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Law on Enterprise 2020 – Some remarkable changes

On June 17th, 2020, the National Assembly promulgated the new Law on Enterprises (“Law on Enterprise 2020”), which shall be effective on January 01st 2021 with some remarkable shifts compared to the previous version, such as cutting administrative procedures, allowing the conversion of sole proprietorship into joint stock company…. Let’s us take a look on several important changes of Law on Enterprise 2020 which may impact on the operation of the Enterprise as follows:

1. Timeline for capital contribution 

Law on Enterprise 2020 retains the requirement that the charter capital must be contributed as undertaken within 90 days from the date of issuance of the Enterprise Registration Certificate. However, the duration of transporting or importing assets contributed as capital and conducting administrative procedures for conversion of ownership of assets shall be excluded under Law on Enterprise 2020[1]. This adjustment is practical for capital contribution activities of the Enterprise. For contributed assets from other countries, there should be a certain amount of time for the transportation, the customs procedures or other assets which require to register the owner conversion for real estates, transports, intellectual property rights, especially real estates with tremendous value need more time to carry out the ownership conversion into the Enterprise. Law on Enterprise 2020, though, has not specified the time at which members/founding shareholders are required to begin transporting, importing or implementing administrative procedures to make the initial capital contribution, it is generally understood that members or founding shareholders  must follow the essential procedures to convert the ownership of contributed assets from them into the Enterprise within 90 days from the date of issuance of the Enterprise Registration Certificate.

2. Abrogating the regulations on reporting changes of enterprise managers:

Under Law on Enterprise 2014, the Enterprise must make a report to the business registration division within 05 working days from the date of information changes of any of the following persons: member of the Board of Directors, member of the Inspection Committee or the Inspector, Director or General Director[2]. The fact that this provision arises unnecessary administrative procedures, causing difficulties for enterprises, especially for the joint stock company when information changes of the member of the Board of Directors must also be notified to the competent State agency. However, Law on Enterprise 2020  has officially abrogated this requirement and cut the red tape off. There’s one concern is that how the processing of manager information recorded and published on the National Business Registration Portal will be solved. Whether the Enterprise has to execute any information adjustment steps or such information is automatically removed by the business registration division. The Enterprise shall wait for the Decree guiding Law on Enterprise 2020 to determine next procedures.

3. Regulations on Legal Representative 

Both Law on Enterprise 2014 and Law on Enterprise 2020 have allowed the limited liability company and the joint stock company to be represented by one or more legal representatives. Rights, obligations and titles of the legal representatives have been regulated in the company’s Charter. However, the Law on Enterprise 2020 supplements the case that the division of rights and obligations of each legal representative is not specified in the company’s Charter, each legal representative of the company is the representative with the full authority of the Enterprise to the third party. All of them must take joint responsibility for any damage to the Enterprise as prescribed by civil laws and relevant laws[3]. Through the above provision, should the charter be silent as to such allocation of duties of each legal representative, each legal representative may be considered as “unlimited liability partner” and has joint liability for total damages, creating a mechanism that involves “members monitoring each other”. Should there is a mistake, all unlimited liability partners will use their own assets and be jointly and severally liable for losses. Besides, each legal representative should be cautious and careful with other legal representative’s decisions because the poor decisions may impact on them, even if they were neither involved in the alleged incident nor aware of it.

4. Allowing for the issuance of corporate bonds by a limited liability company [LLC]

Given that the Law on Enterprise 2014 have not stipulated that an LLC may issue corporate bonds, there seems unfamiliar to many people. With Decree No. 163/2018/ND-CP amended and supplemented by Decree No. 81/2020/ND-CP, it is acknowledged that an LLC is entitled to issue bonds when certain conditions are met[4]. Typically, the huge commotion has emerged where the Xich Lo Do Trading Service Company Limited recently announced a successful capital raise of VND 738 billion by issuing bonds, owing to the correlation of capital size, business situation compared to the money raised from bond issuance. Law on Enterprise 2020 has officially stipulated the right to issue bonds in accordance with the Law on Enterprise and other relevant laws[5]. Consequently, an LLC is permitted to issue individual bonds when satisfying the following conditions: audited financial report, full payment of principal, a guarantee of financial safety ratio and interest rate of previously offered bonds (if any), etc. In terms of the order, detailed procedures may have to wait until the Government has written guidance.

5. Additional Protections for Minority Shareholders

Law on Enterprise 2020 has added up the rights of a shareholder or a group of shareholders owning five percent or more, unless the charter stipulates a smaller percentage. These new regulations allow a shareholder or a group of shareholders to sight, consult and make an extract of the book of minutes and resolutions or decisions of the Board of Directors, mid-year and annual financial statements, reports of the Inspection Committee, and contracts and transactions which must be passed by the Board of Directors and other data except for data relating to commercial secrets or business secrets of the company[6]. Accordingly, Law on Enterprise 2020 has excluded documents relating to commercial secrets and business secrets of the company from the scope of the rights of this group of shareholders or minority shareholders. The concept of “business secrets” has been stipulated in the current Intellectual Property Law[7], but, commercial secrets definition is still not specified clearly by any legal documents. Major shareholders or the Board of Directors may, for some reasons, abuse this regulation to make any document a commercial secret if it is not accessible to a minority shareholder or group of shareholders accounting for 5% or more, due to the rule of “documents related to commercial secrets, business secrets” is said to be a too broad scope of adjustment. Removing access to information relating to commercial secrets has inadvertently narrowed the access to information of a minority shareholder or group of shareholders. What if a major group of shareholders control the board and this group does not want a minority shareholder or group of shareholders to access information, it is possible to stipulate that the entire contract adopted by the Board of Directors is labelled “commercial secrets”. However, it should be acknowledged that the addition of individual rights to the minority shareholder or group of shareholders with a ratio of 5% or more is also considered a positive new point of the Law Enterprise 2020 to protect the interests of vulnerable groups.

6. Dismissal of the Board of the Directors member of a joint stock company [JSC]

Law on Enterprise 2020 has put discharge, removal, replacement and addition of members of the Board of Directors into a separate provision[8]. Accordingly, the General Meeting of Shareholders discharges any member of the Board of Directors when such member of the Board is unqualified or submits written notice of resignation which is approved, or other cases prescribed by the company’s Charter. The issue to be clarified here is a dismissal in case of “having written notice of resignation which is approved”. In the circumstance that the company’s Charter does not regulate this content if, for some reason, a member of the Board of Directors wants to resign, but disapproved by the General Meeting of Shareholders. Will that the member of the Board of Directors be allowed to resign? By the provisions of the law, it is not due to inadequate eligibility for approval of the General Meeting of Shareholders.  

At present, Law on Enterprise 2020 has not taken effect, and we have not yet verified the actual effectiveness of the application of some of the new regulations mentioned above. Moreover, Law on Enterprise 2020 will also be guided by Government decrees, circulars of relevant ministries and the Enterprise that can clearly understand these new regulations and apply to business activities of the Enterprise.

 

[1] Article 47, Article 75, Article 113 Law on Enterprise 2020

[2] Article 12 Law on Enterprise 2014

[3] Article 12 Law on Enterprise 2020

[4] Clause 3 Article 1 Decree 81/2020/ND-CP

[5] Clause 4 Article 46 and Clause 4 Article 74 Law on Enterprise 2020

[6] Point a Clause 2 Article 115 Law on Enterprise 2020

[7] Clause 23 Article 4 Law on Intellectual Property 2005

[8] Article 160 Law on Enterprise 2020

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Amending the Law on Intellectual Property: Protecting the copyright in the context of the economic foundation

In 2005, The first Law on Intellectual Property of Vietnam is through under pressure of The World Trade Organization accession process. Although, awareness of the function of this Law, protect and execute Intellectual Property rights are not the number one priority yet of the lawmaker at that time. In 2020, Amending the Law on Intellectual program is warmed up. In 2020, Amending the Law on Intellectual program is warmed up under pressure Vietnam signs series of new generation trade agreements with very high standards on intellectual property issues. However, The present background has changed very much compared to 15 years ago, besides the external pressure of joining economic agreements, we are also deal with practical more motivation come from within ourself, that is the dominance of “platforms” in the digital economy.

Commenting on the challenge of short video sharing platform Tiktok, David Isrealite (President of the National Association of Music Publishers) used to think that Intellectual Property Lawsuit can not avoid this rising platform. Now, This prediction has come true in Vietnam. Specifically, May 28, 2020, Joint Stock Company VNG (owner platform of listening to music online Zing MP3) has sued Tiktok Inc (owner platform of social networking sharing short video Tiktok) to People’s Court of Ho Chi Minh City with accusing. Tiktok has carried out behaviour communicating to the public many audio and video recordings of musical works performed by VNG without the consent of VNG, constitutes infringements of related rights under Clause 8, Article 35 of the Intellectual Property Law.

In the context of the current legal provisions on the responsibility of platforms to enforce copyright in the digital environment is a hot (and sensitive) issue in Vietnam and many countries around the world, the parts of VNG and TikTok Inc. will be the fight attractive between powerful platforms. This fight result will likely be resolved throughout measures outside the court. However, when it is recalled that VNG itself also used to be the defendant of similar lawsuits from actors, artists. The final question to be resolved is not the judgment of the case on which is how such lawsuits may become effective legal tool even for person create content.

Enterprises providing intermediary services (ISP) have long benefited from exception cases their neutral state. Whereby, ISPs only have to remove the copyright infringement contents if they are properly notified of such infringement. Announcer normally is the owner of the copyright has been violated (personal content creation). The question is that with the huge amount of information posted to the internet every day, how artists, musicians, YouTubers, etc can control the content of other people to upload that infringes my rights?

Actual above also go with the problem of mole game (whack-a-mole problem). Where by, if player try to catch mouse on this case. Whereby, if the player tries to catch a mouse on this cave, the mouse will appear in another cave after that. The player will not be able to know which cave the mouse will continue to reappear. The game continues like that. So, the problem is not catching the mouse, that more important is how to make the mouse don’t easily reappear on another cave. Fighting copyright infringement on today’s social networking platforms is like playing mole. If a infringement content is removed on this post, that once can be easily reposted on another status. Therefore, if there aren’t any support solutions for authors “catch mouse” effectively, the game will be increasingly unbalanced in a negative direction for content creators.

To partly solve the above problem, March 26, 2019, The European Parliament has passed the copyright law in the digital environment in an effort to find the status “reasonable balance” between the rights holders and the platform. The most controversial point is article 17 of this Act, in which European lawmakers require internet service intermediaries to actively control and remove content that infringes the copyright of other subjects without notice from the right owners. The above law will take effect from 2021 throughout Euro. Although there are still a lot of argumentative that new copyrights Law will negatively influence freedom of speech, freedom of access to information and will “change the Internet forever”, The immediate positive impact is the copyright of the content creators will protect better. This is the first step in eliminating extreme neutrality status that ISPs are benefiting from.

In VietNam, Now, Basically, Joint Circular 07/2012/TTLT-BTTTT-BVHTTDL solves responsibility of ISPs which is applying notice and takedown mechanism (“notice-and-takedown”) as approaching way of the US and the EU. Even so, While the EU and the US request IPSs removing the content if there are trustworthy announce from copyrights owners, Vietnam only requires ISPs to remove the content according to notified of state agencies. However, rarely State agencies appraisal request remove content copyright classification of an individual. Thus, although there is a learning approach, Vietnam did not achieve the level of protection of authors as strong as the United States and the EU are applied.

The difference in approaching way of Vietnamese Law comes in part from differences in Western and Eastern Cultural about protecting copyrights problem. While Western common law countries appreciate Jonh Locke’s theory for the fruit of labour, civil law countries and Eastern countries appreciate community Value of product rather than personal ownership. Besides, Law on Intellectual Property VietNam, with borning in 2005 as a requirement to meet WTO accession, is out of date and can not predict the current boom of internet and present platform economy.

As one of the fastest-growing internet in the world and aiming to build a digital economy, Vietnam is being a later country in the completed process of copyrights law on the internet. Although following to nation digital transfer project, to 2025, Vietnam will have about 50% of enterprises doing business on digital platforms, Legal framework for copyrights protection in the digital environment in Vietnam is still incomplete. Joint Circular 07/2012/TTLT-BTTTT-BVHTTDL as mentioned is only eight articles, of which there are only two articles direct stipulate about handle responsibility mechanism of ISPs in Vietnam. Currently, Draft decree amending and supplementing the Decree 72/2013/ND-CP dated July 15, 2013, of Government about management, supplement, using the internet and electrical information services that Ministry of Information and Communication is taking opinions still keep silence about this issue. This is a blockage point easiest to see in  the current legal framework of responsibility of ISPs in Vietnam.

The information technology revolution has risen in the context of the value of copyright law being challenged by its own traditional principles. Now, Vietnam is facing the biggest problem that Law on Modern Copyrights is facing: Solving traditional exceptions of law in the context of the new environment and at the same time maintain the developing motivation of digital economy as a developing country.

No matter want or not, Vietnam has to give a choice. Promulgating a draft law too harsh like the way EU is carrying out can not be a good solution for a developing country as Vietnam. However, Vietnam can completely approach that solution in a softer and more flexible way. The regulations about the responsibility of ISPs in copyrights protections need to be adjusted to make sure satisfactory level of protection and balance between a side is the right of the right holder and a side is rights to use and access to knowledge and technology of the society as well as appreciate role (“gate guard”) of ISPs. In the context of preparing to amend intellectual property law and implement the EU-Vietnam Free Trade Agreement, lawmakers should consider the above issues. Only then will we be able to ensure the diversity and sustainability of the digital economy.

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Common questions related to establishment and operation of foreign-invested company in Vietnam (Part 2)

When establishing a foreign-invested company in Vietnam (“Foreign Invested Company“), Foreign Investors realize the difference between the laws of Vietnam and the laws of their countries while they are running a business. Thus, there are numerous questions have taken into account and need to be analyzed in order to make Foreign Investors to be clear on Vietnamese legislation before investing.

Over the operation process, Apolat Legal has consulted a lot of Foreign Investors on relevant matters, we have listed the following questions on the matters which Foreign Investor should pay attention to implement a duly process, starting from the period of decision on establishing Foreign Invested Company to stable operation. In which, the following notable matters are: (i) Investment project and establishing a company; (ii) Investment Capital; (iii) Tax; (iv) Labor.

III. Tax

1. Is there a difference in tax obligations between the Foreign Invested Company and the Vietnamese Company? 

Foreign Invested Company and Vietnamese Company are both registered enterprises and operate under the laws of Vietnam. Therefore, both the Foreign Invested Company and the Vietnamese Company must fulfill their tax obligations accurately in accordance with the law, with no difference in tax obligations between the Companies. However, the Foreign Invested Company annual financial statements must be audited by an independent auditor authorized to operate in Vietnam.

2. What are the basic tax obligations that the Foreign Invested Company needs to fulfill? 

Foreign Invested Companies are obliged to comply with all basic taxes such as License Tax, Company Income Tax, Value Added Tax. In addition, for specific business activities, Foreign Invested Companies may be subject to Excise Tax, Export Tax, Import Tax, …

In case the Foreign Invested Company pays the salary to the Employee, it is obliged to declare and pay Personal Income Tax (PIT) on behalf of the Employee on a monthly, quarterly or each time basis.

3. What types of tax reports need to be filed and reporting terms?

The types of tax reports and reporting terms are as follows:

No. Declarations

/Reports

Reporting terms
Monthly Quarterly Annually
1 License Tax Jan 30th
2 Value Added Tax 20nd next month. Applied to Company has income in previous year over VND 50 billion. 30nd or 31st of the first month of next quarter. Applied to Company has income in previous year lower VND 50 billion and new established Company.
3 Personal Income Taxi 20nd next month. Applied to the Company paying income with the deductible Personal Income Tax amount in the month from VND 50 million or more. 30nd or 31st of the first month of next quarter. Applied to the Company that is not subject to monthly reporting.
4 Company Income Tax Temporarily calculate and pay Company Income Tax in the quarter. Finalize within 03 months from the end of the fiscal year.
5 Report on the use of invoices 20nd next month. Applied to the Company that uses self-printed or pre-printed invoices with acts of violation not to use self-printed or ordered invoices, Company is subject to high tax risks and is eligible to buy invoices from tax authorities. 30nd or 31st of the first month of next quarter. Applied to the Company selling goods and services (except for those who are issued invoices by tax authorities and those who report monthly).
6 Financial Report

Company Income Tax, Personal Income Tax finalization

30nd or 31st of last month of the quater of the following year

4. Is a Foreign Invested Company entitled to tax incentives? What tax incentives are available? 

In order to attract Foreign Investors to invest in Vietnam, investment incentives in general and tax incentives in particular are constantly being updated from time to time, creating favorable conditions for Foreign Investors with different investment fields. Preferential taxes include Company Income Tax, Value Added Tax, Import Tax, and some others.

For example, for the CIT incentive, Companies, including Foreign Invested Company and Vietnamese Company, that meet the conditions for CIT incentives will be entitled to a lower tax rate. Usually, for a limited time or the entire implementation period of an investment project. Even CIT exemption or reduction is reduced to 10% for newly established Companies from investment projects in areas with extremely difficult socio-economic conditions, economic zones, hi-tech zones, newly established Company from investment projects in the fields of high technology, scientific research and technology development, investment in infrastructure development of special importance of the State, production software products or the Company operates in the fields of education – training, vocational training, health, culture, sports and environment, within 15 years from the first year of having taxable income from the project invest. However, in order for a Foreign Invested Company to be entitled to tax incentives, it must comply with all the procedures for investment registration, tax registration, … in accordance with the law.

In addition, Foreign Invested Companies are also exempt from import tax on imported goods to create fixed assets, raw materials, supplies and components to carry out investment projects. At the same time, exemption or reduction of land rent, land use fee, land use tax.

5. What are the requirements for tax incentives?

In order to be entitled to the incentives, the Foreign Invested Company must meet the conditions prescribed by law. Specifically, implementing investment projects in Vietnam in industries and areas with difficult socio-economic conditions or areas with extremely difficult socio-economic conditions. Investment projects capitalized at VND 6,000 billion or more, with a minimum disbursement of VND 6,000 billion within 3 years from the date on which investment policy is issued for projects that are not required an Investment Registration Certificate.  Investment projects in a rural area that employs 500 employee or more. High-tech Companies, Science and technology Companies, science and technology Organizations.

In addition, when qualified for investment tax incentives for foreign investment projects in Vietnam in accordance with the law, the Foreign Invested Company is required to comply with the following procedures to be applied tax incentives:

  • For an investment project which required an Investment Registration Certificate or investment policy decision, the Foreign Invested Company shall base on the investment incentives specified in the Investment Registration Certificate or the investment policy decision before applying investment incentives. The basis for applying investment incentives to a science and technology company is the Certificate of a science and technology enterprise.
  • For projects that not required to apply for an Investment Registration Certificate, the Foreign Invested Company shall base on the subject of investment incentives to determine investment incentives and procedures for enjoying investment incentives at the competent authority in applying investment incentives.

6. When transferring capital /shares, do Foreign Investors have any tax obligations? 

When transferring capital/shares, the Foreign Investor being an organization or individual will have to fulfill different tax obligations:

  • For Foreign Investors who are organizations that are obliged to pay Contractor tax on income arising from the transfer of capital/shares in Foreign Invested Company.
  • For Foreign Investor being an individual, when transferring capital/shares in a Foreign Invested Company, PIT must be paid.

In case of transferring the contributed capital in the limited company, the applicable tax rate is 20%, the tax calculation method is: “PIT payable = Taxable income x Tax rate of 20%” and ” Taxable income = Transfer price – Purchase price of the capital transferred – transfer cost“.

In case of transferring shares in a joint stock company / shares under the securities law, collectively referred to as securities transfer, the applicable tax rate is 0.1%, the tax calculation method is: “PIT payable = Stock transfer price for each installment x Tax rate of 0.1%

IV. LABOR 

1. What are the labor regulations that the Foreign Invested Company needs to comply? 

The Foreign Invested Company should note and strictly comply with the following labor laws:

First, the general labor regulations in Vietnam, the Company needs to determine the use of employee of appropriate age according to the law. Strictly complying with the regulations on recruitment procedures, duration and salary for probation, signing labor contracts. Regulations on termination of labor contracts are also an important point that the Company should strictly comply with, especially in cases where the Company’s right to unilaterally terminate labor contracts and the order procedures for unilateral termination of labor contracts. In addition, the regulations on social insurance, the minimum salary and the working and rest regime of employee are also clearly defined by law, the Company should check and comply with the regulations.

Secondly, for the employment of foreign employee in particular, the Foreign Invested Company needs to comply with the regulations on recruitment conditions of Foreign Employee in Vietnam, procedures at the competent authorities for the use of foreign employee and to issue work permits to foreigners working at the Company. If the Company’s employment of foreign employee in accordance with the law, it will be punished for violations.

2. What are the conditions for foreigners to work in Vietnam? 

Foreigners wishing to work in Vietnam need to meet the following conditions:

– Having full civil act capacity;

– Having professional qualifications, skills and health suitable to the job requirements;

– Not being a criminal or prosecuted for criminal liability in accordance with the law of Vietnam and foreign law;

– Having a Work Permit issued by a competent authority of Vietnam, except cases in which the work permit is not required in accordance with the law.

In addition, Foreign Employee work in Vietnam must comply with Vietnamese labor law, international conventions to which Vietnam is a member have different provisions and are protected by Vietnamese law.

3. What procedures should a Foreign Invested Company want to recruit Foreign Workers follow? 

Foreign Invested Company is entitled to recruit Foreign Employee to work as manager, executive director, expert and technical worker that Vietnamese employee cannot meet according to production and business needs.

In order to recruit foreign employee, the Foreign Invested Company must carry out the procedures for explaining labor demand at least 30 days in advance from the expected date of employment of the Foreign Employee and obtain the written approval from a competent authority.

After obtaining the approval of the employment of the foreign employee from the competent authority, the Foreign Invested Company shall carry out the procedures for the new work permit or the procedure for the exemption of the work permit for the Foreign Employee at a competent authority.

Finally, after obtaining a work permit or the decision to exempt the work permit for the foreign employee, the Foreign Invested Company and the Foreign Employee enter into a Labor Contract and submit this Contract to the agency issuing the work permit for management.

4. How to sign a labor contract?

When employing employee, the Company needs to comply with the law on signing labor contracts with the Employee. The Company may enter into a probationary contract with the Employee before entering into a labor contract but must comply with the law on probationary contract on term, salary ….

First, the conclusion of a labor contract must be based on the principles of voluntariness, equality, goodwill, cooperation and honesty, freedom but not against the law, collective labor agreement and communal morality. Then, the parties have the obligation to provide honest information to enter into a contract, the enterprise provides information about the job, location and working conditions, working hours, and rest time, occupational safety and health, salary, form of payment, social insurance, health insurance, unemployment insurance, … employee provide information about identity, education level, health status, …

After that, the parties choose the form of the contract and the type of labor contract and enter into it with the content of the contract that is not contrary to law and social ethics.

Finally, the authority to enter into a contract is also an important point to note in order for the employment contract to take effect, the Company may enter into a labor contract by either a legal representative or an authorized person according to the law.

5. After terminating contracts with employee, what procedures should the Company perform? 

After terminating the labor contract with the foreign worker, the Company should:

  • Firstly, pay full amount of salary, benefits (if any) in accordance with the law or agreement within 7 days from the date of contract termination or another term as agreed by the parties.
  • Secondly, complete the procedure to confirm and return the social insurance book and other related documents to the employee.

6. How to pay social insurance for the Employee? 

Employers are responsible for paying social insurance, health insurance, compulsory unemployment insurance for Employees in accordance with the law with the following rate:

For Vietnamese Employee:

Insurance deducted from salary Social insurance Medical insurance Accident insurance Total
Deducted from Company’s expenditure 17.5% 3% 1% 21.5%
Deducted from Employee’s salary 8% 1.5% 1% 10.5%
Total 22.5% 4.5% 2% 32%

For Foreign Employee:

Insurance deducted from salary Sickness, maternity fund Occupational accident and disease insurance fund Retirement and death fund Total
Deducted from Company’s expenditure 3% 0.5% 3.5%
Deducted from Employee’s salary
Total 3% 0.5% 3.5%

7. Does the Company have to establish labor union and how do we pay labor union fee?

According to the law, labor union is a socio-political organization of employees established on a voluntary basis. Therefore, the Company is not required to establish an union.

However, the Company has to pay labor union fee in accordance with the law, regardless of whether the Company has or has not had a labor union. The rate of payment of the labor union fee is equal to 2% of the salary fund as a basis for paying social insurance premiums for the employees. The Company pays labor union fee once a month at the same time as payment for compulsory social insurance for employees.

8. Is it difficult to dismiss employees? What will be the liability if doing it wrongly?

To dismiss an Employee, the Company should meet the following factors and conditions:

  • The Company is required to have a legally effective Labor Code that specifies violations that will result in disciplinary action;
  • The employee violates one of the acts that is subject to the dismissal in accordance with the law and the Labor Code of the Company, and the Company is responsible for proving the fault of the employee;
  • The labor discipline must comply with the principles and procedures of the law:
    • The Company proves the fault of the employee and conducts the notice of a disciplinary meeting to dismiss the employee within the statute of limitations.
    • Disciplinary dismissal must have the participation of the representative organization of the Employee, the employee and the parent, or the legal representative if the employee is under 18 years old, in case of one of these people does not attend the meeting must state the reason.
    • The meeting to handle the labor discipline must be notified in advance to all participants, and made in minutes.
    • Dismissal decisions must be issued by an authorized person of the Company, within the period of the statute of limitations for disciplinary action or an extended period of time for disciplinary action and must be sent to the employee, parent or legal representative of the person under 18 years old and the organization representing the labor at the grassroots level.

In case the Company dismiss or unilaterally terminat the labor contract with the employee against the law, it shall:

  • Reinstating the employee to work under the signed labor contract and paying the salary, social insurance, health insurance for the days the employee is not working plus at least 02 months salary under the labor contract;
  • In case the employee does not want to continue working, in addition to the compensation specified in point (i), the Company must pay the severance allowance in accordance with the law;
  • In case the Company does not want to continuosly hire the employee and the employee agrees, in addition to the compensation specified in point (i) and the severance allowance, the two parties agree to the additional compensation but at least equal to 02 months salary under the labor contract to terminate the labor contract;
  • In case the employee no longer has the position or job specified in the labor contract but the employee still wants to work, in addition to the compensation amount specified in point (i), the two parties negotiate to amend, additional labor contracts.

The above contents are the questions that Apolat Legal often answers to Clients to resolve problems in the process of researching investment into Vietnam, Foreign Investors can refer to when meeting the similar cases. However, for each specific case, there will be the most suitable and effective solutions for application, Apolat Legal recommends the Foreign Investors should consult lawyers in such cases to best protect their legal rights and interests.

Download the article as a PDF here.

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Common questions related to establishment and operation of Foreign-invested company in Vietnam (Part 1)

When establishing a foreign-invested company in Vietnam (“Foreign Invested Company“), Foreign Investors realize the difference between the laws of Vietnam and the laws of their countries while they are running a business. Thus, there are numerous questions have taken into account and need to be analyzed in order to make Foreign Investors to be clear on Vietnamese legislation before investing.

Over the operation process, Apolat Legal has consulted a lot of Foreign Investors on relevant matters, we have listed the following questions on the matters which Foreign Investor should pay attention to implement a duly process, starting from the period of decision on establishing Foreign Invested Company to stable operation. In which, the following notable matters are: (i) Investment project and establishing a company; (ii) Investment Capital; (iii) Tax; (iv) Labor.

I. Investment project and establishing a company

1. Can Foreign Investors set up a company with 100% foreign-invested capital in Vietnam? 

Foreign Investors may establish a 100% foreign-invested capital in Vietnam to conduct business activities such as manufacturing, import-export, wholesale trade and retail of goods, business management consultancy services, … However, in cases where the Foreign Invested Company operates in areas where the law requires a joint venture with a Vietnamese Investor, the Foreign Investor is limited in the rate of capital contribution in the Foreign Invested Company. Depending on lines of business that this limit may change, for instance, with advertising that the ownership limit is 99.99% while for the waterway transport, the ownership limit is 49%. In case the Foreign Invested Company has many lines of business, the limit of the capital contribution ratio of the lowest line of business will be applied to Foreign Investors.

2. What type of enterprise can Foreign Investors choose? 

Under Vietnamese law, Foreign Investors may choose to establish any type of enterprise such as a private enterprise, limited liability company, joint-stock company, partnership. However, due to the advantages of limited liability company and joint-stock company, Foreign Investors frequently choose between limited liability company and joint-stock company.

3. Business Line that Foreign Invested Company is allowed to operate? 

Foreign Invested Company is allowed to operate in most business lines not banned from business investment in Vietnam. However, for business lines that Vietnam has not committed to opening markets or allowing Foreign Investors to invest in business such as machinery and equipment leasing services; labor subleasing service, etc., the licensing agency will consult the relevant Ministries to get approval for each specific case, if the Ministries approved, the licensing agency would issue a license/certificate of permission for the Foreign Invested Company to operate. 

4. Must a Foreign Invested Company have a Legal Representative or a Director who is Vietnamese? 

Foreign Invested Company do not need to have a Legal Representative or Director to be Vietnamese. However, it should be noted that the Foreign Invested Company must have at least one Legal Representative who is residing in Vietnam (could be a foreigner). If the Foreign Invested Company has only one legal representative, that person must reside in Vietnam and must authorize in writing another person to perform the legal representative’s rights and obligations upon exit from Vietnam.

5. What licenses does a Foreign Invested Company need to do business in Vietnam? 

Unless the Foreign Investor contributes capital, purchases shares/stakes of an existing and operating Vietnamese Company, the Foreign Invested Company normally must have two basic licenses: Investment Registration Certificate and Enterprise Registration Certificate. Depending on the lines of the business investment sector, the Foreign Invested Company must apply for one or several other licenses as prescribed by Vietnamese law. For example, if the Foreign Invested Company operates an e-commerce trading floor, the Foreign Invested Company must apply for a Business License issued by the Department of Industry and Trade and register website/mobile app operating e-commerce trading floor at Ministry of Industry and Trade. Please note that many licenses/certificates only apply to Foreign Invested Company and do not apply to Vietnamese Companies (according to the example above, Vietnamese Companies do not need to apply for Business Licenses issue by the Department of Industry and Trade, instead of that, Vietnamese Company shall register on the website/app on e-commerce exchange ).

6. How long does it take to establish a Foreign Invested Company? 

In case of setting up a company doing business and investment activities in the field of market opening by Vietnam and the Foreign Investor meeting all the legal requirements, the lead time to set up an ordinary Foreign Invested Company is 18 working days (excluding weekends and holidays) from the date of submitting complete dossiers to licensing agencies. However, in case of establishment of a Foreign Invested Company doing business and investment activities in the field of market opening by Vietnam but the Foreign Investor does not meet the conditions or the business investment industry has not been market opening, the time to establish a Foreign Invested Company can be extended from 30 to 45 working days ).

7. What should be paid attention to the operational address of the Foreign Invested Company? 

Vietnamese Companies are registered to establishment according to their self-declaration information and self-responsibility, the licensing agency does not request to provide documents proving the right to use/own the address for the headquarters of the Vietnamese Company (except for the case that this address is an apartment building, or a place where business activities are not permitted). This is different from the Foreign Invested Company that they must prove the address is legally rented/owned and suitable lines of the business investment sector, the licensing agency may consult with some competent state agencies about the use of this place for establishment. For example, when a Foreign Invested Company invests in a restaurant, they will ask the District People’s Committee where the Foreign Invested Company is located to seek approval before granting the certificate.

8. What type and term of investment project report?

Foreign Invested Company implements the investment project shall report on the implementation of the submitting all types of reports in light of table below to the Register Office and the Local Statistical agencies, the reporting is implemented via National Investment Database.

No.

Types Contents Terms 
1 Monthly

Report

The implementation of capital in case of raising the capital in the month. 12 days from the end of the reporting month.

 

2 Quarterly

Report

Capital, net revenue, exports, imports, labor, taxes, and payment to government budget, land and water using process.

 

Prior to the 12th of the first month of the quarter following the quarterly report. 

 

3 Annually

Report

The content of quarterly report and the target of revenue, employee’s incomes, expenditures and investments in scientific research and technological development, environmental protection and treatment, and the technological using origins. Prior to the 31th March of the following year of the annual report.

II. Investment capital

1. What is the difference between charter capital and project invested capital?

The company’s charter capital (shown on the Enterprise Registration Certificate – ERC) is understood as the total value of assets contributed or committed to contributing by members or shareholders in a certain period when the company is established, it is recorded in the company charter. And the maximum time for charter capital contribution is within ninety (90) days from the date of issuance of the Enterprise Registration Certificate under Law on Enterprises.

Project investment capital (shown on the Investment Registration Certificate – IRC) is understood as total capital contributed to an investment project to implement the project. Investment capital can include contributed capital, a loan, and mobilized capital …

So the question is whether the capital contribution to implementing the project is the company’s charter capital?

For the first project, when Foreign Investors establish a Foreign Invested Company, the Foreign Investors’ capital contribution will be equal to the charter capital. Thus, it can be generally understood that the company’s charter capital is also the contributed capital to implement the project. However, for the second and separated project Foreign Investors can also increase its charter capital to implement the new project without increasing the Foreign Investors’ capital contribution to the project implemented before.

2. What is the minimum charter capital required to establish the Foreign Invested Company? 

Currently, There  is no regulation on  the minimum charter capital required by Foreign Investors to contribute to the establishment of the Foreign Invested Company, nor does it require a maximum charter capital, except for the business lines that must meet the legal capital requirements such as real estate business of 20 billion VND, multi-level sales of 10 billion VND, international travel of 500 million VND, … the minimum charter capital must be equal to the legal capital required.

However, in fact, depending on the field that Foreign Investors invest in Vietnam, the licensing authority will consider financial capacity conditions to approve Foreign Investors to do business. Besides, Foreign Investors depend on the business strategy, target customers and strategic partners to determine the amount of appropriate charter capital for the company’s operations after its establishment.

3. How long the Duration for charter capital contribution? 

Depending on the type of enterprise that the Foreign Investors are expected to establish in Vietnam, the duration for charter capital contribution varies as follows:

  • For the type of limited liability company: Within 90 days from the date of issuance of Enterprise Registration Certificate, the capital contributor in a limited liability company with two or more members or the owner in a single-member limited liability company must make a contribution of capital to the company in full and in the type of assets as undertaken. After the members of a limited liability company with two or more members contribute their capital fully as committed, the Company must issue a Certificate of capital contribution corresponding to the contributed capital’s value.
  • For Joint Stock Company: Shareholders must pay in full for the number of shares that have been registered for subscription within ninety (90) days from the date of issuance of the Enterprise Registration Certificate, except where the company’s charter or share subscription agreement stipulates a shorter time-limit. The Board of Management is responsible for supervising, and monitoring to ensure that shares that have been registered for subscription shall be paid in full and on time by the shareholders.

Note: The term of capital contribution of Foreign Investors is usually recorded in the Investment Registration Certificate. For a newly established project, this period is ordinarily equal to the charter capital contribution period of 90 days to the date of the Enterprise Registration Certificate issue as mentioned above.

4. What assets can be used for capital contribution? 

Under the Law on Enterprises, assets contributed as capital include the following assets:

  • Vietnamese Dong;
  • Freely convertible foreign currencies;
  • Gold;
  • The value of land use right, the value of intellectual property rights (include copyrights and relevant rights, industrial property rights, plant variety rights, and other intellectual property rights prescribed by regulations of law on intellectual property);
  • Technologies, technical know-how, and other assets can be assessed in Vietnamese Dong.

5. How can Foreign Investors contribute to capital? 

Foreign Investors contribute capital in Vietnamese Dong or freely convertible foreign currency to establishing the Foreign Invested Company in Vietnam, which must be performed through the investment capital account opened at an eligible bank in Viet Nam. Such a capital account could be a direct or indirect investment capital account because it depends on the Foreign Invested Company’s proportion of Foreign Investors’ charter capital. As follows:

  • If the Foreign Invested Company opens the direct investment capital account: The contribution of charter capital through a direct capital account might be implemented in foreign currencies or Vietnamese Dong. And the ratio of charter capital to be contributed, and owned by the Foreign Investor shall be indicated in documents proving the invertor’s right to contribute capital such as Investment Registration Certificate; Enterprise Registration Certificate; Notice of applying the conditions for capital contribution, buy shares, repurchase stakes… For each type of currency to be contributed (Vietnamese Dong, foreign currencies), the Foreign Invested Company must open a direct investment capital account for the corresponding type of currency and can open only one direct investment capital account for a type of currency, except for the case the Foreign Investors joined many BCC Agreements or directly executed many PPP Agreements, such Investor has to open separate direct investment capital accounts for each BCC and PPP Agreement.
  • If the Foreign Invested Company opens to the indirect investment capital account: All the indirect investment activities of Foreign Investors in Viet Nam must be executed in Vietnamese Dong and through the indirect investment capital account. Transactions relating to foreign indirect investment activities in Viet Nam must be conducted through 01 (one) indirect investment capital account opened at authorized banks.

6. Which cases the Foreign Invested Company must open a Direct Investment Capital Account?

The Foreign Invested Company has to open a Direct Investment Capital Account in the following cases:

  • To be established in the form of establishing an economic organization, in which the Foreign Investor is a member or shareholder and must carry out the procedure for issuance of an Investment Registration Certificate under the law on investment;
  • Foreign Investor contributing capital, buying shares or capital contributions to Company (operating in a conditional business lines or unconditional ones applied for Foreign Investors) resulting in foreign investors owning 51% or more of the Company’s charter capital but being not required to carry out the procedures for issuance of an Investment Registration Certificate under the law on investment;
  • Being established after the split, merger, consolidation results in Foreign Investors holding 51% or more of the charter capital of the Company and is not required to carry out the procedures for issuance of an Investment Registration Certificate under the law on investment;
  • Newly established in accordance with the specific law having Foreign Investors owning 51% or more of the charter capital of the Company and is not required to carry out the procedures for issuance of an Investment Registration Certificate under the law on investment.

In case the Foreign Invested Company and Foreign Investors fail to comply with the law relating to the capital transaction conducted via the Direct Investment Capital Account, Foreign Investors can find it difficult to remit profits and be pay sanction administrative violations.

For Foreign Invested Company is not required to open a Direct Investment Capital Account, foreign investors shall open an Indirect Investment Capital Account to perform capital transactions.

 

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