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The Evolution <strong>of</strong> the Cambodian Bus<strong>in</strong>ess<br />
Environment<br />
Presented by<br />
Bun & Associates<br />
September 27, 2012<br />
1
BUN & ASSOCIATES: FIRM PROFILE (1)<br />
<br />
<br />
Bun & Associates is an <strong>in</strong>dependent, multi-service bus<strong>in</strong>ess law firm duly registered with the Bar<br />
Association <strong>of</strong> the K<strong>in</strong>gdom <strong>of</strong> Cambodia.<br />
Our <strong>in</strong>tegrated team <strong>of</strong> Cambodian <strong>and</strong> foreign advisors br<strong>in</strong>gs a unique skill set <strong>and</strong> experience to the<br />
practice <strong>of</strong> law <strong>in</strong> Cambodia. Each <strong>of</strong> our pr<strong>of</strong>essionals is relentlessly committed to provid<strong>in</strong>g the best<br />
quality <strong>of</strong> service to our clients.<br />
Bun & Associates is ranked “b<strong>and</strong> one” law firm <strong>in</strong> Cambodia By <strong>Chamber</strong>s Asia Pacific (2011 & 2012)<br />
<br />
Bun & Associates is the sole Cambodian law firm listed <strong>in</strong> 2012 <strong>in</strong> the ris<strong>in</strong>g star feature “Ones to<br />
Watch” <strong>of</strong> Asian Legal Bus<strong>in</strong>ess, Thomson Reuters<br />
2
BUN & ASSOCIATES: FIRM PROFILE (2)<br />
<br />
Practice AreasCorporate & Commercial Law<br />
‣ Bank<strong>in</strong>g & F<strong>in</strong>ance<br />
‣ Insurance<br />
‣ Real Estate & Construction<br />
‣ Tax & Customs<br />
‣ Intellectual Property Rights & New Technologies & Information<br />
‣ Labor & Employment<br />
‣ Dispute Resolution<br />
‣ Adm<strong>in</strong>istrative Law & Legal Reform<br />
‣ Private Client Services, Legalization & Translation<br />
3
1. CAMBODIA AT A GLANCE: WHY CAMBODIA?<br />
Population: 14,952,665 (July 2012 est.)<br />
Labor force: 9 million (2011 est.) -Young population with reasonably good skills <strong>in</strong> foreign languages<br />
GDP growth: 9% <strong>in</strong> the last decade <strong>and</strong> 6-7% projected for 2012<br />
GDP per capita <strong>in</strong> 2011: USD 900<br />
Emerg<strong>in</strong>g middle class<br />
Strategic location with<strong>in</strong> ASEAN<br />
Cont<strong>in</strong>uous economic growth<br />
Political stability<br />
Member <strong>of</strong> UN, ADB, World Bank, IMF, ASEAN (1999), <strong>and</strong> WTO (2004) (Cambodia was the first<br />
emerg<strong>in</strong>g country to enter the WTO)<br />
Open <strong>and</strong> liberal economy: equal treatment: will be discussed further; no restriction on foreign<br />
ownership (except l<strong>and</strong> ownership), no local jo<strong>in</strong>t venture requirement, no restriction on repatriation<br />
<strong>of</strong> dividends, no exchange control<br />
Dollarized Economy (90%) -limited currency risk<br />
Environment free <strong>of</strong> major natural disasters<br />
4
2. REGULATORY & BUSINESS DEVELOPMENT<br />
a. Regulatory Framework<br />
Evolution <strong>of</strong> the laws<br />
<br />
<br />
<br />
S<strong>in</strong>ce 2000 specific laws have been implemented to create a regulatory framework<br />
With<strong>in</strong> 12 years, <strong>in</strong>credible expansion <strong>and</strong> evolution <strong>of</strong> the laws<br />
Most <strong>of</strong> the laws relevant to the commercial sector are recent <strong>and</strong> were adopted after Cambodia’s<br />
accessions to WTO (2004)<br />
4 Codes Civil Code (2007)<br />
‣ Code <strong>of</strong> Civil Procedure (2006)<br />
‣ Code <strong>of</strong> Crim<strong>in</strong>al Code<br />
‣ Code <strong>of</strong> Crim<strong>in</strong>al Procedure<br />
‣ Law on Anti-Corruption (2010)<br />
5
2. REGULATORY & BUSINESS DEVELOPMENT<br />
a. Regulatory Framework<br />
Commercial laws Law on Commercial Enterprise (2005)<br />
‣ Law on Solvency (2007)<br />
‣ Law on F<strong>in</strong>ancial Lease (2009)<br />
‣ Intellectual Property Laws (Trademarks (2002), Patents (2003) <strong>and</strong> Copyright (2003))<br />
‣ Law on Commercial Arbitration (2006) <strong>and</strong> Sub-Decree on Organization <strong>and</strong> Function<strong>in</strong>g <strong>of</strong><br />
National Center <strong>of</strong> Commercial Arbitration (2009)<br />
‣ Law on Concession (2007)<br />
6
2. REGULATORY & BUSINESS DEVELOPMENT<br />
a. Regulatory Framework<br />
<br />
Real Estate laws<br />
‣ L<strong>and</strong> Law (2001)<br />
‣ Sub-decree on Management <strong>and</strong> Use <strong>of</strong> Co-owned Build<strong>in</strong>gs (2009)<br />
‣ Law on Foreign Ownership over Private Parts <strong>of</strong> Co-owned Build<strong>in</strong>gs (2010)<br />
‣ Sub-Decree on Determ<strong>in</strong><strong>in</strong>g <strong>of</strong> Proportion <strong>and</strong> Calculation Methods <strong>of</strong> the Private Parts which<br />
Owned by Foreigners <strong>in</strong> the Co-Owned Build<strong>in</strong>g (2010)<br />
‣ Decision on Establishment <strong>of</strong> Sub-Commission for Valuation <strong>of</strong> Unused L<strong>and</strong> <strong>in</strong> Phnom Penh<br />
(2010)<br />
‣ Sub-decree on Management <strong>of</strong> Borei(2011)<br />
‣ Sub-decree on Pledge <strong>and</strong> Transfer <strong>of</strong> Rights over Long-Term Lease or Economic L<strong>and</strong> Concession<br />
(2007)<br />
‣ Sub-decree on Social L<strong>and</strong> Concession (2003)<br />
‣ Sub-decree on Economic L<strong>and</strong> Concession (2005)<br />
‣ Sub-decree on the Amendment to the Anukreton Economic L<strong>and</strong> Concessions (2008)<br />
‣ Sub-decree on Pledge <strong>and</strong> Transfer <strong>of</strong> Rights over Long-Term Lease or Economic L<strong>and</strong> Concession<br />
(2007)<br />
7
2. REGULATORY & BUSINESS DEVELOPMENT<br />
a. Regulatory Framework<br />
<br />
F<strong>in</strong>ancial laws<br />
‣ Law on Taxation (1997) <strong>and</strong> Its Amendment (2003)<br />
‣ Law on Negotiable Instruments <strong>and</strong> Payment Transactions (2005)<br />
‣ Law on the Issuance <strong>and</strong> Trad<strong>in</strong>g <strong>of</strong> Non-government Securities (2007)<br />
‣ Law on State Securities/Bond (2007)<br />
‣ Law on Secured Transactions (2007)<br />
8
2. REGULATORY & BUSINESS DEVELOPMENT<br />
b. Bus<strong>in</strong>ess Regulatory Framework<br />
<br />
Equal treatment<br />
‣ No restriction on foreign ownership <strong>in</strong>clud<strong>in</strong>g sensitive sectors such as f<strong>in</strong>ancial <strong>and</strong><br />
telecommunication.<br />
‣ The two ma<strong>in</strong> restrictions are l<strong>and</strong> ownership <strong>and</strong> media. However, a foreign company is entitled<br />
to own<br />
a) Economic L<strong>and</strong> Concession (70 years);<br />
b) Long Term Lease (50 years renewable); <strong>and</strong><br />
c) up to 70% private units <strong>of</strong> co-owned build<strong>in</strong>g<br />
‣ No restriction on foreign exchange <strong>and</strong> repatriation <strong>of</strong> benefits;<br />
‣ No local jo<strong>in</strong>t venture partner requirement;<br />
‣ Equal treatment between Cambodian <strong>and</strong> foreign <strong>in</strong>vestors;<br />
‣ Protection aga<strong>in</strong>st nationalization<br />
9
2. REGULATORY & BUSINESS DEVELOPMENT<br />
b. Bus<strong>in</strong>ess Regulatory Framework<br />
<br />
Qualified Investment Project (QIP)<br />
‣ The Cambodian government has put <strong>in</strong> place particular tax <strong>and</strong> custom <strong>in</strong>centives for determ<strong>in</strong>ed<br />
<strong>in</strong>vestment projects. A list <strong>of</strong> these projects are mentioned <strong>in</strong> an annex <strong>of</strong> the Sub-Decree on<br />
<strong>in</strong>vestments.<br />
o Agriculture <strong>and</strong> Agro-<strong>Industry</strong>, Transport <strong>and</strong> Telecommunications, Energy <strong>and</strong> Electricity,<br />
Labor-Intensive Industries, Process<strong>in</strong>g <strong>and</strong> Manufactur<strong>in</strong>g; Tourism, Human Resource<br />
Development, Oil&Gas, M<strong>in</strong><strong>in</strong>g<br />
‣ Top Incentives A QIP shall be entitled to an exemption from the Tax on Pr<strong>of</strong>it imposed under the<br />
law on Taxation.<br />
‣ Custom Duty Exemption Incentive Customs Duty Exemptions for Production Equipments,<br />
Construction Materials, <strong>and</strong> Production Inputs-Export QIP are exempt from Customs Duty.<br />
10
2. REGULATORY & BUSINESS DEVELOPMENT<br />
c. Selective Sectors<br />
<br />
Bank<strong>in</strong>g/f<strong>in</strong>ance<br />
‣ Regulator: The National Bank <strong>of</strong> Cambodia (NBC)<br />
‣ Number <strong>of</strong> bank<strong>in</strong>g <strong>and</strong> f<strong>in</strong>ancial <strong>in</strong>stitutions:<br />
o Commercial Banks 34 :<br />
ANZ Royal, Bank <strong>of</strong> Ch<strong>in</strong>a Ltd., ICBC, CIMB, Hwang DBS, Maruhan Japan, S<strong>in</strong>gapore Bank<strong>in</strong>g Commercial<br />
o Specialized Bank: 7<br />
ANCO Specialized Bank, Angkor Capital, First Investment Specialized<br />
o Micr<strong>of</strong><strong>in</strong>ance Institution: 30<br />
AMRET , AEON, CAMMA<br />
o Representative Office: 4<br />
Bank for Investment & Development <strong>of</strong> Vietnam, Bank <strong>of</strong> Tokyo-Mitsubishi UFJ, St<strong>and</strong>ard Chartered,<br />
Sumitomo Bank<strong>in</strong>g Corporation<br />
11
2. REGULATORY & BUSINESS DEVELOPMENT<br />
c. Selective Sectors<br />
<br />
Insurance<br />
‣ Regulator: F<strong>in</strong>ancial <strong>Industry</strong> Department, M<strong>in</strong>istry <strong>of</strong> Economy <strong>and</strong> F<strong>in</strong>ance<br />
‣ MarketOperators:<br />
o Re<strong>in</strong>surance Company (Cambodia RE): 1<br />
Cambodia RE<br />
o General Insurance Companies: 6<br />
Forte, Asia Insurance, Inf<strong>in</strong>ity, Campu-Lonpac, Cam<strong>in</strong>co,Cambodia-Vietnam Insurance<br />
o Life Insurance Companies + an additional one under way: 2<br />
CamLife, Manulife. Prudential obta<strong>in</strong>ed approval <strong>in</strong> pr<strong>in</strong>ciple.<br />
o Micro Insurance Company: 1<br />
o<br />
o<br />
PKMI (Groupe Prévoir)<br />
2 Insurance Intermediaries:<br />
1 Agent : AG Services Consult<strong>in</strong>g, <strong>and</strong> 1 Broker : Poe-ma Cambodia<br />
General Insurance Association <strong>of</strong> Cambodia (GIAC) which is a compulsory association for<br />
General Insurance Companies <strong>and</strong> Re<strong>in</strong>surance Companies<br />
12
2. REGULATORY & BUSINESS DEVELOPMENT<br />
c. Selective Sectors<br />
<br />
Real estate + Agriculture<br />
Basic Developments<br />
‣ Property market is recover<strong>in</strong>g, a rise <strong>in</strong> dem<strong>and</strong> but not <strong>in</strong> prices;<br />
‣ The construction sector attracted a total <strong>in</strong>vestment <strong>of</strong> USD 1.53 billion <strong>in</strong> the first 8 months <strong>of</strong><br />
2012, up 73.96% from the same time last year<br />
‣ The construction projects approved so far <strong>in</strong> 2012 <strong>in</strong>clude residential units, commercial build<strong>in</strong>gs,<br />
apartments, hotels, agricultural product process<strong>in</strong>g plants <strong>and</strong> garment factories, mostly from<br />
South Korea, Ch<strong>in</strong>a, Malaysia <strong>and</strong> Vietnam.<br />
‣ It is still relatively cheap to buy l<strong>and</strong> <strong>in</strong> Phnom Penh <strong>and</strong> Cambodia, compared to other major<br />
cities <strong>in</strong> other countries <strong>in</strong> the region. Phnom Penh is yet to see a transaction over USD 5,000<br />
psqm<br />
‣ 2011 <strong>and</strong> 2012 Cambodia has seen major l<strong>and</strong> <strong>and</strong> <strong>in</strong>vestment transactions, notably property<br />
acquisition by <strong>Hong</strong> <strong>Kong</strong> L<strong>and</strong> <strong>and</strong> a major Japanese retailer <strong>and</strong> shopp<strong>in</strong>g mall developer<br />
13
2. REGULATORY & BUSINESS DEVELOPMENT<br />
c. Selective Sectors<br />
<br />
Real estate + Agriculture<br />
Recent Developments<br />
‣ Significant <strong>in</strong>crease <strong>in</strong> economic l<strong>and</strong> concessions<br />
‣ Stronger dem<strong>and</strong>s <strong>and</strong> exports <strong>in</strong> the agro-<strong>in</strong>dustrial sector<br />
‣ The Government approved <strong>in</strong> July 2010 a national paddy policy <strong>of</strong> paddy production <strong>and</strong> rice<br />
export aim<strong>in</strong>g rice exports to a million tons by 2015<br />
‣ Cambodia first exported its rice to Ch<strong>in</strong>a <strong>in</strong> June 2012<br />
‣ An <strong>in</strong>crease <strong>in</strong> the Cash crops <strong>in</strong>dustry<br />
14
2. REGULATORY & BUSINESS DEVELOPMENT<br />
c. Selective Sectors<br />
Real estate + Agriculture<br />
Economic L<strong>and</strong> Concession (ELC)<br />
‣ 100% foreign owned entity may own ELC right for up to 10,000 ha<br />
‣ Lease <strong>of</strong> up to70 years for agro-<strong>in</strong>dustrial activities<br />
‣ ELC Right may be used as collateral to secure loan facilities from a f<strong>in</strong>anc<strong>in</strong>g party<br />
‣ Transfer <strong>of</strong> ELC is possible<br />
‣ ELCs granted to date <strong>in</strong>clude concessions for establish<strong>in</strong>g plantations to grow crops such as rubber,<br />
sugar, cassava, palm, cashews, eucalyptus, jatropha <strong>and</strong> acacia <strong>and</strong> sett<strong>in</strong>g up agricultural product<br />
process<strong>in</strong>g plants<br />
15
2. REGULATORY & BUSINESS DEVELOPMENT<br />
c. Selective Sectors<br />
<br />
Real estate + Agriculture<br />
Special Economic Zone<br />
‣ SEZ, which was formally <strong>in</strong>troduced <strong>in</strong> Cambodia <strong>in</strong> 2005 is to encourage foreign direct<br />
<strong>in</strong>vestments, <strong>of</strong>fers ‘One-Stop Service’ for imports <strong>and</strong> exports <strong>and</strong> fiscal <strong>in</strong>centives, <strong>in</strong>clud<strong>in</strong>g<br />
<strong>in</strong>come tax, customs, <strong>and</strong> VAT benefits<br />
‣ The One-Stop-Service <strong>in</strong>cludes on-site adm<strong>in</strong>istrative registration, <strong>in</strong>vestment approvals, customs<br />
<strong>in</strong>spections <strong>and</strong> import-export procedures<br />
‣ There are currently 22 approved SEZs, under the supervision <strong>and</strong> authority <strong>of</strong> Cambodia Special<br />
Economic Zone Board (CSEZB), which operates under the umbrella <strong>of</strong> the Council for the<br />
Development <strong>of</strong> Cambodia (CDC)<br />
‣ Though 1/3 <strong>of</strong> the SEZ are <strong>in</strong> operation <strong>and</strong> have active <strong>in</strong>vestments<br />
16
3. PITFALLS AND CHALLENGES FOR FOREIGN INVESTMENTS<br />
a. General<br />
<br />
<br />
<br />
<br />
<br />
Electricity/water<br />
Infrastructures: road access<br />
Work force: limited skill sets, availability<br />
‣ Service sector:<br />
o Insurance<br />
‣ Agricultural/manufactur<strong>in</strong>g sector<br />
o Availability<br />
Underst<strong>and</strong><strong>in</strong>g M<strong>in</strong>istries’ adm<strong>in</strong>istrative practices <strong>and</strong> their <strong>in</strong>terpretation <strong>of</strong> regulations, as well as a<br />
lack <strong>of</strong> regulations adapt<strong>in</strong>g to evolv<strong>in</strong>g activities ;<br />
Local bus<strong>in</strong>ess partnerships<br />
‣ Bus<strong>in</strong>ess <strong>in</strong>telligence –“Know your partner”<br />
‣ Local partners may have very limited knowledge <strong>and</strong> underst<strong>and</strong><strong>in</strong>g <strong>of</strong> local laws –<strong>and</strong> their<br />
application –because <strong>of</strong> a different cultural approach <strong>and</strong> method<br />
17
3. PITFALLS AND CHALLENGES FOR FOREIGN INVESTMENTS<br />
b. Legal<br />
<br />
<br />
Due Diligence<br />
‣ Legal Due diligence is strongly recommended <strong>in</strong> all areas such as: tax, corporate, real estate <strong>and</strong><br />
labor<br />
‣ A particular care is advised <strong>in</strong> Cambodia,<br />
o<br />
o<br />
Given the newness <strong>of</strong> the laws <strong>and</strong> absence <strong>of</strong> <strong>of</strong>ficial <strong>and</strong> published <strong>in</strong>terpretations;<br />
With considerably low workforce skills <strong>in</strong> the last decades, companies <strong>of</strong>ten were not able to<br />
be <strong>in</strong> compliance with the regulations, <strong>and</strong> even m<strong>in</strong>istries were unable to underst<strong>and</strong>, let<br />
alone enforce, their regulations. However, a significant <strong>in</strong>crease <strong>in</strong> the skills <strong>of</strong> the workforce<br />
has been witnessed, lead<strong>in</strong>g the companies to ensure compliance <strong>and</strong> m<strong>in</strong>istries to<br />
underst<strong>and</strong> <strong>and</strong> enforce their regulations.<br />
Investment structure<br />
‣ L<strong>and</strong>hold<strong>in</strong>g structures<br />
o Prohibition to own l<strong>and</strong> as a foreigner<br />
o (both directly or <strong>in</strong>directly –with the assistance <strong>of</strong> a nom<strong>in</strong>ee)<br />
‣ Corporate structure: may be different <strong>of</strong>fshore companies<br />
o Laws are mostly drafted by foreign experts, though <strong>in</strong>terpreted by locals, with very limited<br />
underst<strong>and</strong><strong>in</strong>g <strong>of</strong> the mean<strong>in</strong>g.<br />
o Limited choices <strong>in</strong> the structure <strong>of</strong> the companies<br />
18
3. PITFALLS AND CHALLENGES FOR FOREIGN INVESTMENTS<br />
b. Legal<br />
<br />
<br />
<br />
Tax(Tax exposure, tax structure <strong>and</strong> tax practice)<br />
‣ No <strong>of</strong>ficial <strong>in</strong>terpretation <strong>of</strong> the regulation,<br />
o Though the tax adm<strong>in</strong>istration plays an important role <strong>in</strong> provid<strong>in</strong>g such <strong>in</strong>terpretation,<br />
‣ Limited mechanisms for appeals <strong>of</strong> the tax adm<strong>in</strong>istrative decisions<br />
‣ Tax rate: between 15 to 30% <strong>of</strong> tax exposure<br />
Compliance: licens<strong>in</strong>g, permits, approvals Long process -time consum<strong>in</strong>g<br />
‣ May be costly<br />
Other legal concerns –clearly state these issues <strong>in</strong> your contracts Choice <strong>of</strong> govern<strong>in</strong>g law <strong>and</strong><br />
jurisdiction;<br />
‣ Choice <strong>of</strong> language;<br />
‣ Disputes resolution, <strong>in</strong>ternational arbitration<br />
19
4. AUTHORS’ PROFILE<br />
For any enquiries, please contact:<br />
Anto<strong>in</strong>e FONTAINE (PhD)<br />
Partner | Bun & Associates<br />
T +855 (0) 23 999 567 | F +855 (0) 23 999 566 | fonta<strong>in</strong>e@bun-associates.com<br />
#29, Street294, Phnom Penh, Cambodia, P.O. Box 2326<br />
www.bun-associates.com<br />
Anto<strong>in</strong>e is the firm’s Practice Leader <strong>of</strong> the Insurance, Labor, Tax <strong>and</strong> Regulatory Reform practices. Hold<strong>in</strong>g a<br />
Ph.D. <strong>in</strong> Insurance Law, he developed unmatched expertise <strong>in</strong> Cambodia’s <strong>in</strong>surance sector <strong>and</strong> provides<br />
comprehensive advice to mult<strong>in</strong>ational companies on their <strong>in</strong>surance portfolio, <strong>in</strong>clud<strong>in</strong>g regulatory <strong>and</strong> tax<br />
compliance <strong>and</strong> counsel<strong>in</strong>g foreign <strong>in</strong>surance companies on their market entry.<br />
Anto<strong>in</strong>e has worked <strong>in</strong> Cambodia for over a decade <strong>and</strong> has a particular <strong>in</strong>sight <strong>in</strong>to maximiz<strong>in</strong>g a foreign<br />
company’s entrance <strong>in</strong>to the market. He provides tax advice for companies’ restructur<strong>in</strong>g <strong>and</strong> acquisition<br />
projects, as well as on public service taxation, <strong>and</strong> on the <strong>in</strong>surance tax system. He previously counseled<br />
Cambodia’s lead<strong>in</strong>g human resource <strong>and</strong> recruit<strong>in</strong>g agency, audited several major foreign companies’<br />
human resource practices <strong>and</strong> provides guidance to companies on <strong>in</strong>troduc<strong>in</strong>g <strong>in</strong>ternal labor regulations<br />
compliant with the Cambodian system. He is described <strong>in</strong> <strong>Chamber</strong>s & Partners’ Asia Pacific Guide as “a<br />
foreign legal counsel with vast experience <strong>in</strong> various aspects <strong>of</strong> Cambodian law”, with clients highlight<strong>in</strong>g<br />
that “he is always able to provide a timely response.”<br />
Anto<strong>in</strong>e is admitted to the Paris Bar <strong>and</strong> is fluent <strong>in</strong> <strong>French</strong> <strong>and</strong> English <strong>and</strong> conversant <strong>in</strong> Khmer.<br />
20
4. AUTHORS’ PROFILE<br />
For any enquiries, please contact:<br />
ING Sophealeak<br />
Partner | Bun & Associates<br />
T +855 (0) 23 999 567 | F +855 (0) 23 999 566 | <strong>in</strong>g@bun-associates.com<br />
#29, Street294, Phnom Penh, Cambodia, P.O. Box 2326<br />
www.bun-associates.com<br />
Sophealeak is the firm’s Practice Leader <strong>of</strong> the Real Estate, Commercial Contracts <strong>and</strong> Intellectual Property<br />
practices. His recent work <strong>in</strong>cludes advis<strong>in</strong>g a major Japanese client on a world-class shopp<strong>in</strong>g mall<br />
development project <strong>in</strong> the Phnom Penh, secur<strong>in</strong>g the acquisition <strong>of</strong> multi-million dollar properties for<br />
foreign-based clients, as well as secur<strong>in</strong>g long term lease agreements on behalf <strong>of</strong> a number <strong>of</strong><br />
mult<strong>in</strong>ational companies for their multi-million dollar <strong>in</strong>vestments with<strong>in</strong> the Phnom Penh Special Economic<br />
Zone. He also assisted foreign <strong>in</strong>vestors on a number <strong>of</strong> economic l<strong>and</strong> concessions, particularly <strong>in</strong> the area<br />
<strong>of</strong> palm oil <strong>and</strong> rubber plantations. Sophealeak provides advice on l<strong>and</strong> hold<strong>in</strong>g structures <strong>and</strong> their related<br />
issues, distributorship, as well as bus<strong>in</strong>ess licens<strong>in</strong>g. He previously counseled a lead<strong>in</strong>g eng<strong>in</strong>eer<strong>in</strong>g firm<br />
with regional presence, on major on-shore <strong>and</strong> <strong>of</strong>f-shore construction projects, assisted Cambodia’s largest<br />
premium rice exporter <strong>in</strong> secur<strong>in</strong>g a multi-million dollar equity participation from a foreign <strong>in</strong>vestment fund,<br />
<strong>and</strong> facilitated the acquisition <strong>of</strong> prom<strong>in</strong>ent bus<strong>in</strong>esses <strong>in</strong> the Food & Beverage sector. Sophealeak also<br />
previously counseled an <strong>in</strong>ternational petroleum company on its <strong>in</strong>tellectual property <strong>in</strong>fr<strong>in</strong>gement matters.<br />
Sophealeak is fluent <strong>in</strong> Khmer, English <strong>and</strong> <strong>French</strong>.<br />
21
4. AUTHORS’ PROFILE<br />
For any enquiries, please contact:<br />
BUN Youdy<br />
Partner | Bun & Associates<br />
T +855 (0) 23 999 567 | F +855 (0) 23 999 566 | bun@bun-associates.com<br />
#29, Street294, Phnom Penh, Cambodia, P.O. Box 2326<br />
www.bun-associates.com<br />
Youdy is the firm’s Practice Leader <strong>of</strong> the Corporate, Bank<strong>in</strong>g & F<strong>in</strong>ance <strong>and</strong> Commercial Litigation practices.<br />
He is currently a panel lawyer for numerous foreign banks operat<strong>in</strong>g <strong>in</strong> Cambodia. He advises some <strong>of</strong> the<br />
largest f<strong>in</strong>ancial <strong>in</strong>stitutions <strong>and</strong> securities firms <strong>in</strong> Asia, regard<strong>in</strong>g their bus<strong>in</strong>ess expansion <strong>and</strong> entry<br />
strategies <strong>in</strong>to Cambodia. Youdy recently counseled a large Japanese electronics manufacturer with their<br />
USD65 million <strong>in</strong>vestment project, establish<strong>in</strong>g the first electronic large-scale mass-production facility <strong>in</strong> the<br />
country. He also previously counseled one <strong>of</strong> Cambodia’s largest conglomerates on the acquisition <strong>of</strong> a<br />
USD60 million turn-key brewery plant <strong>and</strong> assisted a foreign fund <strong>in</strong> a transaction for the partial debt<br />
assignment <strong>of</strong> the largest loan ever granted <strong>in</strong> the telecommunications sector.<br />
Youdy is one <strong>of</strong> the first commercial arbitrators selected <strong>in</strong> the K<strong>in</strong>gdom <strong>and</strong> the former Secretary-General<br />
<strong>of</strong> the Bar Association <strong>of</strong> the K<strong>in</strong>gdom <strong>of</strong> Cambodia. Youdy has consistently been ranked a lead<strong>in</strong>g lawyer <strong>in</strong><br />
Cambodia <strong>in</strong> <strong>Chamber</strong>s & Partners’ Asia Pacific Guide an dispraised as a “detailed <strong>and</strong> meticulous” lawyer<br />
who specializes <strong>in</strong> foreign <strong>in</strong>vestment, bank<strong>in</strong>g, corporate <strong>and</strong> commercial litigation. He is fluent <strong>in</strong> Khmer,<br />
English <strong>and</strong> <strong>French</strong>.<br />
22
THANK YOU<br />
#29, Street 294, PO Box 2326<br />
Sangkat Tonle Bassac, Khan Chamkarmon,<br />
Phnom Penh, K<strong>in</strong>gdom <strong>of</strong> Cambodia<br />
Tel: +855 (0) 12 817 817<br />
Fax: +855 (0)23 999 566<br />
E-mail: <strong>in</strong>fo@bun-associates.com<br />
Website: www.bun-associates.com<br />
23
ALGIERS<br />
BEIJING<br />
BRUSSELS<br />
BUCHAREST<br />
BUDAPEST<br />
CASABLANCA<br />
HANOI<br />
HO CHI MINH CITY<br />
HONG KONG<br />
ISTANBUL<br />
KIEV<br />
LONDON<br />
MOSCOW<br />
NEW YORK<br />
PARIS<br />
ST. PETERSBURG<br />
SHANGHAI<br />
TUNIS<br />
WARSAW<br />
Tapp<strong>in</strong>g the potential <strong>of</strong> the Mekong<br />
27 September 2012<br />
Myanmar
Country facts<br />
• Important population (approx 60 M.)<br />
• GDP <strong>of</strong> 5.5% <strong>in</strong> 2011 (expected 6% <strong>in</strong> 2012)<br />
• Largest country <strong>in</strong> ma<strong>in</strong>l<strong>and</strong> Southeast Asia<br />
(678,500 sq. km)<br />
• The capital city <strong>of</strong> Myanmar is Naypyidaw<br />
PAGE 25
Overview <strong>of</strong> the recent History <strong>of</strong> Myanmar<br />
1948<br />
1962<br />
1988<br />
1990<br />
2007<br />
2008<br />
2010<br />
2011<br />
2012<br />
•Independen<br />
ce from the<br />
UK<br />
• Military<br />
Coup<br />
start<strong>in</strong>g the<br />
Burmese<br />
way to<br />
socialism<br />
• Currency<br />
devaluatio<br />
n<br />
• Antigovernmen<br />
t riots<br />
• NLD’s<br />
victory <strong>in</strong><br />
general<br />
election is<br />
ignored by<br />
the military<br />
• Economic<br />
sanctions<br />
aga<strong>in</strong>st<br />
Myanmar<br />
• Safran<br />
Revolution<br />
• Cyclone<br />
Nargis<br />
• Referendum<br />
for new<br />
Constitution<br />
• General<br />
elections<br />
• Civil<br />
governmen<br />
t<br />
• Byelections<br />
• Suspensio<br />
n <strong>of</strong><br />
sanctions<br />
• New<br />
Foreign<br />
<strong>in</strong>vestment<br />
law<br />
PAGE 26
Key sanctions aga<strong>in</strong>st Myanmar lifted (1/2)<br />
• European Union sanctions<br />
Orig<strong>in</strong>al EU sanctions<br />
• Restrictions on the f<strong>in</strong>anc<strong>in</strong>g <strong>of</strong> certa<strong>in</strong> enterprises (forestry <strong>and</strong> m<strong>in</strong><strong>in</strong>g<br />
sectors, state-owned enterprises)<br />
• Asset freez<strong>in</strong>g <strong>and</strong> travel restrictions for certa<strong>in</strong> <strong>in</strong>dividuals<br />
• Arms embargo<br />
Suspension <strong>of</strong> EU sanctions April 2012<br />
• Sanctions suspended from May 2012 to 30 April 2013 (except for arms<br />
embargo)<br />
• Investment <strong>in</strong> previously restricted enterprises is now allowed<br />
EU is consider<strong>in</strong>g re-<strong>in</strong>stat<strong>in</strong>g Myanmar as a beneficiary under the<br />
Generalized System <strong>of</strong> Preference<br />
PAGE 27
Key sanctions aga<strong>in</strong>st Myanmar lifted (2/2)<br />
• United States sanctions<br />
Complex legal framework for sanctions aga<strong>in</strong>st Myanmar<br />
Until recently, prohibited new <strong>in</strong>vestments <strong>and</strong> exportation <strong>of</strong> f<strong>in</strong>ancial<br />
services to Myanmar by "U.S. Persons"<br />
• Relaxation <strong>of</strong> United States sanctions (July 2012)<br />
Export / re-export <strong>of</strong> f<strong>in</strong>ancial services to Myanmar <strong>and</strong> "New <strong>in</strong>vestments" to<br />
Myanmar are now authorised<br />
However, report<strong>in</strong>g requirements must be complied with<br />
Transaction with certa<strong>in</strong> persons ("SDN") are still prohibited<br />
Some persons <strong>in</strong> Myanmar are listed under other sanctions programs<br />
(narcotics traffick<strong>in</strong>g)<br />
• Australia, Canada <strong>and</strong> Switzerl<strong>and</strong> also relaxed their<br />
sanctions aga<strong>in</strong>st Myanmar<br />
PAGE 28
Myanmar strengths <strong>and</strong> constra<strong>in</strong>ts<br />
Strengths<br />
Constra<strong>in</strong>ts<br />
Abundant natural<br />
resources<br />
Political risks<br />
Strategic location<br />
Underexploited tourism<br />
potential<br />
Low cost labor force<br />
Underdeveloped<br />
<strong>in</strong>frastructure<br />
Inadequate f<strong>in</strong>ancial<br />
sector<br />
Challeng<strong>in</strong>g economic<br />
environment<br />
Overtime, strengths shall gradually outweigh constra<strong>in</strong>ts<br />
PAGE 29
Myanmar strengths<br />
Abundant natural<br />
resources<br />
• Metal <strong>and</strong> gems<br />
• Oil <strong>and</strong> gas<br />
• Forestry<br />
• Water<br />
• Agricultural resources<br />
Strategic location<br />
• Between Ch<strong>in</strong>a, India<br />
<strong>and</strong> Thail<strong>and</strong><br />
• Great potential for<br />
development <strong>of</strong> ports,<br />
road <strong>and</strong> railways<br />
Low cost labor<br />
force<br />
• Young population<br />
• Human capital<br />
necessary to drive<br />
Myanmar’s economic<br />
transformation<br />
Underexploited<br />
tourism<br />
• Great cultural heritage<br />
• Grow<strong>in</strong>g <strong>in</strong>terest from<br />
<strong>in</strong>ternational travelers<br />
• Lack <strong>of</strong> hotels/resorts <strong>of</strong><br />
<strong>in</strong>ternational st<strong>and</strong>ard<br />
PAGE 30
Myanmar constra<strong>in</strong>ts<br />
Underdeveloped<br />
<strong>in</strong>frastructure<br />
• Only 26% <strong>of</strong> Myanmar's<br />
population had access to<br />
electricity <strong>in</strong> 2011<br />
• Telecommunication <strong>and</strong> <strong>in</strong>ternet<br />
access rates are among the<br />
lowest <strong>in</strong> the region<br />
• National transport networks are<br />
outdated <strong>and</strong> <strong>in</strong>sufficient<br />
Inadequate f<strong>in</strong>ancial<br />
sector<br />
• Limited access to f<strong>in</strong>ance<br />
especially <strong>in</strong> rural areas<br />
• High <strong>in</strong>terest rates<br />
• Credit cards only <strong>in</strong>troduced<br />
recently <strong>in</strong> the three largest<br />
cities <strong>of</strong> Myanmar<br />
Challeng<strong>in</strong>g<br />
economic<br />
environment<br />
• Limited distribution network for<br />
goods<br />
• Limited economic<br />
diversification<br />
• Local conglomerates<br />
controll<strong>in</strong>g key sectors<br />
Political risks<br />
• Controlled economy<br />
• Corruption<br />
• Conflicts <strong>in</strong> border<strong>in</strong>g regions<br />
PAGE 31
Myanmar Foreign Investment Law (FIL)<br />
• Myanmar FIL was adopted <strong>in</strong> 1988<br />
Applies to economic activities designated by the Government (such as<br />
agriculture, m<strong>in</strong><strong>in</strong>g, <strong>in</strong>dustry, construction, transport <strong>and</strong> communication,<br />
trade)<br />
Allows 100% ownership <strong>of</strong> companies by foreign <strong>in</strong>vestors subject to<br />
State monopolies<br />
Investment approval process by Myanmar Investment Commission (MIC)<br />
Allows long-term l<strong>and</strong> use rights for approved <strong>in</strong>vestments up to 60 years<br />
Tax exemptions or reliefs may be granted<br />
• The 1988 FIL is be<strong>in</strong>g revised by a new law (2012 FIL)<br />
A bill was recently adopted by Parliament but the President sent it back<br />
to Parliament for re-discussion<br />
PAGE 32
Myanmar Investment Commission (MIC)<br />
M<strong>in</strong>istry <strong>of</strong> National Plann<strong>in</strong>g <strong>and</strong> Economic Development<br />
MIC<br />
One-stop approv<strong>in</strong>g<br />
authority<br />
Resources<br />
• Limited staff <strong>and</strong><br />
resources<br />
• Challenge <strong>in</strong> fac<strong>in</strong>g the<br />
exponential <strong>in</strong>crease <strong>in</strong><br />
number <strong>of</strong> applications<br />
Powers<br />
• Reviews <strong>and</strong> assesses<br />
all foreign <strong>in</strong>vestment<br />
proposals<br />
• Checks f<strong>in</strong>ancial<br />
credibility<br />
• Issues MIC permits<br />
PAGE 33
Investments encouraged<br />
• Large-scale projects requir<strong>in</strong>g a “heavy” <strong>in</strong>vestment<br />
• Projects with transfers <strong>of</strong> technology<br />
• Infrastructure projects that provide regional development<br />
• Investments <strong>in</strong> services <strong>in</strong>dustry<br />
• Green projects (recycl<strong>in</strong>g energy resources, preservation <strong>of</strong> the<br />
environment)<br />
PAGE 34
Investments restricted<br />
• State monopolies<br />
Foreign <strong>in</strong>vestment is usually not strictly prohibited <strong>in</strong> these sectors, but<br />
more complex<br />
Monopolies are provided <strong>in</strong> the State-owned Economic Enterprises Law<br />
1989 <strong>and</strong> <strong>in</strong>clude, <strong>in</strong>ter alia the follow<strong>in</strong>g sectors:<br />
• Natural resources<br />
• Postal <strong>and</strong> telecommunications services<br />
• Air transport <strong>and</strong> railway transport services<br />
• Bank<strong>in</strong>g <strong>and</strong> <strong>in</strong>surance services<br />
• Broadcast<strong>in</strong>g <strong>and</strong> television services<br />
• Electricity<br />
PAGE 35
Tax <strong>in</strong>centives for foreign <strong>in</strong>vestors<br />
• Special Economic Zone Law 2011 (SEZ Law)<br />
0<br />
100% Tax exemption<br />
5<br />
years<br />
50% relief<br />
10<br />
years<br />
50% relief if the pr<strong>of</strong>its<br />
are re-<strong>in</strong>vested <strong>in</strong><br />
Myanmar<br />
Restricted to specific activities (manufactur<strong>in</strong>g <strong>and</strong> production<br />
process<strong>in</strong>g)<br />
15 years<br />
Currently 3 SEZs (Thilawah, Kyaukpkyu <strong>and</strong> Dawei)<br />
Accord<strong>in</strong>g to publicly available <strong>in</strong>formation, the SEZ Law is be<strong>in</strong>g<br />
reviewed<br />
PAGE 36
New FIL 2012<br />
• Myanmar’s new FIL bill was adopted <strong>in</strong> Parliament<br />
No <strong>of</strong>ficial publication <strong>of</strong> the bill<br />
Information leaked <strong>in</strong> relation to key provisions<br />
• Tensions between the defenders <strong>of</strong> rapid change <strong>and</strong> local<br />
bus<strong>in</strong>ess leaders who are concerned about protect<strong>in</strong>g their<br />
bus<strong>in</strong>esses<br />
• The bill is considered not sufficiently “pro-foreign <strong>in</strong>vestment” by<br />
the President<br />
• The President did not approve it <strong>and</strong> sent it back to Parliament<br />
for re-discussion (not expected to be approved before<br />
November)<br />
PAGE 37
Ma<strong>in</strong> sectors opened for bus<strong>in</strong>ess (1/3)<br />
• Telecommunications<br />
Myanmar has a high potential for development with respect to the<br />
telecommunications <strong>in</strong>dustry<br />
• Only 2.1 M telephones for 60 M people<br />
• 4% penetration rate for mobile <strong>and</strong> 3% for l<strong>and</strong>-phones<br />
Government has monopoly<br />
Government is currently prepar<strong>in</strong>g the privatization <strong>of</strong> the sector through<br />
an <strong>in</strong>ternational tender for the grant <strong>of</strong> telecommunication licenses<br />
• Utilities (power generation)<br />
Hydropower represents 70% <strong>of</strong> Myanmar’s total electricity production<br />
For the first time, Myanmar’s government has <strong>of</strong>ficially <strong>in</strong>vited foreign<br />
firms to <strong>in</strong>vest <strong>in</strong> the country’s electric power system<br />
PAGE 38
Ma<strong>in</strong> sectors opened for bus<strong>in</strong>ess (2/3)<br />
• Hospitality<br />
Grow<strong>in</strong>g number <strong>of</strong> <strong>in</strong>ternational flights<br />
Insufficient <strong>of</strong>fer<strong>in</strong>g consider<strong>in</strong>g <strong>in</strong>creas<strong>in</strong>g dem<strong>and</strong><br />
Long-term l<strong>and</strong> use rights can be granted under FIL (<strong>and</strong> shall be<br />
extended under FIL 2012)<br />
However, restrictions on the transfer <strong>of</strong> l<strong>and</strong> may represent an obstacle<br />
• Transport Infrastructure / Construction<br />
International tenders for new airports/expansion <strong>of</strong> exist<strong>in</strong>g airports<br />
Port term<strong>in</strong>als <strong>and</strong> other facilities<br />
Some European, Ch<strong>in</strong>ese <strong>and</strong> Indian companies expressed their <strong>in</strong>terest<br />
<strong>in</strong> <strong>in</strong>vest<strong>in</strong>g <strong>in</strong> Myanmar’s cement <strong>in</strong>dustry<br />
20 projects for construction <strong>of</strong> cement factories have already been<br />
approved<br />
PAGE 39
Ma<strong>in</strong> sectors opened for bus<strong>in</strong>ess (3/3)<br />
• Bank<strong>in</strong>g sectors<br />
Foreign banks are now present through representative <strong>of</strong>fices<br />
Myanmar government should allow direct operat<strong>in</strong>g foreign banks by<br />
2015<br />
• Insurance<br />
Myanmar has f<strong>in</strong>ally opened its <strong>in</strong>surance sector for private underwriters<br />
to set up their <strong>in</strong>surance operations <strong>in</strong> Myanmar (for domestic companies<br />
only)<br />
Foreign <strong>in</strong>surance companies are present through representative <strong>of</strong>fices<br />
Myanmar government should allow foreign <strong>in</strong>vestors <strong>in</strong>to its <strong>in</strong>surance<br />
sector by 2015<br />
PAGE 40
Conclusion<br />
• Reforms towards liberalization <strong>of</strong> Myanmar’s economy will take<br />
time<br />
• Political reforms still need to go further, 2015 elections will be a<br />
major test<br />
• The legal framework is <strong>and</strong> will be evolv<strong>in</strong>g <strong>in</strong> the com<strong>in</strong>g years<br />
• Risks associated with cont<strong>in</strong>u<strong>in</strong>g <strong>in</strong>stability <strong>in</strong> border<strong>in</strong>g regions<br />
• Some categories <strong>of</strong> foreign <strong>in</strong>vestors are rush<strong>in</strong>g <strong>in</strong> <strong>and</strong> gett<strong>in</strong>g<br />
a head-start (Korean <strong>and</strong> Japanese <strong>in</strong>dustrial companies)<br />
PAGE 41
Presentation by:<br />
• Gilles Cardonnel, Senior Associate<br />
Solicitor, <strong>Hong</strong> <strong>Kong</strong>, New South Wales, Engl<strong>and</strong> & Wales<br />
Avocat à la Cour<br />
Tel. +852 2294 8204<br />
cardonnel@gide.com<br />
Gide Loyrette Nouel<br />
15 th Floor, Jard<strong>in</strong>e House,<br />
1 Connaught Place, Central<br />
<strong>Hong</strong> <strong>Kong</strong><br />
Tel. +852 2536 9110<br />
Fax +852 2536 9910<br />
www.gide.com<br />
This presentation is <strong>in</strong>tended to provide non-exhaustive, general <strong>in</strong>formation only. It is not <strong>in</strong>tended to represent legal advice <strong>and</strong> should not be<br />
constructed or relied upon as such. Specific advice should be sought about your specific circumstances.<br />
SLIDE 42
Invest<strong>in</strong>g <strong>in</strong> Vietnam:<br />
27 September 2012<br />
The regulatory framework & ma<strong>in</strong> practical issues<br />
ALGIERS<br />
BEIJING<br />
BRUSSELS<br />
BUCHAREST<br />
BUDAPEST<br />
CASABLANCA<br />
HANOI<br />
HO CHI MINH CITY<br />
HONG KONG<br />
ISTANBUL<br />
KIEV<br />
LONDON<br />
MOSCOW<br />
NEW YORK<br />
PARIS<br />
ST. PETERSBURG<br />
SHANGHAI<br />
TUNIS<br />
WARSAW<br />
Samantha CAMPBELL<br />
Gide Loyrette Nouel Vietnam
Agenda<br />
• Vietnam: a brief overview<br />
Demographics, politics, macroeconomic overview, challenges<br />
…<br />
• Investment structures <strong>and</strong> general legal framework<br />
Direct <strong>and</strong> <strong>in</strong>direct <strong>in</strong>vestments, <strong>in</strong>vestment vehicles<br />
Adm<strong>in</strong>istrative processes<br />
Foreign ownership restrictions<br />
• Ma<strong>in</strong> issues for foreign <strong>in</strong>vestment<br />
Foreign exchange issues<br />
Project fund<strong>in</strong>g<br />
Taxes<br />
Foreign labour<br />
SLIDE 44
Agenda<br />
• Vietnam: a brief overview<br />
• Investment structures <strong>and</strong> general legal framework<br />
• Ma<strong>in</strong> issues for foreign <strong>in</strong>vestment<br />
PAGE 45
Vietnam: a brief overview<br />
Demographics<br />
• Population 91,519,289<br />
• 13th most populated country <strong>in</strong> the<br />
world – up from the 14 th <strong>in</strong> 2010<br />
• 94% literacy rate<br />
• Over 50% <strong>of</strong> population under 30<br />
• 30% <strong>of</strong> the population located <strong>in</strong><br />
urban areas<br />
• Labor force 46,480,000<br />
• Employment breakdown<br />
Agriculture 48%<br />
<strong>Industry</strong> 22.4%<br />
Services 29.6%<br />
PAGE 46
Vietnam: a brief overview<br />
Political l<strong>and</strong>scape<br />
• Political Development<br />
1976 The Socialist Republic <strong>of</strong> Vietnam<br />
1986 Adoption <strong>of</strong> Doi Moi Policy (Economic Reformation)<br />
1994 US trade embargos lifted<br />
1995 Accession to ASEAN<br />
1997 Accession to APEC<br />
2007 Accession to WTO: open<strong>in</strong>g <strong>of</strong> the market <strong>in</strong> stages to 2014<br />
2011 May – National Assembly election:<br />
• Prime M<strong>in</strong>ister Nguyen Tan Dung re-appo<strong>in</strong>ted<br />
• President :Truong Tan Sang<br />
• Chairman <strong>of</strong> National Assembly: Nguyen S<strong>in</strong>h Hung<br />
PAGE 47
Vietnam: a brief overview<br />
Political l<strong>and</strong>scape (cont<strong>in</strong>ued)<br />
• The Vietnamese Communist Party is the only political party recognized by the<br />
State – dom<strong>in</strong>ates the National Assembly<br />
• The State organs <strong>of</strong> Vietnam:<br />
National Assembly<br />
Government led by<br />
Prime M<strong>in</strong>ister<br />
M<strong>in</strong>istries / Central Bank<br />
Local Departments (for the key<br />
m<strong>in</strong>istries: Plann<strong>in</strong>g <strong>and</strong><br />
Investment, Natural Resources,<br />
Employment etc)<br />
People’s<br />
Committees<br />
People’s Councils<br />
Supreme People’s<br />
Court<br />
Local<br />
People’s<br />
Court<br />
PAGE 48
Vietnam: a brief overview<br />
Legal system<br />
• The Vietnam legal system is codified - after the Constitution, codes <strong>and</strong> laws<br />
form the basis <strong>of</strong> the whole legal system <strong>in</strong> the follow<strong>in</strong>g hierarchy<br />
Legal Instrument<br />
The Constitution<br />
Laws (<strong>in</strong>clud<strong>in</strong>g Codes)<br />
Resolutions<br />
Ord<strong>in</strong>ances <strong>and</strong> Resolutions<br />
Decrees, Regulations <strong>and</strong> Resolutions<br />
Decisions <strong>and</strong> Directives<br />
Circulars<br />
Decisions<br />
National Assembly<br />
• Case law is not b<strong>in</strong>d<strong>in</strong>g <strong>and</strong> does not have the force <strong>of</strong> law; it can be used<br />
merely as an <strong>in</strong>dication on how the courts will <strong>in</strong>terpret provisions <strong>of</strong> laws <strong>and</strong><br />
regulations where it is a “grey area”<br />
In any case, it is <strong>of</strong>ten not publically available<br />
• The role <strong>and</strong> discretions given to adm<strong>in</strong>istrative authorities <strong>in</strong> this code based<br />
system are extremely significant<br />
• The law evolves rapidly with economic developments<br />
Issu<strong>in</strong>g Body<br />
St<strong>and</strong><strong>in</strong>g Committee <strong>of</strong> the National<br />
Assembly<br />
The Government<br />
The Prime M<strong>in</strong>ister<br />
M<strong>in</strong>istries<br />
M<strong>in</strong>isters<br />
PAGE 49
Vietnam: a brief overview<br />
Macroeconomic overview – economic growth s<strong>in</strong>ce 1990<br />
• Vietnam’s economy has grown at an average rate <strong>of</strong> 8% per year s<strong>in</strong>ce 1990<br />
2004-2007: the golden years – growth is over 8% per year<br />
• Growth is susta<strong>in</strong>ed by foreign <strong>in</strong>vestment, development aid, natural resources <strong>and</strong> is<br />
fuelled by exports…<strong>and</strong> a real estate bubble<br />
• Vietnam is now a lower middle <strong>in</strong>come country<br />
Revenue is USD1,502 per capita <strong>in</strong> 2012 (IMF estimate)<br />
Grow<strong>in</strong>g middle class; clear improvements <strong>in</strong> st<strong>and</strong>ard <strong>of</strong> liv<strong>in</strong>g<br />
But wealth disparity is keenly perceived<br />
• Growth <strong>and</strong> external factors (food <strong>and</strong> fuel prices) resulted <strong>in</strong> strong <strong>in</strong>flationary<br />
pressures <strong>in</strong> 2008 <strong>and</strong> aga<strong>in</strong> <strong>in</strong> 2011, where rates soared above 20%<br />
Currently conta<strong>in</strong>ed<br />
• Concerns over the stability <strong>of</strong> the Vietnam dong due to frequent devaluations prior to<br />
2010 – but also currently stable<br />
• Resulted <strong>in</strong> policies <strong>of</strong> austerity towards <strong>in</strong>flation conta<strong>in</strong>ment <strong>and</strong> de-dollarization<br />
(Resolution 11)<br />
Lend<strong>in</strong>g constra<strong>in</strong>ts; high <strong>in</strong>terest rates<br />
Price controls<br />
Strong currency protection<br />
PAGE 50
Vietnam: a brief overview<br />
Growth has been temporarily sacrificed to curb <strong>in</strong>flation<br />
(Source: V<strong>in</strong>acapital)<br />
But the Government still aims for growth <strong>in</strong> 2012 at 5.5% -6%<br />
PAGE 51
Vietnam: a brief overview<br />
And “Vietnam loses glow as a market darl<strong>in</strong>g”<br />
• Vietnam’s sovereign credit rat<strong>in</strong>g was downgraded to B+(Fitch), BB- (S&P), B1<br />
(Moody’s) <strong>in</strong> 2010<br />
<br />
In August 2012 Moody’s affirmed Vietnam’s sovereign rat<strong>in</strong>g <strong>of</strong> B1 with a negative outlook<br />
• Public Debt 50% <strong>of</strong> GDP (USD 67.61 billion) ris<strong>in</strong>g 11.2% from 2011<br />
• 2012 budget deficit is estimated at 3.6% <strong>of</strong> GDP (USD 135.8 billion) (IMF 2012 estimate), a<br />
slight <strong>in</strong>crease from an estimated 2.7% <strong>in</strong> 2011 (Source: World Bank)<br />
• Large trade deficit - USD 2bn monthly (although it is fall<strong>in</strong>g)<br />
• Foreign direct <strong>in</strong>vestment (FDI) <strong>in</strong>to Vietnam, at USD8 billion for the first seven months <strong>of</strong><br />
the year, is a third lower than a year earlier<br />
• Vietnam is downgraded <strong>in</strong> the World Bank’s Ease <strong>of</strong> Do<strong>in</strong>g Bus<strong>in</strong>ess Rank<strong>in</strong>g:<br />
2012: 98th out <strong>of</strong> 183 countries <strong>and</strong> territories (-8 ranks compared to 2011)<br />
• IMF rescue:<br />
<br />
<br />
Proposed by the National Assembly Commission<br />
Rejected by the Government <strong>and</strong> the SBV<br />
PAGE 52
Vietnam: a brief overview<br />
Key economic challenges; has the tiger lost its roar?<br />
• A number <strong>of</strong> important structural challenges persist:<br />
<br />
<br />
<br />
<br />
<br />
<br />
An underperform<strong>in</strong>g <strong>and</strong> <strong>in</strong>efficient State-owned sector wracked by recent mismanagement sc<strong>and</strong>als<br />
(V<strong>in</strong>ash<strong>in</strong>, V<strong>in</strong>al<strong>in</strong>es…)<br />
• Public sector makes up at least 2/5th <strong>of</strong> the economy<br />
• Other SOE groups are under <strong>in</strong>vestigation<br />
• Government led focus on restructur<strong>in</strong>g<br />
A fragile, immature <strong>and</strong> over-exposed bank<strong>in</strong>g sector. also affected by recent sc<strong>and</strong>als (ACB)<br />
NPLs could <strong>of</strong>ficially be as high as 10%, real levels could be much higher<br />
An opaque <strong>and</strong> heavily adm<strong>in</strong>istered system<br />
Poor <strong>in</strong>frastructure<br />
Middle level management/ human resources/ higher education<br />
• To be weighed aga<strong>in</strong>st the positive fundamentals:<br />
<br />
<br />
<br />
<br />
Exports cont<strong>in</strong>ue to perform well; the market cont<strong>in</strong>ues to be export led, with a reduc<strong>in</strong>g trade deficit<br />
The workforce is young dynamic <strong>and</strong> educated; wages <strong>and</strong> costs rema<strong>in</strong> competitive <strong>in</strong> the region<br />
Macro-fundamentals po<strong>in</strong>t towards a large urbanis<strong>in</strong>g <strong>in</strong>ternal market <strong>and</strong> the growth <strong>of</strong> a middle<br />
class<br />
Growth will cont<strong>in</strong>ue to be strong, but how strong?<br />
A number <strong>of</strong> issues are typical <strong>of</strong> any emerg<strong>in</strong>g market; Vietnam has hit a juncture <strong>in</strong> its<br />
development<br />
PAGE 53
Agenda<br />
• Vietnam: a brief overview<br />
• Investment structures <strong>and</strong> general legal framework<br />
• Ma<strong>in</strong> issues for foreign <strong>in</strong>vestment<br />
PAGE 54
Investment structures <strong>and</strong> general legal framework<br />
Direct or <strong>in</strong>direct <strong>in</strong>vestment<br />
Direct Investment<br />
Establish<strong>in</strong>g wholly foreign-owned enterprises<br />
Establish<strong>in</strong>g jo<strong>in</strong>t ventures between local <strong>and</strong> foreign<br />
<strong>in</strong>vestors<br />
Invest<strong>in</strong>g pursuant to a contract: Bus<strong>in</strong>ess Cooperation<br />
Contract (BCC), Build Operate Transfer (BOT)<br />
Indirect Investment<br />
Purchas<strong>in</strong>g shares, bonds, <strong>and</strong> other valuable papers<br />
Invest<strong>in</strong>g through securities <strong>in</strong>vestment funds<br />
Invest<strong>in</strong>g through other <strong>in</strong>termediary f<strong>in</strong>ancial<br />
<strong>in</strong>stitutions<br />
Invest<strong>in</strong>g <strong>in</strong> develop<strong>in</strong>g a bus<strong>in</strong>ess<br />
Purchas<strong>in</strong>g shares/ contribut<strong>in</strong>g capital <strong>in</strong> Vietnamese<br />
companies to participate <strong>in</strong> management<br />
Invest<strong>in</strong>g <strong>in</strong> a merger or acquisition<br />
Control criteria<br />
PAGE 55
Investment Structures <strong>and</strong> General Legal Framework<br />
Investment vehicles<br />
• The Law on Enterprises recognizes four types <strong>of</strong> legal entity:<br />
Limited Liability Company (LLC)<br />
Jo<strong>in</strong>t Stock Company (JSC)<br />
Partnership or a Limited Liability Partnership<br />
Private Enterprise (sole practitioner)<br />
• Foreign <strong>in</strong>vestors may establish or <strong>in</strong>vest <strong>in</strong> LLCs or JSCs, these<br />
companies are treated the same under company law as Vietnamese<br />
<strong>in</strong>vested companies<br />
JSC - Shares<br />
More than 3 shareholders<br />
Three-tier management structure<br />
May be listed<br />
May issue all type <strong>of</strong> shares to raise funds<br />
May issue bonds, convertible bonds <strong>and</strong><br />
other classes <strong>of</strong> bonds<br />
LLC - Capital Contribution<br />
From one to fifty members<br />
Simple management structure<br />
May not be listed<br />
May not issue shares<br />
May not issue bonds<br />
Pre-emptive rights entrenched<br />
PAGE 56
Investment Structures <strong>and</strong> General Legal Framework<br />
Investment vehicles<br />
• The chart below shows the structures used by foreign <strong>in</strong>vestors <strong>in</strong> mak<strong>in</strong>g direct<br />
<strong>in</strong>vestments <strong>in</strong> Vietnam (percentage <strong>of</strong> number <strong>of</strong> newly registered projects <strong>in</strong><br />
2011)<br />
LLC (JV)<br />
17%<br />
LLC<br />
(100%<br />
FIE)<br />
82%<br />
Source: M<strong>in</strong>istry <strong>of</strong> Plann<strong>in</strong>g <strong>and</strong> Investment<br />
B<br />
BCC, BOT/BTO/BT <strong>and</strong> JSC: less<br />
than 1%<br />
• In terms <strong>of</strong> <strong>in</strong>vestment amount<br />
however, 100% foreign owned<br />
LLCs represent only 56% <strong>of</strong> FDI,<br />
BOT/BTO/BT, BCC <strong>and</strong> JSCs<br />
19%, <strong>and</strong> jo<strong>in</strong>t ventures around<br />
23%<br />
• This reflects foreign ownership<br />
constra<strong>in</strong>ts or practical needs <strong>of</strong> a<br />
domestic partner <strong>in</strong> certa<strong>in</strong> sectors<br />
requir<strong>in</strong>g substantial <strong>in</strong>vestment,<br />
such as <strong>in</strong>frastructure projects<br />
PAGE 20
Investment Structures <strong>and</strong> General Legal Framework<br />
Other forms <strong>of</strong> presence<br />
• Representative <strong>of</strong>fices<br />
Cannot receive payment or carry out commercial activities<br />
Limited capacities but ideal for market research, sourc<strong>in</strong>g, or monitor<strong>in</strong>g <strong>in</strong>ternational<br />
contract signed with mother company<br />
Takes from 3 to 5 weeks to establish (relatively straightforward procedure )<br />
• Branches: no legal personality<br />
Branch<strong>in</strong>g is only allowed <strong>in</strong> a limited number <strong>of</strong> sectors, ma<strong>in</strong>ly bank<strong>in</strong>g <strong>and</strong> legal<br />
services<br />
Situation does not seem to be evolv<strong>in</strong>g<br />
• Use <strong>of</strong> agents / distributors/ franchisees under the Commercial Law<br />
Agents <strong>and</strong> exclusive distribution agreement widely used <strong>in</strong> the country<br />
Franchis<strong>in</strong>g can be a good option (<strong>in</strong> retail or food <strong>and</strong> beverage <strong>in</strong>dustries notably) –<br />
necessity to register the franchise contract<br />
PAGE 58
Investment Structures <strong>and</strong> General Legal Framework<br />
Adm<strong>in</strong>istrative process<br />
• Most foreign <strong>in</strong>vestment forms require the issuance <strong>of</strong> a licence, or “Investment<br />
Certificate” which:<br />
Represents the approval <strong>of</strong> the authorities <strong>of</strong> an “<strong>in</strong>vestment project”<br />
May also serve as certificate <strong>of</strong> <strong>in</strong>corporation <strong>of</strong> the <strong>in</strong>vestment vehicle<br />
• Despite substantial improvement s<strong>in</strong>ce the mid 2000’s, <strong>and</strong> the harmonization <strong>of</strong><br />
<strong>in</strong>vestment <strong>and</strong> corporate laws applicable to both domestic <strong>and</strong> foreign entities,<br />
the adm<strong>in</strong>istrative burden around obta<strong>in</strong><strong>in</strong>g Investment Certificates <strong>and</strong><br />
amend<strong>in</strong>g them rema<strong>in</strong>s a major practical impediment to foreign <strong>in</strong>vestment <strong>in</strong><br />
Vietnam<br />
For <strong>in</strong>stance, the assignment <strong>of</strong> equity <strong>in</strong>terests <strong>in</strong> an LLC will require an amendment<br />
to the target company’s Investment Certificate issued by the relevant license<br />
issu<strong>in</strong>g authority to reflect the new owner (as would more rout<strong>in</strong>e matters, such as the<br />
change <strong>of</strong> its registered address or <strong>of</strong> the “legal representative”)<br />
• As a practical matter, this aspect should not be underestimated; it frequently<br />
requires volum<strong>in</strong>ous documentation <strong>and</strong> can be very time consum<strong>in</strong>g<br />
Official timel<strong>in</strong>e: 15 work<strong>in</strong>gs days or 30 work<strong>in</strong>g days (depend<strong>in</strong>g on whether central<br />
evaluation is required)<br />
PAGE 59
Investment Structures <strong>and</strong> General Legal Framework<br />
Adm<strong>in</strong>istrative process (cont<strong>in</strong>ued)<br />
Issuance <strong>of</strong> an Investment certificate<br />
• Approvals Foreign Direct Investment:<br />
An Investment Certificate needs to be<br />
obta<strong>in</strong>ed from the relevant licence issu<strong>in</strong>g<br />
body <strong>in</strong> relation to any type <strong>of</strong> foreign direct<br />
<strong>in</strong>vestment<br />
"Registration" if project under VND300<br />
billion (approximately USD 14.3 million) <strong>and</strong><br />
not on the list <strong>of</strong> “conditional” sectors<br />
"Evaluation" applies to projects over<br />
VND300 billion or on the list <strong>of</strong> “conditional”<br />
sectors<br />
"Conditional" is def<strong>in</strong>ed as <strong>in</strong>vestment <strong>in</strong> sectors<br />
impact<strong>in</strong>g (amongst others) national defense <strong>and</strong><br />
security, social order <strong>and</strong> safety, bank<strong>in</strong>g <strong>and</strong><br />
f<strong>in</strong>ance, public health, real estate, as well as sectors<br />
covered by Vietnam’s WTO commitments<br />
• "Registration": the application file is sent to the<br />
local Department <strong>of</strong> Plann<strong>in</strong>g <strong>and</strong> Investment<br />
(DPI), which then forwards the file to the relevant<br />
prov<strong>in</strong>cial People’s Committee for issuance <strong>of</strong> the<br />
Investment Certificate (<strong>in</strong> Industrial Zones, the<br />
body issu<strong>in</strong>g licence is the Industrial Zone<br />
Management Authority)<br />
• " Evaluation", the application file must be:<br />
<br />
<br />
<br />
Submitted to the DPI (or to the Industrial<br />
Zone Management Authority <strong>of</strong> an Industrial<br />
Zone, if applicable)<br />
The application file is then forwarded to the<br />
relevant Departments or M<strong>in</strong>istries for<br />
evaluation<br />
The DPI then collate the op<strong>in</strong>ions <strong>and</strong><br />
prepare an evaluation report <strong>and</strong> submit it<br />
to the prov<strong>in</strong>cial People’s Committee for<br />
issuance <strong>of</strong> the Investment Certificate (or<br />
the Industrial Zone Management Authority<br />
collates op<strong>in</strong>ions <strong>and</strong> issues the Investment<br />
Certificate if the project is located <strong>in</strong> an<br />
Industrial Zone)<br />
PAGE 60
Investment Structures <strong>and</strong> General Legal Framework<br />
Adm<strong>in</strong>istrative process: <strong>in</strong>direct <strong>in</strong>vestments<br />
• For <strong>in</strong>direct foreign <strong>in</strong>vestments, the adm<strong>in</strong>istrative requirements<br />
should be fewer, although approvals (<strong>and</strong> substantial application files)<br />
will be required <strong>in</strong> certa<strong>in</strong> cases, <strong>in</strong>clud<strong>in</strong>g:<br />
Bank<strong>in</strong>g: 5% acquisition requires the prior written consent from the Governor<br />
<strong>of</strong> the SBV, as does any acquisition by a foreign party <strong>of</strong> unlisted shares <strong>in</strong> a<br />
bank<br />
Insurance: transactions which change the paid up capital <strong>in</strong> the <strong>in</strong>surer or<br />
broker by 10% or more must have prior written approval from the M<strong>in</strong>istry <strong>of</strong><br />
F<strong>in</strong>ance<br />
Securities: a transaction which results <strong>in</strong> a change <strong>of</strong> ownership by 10% or<br />
more <strong>of</strong> the charter capital <strong>of</strong> an unlisted securities company must be<br />
approved by the State Securities Commission (SSC)<br />
• Invest<strong>in</strong>g <strong>in</strong> “public companies” is also subject to specific<br />
adm<strong>in</strong>istrative requirements <strong>and</strong> foreign ownership constra<strong>in</strong>ts - a<br />
public company is one which has:<br />
made a public <strong>of</strong>fer <strong>of</strong> shares; <strong>and</strong><br />
listed its shares on the stock exchange or securities trad<strong>in</strong>g centre; OR<br />
paid up charter capital <strong>of</strong> VND10bn or more <strong>and</strong> whose shares are owned by<br />
at least one hundred <strong>in</strong>vestors (exclud<strong>in</strong>g pr<strong>of</strong>essional securities <strong>in</strong>vestors)<br />
PAGE 61
Investment Structures <strong>and</strong> General Legal<br />
Framework<br />
Adm<strong>in</strong>istrative process: <strong>in</strong>direct <strong>in</strong>vestments (cont<strong>in</strong>ued)<br />
• The follow<strong>in</strong>g adm<strong>in</strong>istrative requirements are required when<br />
<strong>in</strong>vest<strong>in</strong>g <strong>in</strong> any public <strong>and</strong>/or listed company:<br />
Registration <strong>of</strong> a securities trad<strong>in</strong>g code from a stock exchange via a<br />
depository member (licensed by the SSC)<br />
Open<strong>in</strong>g <strong>of</strong> a securities trad<strong>in</strong>g account with a depository member l<strong>in</strong>ked<br />
to its securities trad<strong>in</strong>g code; all trades must be carried out through those<br />
accounts<br />
Open<strong>in</strong>g <strong>of</strong> an <strong>in</strong>direct <strong>in</strong>vestment capital account denom<strong>in</strong>ated <strong>in</strong> VND<br />
(all purchases <strong>of</strong> Vietnamese securities can be settled <strong>in</strong> VND only) with a<br />
custodian bank authorized to conduct foreign exchange bus<strong>in</strong>ess<br />
Nom<strong>in</strong>ation <strong>of</strong> a representative person to represent the foreign <strong>in</strong>vestor<br />
for all transactions on the securities trad<strong>in</strong>g centers;<br />
• Regulatory disclosures: All significant purchase or sale <strong>of</strong> shares (<strong>of</strong><br />
5% or more <strong>of</strong> the charter capital) by the <strong>in</strong>vestor must be reported to<br />
the SSC<br />
PAGE 62
Investment Structures <strong>and</strong> General Legal Framework<br />
Foreign ownership restrictions<br />
• Restrictions on foreign ownership should be considered not only when<br />
evaluat<strong>in</strong>g the <strong>in</strong>itial <strong>in</strong>vestment but also <strong>in</strong> consideration <strong>of</strong> any exit<br />
provisions:<br />
To whom can the securities be sold, availability <strong>of</strong> suitable <strong>in</strong>vestors?<br />
Valuation issues<br />
Ease <strong>of</strong> transfer – will additional approvals consents be required?<br />
• Most foreign ownership caps <strong>in</strong> Vietnamese regulations or<br />
entrenched <strong>in</strong> Vietnam’s WTO commitments were lifted between<br />
2008 <strong>and</strong> 2012<br />
• However, listed <strong>and</strong> public companies can only have up to 49%<br />
foreign ownership<br />
PAGE 63
Investment Structures <strong>and</strong> General Legal Framework<br />
Foreign ownership restrictions <strong>and</strong> other constra<strong>in</strong>ts<br />
• Caps to foreign ownership or obligation to jo<strong>in</strong>t venture with local partner only rema<strong>in</strong> <strong>in</strong> a<br />
limited number <strong>of</strong> sectors, <strong>and</strong> <strong>in</strong> particular:<br />
some logistic services (conta<strong>in</strong>er h<strong>and</strong>l<strong>in</strong>g services: 50% cap)<br />
some transportation services (49% cap)<br />
enterta<strong>in</strong>ments services (49% cap)<br />
travel agencies <strong>and</strong> tour operator services (JV obligation)<br />
Advertis<strong>in</strong>g (JV obligation)<br />
• Other sectors rema<strong>in</strong> subject to specific constra<strong>in</strong>ts…<br />
Economic Need Test (ENT) for the open<strong>in</strong>g <strong>of</strong> each retail outlet <strong>in</strong> the distribution/retail<br />
sector (after the <strong>in</strong>itial outlet)<br />
For lodg<strong>in</strong>g, cater<strong>in</strong>g or dr<strong>in</strong>ks services: obligation to <strong>in</strong>vest <strong>in</strong> construction, restoration or<br />
acquisition <strong>of</strong> hotels <strong>in</strong> parallel (will be lifted <strong>in</strong> 2015)<br />
M<strong>in</strong>imum capital requirement (construction, real estate, <strong>in</strong>surance etc., although applicable<br />
to both foreign <strong>and</strong> domestics <strong>in</strong>vestors)<br />
• …or State monopolies (electricity distribution, media, gold, shipyard…)<br />
PAGE 64
Agenda<br />
• Vietnam: a brief overview<br />
• Investment structures <strong>and</strong> general legal framework<br />
• Ma<strong>in</strong> issues for foreign <strong>in</strong>vestment<br />
PAGE 65
Ma<strong>in</strong> issues for foreign <strong>in</strong>vestment<br />
Foreign exchange – repatriation <strong>of</strong> dividends/capital<br />
• Vietnamese law provides that a foreign<br />
<strong>in</strong>vestor may, after it has discharged fully<br />
its f<strong>in</strong>ancial obligations owed to the SBV,<br />
remit overseas<br />
its pr<strong>of</strong>its derived from its bus<strong>in</strong>ess<br />
activities<br />
pr<strong>in</strong>cipal <strong>and</strong> any <strong>in</strong>terest on foreign<br />
loans <strong>in</strong>vested capital <strong>and</strong> proceeds<br />
from<br />
liquidation <strong>of</strong> its <strong>in</strong>vestments; <strong>and</strong><br />
other monies <strong>and</strong> assets lawfully<br />
owned by the <strong>in</strong>vestor<br />
Note: The foreign purchaser <strong>of</strong> a capital contribution<br />
must, as a technical legal matter, open an <strong>in</strong>vestment<br />
capital account at a commercial bank <strong>in</strong> Vietnam to<br />
channel equity purchase monies <strong>and</strong> subsequent equity<br />
remittances abroad. In addition, the company itself will<br />
have its own capital contribution account (<strong>in</strong>to which<br />
its <strong>in</strong>itial charter capital was contributed), through which<br />
equity purchase proceeds must transit. These<br />
requirements are applied <strong>in</strong>consistently <strong>in</strong> practice.<br />
• Note:<br />
All money transfer operations must be<br />
carried out through a dedicated<br />
<strong>in</strong>vestment capital account <strong>of</strong> the<br />
Company <strong>in</strong> the case <strong>of</strong> equity <strong>and</strong><br />
fixed <strong>in</strong>come <strong>in</strong>vestments<br />
Remittance <strong>of</strong> pr<strong>of</strong>its is only permitted<br />
annually, no "provisional transfer" <strong>of</strong><br />
pr<strong>of</strong>its dur<strong>in</strong>g a f<strong>in</strong>ancial year<br />
Remittance is not permitted where<br />
accumulated losses from previous<br />
years have not fully been <strong>of</strong>f-set<br />
Requirement to notify the tax<br />
authorities <strong>of</strong> an <strong>in</strong>tended remittance<br />
(us<strong>in</strong>g the st<strong>and</strong>ard form issued with<br />
Circular 186/2010/TT-BTC) seven<br />
work<strong>in</strong>g days prior to actually mov<strong>in</strong>g<br />
pr<strong>of</strong>its overseas (previously<br />
certification from tax authorities that<br />
CIT had been paid prior to pr<strong>of</strong>it<br />
remittance was required) by the<br />
<strong>in</strong>vestor<br />
PAGE 66
Ma<strong>in</strong> issues for foreign <strong>in</strong>vestment<br />
Project fund<strong>in</strong>g<br />
• General legal restrictions to cross-border lend<strong>in</strong>g apply<br />
Registration with the State Bank <strong>of</strong> Vietnam (SBV) <strong>of</strong> "<strong>of</strong>fshore" loans with a<br />
term <strong>of</strong> over 12 months<br />
Obligation to send SBV quarterly reports with the burden on the borrower, who<br />
must also adhere to the relevant debt capacity ratio (foreign <strong>in</strong>vested capital –<br />
foreign-owned share capital) as shown <strong>in</strong> Investment Certificate<br />
• No <strong>in</strong>terest rate limitations, but payment to <strong>of</strong>fshore lenders is subject to a<br />
withhold<strong>in</strong>g tax <strong>of</strong> 5% CIT (subject to double tax treaties) <strong>and</strong> <strong>in</strong> the case <strong>of</strong><br />
loans from non-f<strong>in</strong>ancial credit <strong>in</strong>stitutions, 5% VAT<br />
• Onshore fund<strong>in</strong>g may be sought with local banks (<strong>in</strong>clud<strong>in</strong>g some 100%<br />
foreign-owned banks ) <strong>and</strong> foreign bank branches<br />
• Restrictions to onshore lend<strong>in</strong>g:<br />
Very limited import – export related foreign currency lend<strong>in</strong>g<br />
Strict monitor<strong>in</strong>g <strong>of</strong> the purpose <strong>of</strong> loans<br />
Relatively high <strong>in</strong>terest rates<br />
PAGE 67
Ma<strong>in</strong> issues for foreign <strong>in</strong>vestment<br />
Taxes - general<br />
• Corporate Income Tax (CIT): st<strong>and</strong>ard rate <strong>of</strong> 25% unless <strong>in</strong>centives apply:<br />
In geographical areas with difficult socio-economic conditions (rate from 10%-<br />
20%)<br />
In economic zones <strong>and</strong> high-tech zones (rate <strong>of</strong> 10%), but not <strong>in</strong> <strong>in</strong>dustrial zones<br />
In some limited encouraged sectors (rate <strong>of</strong> 10%) (e.g. high technology <strong>in</strong>dustry,<br />
scientific research <strong>and</strong> technological development, <strong>in</strong>frastructure, computer s<strong>of</strong>tware,<br />
education, health care, environment)<br />
• Foreign Contractor Withhold<strong>in</strong>g Tax (FCWT)<br />
Withhold<strong>in</strong>g tax apply<strong>in</strong>g to payments made by a Vietnamese contract<strong>in</strong>g party to<br />
a foreign entity for cross-border supply <strong>of</strong> goods or services<br />
The FCWT comprises VAT (deemed rate rang<strong>in</strong>g from 1.5-5%) <strong>and</strong> CIT (deemed rate<br />
rang<strong>in</strong>g from 0.1-10%), deemed rates depend<strong>in</strong>g on the type <strong>of</strong> goods or services<br />
The FCWT payable varies depend<strong>in</strong>g on the account<strong>in</strong>g method used by the<br />
foreign contractor<br />
• Transfer pric<strong>in</strong>g<br />
Transfer pric<strong>in</strong>g issues have become a real concern for authorities – related party<br />
transactions must be on “arm’s length” basis <strong>and</strong> notified on a yearly basis<br />
PAGE 68
Ma<strong>in</strong> issues for foreign <strong>in</strong>vestment<br />
Taxes – personal <strong>in</strong>come tax<br />
• Personal Income Tax (PIT)<br />
Broadly speak<strong>in</strong>g, foreign employees stay<strong>in</strong>g for more than 183 days with<strong>in</strong> a year<br />
shall be subject to PIT on all their Vietnamese <strong>and</strong> <strong>in</strong>ternational <strong>in</strong>comes at the<br />
progressive rates below<br />
Foreign employees stay<strong>in</strong>g less than 183 days are only subject to PIT on their<br />
Vietnamese <strong>in</strong>comes at a flat rate <strong>of</strong> 20%, subject to DTA provisions<br />
Annual Taxable <strong>in</strong>come<br />
(million VND)<br />
Monthly Taxable <strong>in</strong>come<br />
(million VND)<br />
Tax rate<br />
0-60 0-5 (USD 0-250) 5%<br />
60-120 5-10 (USD 250-450) 10%<br />
120-216 10-18 (USD 450-850) 15%<br />
216-384 18-32 (USD 850-1,450) 20%<br />
384-624 32-52 (USD 1,450-2,450) 25%<br />
624-960 52-80 (USD 2,450-3,800) 30%<br />
960 <strong>and</strong> above 80 <strong>and</strong> above (USD 3,800) 35%<br />
PAGE 69
Ma<strong>in</strong> issues for foreign <strong>in</strong>vestment<br />
Taxes – capital ga<strong>in</strong>s tax/dividends<br />
• Generally speak<strong>in</strong>g, <strong>and</strong> subject to double tax treaties, corporate <strong>in</strong>come tax<br />
(CIT) at a rate <strong>of</strong> 25% will be applied to the pr<strong>of</strong>it on an assignment <strong>of</strong> a<br />
capital contribution<br />
• Sale <strong>of</strong> securities: 0.1% <strong>of</strong> sales proceeds (<strong>in</strong>dividual resid<strong>in</strong>g <strong>in</strong> Vietnam may<br />
opt for 20% <strong>of</strong> net ga<strong>in</strong>)<br />
• Declaration <strong>and</strong> payment:<br />
If the buyer is domestic <strong>and</strong> the seller is an <strong>of</strong>fshore foreign entity, the buyer is<br />
responsible for calculat<strong>in</strong>g, declar<strong>in</strong>g, deduct<strong>in</strong>g <strong>and</strong> pay<strong>in</strong>g the CIT amount payable<br />
on behalf <strong>of</strong> the seller<br />
If the buyer is also an <strong>of</strong>fshore foreign entity, the target company is responsible for<br />
declar<strong>in</strong>g <strong>and</strong> pay<strong>in</strong>g the CIT amount payable on behalf <strong>of</strong> the seller<br />
In case where exemptions are applicable, a simplified notification procedure applies<br />
s<strong>in</strong>ce 2011 although practical implementation is <strong>in</strong>consistent<br />
• Dividends: no tax is imposed on dividends remitted overseas unless paid to<br />
an <strong>in</strong>dividual, where a 5% withhold<strong>in</strong>g tax is imposed<br />
PAGE 70
Ma<strong>in</strong> issues for foreign <strong>in</strong>vestment<br />
Foreign exchange control – use <strong>of</strong> foreign currency<br />
• With<strong>in</strong> the territory <strong>of</strong> Vietnam all transactions <strong>and</strong> payments must be<br />
denom<strong>in</strong>ated <strong>in</strong> VND, except for (among other less relevant items):<br />
Transactions with credit <strong>in</strong>stitutions permitted to provide foreign exchange services<br />
Payment by a telegraphic transfer under import or export contracts<br />
Salary, bonuses <strong>and</strong> allowances <strong>in</strong> foreign currency for foreigners (non-residents <strong>and</strong><br />
residents) paid by organizations<br />
PAGE 71
Ma<strong>in</strong> issues for foreign <strong>in</strong>vestment<br />
Foreign labour<br />
• General pr<strong>in</strong>ciples <strong>and</strong> trends<br />
Local employees must be recruited <strong>in</strong> priority; foreign employees may only be<br />
employed for tasks requir<strong>in</strong>g specific skills not available <strong>in</strong> Vietnam<br />
For the last two years, regulations on foreign employment have been <strong>in</strong>creas<strong>in</strong>gly<br />
tightened (<strong>in</strong>creased restrictions on the issuance <strong>and</strong> extension <strong>of</strong> work permits)<br />
The labour adm<strong>in</strong>istration is also heighten<strong>in</strong>g its scrut<strong>in</strong>y <strong>of</strong> work permits<br />
application files <strong>and</strong> the implementation <strong>of</strong> regulations<br />
• General conditions<br />
The foreign employee must be at least 18 years old, healthy enough to satisfy job<br />
requirements, <strong>and</strong> have no crim<strong>in</strong>al record<br />
He / She must be a manager or have high technical skills or considerable<br />
experience <strong>in</strong> a field<br />
• In practice, this requirement is relatively str<strong>in</strong>gently applied <strong>and</strong> actual evidence <strong>of</strong><br />
diplomas <strong>and</strong> experience is required<br />
He / She must have a work permit<br />
He / She must work under a labour contract, or an <strong>in</strong>ternal transfer, or be a<br />
services salesperson, etc.<br />
PAGE 72
Ma<strong>in</strong> issues for foreign <strong>in</strong>vestment<br />
Foreign labour (cont<strong>in</strong>ued)<br />
• Visa <strong>and</strong> work permit<br />
A foreign employee must have a visa or a temporary residence card<br />
A work permit is not required limited circumstances (LLC members, JSC board <strong>of</strong><br />
management members, head <strong>of</strong> representative <strong>of</strong>fices <strong>of</strong> NGOs, foreigners work<strong>in</strong>g<br />
less than 3 months to provide services, <strong>in</strong>ternal transfer with certa<strong>in</strong> conditions, etc.)<br />
Application file for a work permit must be submitted by the employer to labour<br />
adm<strong>in</strong>istration<br />
Maximum work permit term is currently 36 months; new Labour Code will reduce it to<br />
24 months from 1 st May 2013, renewable under certa<strong>in</strong> conditions<br />
New renewal condition: the employer must recruit a Vietnamese apprentice that<br />
must be tra<strong>in</strong>ed <strong>in</strong> order to replace the foreign employer after the expiration <strong>of</strong> the<br />
extended work permit<br />
PAGE 73
Conclud<strong>in</strong>g Remarks<br />
• The euphoria <strong>of</strong> the past decade (2002-2008, <strong>in</strong> particular) has dissipated as<br />
Vietnam comes to terms with a harsh economic reality aga<strong>in</strong>st the background <strong>of</strong> the<br />
global crisis<br />
This is a time <strong>of</strong> uncerta<strong>in</strong>ty, even if relative optimism still prevails<br />
• Recent sc<strong>and</strong>als <strong>in</strong> the State <strong>and</strong> private sectors <strong>and</strong> fears for the bank<strong>in</strong>g system<br />
have brought to the fore underly<strong>in</strong>g management <strong>and</strong> efficiency issues that go to the<br />
core <strong>of</strong> the Vietnamese model<br />
The fact that these issues are recognised through public channels should be viewed <strong>in</strong><br />
itself as great progress<br />
• There is <strong>in</strong>creas<strong>in</strong>g consciousness that, despite the rapid progress <strong>in</strong> lift<strong>in</strong>g Vietnam out<br />
<strong>of</strong> poverty made s<strong>in</strong>ce Doi Moi <strong>and</strong> WTO entry, Vietnam still needs to work hard to<br />
reach <strong>and</strong> ma<strong>in</strong>ta<strong>in</strong> a competitive position with<strong>in</strong> ASEAN to attract <strong>and</strong> keep<br />
foreign direct <strong>in</strong>vestment<br />
The next few years will demonstrate whether Vietnam will be able to avoid the middle<br />
<strong>in</strong>come trap<br />
Clear legislative efforts are be<strong>in</strong>g made to respond to <strong>in</strong>vestor concerns across a<br />
number <strong>of</strong> areas (bureaucracy; corporate; tax; foreign exchange)<br />
• “Growth prospects rema<strong>in</strong> good as Vietnam transitions to middle-<strong>in</strong>come status, if<br />
macroeconomic stability is restored <strong>and</strong> susta<strong>in</strong>ed <strong>and</strong> structural reforms, notably <strong>in</strong><br />
the f<strong>in</strong>ancial <strong>and</strong> SOE sectors, are implemented.” (IMF )<br />
PAGE 18
Prepared <strong>and</strong> presented by:<br />
• CAMPBELL Samantha, Resident Partner<br />
Tel. + 84 (0)8 3823 8599<br />
samantha.campbell@gide.com<br />
• PHAM BACH Duong, Senior Associate<br />
Tel. + 84 (0)8 3823 8599<br />
duong.phambach@gide.com<br />
• TOUSSAINT Anto<strong>in</strong>e, Senior Associate<br />
Tel. + 84 (0)8 3823 8599<br />
toussa<strong>in</strong>t@gide.com<br />
Gide Loyrette Nouel A.A.R.P.I<br />
Association d'avocats à<br />
responsabilité<br />
pr<strong>of</strong>essionnelle <strong>in</strong>dividuelle<br />
Hô-Chi-M<strong>in</strong>h City<br />
18 Hai Ba Trung, District 1<br />
Hô Chi M<strong>in</strong>h City, Vietnam<br />
Tel. +84 8 3823 8599<br />
Fax +84 8 3823 8598<br />
Hanoi:<br />
Pacific Place, Suite 1025-26<br />
83B Ly Thuong Kiet Street<br />
Hanoi, Vietnam<br />
Tel. +84 4 3946 2350<br />
Fax +84 4 3946 2351<br />
www.gide.com<br />
This presentation is <strong>in</strong>tended to provide non-exhaustive, general <strong>in</strong>formation only. It is not <strong>in</strong>tended to represent legal advice<br />
<strong>and</strong> should not be constructed or relied upon as such. Specific advice should be sought about your specific circumstances<br />
• Nearly 20 years experience <strong>in</strong> the<br />
country<br />
• Some 20 highly experienced<br />
Vietnamese <strong>and</strong> western lawyers<br />
• We are able to <strong>of</strong>fer English, US, <strong>and</strong><br />
<strong>French</strong> as well as Vietnamese legal<br />
expertise from our <strong>of</strong>fices <strong>in</strong> Vietnam<br />
• Vietnamese, English, Russian <strong>and</strong><br />
<strong>French</strong> are spoken fluently <strong>in</strong> our<br />
<strong>of</strong>fices<br />
• We work closely with experts <strong>in</strong> our<br />
global network, <strong>in</strong>clud<strong>in</strong>g <strong>Hong</strong> <strong>Kong</strong>,<br />
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SLIDE 75