download - French Chamber of Commerce and Industry in Hong Kong

The Evolution of the Cambodian Business 

Environment 

Presented by 

Bun & Associates 

September 27, 2012 

1

BUN & ASSOCIATES: FIRM PROFILE (1) 

 

 

Bun & Associates is an independent, multi-service business law firm duly registered with the Bar 

Association of the Kingdom of Cambodia. 

Our integrated team of Cambodian and foreign advisors brings a unique skill set and experience to the 

practice of law in Cambodia. Each of our professionals is relentlessly committed to providing the best 

quality of service to our clients. 

Bun & Associates is ranked “band one” law firm in Cambodia By Chambers Asia Pacific (2011 & 2012) 

 

Bun & Associates is the sole Cambodian law firm listed in 2012 in the rising star feature “Ones to 

Watch” of Asian Legal Business, Thomson Reuters 

2

BUN & ASSOCIATES: FIRM PROFILE (2) 

 

Practice AreasCorporate & Commercial Law 

‣ Banking & Finance 

‣ Insurance 

‣ Real Estate & Construction 

‣ Tax & Customs 

‣ Intellectual Property Rights & New Technologies & Information 

‣ Labor & Employment 

‣ Dispute Resolution 

‣ Administrative Law & Legal Reform 

‣ Private Client Services, Legalization & Translation 

3

1. CAMBODIA AT A GLANCE: WHY CAMBODIA? 

Population: 14,952,665 (July 2012 est.) 

Labor force: 9 million (2011 est.) -Young population with reasonably good skills in foreign languages 

GDP growth: 9% in the last decade and 6-7% projected for 2012 

GDP per capita in 2011: USD 900 

Emerging middle class 

Strategic location within ASEAN 

Continuous economic growth 

Political stability 

Member of UN, ADB, World Bank, IMF, ASEAN (1999), and WTO (2004) (Cambodia was the first 

emerging country to enter the WTO) 

Open and liberal economy: equal treatment: will be discussed further; no restriction on foreign 

ownership (except land ownership), no local joint venture requirement, no restriction on repatriation 

of dividends, no exchange control 

Dollarized Economy (90%) -limited currency risk 

Environment free of major natural disasters 

4

2. REGULATORY & BUSINESS DEVELOPMENT 

a. Regulatory Framework 

Evolution of the laws 

 

 

 

Since 2000 specific laws have been implemented to create a regulatory framework 

Within 12 years, incredible expansion and evolution of the laws 

Most of the laws relevant to the commercial sector are recent and were adopted after Cambodia’s 

accessions to WTO (2004) 

4 Codes Civil Code (2007) 

‣ Code of Civil Procedure (2006) 

‣ Code of Criminal Code 

‣ Code of Criminal Procedure 

‣ Law on Anti-Corruption (2010) 

5



Commercial laws Law on Commercial Enterprise (2005) 

‣ Law on Solvency (2007) 

‣ Law on Financial Lease (2009) 

‣ Intellectual Property Laws (Trademarks (2002), Patents (2003) and Copyright (2003)) 

‣ Law on Commercial Arbitration (2006) and Sub-Decree on Organization and Functioning of 

National Center of Commercial Arbitration (2009) 

‣ Law on Concession (2007) 

6



 

Real Estate laws 

‣ Land Law (2001) 

‣ Sub-decree on Management and Use of Co-owned Buildings (2009) 

‣ Law on Foreign Ownership over Private Parts of Co-owned Buildings (2010) 

‣ Sub-Decree on Determining of Proportion and Calculation Methods of the Private Parts which 

Owned by Foreigners in the Co-Owned Building (2010) 

‣ Decision on Establishment of Sub-Commission for Valuation of Unused Land in Phnom Penh 

(2010) 

‣ Sub-decree on Management of Borei(2011) 

‣ Sub-decree on Pledge and Transfer of Rights over Long-Term Lease or Economic Land Concession 

(2007) 

‣ Sub-decree on Social Land Concession (2003) 

‣ Sub-decree on Economic Land Concession (2005) 

‣ Sub-decree on the Amendment to the Anukreton Economic Land Concessions (2008) 

‣ Sub-decree on Pledge and Transfer of Rights over Long-Term Lease or Economic Land Concession 

(2007) 

7



 

Financial laws 

‣ Law on Taxation (1997) and Its Amendment (2003) 

‣ Law on Negotiable Instruments and Payment Transactions (2005) 

‣ Law on the Issuance and Trading of Non-government Securities (2007) 

‣ Law on State Securities/Bond (2007) 

‣ Law on Secured Transactions (2007) 

8


b. Business Regulatory Framework 

 

Equal treatment 

‣ No restriction on foreign ownership including sensitive sectors such as financial and 

telecommunication. 

‣ The two main restrictions are land ownership and media. However, a foreign company is entitled 

to own 

a) Economic Land Concession (70 years); 

b) Long Term Lease (50 years renewable); and 

c) up to 70% private units of co-owned building 

‣ No restriction on foreign exchange and repatriation of benefits; 

‣ No local joint venture partner requirement; 

‣ Equal treatment between Cambodian and foreign investors; 

‣ Protection against nationalization 

9


b. Business Regulatory Framework 

 

Qualified Investment Project (QIP) 

‣ The Cambodian government has put in place particular tax and custom incentives for determined 

investment projects. A list of these projects are mentioned in an annex of the Sub-Decree on 

investments. 

o Agriculture and Agro-Industry, Transport and Telecommunications, Energy and Electricity, 

Labor-Intensive Industries, Processing and Manufacturing; Tourism, Human Resource 

Development, Oil&Gas, Mining 

‣ Top Incentives A QIP shall be entitled to an exemption from the Tax on Profit imposed under the 

law on Taxation. 

‣ Custom Duty Exemption Incentive Customs Duty Exemptions for Production Equipments, 

Construction Materials, and Production Inputs-Export QIP are exempt from Customs Duty. 

10


c. Selective Sectors 

 

Banking/finance 

‣ Regulator: The National Bank of Cambodia (NBC) 

‣ Number of banking and financial institutions: 

o Commercial Banks 34 : 

ANZ Royal, Bank of China Ltd., ICBC, CIMB, Hwang DBS, Maruhan Japan, Singapore Banking Commercial 

o Specialized Bank: 7 

ANCO Specialized Bank, Angkor Capital, First Investment Specialized 

o Microfinance Institution: 30 

AMRET , AEON, CAMMA 

o Representative Office: 4 

Bank for Investment & Development of Vietnam, Bank of Tokyo-Mitsubishi UFJ, Standard Chartered, 

Sumitomo Banking Corporation 

11



 

Insurance 

‣ Regulator: Financial Industry Department, Ministry of Economy and Finance 

‣ MarketOperators: 

o Reinsurance Company (Cambodia RE): 1 

Cambodia RE 

o General Insurance Companies: 6 

Forte, Asia Insurance, Infinity, Campu-Lonpac, Caminco,Cambodia-Vietnam Insurance 

o Life Insurance Companies + an additional one under way: 2 

CamLife, Manulife. Prudential obtained approval in principle. 

o Micro Insurance Company: 1 

o 

o 

PKMI (Groupe Prévoir) 

2 Insurance Intermediaries: 

1 Agent : AG Services Consulting, and 1 Broker : Poe-ma Cambodia 

General Insurance Association of Cambodia (GIAC) which is a compulsory association for 

General Insurance Companies and Reinsurance Companies 

12



 

Real estate + Agriculture 

Basic Developments 

‣ Property market is recovering, a rise in demand but not in prices; 

‣ The construction sector attracted a total investment of USD 1.53 billion in the first 8 months of 

2012, up 73.96% from the same time last year 

‣ The construction projects approved so far in 2012 include residential units, commercial buildings, 

apartments, hotels, agricultural product processing plants and garment factories, mostly from 

South Korea, China, Malaysia and Vietnam. 

‣ It is still relatively cheap to buy land in Phnom Penh and Cambodia, compared to other major 

cities in other countries in the region. Phnom Penh is yet to see a transaction over USD 5,000 

psqm 

‣ 2011 and 2012 Cambodia has seen major land and investment transactions, notably property 

acquisition by Hong Kong Land and a major Japanese retailer and shopping mall developer 

13



 


Recent Developments 

‣ Significant increase in economic land concessions 

‣ Stronger demands and exports in the agro-industrial sector 

‣ The Government approved in July 2010 a national paddy policy of paddy production and rice 

export aiming rice exports to a million tons by 2015 

‣ Cambodia first exported its rice to China in June 2012 

‣ An increase in the Cash crops industry 

14




Economic Land Concession (ELC) 

‣ 100% foreign owned entity may own ELC right for up to 10,000 ha 

‣ Lease of up to70 years for agro-industrial activities 

‣ ELC Right may be used as collateral to secure loan facilities from a financing party 

‣ Transfer of ELC is possible 

‣ ELCs granted to date include concessions for establishing plantations to grow crops such as rubber, 

sugar, cassava, palm, cashews, eucalyptus, jatropha and acacia and setting up agricultural product 

processing plants 

15



 


Special Economic Zone 

‣ SEZ, which was formally introduced in Cambodia in 2005 is to encourage foreign direct 

investments, offers ‘One-Stop Service’ for imports and exports and fiscal incentives, including 

income tax, customs, and VAT benefits 

‣ The One-Stop-Service includes on-site administrative registration, investment approvals, customs 

inspections and import-export procedures 

‣ There are currently 22 approved SEZs, under the supervision and authority of Cambodia Special 

Economic Zone Board (CSEZB), which operates under the umbrella of the Council for the 

Development of Cambodia (CDC) 

‣ Though 1/3 of the SEZ are in operation and have active investments 

16

3. PITFALLS AND CHALLENGES FOR FOREIGN INVESTMENTS 

a. General 

 

 

 

 

 

Electricity/water 

Infrastructures: road access 

Work force: limited skill sets, availability 

‣ Service sector: 

o Insurance 

‣ Agricultural/manufacturing sector 

o Availability 

Understanding Ministries’ administrative practices and their interpretation of regulations, as well as a 

lack of regulations adapting to evolving activities ; 

Local business partnerships 

‣ Business intelligence –“Know your partner” 

‣ Local partners may have very limited knowledge and understanding of local laws –and their 

application –because of a different cultural approach and method 

17


b. Legal 

 

 

Due Diligence 

‣ Legal Due diligence is strongly recommended in all areas such as: tax, corporate, real estate and 

labor 

‣ A particular care is advised in Cambodia, 

o 

o 

Given the newness of the laws and absence of official and published interpretations; 

With considerably low workforce skills in the last decades, companies often were not able to 

be in compliance with the regulations, and even ministries were unable to understand, let 

alone enforce, their regulations. However, a significant increase in the skills of the workforce 

has been witnessed, leading the companies to ensure compliance and ministries to 

understand and enforce their regulations. 

Investment structure 

‣ Landholding structures 

o Prohibition to own land as a foreigner 

o (both directly or indirectly –with the assistance of a nominee) 

‣ Corporate structure: may be different offshore companies 

o Laws are mostly drafted by foreign experts, though interpreted by locals, with very limited 

understanding of the meaning. 

o Limited choices in the structure of the companies 

18


b. Legal 

 

 

 

Tax(Tax exposure, tax structure and tax practice) 

‣ No official interpretation of the regulation, 

o Though the tax administration plays an important role in providing such interpretation, 

‣ Limited mechanisms for appeals of the tax administrative decisions 

‣ Tax rate: between 15 to 30% of tax exposure 

Compliance: licensing, permits, approvals Long process -time consuming 

‣ May be costly 

Other legal concerns –clearly state these issues in your contracts Choice of governing law and 

jurisdiction; 

‣ Choice of language; 

‣ Disputes resolution, international arbitration 

19

4. AUTHORS’ PROFILE 

For any enquiries, please contact: 

Antoine FONTAINE (PhD) 

Partner | Bun & Associates 

T +855 (0) 23 999 567 | F +855 (0) 23 999 566 | fontaine@bun-associates.com 

#29, Street294, Phnom Penh, Cambodia, P.O. Box 2326 

www.bun-associates.com 

Antoine is the firm’s Practice Leader of the Insurance, Labor, Tax and Regulatory Reform practices. Holding a 

Ph.D. in Insurance Law, he developed unmatched expertise in Cambodia’s insurance sector and provides 

comprehensive advice to multinational companies on their insurance portfolio, including regulatory and tax 

compliance and counseling foreign insurance companies on their market entry. 

Antoine has worked in Cambodia for over a decade and has a particular insight into maximizing a foreign 

company’s entrance into the market. He provides tax advice for companies’ restructuring and acquisition 

projects, as well as on public service taxation, and on the insurance tax system. He previously counseled 

Cambodia’s leading human resource and recruiting agency, audited several major foreign companies’ 

human resource practices and provides guidance to companies on introducing internal labor regulations 

compliant with the Cambodian system. He is described in Chambers & Partners’ Asia Pacific Guide as “a 

foreign legal counsel with vast experience in various aspects of Cambodian law”, with clients highlighting 

that “he is always able to provide a timely response.” 

Antoine is admitted to the Paris Bar and is fluent in French and English and conversant in Khmer. 

20



ING Sophealeak 


T +855 (0) 23 999 567 | F +855 (0) 23 999 566 | ing@bun-associates.com 



Sophealeak is the firm’s Practice Leader of the Real Estate, Commercial Contracts and Intellectual Property 

practices. His recent work includes advising a major Japanese client on a world-class shopping mall 

development project in the Phnom Penh, securing the acquisition of multi-million dollar properties for 

foreign-based clients, as well as securing long term lease agreements on behalf of a number of 

multinational companies for their multi-million dollar investments within the Phnom Penh Special Economic 

Zone. He also assisted foreign investors on a number of economic land concessions, particularly in the area 

of palm oil and rubber plantations. Sophealeak provides advice on land holding structures and their related 

issues, distributorship, as well as business licensing. He previously counseled a leading engineering firm 

with regional presence, on major on-shore and off-shore construction projects, assisted Cambodia’s largest 

premium rice exporter in securing a multi-million dollar equity participation from a foreign investment fund, 

and facilitated the acquisition of prominent businesses in the Food & Beverage sector. Sophealeak also 

previously counseled an international petroleum company on its intellectual property infringement matters. 

Sophealeak is fluent in Khmer, English and French. 

21



BUN Youdy 


T +855 (0) 23 999 567 | F +855 (0) 23 999 566 | bun@bun-associates.com 



Youdy is the firm’s Practice Leader of the Corporate, Banking & Finance and Commercial Litigation practices. 

He is currently a panel lawyer for numerous foreign banks operating in Cambodia. He advises some of the 

largest financial institutions and securities firms in Asia, regarding their business expansion and entry 

strategies into Cambodia. Youdy recently counseled a large Japanese electronics manufacturer with their 

USD65 million investment project, establishing the first electronic large-scale mass-production facility in the 

country. He also previously counseled one of Cambodia’s largest conglomerates on the acquisition of a 

USD60 million turn-key brewery plant and assisted a foreign fund in a transaction for the partial debt 

assignment of the largest loan ever granted in the telecommunications sector. 

Youdy is one of the first commercial arbitrators selected in the Kingdom and the former Secretary-General 

of the Bar Association of the Kingdom of Cambodia. Youdy has consistently been ranked a leading lawyer in 

Cambodia in Chambers & Partners’ Asia Pacific Guide an dispraised as a “detailed and meticulous” lawyer 

who specializes in foreign investment, banking, corporate and commercial litigation. He is fluent in Khmer, 

English and French. 

22

THANK YOU 

#29, Street 294, PO Box 2326 

Sangkat Tonle Bassac, Khan Chamkarmon, 

Phnom Penh, Kingdom of Cambodia 

Tel: +855 (0) 12 817 817 

Fax: +855 (0)23 999 566 

E-mail: info@bun-associates.com 

Website: www.bun-associates.com 

23

ALGIERS 

BEIJING 

BRUSSELS 

BUCHAREST 

BUDAPEST 

CASABLANCA 

HANOI 

HO CHI MINH CITY 

HONG KONG 

ISTANBUL 

KIEV 

LONDON 

MOSCOW 

NEW YORK 

PARIS 

ST. PETERSBURG 

SHANGHAI 

TUNIS 

WARSAW 

Tapping the potential of the Mekong 

27 September 2012 

Myanmar

Country facts 

• Important population (approx 60 M.) 

• GDP of 5.5% in 2011 (expected 6% in 2012) 

• Largest country in mainland Southeast Asia 

(678,500 sq. km) 

• The capital city of Myanmar is Naypyidaw 

PAGE 25

Overview of the recent History of Myanmar 

1948 

1962 

1988 

1990 

2007 

2008 

2010 

2011 

2012 

•Independen 

ce from the 

UK 

• Military 

Coup 

starting the 

Burmese 

way to 

socialism 

• Currency 

devaluatio 

n 

• Antigovernmen 

t riots 

• NLD’s 

victory in 

general 

election is 

ignored by 

the military 

• Economic 

sanctions 

against 

Myanmar 

• Safran 

Revolution 

• Cyclone 

Nargis 

• Referendum 

for new 

Constitution 

• General 

elections 

• Civil 

governmen 

t 

• Byelections 

• Suspensio 

n of 

sanctions 

• New 

Foreign 

investment 

law 

PAGE 26

Key sanctions against Myanmar lifted (1/2) 

• European Union sanctions 

Original EU sanctions 

• Restrictions on the financing of certain enterprises (forestry and mining 

sectors, state-owned enterprises) 

• Asset freezing and travel restrictions for certain individuals 

• Arms embargo 

Suspension of EU sanctions April 2012 

• Sanctions suspended from May 2012 to 30 April 2013 (except for arms 

embargo) 

• Investment in previously restricted enterprises is now allowed 

EU is considering re-instating Myanmar as a beneficiary under the 

Generalized System of Preference 

PAGE 27

Key sanctions against Myanmar lifted (2/2) 

• United States sanctions 

Complex legal framework for sanctions against Myanmar 

Until recently, prohibited new investments and exportation of financial 

services to Myanmar by "U.S. Persons" 

• Relaxation of United States sanctions (July 2012) 

Export / re-export of financial services to Myanmar and "New investments" to 

Myanmar are now authorised 

However, reporting requirements must be complied with 

Transaction with certain persons ("SDN") are still prohibited 

Some persons in Myanmar are listed under other sanctions programs 

(narcotics trafficking) 

• Australia, Canada and Switzerland also relaxed their 

sanctions against Myanmar 

PAGE 28

Myanmar strengths and constraints 

Strengths 

Constraints 

Abundant natural 

resources 

Political risks 

Strategic location 

Underexploited tourism 

potential 

Low cost labor force 

Underdeveloped 

infrastructure 

Inadequate financial 

sector 

Challenging economic 

environment 

Overtime, strengths shall gradually outweigh constraints 

PAGE 29

Myanmar strengths 

Abundant natural 

resources 

• Metal and gems 

• Oil and gas 

• Forestry 

• Water 

• Agricultural resources 

Strategic location 

• Between China, India 

and Thailand 

• Great potential for 

development of ports, 

road and railways 

Low cost labor 

force 

• Young population 

• Human capital 

necessary to drive 

Myanmar’s economic 

transformation 

Underexploited 

tourism 

• Great cultural heritage 

• Growing interest from 

international travelers 

• Lack of hotels/resorts of 

international standard 

PAGE 30

Myanmar constraints 

Underdeveloped 

infrastructure 

• Only 26% of Myanmar's 

population had access to 

electricity in 2011 

• Telecommunication and internet 

access rates are among the 

lowest in the region 

• National transport networks are 

outdated and insufficient 

Inadequate financial 

sector 

• Limited access to finance 

especially in rural areas 

• High interest rates 

• Credit cards only introduced 

recently in the three largest 

cities of Myanmar 

Challenging 

economic 

environment 

• Limited distribution network for 

goods 

• Limited economic 

diversification 

• Local conglomerates 

controlling key sectors 

Political risks 

• Controlled economy 

• Corruption 

• Conflicts in bordering regions 

PAGE 31

Myanmar Foreign Investment Law (FIL) 

• Myanmar FIL was adopted in 1988 

Applies to economic activities designated by the Government (such as 

agriculture, mining, industry, construction, transport and communication, 

trade) 

Allows 100% ownership of companies by foreign investors subject to 

State monopolies 

Investment approval process by Myanmar Investment Commission (MIC) 

Allows long-term land use rights for approved investments up to 60 years 

Tax exemptions or reliefs may be granted 

• The 1988 FIL is being revised by a new law (2012 FIL) 

A bill was recently adopted by Parliament but the President sent it back 

to Parliament for re-discussion 

PAGE 32

Myanmar Investment Commission (MIC) 

Ministry of National Planning and Economic Development 

MIC 

One-stop approving 

authority 

Resources 

• Limited staff and 

resources 

• Challenge in facing the 

exponential increase in 

number of applications 

Powers 

• Reviews and assesses 

all foreign investment 

proposals 

• Checks financial 

credibility 

• Issues MIC permits 

PAGE 33

Investments encouraged 

• Large-scale projects requiring a “heavy” investment 

• Projects with transfers of technology 

• Infrastructure projects that provide regional development 

• Investments in services industry 

• Green projects (recycling energy resources, preservation of the 

environment) 

PAGE 34

Investments restricted 

• State monopolies 

Foreign investment is usually not strictly prohibited in these sectors, but 

more complex 

Monopolies are provided in the State-owned Economic Enterprises Law 

1989 and include, inter alia the following sectors: 

• Natural resources 

• Postal and telecommunications services 

• Air transport and railway transport services 

• Banking and insurance services 

• Broadcasting and television services 

• Electricity 

PAGE 35

Tax incentives for foreign investors 

• Special Economic Zone Law 2011 (SEZ Law) 

0 

100% Tax exemption 

5 

years 

50% relief 

10 

years 

50% relief if the profits 

are re-invested in 

Myanmar 

Restricted to specific activities (manufacturing and production 

processing) 

15 years 

Currently 3 SEZs (Thilawah, Kyaukpkyu and Dawei) 

According to publicly available information, the SEZ Law is being 

reviewed 

PAGE 36

New FIL 2012 

• Myanmar’s new FIL bill was adopted in Parliament 

No official publication of the bill 

Information leaked in relation to key provisions 

• Tensions between the defenders of rapid change and local 

business leaders who are concerned about protecting their 

businesses 

• The bill is considered not sufficiently “pro-foreign investment” by 

the President 

• The President did not approve it and sent it back to Parliament 

for re-discussion (not expected to be approved before 

November) 

PAGE 37

Main sectors opened for business (1/3) 

• Telecommunications 

Myanmar has a high potential for development with respect to the 

telecommunications industry 

• Only 2.1 M telephones for 60 M people 

• 4% penetration rate for mobile and 3% for land-phones 

Government has monopoly 

Government is currently preparing the privatization of the sector through 

an international tender for the grant of telecommunication licenses 

• Utilities (power generation) 

Hydropower represents 70% of Myanmar’s total electricity production 

For the first time, Myanmar’s government has officially invited foreign 

firms to invest in the country’s electric power system 

PAGE 38


• Hospitality 

Growing number of international flights 

Insufficient offering considering increasing demand 

Long-term land use rights can be granted under FIL (and shall be 

extended under FIL 2012) 

However, restrictions on the transfer of land may represent an obstacle 

• Transport Infrastructure / Construction 

International tenders for new airports/expansion of existing airports 

Port terminals and other facilities 

Some European, Chinese and Indian companies expressed their interest 

in investing in Myanmar’s cement industry 

20 projects for construction of cement factories have already been 

approved 

PAGE 39


• Banking sectors 

Foreign banks are now present through representative offices 

Myanmar government should allow direct operating foreign banks by 

2015 

• Insurance 

Myanmar has finally opened its insurance sector for private underwriters 

to set up their insurance operations in Myanmar (for domestic companies 

only) 

Foreign insurance companies are present through representative offices 

Myanmar government should allow foreign investors into its insurance 

sector by 2015 

PAGE 40

Conclusion 

• Reforms towards liberalization of Myanmar’s economy will take 

time 

• Political reforms still need to go further, 2015 elections will be a 

major test 

• The legal framework is and will be evolving in the coming years 

• Risks associated with continuing instability in bordering regions 

• Some categories of foreign investors are rushing in and getting 

a head-start (Korean and Japanese industrial companies) 

PAGE 41

Presentation by: 

• Gilles Cardonnel, Senior Associate 

Solicitor, Hong Kong, New South Wales, England & Wales 

Avocat à la Cour 

Tel. +852 2294 8204 

cardonnel@gide.com 

Gide Loyrette Nouel 

15 th Floor, Jardine House, 

1 Connaught Place, Central 

Hong Kong 

Tel. +852 2536 9110 

Fax +852 2536 9910 

www.gide.com 

This presentation is intended to provide non-exhaustive, general information only. It is not intended to represent legal advice and should not be 

constructed or relied upon as such. Specific advice should be sought about your specific circumstances. 

SLIDE 42

Investing in Vietnam: 

27 September 2012 

The regulatory framework & main practical issues 

ALGIERS 

BEIJING 

BRUSSELS 

BUCHAREST 

BUDAPEST 

CASABLANCA 

HANOI 

HO CHI MINH CITY 

HONG KONG 

ISTANBUL 

KIEV 

LONDON 

MOSCOW 

NEW YORK 

PARIS 

ST. PETERSBURG 

SHANGHAI 

TUNIS 

WARSAW 

Samantha CAMPBELL 

Gide Loyrette Nouel Vietnam

Agenda 

• Vietnam: a brief overview 

Demographics, politics, macroeconomic overview, challenges 

… 

• Investment structures and general legal framework 

Direct and indirect investments, investment vehicles 

Administrative processes 

Foreign ownership restrictions 

• Main issues for foreign investment 

Foreign exchange issues 

Project funding 

Taxes 

Foreign labour 

SLIDE 44

Agenda 




PAGE 45

Vietnam: a brief overview 

Demographics 

• Population 91,519,289 

• 13th most populated country in the 

world – up from the 14 th in 2010 

• 94% literacy rate 

• Over 50% of population under 30 

• 30% of the population located in 

urban areas 

• Labor force 46,480,000 

• Employment breakdown 

Agriculture 48% 

Industry 22.4% 

Services 29.6% 

PAGE 46


Political landscape 

• Political Development 

1976 The Socialist Republic of Vietnam 

1986 Adoption of Doi Moi Policy (Economic Reformation) 

1994 US trade embargos lifted 

1995 Accession to ASEAN 

1997 Accession to APEC 

2007 Accession to WTO: opening of the market in stages to 2014 

2011 May – National Assembly election: 

• Prime Minister Nguyen Tan Dung re-appointed 

• President :Truong Tan Sang 

• Chairman of National Assembly: Nguyen Sinh Hung 

PAGE 47


Political landscape (continued) 

• The Vietnamese Communist Party is the only political party recognized by the 

State – dominates the National Assembly 

• The State organs of Vietnam: 

National Assembly 

Government led by 

Prime Minister 

Ministries / Central Bank 

Local Departments (for the key 

ministries: Planning and 

Investment, Natural Resources, 

Employment etc) 

People’s 

Committees 

People’s Councils 

Supreme People’s 

Court 

Local 

People’s 

Court 

PAGE 48


Legal system 

• The Vietnam legal system is codified - after the Constitution, codes and laws 

form the basis of the whole legal system in the following hierarchy 

Legal Instrument 

The Constitution 

Laws (including Codes) 

Resolutions 

Ordinances and Resolutions 

Decrees, Regulations and Resolutions 

Decisions and Directives 

Circulars 

Decisions 

National Assembly 

• Case law is not binding and does not have the force of law; it can be used 

merely as an indication on how the courts will interpret provisions of laws and 

regulations where it is a “grey area” 

In any case, it is often not publically available 

• The role and discretions given to administrative authorities in this code based 

system are extremely significant 

• The law evolves rapidly with economic developments 

Issuing Body 

Standing Committee of the National 

Assembly 

The Government 

The Prime Minister 

Ministries 

Ministers 

PAGE 49


Macroeconomic overview – economic growth since 1990 

• Vietnam’s economy has grown at an average rate of 8% per year since 1990 

2004-2007: the golden years – growth is over 8% per year 

• Growth is sustained by foreign investment, development aid, natural resources and is 

fuelled by exports…and a real estate bubble 

• Vietnam is now a lower middle income country 

Revenue is USD1,502 per capita in 2012 (IMF estimate) 

Growing middle class; clear improvements in standard of living 

But wealth disparity is keenly perceived 

• Growth and external factors (food and fuel prices) resulted in strong inflationary 

pressures in 2008 and again in 2011, where rates soared above 20% 

Currently contained 

• Concerns over the stability of the Vietnam dong due to frequent devaluations prior to 

2010 – but also currently stable 

• Resulted in policies of austerity towards inflation containment and de-dollarization 

(Resolution 11) 

Lending constraints; high interest rates 

Price controls 

Strong currency protection 

PAGE 50


Growth has been temporarily sacrificed to curb inflation 

(Source: Vinacapital) 

But the Government still aims for growth in 2012 at 5.5% -6% 

PAGE 51


And “Vietnam loses glow as a market darling” 

• Vietnam’s sovereign credit rating was downgraded to B+(Fitch), BB- (S&P), B1 

(Moody’s) in 2010 

 

In August 2012 Moody’s affirmed Vietnam’s sovereign rating of B1 with a negative outlook 

• Public Debt 50% of GDP (USD 67.61 billion) rising 11.2% from 2011 

• 2012 budget deficit is estimated at 3.6% of GDP (USD 135.8 billion) (IMF 2012 estimate), a 

slight increase from an estimated 2.7% in 2011 (Source: World Bank) 

• Large trade deficit - USD 2bn monthly (although it is falling) 

• Foreign direct investment (FDI) into Vietnam, at USD8 billion for the first seven months of 

the year, is a third lower than a year earlier 

• Vietnam is downgraded in the World Bank’s Ease of Doing Business Ranking: 

2012: 98th out of 183 countries and territories (-8 ranks compared to 2011) 

• IMF rescue: 

 

 

Proposed by the National Assembly Commission 

Rejected by the Government and the SBV 

PAGE 52


Key economic challenges; has the tiger lost its roar? 

• A number of important structural challenges persist: 

 

 

 

 

 

 

An underperforming and inefficient State-owned sector wracked by recent mismanagement scandals 

(Vinashin, Vinalines…) 

• Public sector makes up at least 2/5th of the economy 

• Other SOE groups are under investigation 

• Government led focus on restructuring 

A fragile, immature and over-exposed banking sector. also affected by recent scandals (ACB) 

NPLs could officially be as high as 10%, real levels could be much higher 

An opaque and heavily administered system 

Poor infrastructure 

Middle level management/ human resources/ higher education 

• To be weighed against the positive fundamentals: 

 

 

 

 

Exports continue to perform well; the market continues to be export led, with a reducing trade deficit 

The workforce is young dynamic and educated; wages and costs remain competitive in the region 

Macro-fundamentals point towards a large urbanising internal market and the growth of a middle 

class 

Growth will continue to be strong, but how strong? 

A number of issues are typical of any emerging market; Vietnam has hit a juncture in its 

development 

PAGE 53

Agenda 




PAGE 54

Investment structures and general legal framework 

Direct or indirect investment 

Direct Investment 

Establishing wholly foreign-owned enterprises 

Establishing joint ventures between local and foreign 

investors 

Investing pursuant to a contract: Business Cooperation 

Contract (BCC), Build Operate Transfer (BOT) 

Indirect Investment 

Purchasing shares, bonds, and other valuable papers 

Investing through securities investment funds 

Investing through other intermediary financial 

institutions 

Investing in developing a business 

Purchasing shares/ contributing capital in Vietnamese 

companies to participate in management 

Investing in a merger or acquisition 

Control criteria 

PAGE 55

Investment Structures and General Legal Framework 

Investment vehicles 

• The Law on Enterprises recognizes four types of legal entity: 

Limited Liability Company (LLC) 

Joint Stock Company (JSC) 

Partnership or a Limited Liability Partnership 

Private Enterprise (sole practitioner) 

• Foreign investors may establish or invest in LLCs or JSCs, these 

companies are treated the same under company law as Vietnamese 

invested companies 

JSC - Shares 

More than 3 shareholders 

Three-tier management structure 

May be listed 

May issue all type of shares to raise funds 

May issue bonds, convertible bonds and 

other classes of bonds 

LLC - Capital Contribution 

From one to fifty members 

Simple management structure 

May not be listed 

May not issue shares 

May not issue bonds 

Pre-emptive rights entrenched 

PAGE 56


Investment vehicles 

• The chart below shows the structures used by foreign investors in making direct 

investments in Vietnam (percentage of number of newly registered projects in 

2011) 

LLC (JV) 

17% 

LLC 

(100% 

FIE) 

82% 

Source: Ministry of Planning and Investment 

B 

BCC, BOT/BTO/BT and JSC: less 

than 1% 

• In terms of investment amount 

however, 100% foreign owned 

LLCs represent only 56% of FDI, 

BOT/BTO/BT, BCC and JSCs 

19%, and joint ventures around 

23% 

• This reflects foreign ownership 

constraints or practical needs of a 

domestic partner in certain sectors 

requiring substantial investment, 

such as infrastructure projects 

PAGE 20


Other forms of presence 

• Representative offices 

Cannot receive payment or carry out commercial activities 

Limited capacities but ideal for market research, sourcing, or monitoring international 

contract signed with mother company 

Takes from 3 to 5 weeks to establish (relatively straightforward procedure ) 

• Branches: no legal personality 

Branching is only allowed in a limited number of sectors, mainly banking and legal 

services 

Situation does not seem to be evolving 

• Use of agents / distributors/ franchisees under the Commercial Law 

Agents and exclusive distribution agreement widely used in the country 

Franchising can be a good option (in retail or food and beverage industries notably) – 

necessity to register the franchise contract 

PAGE 58


Administrative process 

• Most foreign investment forms require the issuance of a licence, or “Investment 

Certificate” which: 

Represents the approval of the authorities of an “investment project” 

May also serve as certificate of incorporation of the investment vehicle 

• Despite substantial improvement since the mid 2000’s, and the harmonization of 

investment and corporate laws applicable to both domestic and foreign entities, 

the administrative burden around obtaining Investment Certificates and 

amending them remains a major practical impediment to foreign investment in 

Vietnam 

For instance, the assignment of equity interests in an LLC will require an amendment 

to the target company’s Investment Certificate issued by the relevant license 

issuing authority to reflect the new owner (as would more routine matters, such as the 

change of its registered address or of the “legal representative”) 

• As a practical matter, this aspect should not be underestimated; it frequently 

requires voluminous documentation and can be very time consuming 

Official timeline: 15 workings days or 30 working days (depending on whether central 

evaluation is required) 

PAGE 59


Administrative process (continued) 

Issuance of an Investment certificate 

• Approvals Foreign Direct Investment: 

An Investment Certificate needs to be 

obtained from the relevant licence issuing 

body in relation to any type of foreign direct 

investment 

"Registration" if project under VND300 

billion (approximately USD 14.3 million) and 

not on the list of “conditional” sectors 

"Evaluation" applies to projects over 

VND300 billion or on the list of “conditional” 

sectors 

"Conditional" is defined as investment in sectors 

impacting (amongst others) national defense and 

security, social order and safety, banking and 

finance, public health, real estate, as well as sectors 

covered by Vietnam’s WTO commitments 

• "Registration": the application file is sent to the 

local Department of Planning and Investment 

(DPI), which then forwards the file to the relevant 

provincial People’s Committee for issuance of the 

Investment Certificate (in Industrial Zones, the 

body issuing licence is the Industrial Zone 

Management Authority) 

• " Evaluation", the application file must be: 

 

 

 

Submitted to the DPI (or to the Industrial 

Zone Management Authority of an Industrial 

Zone, if applicable) 

The application file is then forwarded to the 

relevant Departments or Ministries for 

evaluation 

The DPI then collate the opinions and 

prepare an evaluation report and submit it 

to the provincial People’s Committee for 

issuance of the Investment Certificate (or 

the Industrial Zone Management Authority 

collates opinions and issues the Investment 

Certificate if the project is located in an 

Industrial Zone) 

PAGE 60


Administrative process: indirect investments 

• For indirect foreign investments, the administrative requirements 

should be fewer, although approvals (and substantial application files) 

will be required in certain cases, including: 

Banking: 5% acquisition requires the prior written consent from the Governor 

of the SBV, as does any acquisition by a foreign party of unlisted shares in a 

bank 

Insurance: transactions which change the paid up capital in the insurer or 

broker by 10% or more must have prior written approval from the Ministry of 

Finance 

Securities: a transaction which results in a change of ownership by 10% or 

more of the charter capital of an unlisted securities company must be 

approved by the State Securities Commission (SSC) 

• Investing in “public companies” is also subject to specific 

administrative requirements and foreign ownership constraints - a 

public company is one which has: 

made a public offer of shares; and 

listed its shares on the stock exchange or securities trading centre; OR 

paid up charter capital of VND10bn or more and whose shares are owned by 

at least one hundred investors (excluding professional securities investors) 

PAGE 61

Investment Structures and General Legal 

Framework 

Administrative process: indirect investments (continued) 

• The following administrative requirements are required when 

investing in any public and/or listed company: 

Registration of a securities trading code from a stock exchange via a 

depository member (licensed by the SSC) 

Opening of a securities trading account with a depository member linked 

to its securities trading code; all trades must be carried out through those 

accounts 

Opening of an indirect investment capital account denominated in VND 

(all purchases of Vietnamese securities can be settled in VND only) with a 

custodian bank authorized to conduct foreign exchange business 

Nomination of a representative person to represent the foreign investor 

for all transactions on the securities trading centers; 

• Regulatory disclosures: All significant purchase or sale of shares (of 

5% or more of the charter capital) by the investor must be reported to 

the SSC 

PAGE 62


Foreign ownership restrictions 

• Restrictions on foreign ownership should be considered not only when 

evaluating the initial investment but also in consideration of any exit 

provisions: 

To whom can the securities be sold, availability of suitable investors? 

Valuation issues 

Ease of transfer – will additional approvals consents be required? 

• Most foreign ownership caps in Vietnamese regulations or 

entrenched in Vietnam’s WTO commitments were lifted between 

2008 and 2012 

• However, listed and public companies can only have up to 49% 

foreign ownership 

PAGE 63


Foreign ownership restrictions and other constraints 

• Caps to foreign ownership or obligation to joint venture with local partner only remain in a 

limited number of sectors, and in particular: 

some logistic services (container handling services: 50% cap) 

some transportation services (49% cap) 

entertainments services (49% cap) 

travel agencies and tour operator services (JV obligation) 

Advertising (JV obligation) 

• Other sectors remain subject to specific constraints… 

Economic Need Test (ENT) for the opening of each retail outlet in the distribution/retail 

sector (after the initial outlet) 

For lodging, catering or drinks services: obligation to invest in construction, restoration or 

acquisition of hotels in parallel (will be lifted in 2015) 

Minimum capital requirement (construction, real estate, insurance etc., although applicable 

to both foreign and domestics investors) 

• …or State monopolies (electricity distribution, media, gold, shipyard…) 

PAGE 64

Agenda 




PAGE 65

Main issues for foreign investment 

Foreign exchange – repatriation of dividends/capital 

• Vietnamese law provides that a foreign 

investor may, after it has discharged fully 

its financial obligations owed to the SBV, 

remit overseas 

its profits derived from its business 

activities 

principal and any interest on foreign 

loans invested capital and proceeds 

from 

liquidation of its investments; and 

other monies and assets lawfully 

owned by the investor 

Note: The foreign purchaser of a capital contribution 

must, as a technical legal matter, open an investment 

capital account at a commercial bank in Vietnam to 

channel equity purchase monies and subsequent equity 

remittances abroad. In addition, the company itself will 

have its own capital contribution account (into which 

its initial charter capital was contributed), through which 

equity purchase proceeds must transit. These 

requirements are applied inconsistently in practice. 

• Note: 

All money transfer operations must be 

carried out through a dedicated 

investment capital account of the 

Company in the case of equity and 

fixed income investments 

Remittance of profits is only permitted 

annually, no "provisional transfer" of 

profits during a financial year 

Remittance is not permitted where 

accumulated losses from previous 

years have not fully been off-set 

Requirement to notify the tax 

authorities of an intended remittance 

(using the standard form issued with 

Circular 186/2010/TT-BTC) seven 

working days prior to actually moving 

profits overseas (previously 

certification from tax authorities that 

CIT had been paid prior to profit 

remittance was required) by the 

investor 

PAGE 66


Project funding 

• General legal restrictions to cross-border lending apply 

Registration with the State Bank of Vietnam (SBV) of "offshore" loans with a 

term of over 12 months 

Obligation to send SBV quarterly reports with the burden on the borrower, who 

must also adhere to the relevant debt capacity ratio (foreign invested capital – 

foreign-owned share capital) as shown in Investment Certificate 

• No interest rate limitations, but payment to offshore lenders is subject to a 

withholding tax of 5% CIT (subject to double tax treaties) and in the case of 

loans from non-financial credit institutions, 5% VAT 

• Onshore funding may be sought with local banks (including some 100% 

foreign-owned banks ) and foreign bank branches 

• Restrictions to onshore lending: 

Very limited import – export related foreign currency lending 

Strict monitoring of the purpose of loans 

Relatively high interest rates 

PAGE 67


Taxes - general 

• Corporate Income Tax (CIT): standard rate of 25% unless incentives apply: 

In geographical areas with difficult socio-economic conditions (rate from 10%- 

20%) 

In economic zones and high-tech zones (rate of 10%), but not in industrial zones 

In some limited encouraged sectors (rate of 10%) (e.g. high technology industry, 

scientific research and technological development, infrastructure, computer software, 

education, health care, environment) 

• Foreign Contractor Withholding Tax (FCWT) 

Withholding tax applying to payments made by a Vietnamese contracting party to 

a foreign entity for cross-border supply of goods or services 

The FCWT comprises VAT (deemed rate ranging from 1.5-5%) and CIT (deemed rate 

ranging from 0.1-10%), deemed rates depending on the type of goods or services 

The FCWT payable varies depending on the accounting method used by the 

foreign contractor 

• Transfer pricing 

Transfer pricing issues have become a real concern for authorities – related party 

transactions must be on “arm’s length” basis and notified on a yearly basis 

PAGE 68


Taxes – personal income tax 

• Personal Income Tax (PIT) 

Broadly speaking, foreign employees staying for more than 183 days within a year 

shall be subject to PIT on all their Vietnamese and international incomes at the 

progressive rates below 

Foreign employees staying less than 183 days are only subject to PIT on their 

Vietnamese incomes at a flat rate of 20%, subject to DTA provisions 

Annual Taxable income 

(million VND) 

Monthly Taxable income 

(million VND) 

Tax rate 

0-60 0-5 (USD 0-250) 5% 

60-120 5-10 (USD 250-450) 10% 

120-216 10-18 (USD 450-850) 15% 

216-384 18-32 (USD 850-1,450) 20% 

384-624 32-52 (USD 1,450-2,450) 25% 

624-960 52-80 (USD 2,450-3,800) 30% 

960 and above 80 and above (USD 3,800) 35% 

PAGE 69


Taxes – capital gains tax/dividends 

• Generally speaking, and subject to double tax treaties, corporate income tax 

(CIT) at a rate of 25% will be applied to the profit on an assignment of a 

capital contribution 

• Sale of securities: 0.1% of sales proceeds (individual residing in Vietnam may 

opt for 20% of net gain) 

• Declaration and payment: 

If the buyer is domestic and the seller is an offshore foreign entity, the buyer is 

responsible for calculating, declaring, deducting and paying the CIT amount payable 

on behalf of the seller 

If the buyer is also an offshore foreign entity, the target company is responsible for 

declaring and paying the CIT amount payable on behalf of the seller 

In case where exemptions are applicable, a simplified notification procedure applies 

since 2011 although practical implementation is inconsistent 

• Dividends: no tax is imposed on dividends remitted overseas unless paid to 

an individual, where a 5% withholding tax is imposed 

PAGE 70


Foreign exchange control – use of foreign currency 

• Within the territory of Vietnam all transactions and payments must be 

denominated in VND, except for (among other less relevant items): 

Transactions with credit institutions permitted to provide foreign exchange services 

Payment by a telegraphic transfer under import or export contracts 

Salary, bonuses and allowances in foreign currency for foreigners (non-residents and 

residents) paid by organizations 

PAGE 71


Foreign labour 

• General principles and trends 

Local employees must be recruited in priority; foreign employees may only be 

employed for tasks requiring specific skills not available in Vietnam 

For the last two years, regulations on foreign employment have been increasingly 

tightened (increased restrictions on the issuance and extension of work permits) 

The labour administration is also heightening its scrutiny of work permits 

application files and the implementation of regulations 

• General conditions 

The foreign employee must be at least 18 years old, healthy enough to satisfy job 

requirements, and have no criminal record 

He / She must be a manager or have high technical skills or considerable 

experience in a field 

• In practice, this requirement is relatively stringently applied and actual evidence of 

diplomas and experience is required 

He / She must have a work permit 

He / She must work under a labour contract, or an internal transfer, or be a 

services salesperson, etc. 

PAGE 72


Foreign labour (continued) 

• Visa and work permit 

A foreign employee must have a visa or a temporary residence card 

A work permit is not required limited circumstances (LLC members, JSC board of 

management members, head of representative offices of NGOs, foreigners working 

less than 3 months to provide services, internal transfer with certain conditions, etc.) 

Application file for a work permit must be submitted by the employer to labour 

administration 

Maximum work permit term is currently 36 months; new Labour Code will reduce it to 

24 months from 1 st May 2013, renewable under certain conditions 

New renewal condition: the employer must recruit a Vietnamese apprentice that 

must be trained in order to replace the foreign employer after the expiration of the 

extended work permit 

PAGE 73

Concluding Remarks 

• The euphoria of the past decade (2002-2008, in particular) has dissipated as 

Vietnam comes to terms with a harsh economic reality against the background of the 

global crisis 

This is a time of uncertainty, even if relative optimism still prevails 

• Recent scandals in the State and private sectors and fears for the banking system 

have brought to the fore underlying management and efficiency issues that go to the 

core of the Vietnamese model 

The fact that these issues are recognised through public channels should be viewed in 

itself as great progress 

• There is increasing consciousness that, despite the rapid progress in lifting Vietnam out 

of poverty made since Doi Moi and WTO entry, Vietnam still needs to work hard to 

reach and maintain a competitive position within ASEAN to attract and keep 

foreign direct investment 

The next few years will demonstrate whether Vietnam will be able to avoid the middle 

income trap 

Clear legislative efforts are being made to respond to investor concerns across a 

number of areas (bureaucracy; corporate; tax; foreign exchange) 

• “Growth prospects remain good as Vietnam transitions to middle-income status, if 

macroeconomic stability is restored and sustained and structural reforms, notably in 

the financial and SOE sectors, are implemented.” (IMF ) 

PAGE 18

Prepared and presented by: 

• CAMPBELL Samantha, Resident Partner 

Tel. + 84 (0)8 3823 8599 

samantha.campbell@gide.com 

• PHAM BACH Duong, Senior Associate 

Tel. + 84 (0)8 3823 8599 

duong.phambach@gide.com 

• TOUSSAINT Antoine, Senior Associate 

Tel. + 84 (0)8 3823 8599 

toussaint@gide.com 

Gide Loyrette Nouel A.A.R.P.I 

Association d'avocats à 

responsabilité 

professionnelle individuelle 

Hô-Chi-Minh City 

18 Hai Ba Trung, District 1 

Hô Chi Minh City, Vietnam 

Tel. +84 8 3823 8599 

Fax +84 8 3823 8598 

Hanoi: 

Pacific Place, Suite 1025-26 

83B Ly Thuong Kiet Street 

Hanoi, Vietnam 

Tel. +84 4 3946 2350 

Fax +84 4 3946 2351 

www.gide.com 

This presentation is intended to provide non-exhaustive, general information only. It is not intended to represent legal advice 

and should not be constructed or relied upon as such. Specific advice should be sought about your specific circumstances 

• Nearly 20 years experience in the 

country 

• Some 20 highly experienced 

Vietnamese and western lawyers 

• We are able to offer English, US, and 

French as well as Vietnamese legal 

expertise from our offices in Vietnam 

• Vietnamese, English, Russian and 

French are spoken fluently in our 

offices 

• We work closely with experts in our 

global network, including Hong Kong, 

New York and Paris 

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