Lawyer Vietnam Oliver Massmann No more Investment Certificates

Vietnam’s New Investment Law Paves the Way for More M&A

– No More Investment Certificates!

Good news for M&A in Vietnam! Effective 1 July 2015, foreign investors won’t need to

undergo lengthy investment certificate procedures when buying stakes in Vietnamese target

companies. The change, introduced by the new Investment Law, will hopefully end years of

uncertainty and frustration faced by foreign investors eyeing Vietnam market entry or expansion

via M&A.

M&A activity in Vietnam saw a 15% uptick in 2014 and is expected to increase in 2015. We’ve

seen a strong increase of interest from international investors, especially in the last months of

2014 continuing into 2015. The TPP (which includes the U.S. and Japan), the EU-Vietnam FTA

as well as tariff reductions under the AFTA are all scheduled for this year. These will increase

market access for foreign investors in Vietnam and lower barriers to trade in goods and services.

Why is the investment certificate question so important?

Put simply, it can take forever to get an investment certificate (IC) and without one investments

are at high risk. Under current law, Vietnam has different licensing procedures for foreign and

domestic investors. The IC serves as business registration for foreign investors. In practice,

despite a 45 day maximum statutory time limit, the lC process can take 4 to 6 months or longer,

while domestic business can be registered within a day.

Under the new Investment Law, the IC is replaced by an “investment registration certificate”

(IRC) and an enterprise registration certificate (ERC). Obtaining ERCs should be

straightforward, as they only contain basic business info and also apply to domestic investors.

We have high hopes that IRCs will be processed faster than current ICs, but wouldn’t it be nice

to invest without an IRC?

Explicitly, no IRC for M&A activity!

The new Investment Law expressly provides that no IRCs will be required for acquisitions of

target companies. As a result, the time needed to complete purchase of stakes in Vietnamese

entities is expected to be reduced tremendously. Buying into public companies listed on the

Vietnamese stock exchanges will not require IRC either, but foreign ownership of listed

companies is still capped at 49% (and max. 30% for financial institutions). Rumors have long

abounded that the caps will soon be raised but, until that day, investors will need to buy unlisted

companies to take control.

Provincial Departments of Planning and Investment (DPI) will still have to “register” (read:

“approve”) plans to acquire a majority of a target or stakes in a company that is active in a

“conditional” sector. Conditional sectors for foreign investors include construction, urban

planning and education (Annex 4, new Investment Law). In practice, DPI officials have broad

discretion to approve applications, but they should need much less paperwork then for an IRC

application.

In addition, the business registration office will have to update ERCs to reflect changes in a

unlisted company’s ownership, statutorily, in 3 working days.

Buyout incentives

Foreign investors should be able to get down to business much faster than in the past: buying out

Vietnamese partners’ domestic companies looks set to become a far more viable approach than at

present. As always, watch out for conditional sectors and do due diligence on targets. Never

transfer any funds to dubious accounts or pay charlatans who promise licenses for everything

under the sun.

Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you

have any questions on the above. Oliver Massmann is the General Director of Duane Morris

Vietnam LLC.

INTERESTED IN DOING BUSINESS IN VIETNAM? VISIT: www.vietnamlaws.xyz

THANK YOU VERY MUCH!