing maximum interest rate for loans in certain economic sectors at 8%, 17 March 2014 Circular 07 with general provisions on maximum interest rate for raising VND deposits, 17 March 2014 Decision 498 fixing maximum interest rate for raising VND deposits at 1% for oncall deposits and term deposits under one month, and 6% for term deposits of one month to below 6 months, 17 March 2014 Circular 06 with general provisions on maximum interest rate for raising USD deposits, 17 March 2014 Decision 497 fixing maximum interest rate for raising US deposits from organizations at 0.25% and from individuals at 1%, 17 March 2014 Decision 496 fixing State Bank refinancing interest rate at 6.5%, discount interest rate at 4.5%, and repo interest rate at 7.5%, 17 March 2014 Circular 02 dated 21 January 2013 regulating classification of debts and risk provisioning by banks, as amended by Circular 09 dated 18 March Allens Vietnam Laws March

10 Decision 24 on support and incentives for power generation projects using biomass energy, 24 March 2014 Circular 12 regulating conditions for enterprises to borrow non-government guaranteed foreign loans, 31 March 2014 Hanoi Suite 401, Hanoi Towers 49 Hai Ba Trung Street, Hoan Kiem District Hanoi, Vietnam T F Bill.Magennis@allens.com.au Hop.Dang@allens.com.au Ho Chi Minh City Suite 605, Saigon Tower 29 Le Duan Boulevard, District 1 Ho Chi Minh City, Vietnam T F Robert.Fish@allens.com.au 2014 Allens Vietnam Laws March