As of August 2020, the total newly registered investment capital aud capital contribution and share purchase by foreign investors reached 20 billion USD, equaling 86.3% over the same period in 2019. That is proof that investors have been choosing Vietnam as an attractive destination. One of the reasons foreign investors increasingly invest in the Vietnamese market is the preferential investment policies, regulations on market access, and groups of  business  lines  with flexible investment condltions that have been gradually completed...

 

Recently, the new Law on Investment 2020 had been promulgated, replacing the Law on Investment 2014. It's expected to bring a big boost to welcome big foreign investment capital into Vietnam shortly. We try to review new points of the Investment Law 2020 and evaluate the benefits that investors can enjoy under the new regulations.

 

I. OUTSTANDING NEW POINTS OF LAW ON INVESTMENT 2020

 

1. Market access and opening new projects

 

While Law on Investment 2014 has not yet clarified the assessment of investment conditions and market access conditions of foreign investors, Law on Investment 2020 has filled those gaps. Law on Investment 2020 has specific definitions of "business investment conditions" in Clause 9, Article 3 and "Market access conditions of foreign investors" in Clause 10 of this Article.

 

Accordingly, “business investment conditions” mean those which must be satisfied by an individual or organization upon making business investment in conditional business lines. “Market access conditions applied to foreign investors” mean those which must be satisfied by foreign investors to make investment in the List of business lines with prohibited and restricted market access specified in Clause 2 Article 9 of Law on Investment 2020. In general, conditions on the business investment and market access are related to the conditional business lines and/or business lines conditions on market access.

 

Thus, according to Article 7, Law on Investment 2020, Conditions for making business investment must be appropriate for the reasons in Clause 1 of this Article and be public, transparent, objective and economic in terms of time and costs of compliance by investors. The Law on Investment 2020 is a combination of the positive points of the Law on Investment 2014 (Article 7) and Decree 118/2015/ND- CP (Article 9) guiding the Law on Investment on investment conditions. Besides, in Article 9 of Law on Investment 2020, market access conditions are clarified with specific criteria, helping investors self- check their suitability for the investment market and business lines.

 

2. Pay attention to security and defense issues

 

According to some provisions Law on Investment 2020, A significant and confusing point for investors and authorities when approving conditional investment projects as well as dealing with violations related to investment activities is the concept and specific criteria of "national defense and security".

 

What does "affecting national defense and security" mean? What criteria do we base on to evaluate whether it affects national defense and security? How can investors be aware of the project's role in affecting the national defense and security of Vietnam? These are some issues from the Law on Investment 2014 so far. Although Law on Investment 2020 has been promulgated, there are still no specific guidelines and detailed regulations.

 

It is stipulated in Clause 3, Article 5 of Law on Investment 2020 that “Any business investment activity of an investor shall be suspended, stopped or terminated if such activity harms or potentially harms national defense and security.”

 

According to Clause 2, Article 6 on the banned business lines: “The Government’s regulations shall apply to production and use of the products mentioned in Points a, b, and c Clause 1 of this Article during analysis, testing, scientific research, medical research, pharmaceutical production, criminal investigation, national defense and security protection.”

 

Clause 1, Article 7 on conditional business lines prescribes that “Conditional business lines are the business lines in which the business investment must satisfy certain conditions for reasons of national defense and security, social order and security, social ethics, or public health.”

 

It is stipulated in Clause 2, Article 10 on the guarantees for asset ownership “Where an asset is bought or requisitioned by the State for reasons of national defense and security, national interests, state of emergency or natural disaster management, the investor shall be reimbursed or compensated in accordance with regulations of law on asset requisition and relevant regulations of law.”

 

According to Clause 3, Article 13 on the guarantees for business investment upon changes of laws, “The regulations in Clause 2 of this Article do not apply if regulations of a legal document are changed for reasons of national defense and security, social order and security, social ethics, public health, or environmental protection.”

 

According to point b, Clause 2, Article 24,“Foreign investors making investment by contributing capital, purchasing shares and purchasing stakes of business organizations must:… nsure national defense and security in accordance with this Law;”

 

Under point c Clause 2, Article 26, “A foreign investor shall follow procedures for registration of capital contribution or purchase of shares or stakes of a business entity prior to change of members or shareholders in one of the following cases:

 

… The foreign investor that contributes capital, purchases shares or stakes of a business entity has a certificate of rights to use land on an island or in a border or coastal commune; in a coastal commune; in another area that affects national defense and security.”

 

According to point a Clause 4, Article 29, “For an investment project subject to approval for its investment guidelines, the competent authority shall grant approval for both investment guidelines and investor without holding a land use right auction or bidding to select investor in the following cases: … The investor has the land use rights, except for the case where the State expropriates land for national defense and security purposes or for socio-economic development in the national or public interest in accordance with the law on land.”

 

According to point d Clause 1, Article 32, “Except for the investment projects set out in Articles 30 and 31 of this Law, the provincial People’s Committees shall approve investment guidelines of the following investment projects: … Investment projects of foreign investors and foreign-invested business entities executed on islands or in border or coastal communes; in other areas affecting national defense and security.”

 

Pursuant to point e Clause 6, Article 34, “Contents of validation of the request for investment guideline approval include: … Assessment of socio-economic efficiency, national defense, security assurance and sustainable development of the investment project.”

 

According to Clause 3, Article 47 stipulating on Suspension of investment projects, “the Prime Minister shall decide to suspend a project in part or in full if the project execution is detrimental or potentially detrimental to national defense and security at the request of the Ministry of Planning and Investment.”

 

It can be clearly seen that It can be clearly seen that though Law on Investment 2020 has been paid more attention to this issue, the regulations on national defense and security are still quite general and principled, which caused by the status of "fake" investment projects affecting the social order and sovereignty in some important regions in Viet Nam. Certainly, in the future, the regulations on national defense and security must be concretized and guided in detail, laying the groundwork for competent agencies to assess, appraise, approve the projects and handle the violations in the operation of business and investment.

 

3. Prohibited business lines and restricted business lines

 

Some regulations on prohibited and restricted business lines of Law on Investment 2014 have been supplemented and amended by Law  on Investment 2020.

 

According to Article 6 of Law on Investment 2020, the business line of debt collection service has become a prohibited business line instead of a conditional one as specified in Appendix 04 of Law on Investment 2014.

 

In reality, even when banks are "creditors", it is also very difficult for them to recover the debts, especially for unsecured loans. Besides, when borrowing money from a bank, the borrowers are always required to carry out a strict process, prove the conditions to ensure the payment of the debt, and wait for the bank to disburse. Therefore, many borrowers, who are in urgent need and cannot meet the conditions for register a loan at a bank, will look for individual creditors doing business freely with extremely high-interest rates. With high-interest rates, in addition to the principal, both creditor and borrower are in a dilemma when the debt is getting larger. As a result, it is difficult to ensure the debt repayment ability.

 

Debt collection service was born to protect the lender and ensure the borrower's repayment obligations. Currently, debt collection services are gradually "distorting", when the business ethics gradually degrades and is looked down upon. Many traumatic cases have happened when   borrowers   were   forced   by   debt collectors   with   the    means   of   threats, intimidation, defamation of honor and dignity on social networks, and disturbing in their daily lives. Besides, the people around them are also bothered. Those acts cause the borrowers to fall into a depressing situation and choose the most negative way to solve the problem. The behaviors of debt collection service providers also make people more hostile towards credit institutions and money lenders.

 

Perhaps the legislators were acutely aware of the current reality and wanted to eliminate such debt collection services to protect the rights and interests of borrowers and lenders. However, when promulgating the "ban" of debt collection services as in Article 6 of Law on Investment 2020, several problems will arise during the execution process:

 

• The handling mechanism for organizations operating in debt collection services has not been clearly defined.
• The specific regulations on the termination of the organization operating in debt collection services have not yet been provided, as well as the procedures and authority to issue a termination decision.
• Debt collection service providers, who do not violate ethics and laws and not make borrowers up the creek without a paddle, still have to unintended terminate their operations because of the "ban".

 

Current debt recovery methods such as filing a suit at competent court and/or arbitration are not really strong and drastic enough for lenders to have peace of mind and trust as well as the prolonged procedure.

 

A question called is that whether the ban of debt collection service businesses practically brings positive consequences to society. It depends on how legislators will improve the debt collection and settlement methods to ensure the interests of the parties in the property lending relationship, and how to deal with the consequences of a "ban” for organizations that have been operating in the business line of debt collection.

 

Besides, according to the new Law on Investment, the amendment and supplementation of conditional business lines or conditions for doing businesses must be consistent with regulations on business and investment conditions and market access. Thus, Law on Investment 2020 has more clearly defined the criteria for classifying and identifying conditional and restricted investment business lines.

 

However, it also causes some obstacles to the investors executing the projects in Vietnam, obtaining the Investment Certificate/Investment  Registration Certificate under the previous Law and now doing businesses in the conditional or restricted business lines under Law on Investment 2020. As a result, the operation of these investors may be interrupted or they are forced to change their business lines to suit the new regulations.

 

4. nvestment incentives:

 

4.1. Supplementing some forms of investment incentives:

 

Compared to Law on Investment 2014, Law on Investment 2020 regulates two more forms of investment incentives[1] such as supplementing an incentive for accelerated depreciation, increasing the deductible expenses when calculating taxable income… These regulations are very appropriate and brings the benefits to investors, especially those with high investment capital and large-scale investment project.

 

4.2. Detailed provisions on beneficiaries of investment incentives:

 

There are many amendments and supplementations in Investment Law 2020 on the beneficiaries of investment incentives.

 

Capital scale: Supplementing some criteria for investment project whose capital is at least VND 6,000 billion of which at least VND 6,000 billion is disbursed within 03 years from the issuance date of the investment registration certificate or the approval for investment guidelines and which satisfies any of the following criteria: “the total revenue is at least VND 10,000 billion per year within 03 years from the year in which the revenue is earned or the project has more than 3,000 employees”[2]

 

Entities eligible for investment incentives: Supplementing some projects eligible for investment incentives as follows[3]:

• Projects on investment in social housing construction;
• Investment projects that employ persons with disabilities in accordance with regulations of law on persons with disabilities;

 

Hi-tech enterprises, science and technology enterprises and science and technology organizations; projects involving transfer of technologies on the List of technologies the transfer of which is encouraged in accordance with regulations of the Law on Technology Transfer, science and technology enterprise incubators prescribed by the Law on High Technologies and Law on Science and Technology; enterprises manufacturing and providing technologies, equipment, products and services with a view to satisfaction of environment protection requirements prescribed by the Law on Environment Protection;

 

• Start-up projects, national innovation centers and research and development centers;
• Investment in business in small and medium-sized enterprises’ product distribution chain; investment in business in technical establishments supporting small and medium-sized enterprises, small and medium-sized enterprise incubators.

 

It can be seen from the regulations on the capital scale and investment projects eligible for incentive policies that Law on Investment 2020 has paid more attention to high-tech industries, prioritized environment protection, enhanced the value of research and innovation, and promoted business assistance services.

 

4.3. Specifying detailed on preferential principles and conditions:

 

Although the beneficiaries of investment incentives are expanded and regulations on the scale of projects are detailed, Law on Investment 2020 has tightened the conditions for enjoying the investment incentives, specifically selective incentives. The subjects and incentives regimes must be reasonable and favorable to investors. However, specific case will be considered carefully to apply the appropriate incentives. It is stipulated in Clauses 6 and 7, Article 15 of the Law on Investment 2020 that:

 

• Investment incentives applied for a fixed term and on the basis of results of project execution. Every investor must satisfy conditions for investment incentives in accordance with regulations of law during the period of enjoying investment incentives.​
• 7. An investment project that is eligible for various levels of investment incentive, including investment incentive may apply the highest level.

4.4. Special investment incentives:

 

Special investment incentives is regulated in detail in Article 20 and Clause 4, Article 75 of Law on Investment 2020. This is a new regulation, aimed at enhancing social security and promoting the large- scale investment projects which influence the socio-economic life of Vietnam and focusing on cases that need to be encouraged for the development of particularly important projects or special administrative-economic units. Specifically, projects eligible for special investment incentives include:

 

• Projects on investment in establishment (including the expansion of such establishment project) of innovation centers and research and development centers with a total investment capital of at least VND 3,000 and disbursing at least VND 1,000 billion within 03 years from the issuance date of the investment registration certificate or the approval for investment guidelines; the National Innovation Center established under the Prime Minister's decision;

​

• Investment projects in the business line eligible for special investment incentives with an investment capital of at least VND 30,000 billion and disbursing at least VND 10,000 billion within 03 years from the issuance date of the investment registration certificate or the approval for investment guidelines.

​

Besides, Law on Investment 2020 also set out the new methods of investment assistance based on the level of special incentives, the period of special incentives according to the actual situation of the projects and the efficiency of investment activities. Specifically, it is stipulated on the tax rates for investment projects enjoying special investment incentives as above that the Prime Minister shall decide to apply a preferential tax rate reducing by no more than 50% the preferential tax rate specified in Clause 1 of this Article. The duration of application of the preferential tax rate shall not exceed 1.5 times the duration of application of the preferential tax rate specified in Clause 1 and may be extended for no more than 15 years and must not exceed the duration of the investment project[4].

 

5. Approval for investment guidelines, selection of investor:

 

“Approval for investment guidelines” is not a new concept because it was regulated in Article 59 of Decree No. 118/2015/NĐ-CP on implementing Law on Investment. In Law on Investment 2020, this phrase is used to replace the phrase “Decision on investment guidelines” in Law on Investment 2014. According to Clause 1, Article 3 of Law on Investment 2020, “Approval for investment guidelines means a competent authority approving the objectives, location, scale, schedule and duration of a project; investor or form of selection of investor and special mechanisms or special policies (if any) to execute an investment project.” Thus, according to Law on Investment 2020, the approval of investment guidelines will be regulated and guilded clearly, replacing “Decision on investment guidelines”, based on the criteria of decentralization of National Assembly, Prime Minister and province-level People’s Committee. There are many new points on criteria and conditions for approval of investment guidelines under the Law in Investment 2020, focusing on the impact of the project on socio-economic, business lines of the investment project, and project scale in terms of capital and field[5].

 

Besides, the concept of “selection of investor” has been introduced for the first time into the private investment field, not just in the public investment and bidding sectors as before[6], concretized with conditions and methods of conducting selection to ensure that the implementation of projects is carried out by the right subjects with sufficient capacity[7].

 

According to Clause 1, Article 29, of Law on Investment 2020, The investor selection shall be carried out by:

“a) holding land use right auction in accordance with regulations of law on land; or

b) bidding to select an investor in accordance with regulations of law on bidding; or

c) approving an investor as prescribed in Clauses 3 and 4 of this Article.

…

 

3. If a land use right auction is held but only one person registers for participation in the auction or the auction is unsuccessful in accordance with regulations of law on land or if bidding is conducted to select investors but only one investor registers for participation in the bidding in accordance with regulations of law on bidding, the competent authority shall carry out the procedures for approving an investor if the investor satisfies the conditions prescribed by relevant law.

​

4. For an investment project subject to approval for its investment guidelines, the competent authority shall grant approval for both investment guidelines and investor without holding a land use right auction or bidding to select investor in the following cases:

​

1. The investor has the land use rights, except for the case where the State expropriates land for national defense and security purposes or for socio-economic development in the national or public interest in accordance with regulations of law on land;
2. ​The investor receives the agricultural land use rights, receives the agricultural land use rights as contributed capital or leases the agricultural land use rights to execute an investment project on non-agricultural production or business and the land is not subject to land expropriation by the State in accordance with regulations of law on land;
3. ​The investor executes the investment project in an industrial park or hi-tech zone;
4. Other cases not subject to an auction or bidding in accordance with regulations of law.”

 

Beside, it is clearly stipulated in Clause 2, Article 29 that the investor selection shall be adopted after the approval for investment guidelines is granted, except for the investment projects not subject to approval for investment guidelines.

 

The new regulations on approval for investment guidelines in Law on Investment 2020 will tighten the management of investment projects impacting social security and local economy, projects with large-scale capital, implemented in business lines with conditions for investing and doing business, or conditions for market access. Meanwhile, the execution of regulations on investor selection will open investment and business opportunities in Vietnam for investors who are capable of implementing investment projects.

 

6. Adjusting the investment project:

 

6.1. Conditions for adjusting the investment project

 

The investment project adjustment under Law on Investment 2020 has expanded the cases of merging projects or fully dividing or partially dividing a project into multiple projects or exercising the rights to use land and property on land which is part of the investment project to contribute capital to establish an enterprise, carrying out business cooperation or carry out other activities, as well as the right to adjust the purpose, and transfer part or the whole investment project[8]. Moreover, the investor shall follow procedures for adjusting the investment registration certificate if the adjustment to the investment project changes any content of the investment registration certificate[9].

 

Compared with Law on Investment 2014, Law on Investment 2020 stipulates more regulations and conditions that foreign investors must meet to contribute capital, purchase shares or stakes from economic organizations, specifically in Clause 2, Article 24 of Law on Investment 2020 as follows:

 

“a) satisfy market access conditions applied to foreign investors as prescribed in Article 9 of this Law;

b) ensure national defense and security in accordance with this Law;

c) comply with regulations of the law on land and conditions for receipt of land use rights and conditions for use of land on islands or border or coastal communes.”

 

In this regulation, the issue of national defense, security, and the border are mentioned again. They also become important conditions that the investors who want to contribute capital, to buy shares or stakes must meet. Therefore, it is certain that these regulations need to be specifically guided in delegated legislation to ensure the systematic compliance and application which is consistent from central to local, from Ministries to Departments in Viet Nam.

 

6.2. Redefining foreign-invested enterprises:

 

Law on Investment 2014 regulated the percentage of foreign capital in foreign- invested organizations as 51%. However, this rate has been reduced to 50% according to the Law on Investment 2020 (Clause 1, Article 23 and point b, Clause 2, Article 26 of Law on Investment 2020). 1% is a small amount but has a great influence on the investors who are granted certificates/investment registration certificates under the old law.

 

Accordingly, Law on Investment 2020 defines:

 

“1. When establishing a business organization, when making investment by contributing capital, purchasing shares or purchasing stakes of a business organization or when making investment under a business cooperation contract in one of the following cases, the foreign investor must satisfy the conditions and follow investment procedures applied to foreign investors:

 

1. Over 50% of its charter capital or more is held by a foreign investor(s) or the majority of the general partners are foreigners if the business organization is a partnership;
2. Over 50% of its charter capital or more is held by a business organization(s) mentioned in Point a of this Clause;
3. Over 50% of its charter capital or more is held by a foreign investor(s) and a business organization(s) mentioned in Point a of this Clause.”

(Clause 1, Article 23 of Law on Investment 2020)

 “A foreign investor shall follow procedures for registration of capital contribution or purchase of shares or stakes of a business organization prior to change of members or shareholders in one of the following cases:

…

b) The capital contribution or purchase of shares or stakes results in a foreign investor or business organization specified in Points a, b and c Clause 1 Article 23 of this Law holding over 50% of the charter capital of the business organization in the following cases: The holding of charter capital by the foreign investor is increased from less than or equal to 50% to over 50%; the holding of charter capital by the foreign investor is increased while such foreign investor is holding over 50% of the charter capital of the business organization;”

(Point b, Clause 2, Article 26 of Law on Investment 2020)

 

It can be seen that this regulation will affect the identification of foreign-invested business for investment projects and economic organizations that existed before 2021, leading to a change of administrative procedures, operating conditions, investment incentives, and restrictions... of these projects. For example, an economic organization may have to change the location of an investment project due to security and defense conditions; or may need to adjust business lines to conform to WTO commitments, conditional business lines under Vietnamese law. In addition, there must be a mandatory audit for the year-end financial statements.

 

7. Termination of investment project:

 

The termination of investment projects is regulated in more detail and stricter in Law on Investment 2020, specifically, Article 48, Law on Investment 2020 has supplemented the cases of termination or partial termination of the project's operation:

 

• Land reserved for the investment project is expropriated by the State for the reason that the land is not used or the land use is delayed in accordance with regulations of law on land;
• The investor fails to pay the deposit or obtain a bank guarantee as prescribed by law if project execution security is required;
• The investor conducted the investment activities on the basis of a sham civil transaction in accordance with the civil law;
• Pursuant to a judgment or decision of a court or an arbitral award;

​

It can be seen that Law on Investment 2020 is based on the reality of investment activities in Vietnam and "fill the gaps" left by Law on Investment 2014. However, the new provisions of the Law on Investment 2020 regarding the termination or partial termination of an investment project need to regulate strictly and more details so that investors are fully aware of their rights and their obligations, especially for foreign investors who do not understand Vietnamese laws.

 

According to the author, a several question called in respect of Article 48 of Law on Investment 2020 as follows: What is a fraud civil transaction and what is the violation of national defense and security? What are the criteria to evaluate the acts of investors causing negative impacts on national defense and security? Will investors' faults in civil transactions that are considered fake be assessed? In which cases shall an investment project be totally terminated or partially terminated? Which agency has the competence to assess the criteria for determining violations and under what procedure will they evaluate? How will the complaint and claim for damages if there is an inaccuracy, lack of objectivity in the process of terminating the whole or a part of the investment project?

 

8. Issues related to environment during the implementation of investment projects:

 

According to Clause 3, Article 75 of Law on Investment 2020, the report of environmental impact assessment for projects subject to environmental impact assessment under Article 18 of Law on Environmental Protection 2014 (amended and supplemented by Law No. 35/2018/QH14 and Law No. 39/2019/QH14) has been replaced by the concept of “preliminary environmental impact assessment”. Specifically, preliminary environmental impact assessment is the content of the investment project proposal report and is the basis for approving the investment guideline. The investors are only allowed to implement the project after the environmental impact assessment report is approved.

 

Hence, instead of reporting the environmental impact assessment during the preparation of investment project implementation[10], the projects under Article 18 of Law on Environmental Protection 2014 such as projects falling under the authority to approve investment policies of the National Assembly, the Government, and the Prime Minister; projects using the land of nature reserves, national parks, historical-cultural relic sites, world heritage sites, biosphere reserves, and scenic spots that have been ranked; Projects with the risk of adverse impacts on the environment shall conduct a preliminary environmental impact assessment.

 

According to Article 99 of Law on Public Investment 2019, the decision on investment policy will only be based on a preliminary environmental impact assessment, not an environmental impact assessment report. as some investment projects. Thus, in the opinion of the author, the new regulation in Law on Investment 2020 will be a 'loosening" regulation for investors and bring fairness between public investment and private investment.

 

II. RECOMMENDATION

 

In the future, Law on Investment 2020 has been guided by By-law documents. In particular, there are outstanding issues that need specific guidance according to the author's opinion:

 

1. There should be specific guidance on criteria for assessing market access conditions, investment and business conditions, and conditional business lines, especially national defense and security nation.
2. Specific guidance are required for investors who are granted an investment certificate/investment registration certificate under the Law on Investment or Law on Investment 2014, who operating in conditional business lines or Investment restrictions under the Investment Law 2020 to minimize the interruption in implementation of investment projects, cause other consequences in the investment and business process.
3. It is necessary to have a clearer regulation on the registration procedures for investment incentives, closely comply with Article 20 and Clause 4, Article 75 of the Law on Investment 2020.
4. There should be specific guidance for foreign-invested enterprises reaching 50% of foreign capital that have been granted         an investment certificate/investment registration certificate before 2021.
5. The application of the new provisions of the Investment Law 2020 must be consistent between the Government, Ministries, Departments and investment project approval agencies to ensure that the appraisal of investment projects takes place in a certain order, avoid responsibilities between agencies, wasting investors' time and finances, delaying investment, business plans and opportunities to compete in the market.
6. Having specific and detailed regulations to complete the provisions in Article 48, as analyzed in Section 6, Part 1 of the article.

 

Law on Investment with new regulations is leading a new road and promotes profitable investment with large- scale business ideas for the Vietnamese market. It also provides a great legal framework to prevent cases of taking advantage of investment activities to gain illicit profits, preventing group interests and illegal entry and residence, and affecting national defense and security. However, it is still necessary to have more specific and detailed by Decrees, Circulars and/or Resolutions guiding the issues that Law on Investment 2020           has      not   yet       clearly specified.

 

REFERENCES:

1. Foreign     investment     information portal https://dautunuocngoai.gov.vn/tinbai/63 79/Tinh-hinh-Dau-tu-nuoc-ngoai-8-thang- nam-2020
2. Law on Investment 2014
3. Law on Investment 2020
4. Decree 118/2015/NĐ-CP guiding on Law on Investment;
5. Article: “New points on investment incentives under Law on Investment 2020”– Phamlaw.com;
6. Conference to introduce some new points of the Law on Investment 2020 - DIMAC Law Firm.