SOCIALIST REPUBLIC OF VIETNAM

Independence - Freedom - Happiness

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NATIONAL ASSEMBLY

SOCIALIST REPUBLIC OF VIETNAM

( Legislature IX, 10th Session )

(From 15th October 1996 to 12th November 1996)

LAW ON FOREIGN INVESTMENT

IN VIETNAM

In order to expand economic co-operation with foreign countries and to make contribution to the modernization, industrialization and development of the national economy on the basis of the efficient exploitation and utilization of national resources;

In accordance with the 1992 Constitution of the Socialist Republic of Vietnam;

This Law makes provisions for foreign direct investment in the Socialist Republic of Vietnam.

Chapter I

GENERAL PROVISIONS

Article 1

The State of the Socialist Republic of Vietnam encourages foreign investors to invest in Vietnam on the basis of respect for the independence and sovereignty of Vietnam, observance of its law, equality and mutual benefit.

The State of Vietnam protects the ownership of invested capital and other legal rights of foreign investors, provides favourable conditions and formulates simple and prompt procedures for foreign investors investing in Vietnam.

Article 2

In this Law, the following terms shall have the meanings ascribed to them hereunder:

1.Foreign direct investment means the bringing of capital into Vietnam in the form of money or any assets by foreign investors for the purpose of carrying on investment activities in accordance with the provisions of this Law.

2. Foreign investor means a foreign economic organization or individual investing in Vietnam.

3. Foreign party means one party comprising one or more foreign investors.

4. Vietnamese party means one party comprising one or more Vietnamese enterprises from any economic sector.

5. Two parties means the Vietnamese party and the foreign party. Multi-party means a Vietnamese party and more than one foreign party, or a foreign party and more than one Vietnamese party, or more than one Vietnamese party and more than one foreign party.

6. An enterprise with foreign owned capital includes a joint venture enterprise and an enterprise with one hundred (100) percent foreign owned capital.

7. A joint venture enterprise means an enterprise established in Vietnam by two or more parties on the basis of a joint venture contract or an agreement between the Government of the Socialist Republic of Vietnam and a foreign government, or an enterprise established on the basis of a joint venture contract between an enterprise with foreign owned capital and a Vietnamese enterprise or between a joint venture enterprise and a foreign investor.

8. An enterprise with one hundred (100) per cent foreign owned capital means an enterprise in Vietnam the capital of which is one hundred (100) per cent invested by foreign investor(s).

9. A business co-operation contract means a written document signed by two or more parties for the purpose of carrying on investment activities without creating a legal entity.

10. A joint venture contract means a written document signed by the parties referred to in item 7 of this article for the establishment of a joint venture enterprise in Vietnam.

11. A Build-Operate-Transfer contract means a written document signed by an authorized State body of Vietnam and a foreign investor(s) for the construction and commercial operation of an infrastructure facility for a fixed duration; upon expiry of the duration, the foreign investor(s) shall, without compensation, transfer the facility to the State of Vietnam.

12. A Build-Transfer- Operate contract means a written document signed by an authorized State body of Vietnam and a foreign investor(s) for the construction of an infrastructure facility; upon completion of construction, the foreign investor shall transfer the facility to the State of Vietnam and the Government of Vietnam shall grant the investor the right to operate commercially the facility for a fixed duration in order to recover the invested capital and gain reasonable profits.

13. A Build-Transfer contract means a written document signed by an authorized State body of Vietnam and a foreign investor(s) for the construction of an infrastructure facility; upon completion of construction, the foreign investor shall transfer the facility to the State of Vietnam and the Government of Vietnam shall create conditions for the foreign investor to implement other investment projects in order to recover the invested capital and gain reasonable profits.

14.An Export Processing Zone means an industrial zone specializing in the production of exports and the provision of services for the production of exports and export activities with specified boundaries established, or permitted to be established, by the Government.

15. An Export Processing Enterprise means an enterprise which specializes in the production of exports and the provision of services for the production of exports and export activities and which is established and operated in accordance with the regulations of the Government on export processing enterprises.

16. An Industrial Zone means a zone which specializes in the production of industrial goods and the provision of services for industrial production established, or permitted to be established, by the Government of Vietnam.

17. An Industrial Zone Enterprise means an enterprise established and operated within an Industrial Zone.

18. Invested Capital means the capital required to implement an investment project, including legal capital and loan capital.

19. Legal capital of an enterprise with foreign owned capital means the capital required to establish the enterprise as stated in its charter.

20. Capital contribution means the capital contributed by a party to the legal capital of an enterprise.

21. Reinvestment means using profits and other lawful earnings from investment activities in Vietnam to invest in projects which are being implemented or to make new investments in Vietnam under any of the forms stipulated in this Law.

Article 3

Foreign investors may invest in Vietnam in sectors of its national economy.

The State of Vietnam encourages foreign investors to invest in the following sectors and regions :

1. Sectors :

1. Production of exports;
2. Husbandry, farming and processing of agricultural produce, forestry, and aquaculture;
3. Utilization of high technology and modern techniques, protection of ecological environment and investment in research and development;
4. Labour intensive activities, processing of raw materials and efficient utilization of natural resources in Vietnam;
5. Construction of infrastructure facilities and important industrial production establishments.

2. Regions :

(a) Mountainous and remote regions;

(b) Regions with difficult economic and social conditions;

The State of Vietnam will not license any foreign investment project in sectors or regions which may have adverse effects on national defence, national security, cultural and historical heritage, fine custom and tradition, or the ecological environment.

Based on the development planning and orientation for each period, the Government shall stipulate the regions in which investment is encouraged and shall issue lists of encouraged investment projects and specially encouraged investment projects, lists of sectors in which licensing of investment is conditional, and lists of sectors in which investment will not be licensed.

Private Vietnamese economic organizations shall be permitted to co-operate with foreign investors in sectors, subject to conditions stipulated by the Government.

Chapter II

FORMS OF INVESTMENT

Article 4

Foreign investors may invest in Vietnam in any of the following forms :

1. Business co-operation on the basis of a business co-operation contract;
2. Joint venture enterprise;
3. Enterprise with one hundred (100) per cent foreign owned capital.

Article 5

Two or more parties may, on the basis of a business co-operation contract, enter into a business co-operation, such as profit sharing production, product sharing co-operation, or other business co-operation.

The parties shall agree on, and expressly state in the business co-operation contract, the objects, nature and duration of the business, their respective rights, obligations and responsibilities, and the relationship between them.

Article 6

Two or more parties may, on the basis of a joint venture contract, co-operate to establish a joint venture enterprise in Vietnam.

A joint venture enterprise may co-operate with foreign investor(s) or Vietnamese enterprises to establish a new joint venture enterprise in Vietnam.

A joint venture enterprise shall be established in the form of a limited liability company and shall be a legal entity in accordance with the law of Vietnam.

Article 7

1. The foreign party to a joint venture enterprise may make its contribution to the legal capital in :

1. Foreign currency or Vietnamese currency originating from investments in Vietnam;
2. Equipment, machinery, plant and other construction works;
3. The value of industrial property rights, technical know-how, technological processes and technical services.

2. The Vietnamese party to a joint venture enterprise may make its contribution to the legal capital in :

1. Vietnamese currency or foreign currency;
2. The value of the right to use land in accordance with the law on land;
3. Resources, the value of the right to use water and sea surfaces in accordance with the law;
4. Equipment, machinery, plant and other construction works;
5. The value of industrial property rights, technical know-how, technological processes and technical services.

3. Capital contribution made by the parties in forms other than those stipulated in clauses 1 and 2 of this article must be approved by the Government.

Article 8

Capital contribution of a foreign party or foreign parties to the legal capital of a joint venture enterprise shall be agreed by the parties and shall not be limited provided that the contribution is not less than thirty (30) per cent of the legal capital, except in cases stipulated by the Government.

In the case of a multi-party joint venture enterprise, the minimum capital contribution to be made by each Vietnamese party shall be determined by the Government.

With respect to important economic establishments as determined by the Government, the parties shall agree to increase gradually the proportion of the Vietnamese party’s contribution to the legal capital of the joint venture enterprise.

Article 9

The value of the capital contribution made by each party to a joint venture enterprise shall be calculated by reference to the market price at the time of contribution. The capital contribution schedule shall be agreed by the parties, stated in the joint venture contract and approved by the body in charge of State management of foreign investment.

The value of equipment and machinery contributed as capital must be certified by an independent inspection organization.

The parties shall be responsible for the truth and accuracy of the value of their respective capital contributions. Where necessary, the body in charge of State management of foreign investment has the right to appoint an inspection organization to revalue the capital contribution of each party.

Article 10

The parties shall share the profits and bear the risks associated with a joint venture enterprise in proportion to their respective capital contributions, except where it is otherwise agreed by the parties as stated in the joint venture contract.

Article 11

The board of management shall be the body in charge of the management of the joint venture enterprise and shall comprise representatives of the parties to the joint venture enterprise.

Each party to a joint venture enterprise shall appoint members to the board of management in proportion to its capital contribution to the legal capital of the joint venture enterprise.

In the case of a two-party joint venture enterprise, each party shall have at least two members on the board of management.

In the case of a multi-party joint venture, each party shall have at least one member on the board of management.

If a joint venture enterprise has one Vietnamese party and more than one foreign party, or one foreign party and more than one Vietnamese party, the Vietnamese or foreign party concerned shall have the right to appoint at least two members to the board of management.

In respect of a joint venture enterprise established by an existing joint venture enterprise in Vietnam and a foreign investor or a Vietnamese enterprise, the existing joint venture enterprise shall have at least two members on board of management, one of whom must be appointed by the Vietnamese party.

Article 12

The chairman of the board of management shall be appointed by the parties to the joint venture enterprise. The chairman of the board of management shall be responsible for convening and chairing meetings of the board of management and for monitoring the execution of any resolutions of the board of management.

The general director and deputy general directors shall be appointed and dismissed by the board of management. They shall be responsible before the board of management and the law of Vietnam for the management and running of the operations of the joint venture enterprise.

The general director or the first deputy general director shall be a Vietnamese citizen.

The duties and powers of the chairman of the board of management, the general director and the first deputy general director shall be stated in the charter of the joint venture enterprise.

Article 13

The board of management shall decide on regular meetings. Extra-ordinary meetings of the board of management may be convened at the request of the chairman of the board of management, two thirds of the board members, the general director or the first deputy general director. Meetings of the board of management shall be convened by the chairman of the board of management.

Meetings of the board of management must have a quorum of at least two thirds of the members of the board of management representing all the parties to the joint venture.

Article 14

1. Principal matters which relate to the organization and operation of the joint venture, comprising the appointment and dismissal of the general director, the first deputy general director and the chief accountant; amendments of and additions to the charter of the enterprise; approval of final annual financial statements and final financial statements of capital construction; and loans for investment, shall be decided by the members of the board of management who are present at the meeting on the basis of the principle of unanimous decision.

The joint venture parties may agree on and state in the joint venture charter other issues which require unanimous decision.

2. With respect to matters which are not referred to in clause 1 of this article, the board of management shall decide on the basis of the principle of simple majority voting by members who are present at the meeting.

Article 15

Foreign investors may establish in Vietnam an enterprise with one hundred (100) per cent foreign owned capital.

An enterprise with one hundred (100) per cent foreign owned capital shall be established in the form of a limited liability company and shall be a legal entity in accordance with the law of Vietnam.

An enterprise with one hundred (100) per cent foreign owned capital may co-operate with a Vietnamese enterprise to establish a joint venture enterprise.

With respect to important economic establishments as determined by the Government, Vietnamese enterprises shall, on the basis of agreements with the owner of the enterprise, be permitted to purchase a part of the capital of the enterprise to convert such enterprise into a joint venture enterprise.

Article 16

The legal capital of an enterprise with foreign owned capital must be at least thirty (30) per cent of its invested capital. In special cases and subject to approval of the body in charge of State management of foreign investment, this proportion may be lower than thirty (30) per cent.

During the course of its operation, an enterprise with foreign owned capital must not reduce its legal capital.

Article 17

The duration of an enterprise with foreign owned capital and the duration of a business co-operation contract shall be stated in the investment licence for each project in accordance with regulations of the Government, but shall not exceed fifty (50) years.

Pursuant to regulations made by the Standing Committee of the National Assembly, the Government may, on a project by project basis, grant a longer duration but the maximum duration shall not exceed seventy (70) years.

Article 18

Foreign investors may invest in industrial zones and export processing zones in any of the investment forms stipulated in article 4 of this Law.

Vietnamese enterprises in any economic sector may co-operate with foreign investors to invest in industrial zones and export processing zones in any of the investment forms stipulated in clause 1 and 2 of article 4 of this Law or may establish their wholly owned enterprises.

The transfer of goods between enterprises operating in the Vietnamese market and export processing enterprises shall be deemed to be an export-import activity and shall be regulated by the provisions of the law on export and import. The Government shall provide simple and convenient procedures for export processing enterprises to purchase raw materials, materials and other goods from the Vietnamese market.

The Government shall make regulations on industrial zones and export processing zones.

Article 19

Foreign investors investing in the construction of infrastructure facilities may enter into Build-Operate-Transfer contracts, Build-Transfer-Operate contracts, or Build-Transfer contracts with an authorized State body of Vietnam. Foreign investors shall be entitled to the rights and be subject to the obligations stipulated in such contract.

The Government shall make detailed regulations on investment on the basis of Build-Operate-Transfer contracts, Build-Transfer-Operate contracts and Build-Transfer contracts.

Chapter III

INVESTMENT GUARANTEE MEASURES

Article 20

The State of the Socialist Republic of Vietnam shall guarantee that foreign investors investing in Vietnam are treated fairly and equitably.

Article 21

During the course of investment in Vietnam, capital and other lawful assets of foreign investors shall not be requisitioned or expropriated by administrative measures, and enterprises with foreign owned capital shall not be nationalized.

The State of the Socialist Republic of Vietnam shall protect industrial property rights and shall guarantee the legal interests of foreign investors in respect of technology transfers into Vietnam.

Where the interests of a licensed enterprise with foreign owned capital or of the parties to a licensed business co-operation contract are adversely affected by a change in the law of Vietnam, the State shall take appropriate measures to protect the interests of the investors.

Article 22

Foreign investors investing in Vietnam shall have the right to transfer abroad :

1. Their profits derived from business operations;
2. Payments received from the provision of technology and services;
3. The principal of and interest on any foreign loan obtained during the course of operation;
4. The invested capital;
5. Other sums of money and assets lawfully owned.

Article 23

Foreigners working in Vietnam for enterprises with foreign owned capital or for parties to business co-operation contracts shall, after payment of income tax as stipulated by law, be permitted to transfer abroad their lawful incomes.

Article 24

Any dispute between the parties to a business co-operation contract, between the parties to a joint venture contract, or between enterprises with foreign owned capital or parties to a business co-operation contract and Vietnamese enterprises must firstly be resolved by negotiation and conciliation.

Where the parties fail to settle the dispute by way of conciliation, the dispute shall be referred to a Vietnamese arbitration body or a Vietnamese court in accordance with the law of Vietnam.

With respect to disputes between parties to a joint venture enterprise or a business co-operation contract, the parties may agree in the contract to appoint another arbitration body to resolve the dispute.

Any disputes arising from a Build-Operate-Transfer, a Build-Transfer-Operate or a Build-Transfer contract shall be resolved in accordance with the dispute resolution mechanism agreed by the parties and stated in the contract.

Chapter IV

RIGHTS AND OBLIGATIONS

OF FOREIGN INVESTORS AND

ENTERPRISES WITH FOREIGN OWNED CAPITAL

Article 25

Enterprises with foreign owned capital and parties to a business co-operation contract shall have the right to recruit and employ labour in accordance with its business requirements, provided that priority must be given to recruiting and employing Vietnamese citizens. Foreigners shall only be recruited and employed for jobs which require a level of technical and management expertise which a Vietnamese citizen cannot satisfy, but training Vietnamese citizens as replacements must be undertaken.

The rights and obligations of an employee of an enterprise with foreign owned capital shall be ensured by the labour contract, the collective labour agreement and the provisions of the law on labour.

Article 26

Employers and foreign and Vietnamese employees must comply with the provisions of the law on labour and other relevant legislation, and respect the honour, dignity and traditional customs of each other.

Article 27

Enterprises with foreign owned capital must respect the rights of Vietnamese employees to participate in a political organization and socio-political organizations in accordance with the law of Vietnam.

Article 28

Enterprises with foreign owned capital and foreign parties to business co-operation contracts must purchase insurance cover for property and civil liabilities from Vietnamese insurance companies or other insurance companies permitted to operate in Vietnam.

Article 29

The transfer of foreign technology to Vietnam in foreign investment projects may be carried out in the form of capital contribution of the value of technology or technology purchases made on the basis of a contract in accordance with the law on technology transfer.

The Government of Vietnam encourages accelerated transfers of technology, especially those of advanced technology.

Article 30

Enterprises with foreign owned capital and the parties to business co-operation contracts must, following completion of capital construction for the establishment of the enterprise, undertake a construction audit and prepare a financial statement of construction works which must be certified by an inspection organization.

Enterprises with foreign owned capital and parties to business co-operation contracts must carry out tenders in accordance with the provisions of the law on tendering.

Article 31

Enterprises with foreign owned capital and parties to business co-operation contracts shall have the right to autonomy in conducting their businesses in accordance with the objectives stipulated in the investment license; to import equipment, machinery, materials and means of transport; to export and sell either directly, or through an agent, their products in order to implement their investment projects in accordance with the law.

Enterprises with foreign owned capital and parties to business co-operation contracts must give priority to purchasing equipment, machinery, materials, and means of transport in Vietnam where the technical and commercial conditions are similar.

Article 32

An enterprise with foreign owned capital may establish branches outside the province or city under central authority in which its head office is located to carry out business activities within the scope and objectives stipulated in the investment licence provided that the approval of the people’s committee of the province or city under central authority in which the branch is to be located is obtained.

Article 33

Enterprises with foreign owned capital and parties to business co-operation contracts shall, by themselves, meet the demand of foreign currency for their operations.

The Government of Vietnam assures its assistance in maintaining foreign currency balance with respect to projects for the construction of infrastructure facilities or the production of essential import substitutes, and other important projects.

Article 34

Any party to a joint venture shall have the right to assign its contributed capital in the joint venture enterprise provided that priority is given to the other parties to the joint venture enterprise. Where the assignment is made to a party other than a party to the joint venture enterprise, the conditions of the assignment must not be more favourable than those offered to the other joint venture parties. The assignment must be agreed to by the parties to the joint venture.

These provisions shall also apply to the assignment of rights and obligations of a party to a business co-operation contract.

An enterprise with one hundred (100) per cent foreign owned capital may assign its capital provided that priority is given to Vietnamese enterprises.

The assignment of capital shall only be effective upon the assignment contract being approved by the body in charge of State management of foreign investment.

Where profits arise from the assignment, the assignor must pay profits tax at a rate of twenty five (25) per cent on that profit. In the case of an assignment made to a Vietnamese enterprise, the assignor shall be entitled to a reduction of or exemption from tax.