Nguyen Huu Viet – Ta Thi Thanh Tam
DIMAC Law Firm
The current investment law contains many new provisions to reform administrative procedures to attract foreign investment, such as shortening the list of the conditional business lines applicable to foreign investors down to 243 business lines, not requiring them to carry out procedures for being granted the investment registration certificate (the “IRC”) when investing in the form of capital contribution or share purchase of an enterprise established in Vietnam, and other new remarkable points. In addition, the spirit of the reform and investment attraction of Vietnam was also deeply expressed at the 2017 APEC Economic Leaders' Meeting held in Da Nang recently, with a new mission of the country and the region, namely “promoting trade, free and open investment in the Asia-Pacific region”. Many experts said that the contents achieved at this Meeting will continue to create new motivation for attracting investment in Vietnam in the coming period.
Besides these positive signals, in reality there are still some inadequacies in investment procedures that may have negative effects on the attractive investment policy through the procedural reform of the Government. Specifically, the Department of Planning and Investment of H province (“DPI”) had the written notice requesting the owner of a 100% foreign-invested company (“FIC”) to carry out procedures for registration of capital contribution (“Registration of Capital Contribution") before conducting procedures for amending the Enterprise Registration Certificate (“ERC”) and the IRC to increase the FIC’s charter capital. Explaining this requirement, the DPI referred to a written reply of the Ministry of Planning and Investment (“MPI”) to an enterprise which required the owner being the foreign investor to further conduct procedures for registration of capital contribution to increase the charter capital (“Guiding Official Letter”). This requirement is currently raising concerns from foreign investors due to not only failing to streamline the administrative procedures but also slowing down the investor’s investment in implementing their project in Vietnam.
From “the misalignment” in the prevailing regulations…
Under the provisions of the 2014 Law on Enterprises, prior to conducting registration of injecting the charter capital at the licensing authorities, the foreign investor is required to complete their contribution of additional capital to the charter capital of the FIC. According to the principle of the prevailing Law on Investment, the charter capital is also the contributed capital to implement the project used by the FIC for implementing the project in accordance with the contents approved in the IRC. Therefore, according to the process, after the increased charter capital is recorded in the ERC, the FIC will conduct procedures for amending the IRC to adjust the contributed capital for implementation of the project.
According to the prevailing regulations on foreign exchange control of foreign-invested enterprises, the bank where the FIC opens its capital account only agrees to allow the foreign investor to inject the additional charter capital if this is registered and recorded in the IRC of the FIC. This is totally contrary to the provisions of the 2014 Law on Enterprises and the 2014 Law on Investment because these laws require the enterprise to complete the capital contribution, meaning that the owner must fully contribute the additional capital to the FIC, before registration to record the increased capital on the respective licenses of the FIC.
… to understanding the applicable provisions and practice
In order to settle the misalignment of current regulations, the Guiding Official Letter is regarded as a “situational solution” to reconcile the requirements of the licensing authorities and the bank. By requesting the owner of the FIC to perform the Registration of Capital Contribution, the licensing authorities will issue the owner with a written approval on the additional capital contribution to the FIC (“Approval”). Accordingly, the owner will use the Approval to work with the bank for transfer of the increased capital to the FIC to complete the capital injection.
From the management perspective of the competent State authorities, the Guiding Official Letter creates transparency to the foreign exchange cash-flow invested into Vietnam, as well as ensuring compliance with the provisions of legislation on enterprises when requesting the enterprise must complete its capital contribution before registering the amendment of the corresponding licenses to the licensing authorities. However, from the viewpoint of administrative reform to attract the foreign investment, the requirement of conducting the Registration of Capital Contribution is deemed to be a step backwards and not compliant with the prevailing regulations.
In fact, according to current regulations, the foreign investor is only required to conduct the Registration of Capital Contribution in one of the following cases:
(a) The foreign investor contributes capital, purchases shares or capital contributions of economic organizations engaged in conditional business lines applicable to foreign investors;
(b) The contribution of capital, purchase of shares or capital contributions of the foreign investor leads to an increase in holding the charter capital ratio of the foreign investor from less than 51% up to 51% or more; or
(c) to increase the holding of the charter capital ratio of the foreign investor when the foreign investor owns 51% or more of the charter capital in an economic organization.
In principle, when conducting procedures for the establishment of the FIC, the owner has been appraised by the licensing authorities about its financial capacity, its experience, and its satisfaction of investment conditions in the business lines under Vietnamese law before issuance of the IRC and ERC. Therefore, it is not necessary to base on the provisions of point (a) above to require the owner to carry out the Registration of Capital Contribution.In addition, pursuant to points (b) and (c) above, implementation of the Registration of Capital Contribution will be applied when the capital contribution increases the capital holding ratio of the foreign investor in the enterprise from less than 51 % up to over 51% or from 51% and up. However, the increase of capital of the owner in the FIC does not increase the ownership ratio of the owner due to after the capital increase, the ratio of ownership of the owner in the FIC is still at the level of 100%. Therefore, the application of the conditions mentioned in points (b) and (c) above to require the owner to carry out the Registration of Capital Contribution is not compliant with the spirit of the provisions of the 2014 Law on Investment and its guiding documents.
From the reality mentioned above, we find out that the issue of the Guiding Official Letter by the licensing authorities not only does not streamline the administrative procedures but also causes many troubles and confusions to the investor and the FIC in terms of wasting their time, efforts and costs to increase capital for investment, as well as the possibility of losing business and investment opportunities. Therefore, we propose that in the near future, the Government should, as early as possible, issue legal documents in the direction of (i) allowing the foreign investor to transfer foreign currency into the investment capital account of the FIC in the first place; and thereafter, (ii) allowing the bank to transfer the money into the payment account of the FIC only after it completes procedures for amending the ERC and the IRC. This proposal will ensure harmonization between and compliance with the bank's foreign exchange control, legislation on enterprises and investment and ensure the spirit of openness and investment attraction of Vietnam as well.
 Article 31.2, Article 87.2 of Law on Enterprises No. 68/2014/QH-13 issued on 26 November 2014 (“2014 Law on Enterprises”)
 Circular 19/2014/TT-NHNN dated 11 August 2014 guiding the foreign exchange management of the foreign direct investment in Vietnam (“Circular 19”)
 Clause 1, Article 26 of the 2014 Law on Investment; and
Clause 2, Article 46 of Decree 118/2015/ND-CP providing guidelines for some articles of the Law on Investment issued on 12 November 2015