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NEW FDI LEGISLATION, Part I

Date: 10 July 2006

Vietnam recently passed the Common Investment Law and Law on Enterprises (“New Laws”), both of which came into effect on 1 July 2006. Together, these laws fundamentally change the way businesses operate in Vietnam and, of particular relevance, the way foreign investors invest in Vietnam.

1. Limited Liability Companies under (a) above ("LLC"s)

1.1 The New Laws replace the current Law on Foreign Investment (“LFI”) together with numerous other laws, and introduce various new forms of investment in Vietnam, specifically:
(a) Limited Liability Companies (“LLCs”);
(b) Shareholding Companies (“SHCs”);
(c) Partnerships;
(d) One-member LLCs; and
(e) Private Enterprises.

1.2 For new investors, this creates greater flexibility in investment structures, gives them more freedom to decide how to implement their projects and simplifies licensing procedures.

1.3 The question for existing investors is what does this mean for them?

2. Impact on Existing Foreign Investors

2.1 Pursuant to the New Laws, existing foreign investors have two options: (a) to re-register their investments under the new laws, adopting one of the new investment structures; or (b) not to re-register and to continue under the terms of their existing investment licences. If existing foreign investor’s choose to re-register, they must do so within two years from 1 July 2006.

2.2 Given the above, existing investors need to think about whether they should re-register or continue under the terms of their existing investment licences. One obvious reason for re-registering in the form of a SHC or LLC is that the New Laws adopt a more modern and universally accepted corporate governance structure which will quickly become the norm in Vietnam over the nest few years. Further, re-registering in the form of a SHC should also simplify issues of capital raising, and is a precondition to listing on the Vietnamese stock market. In the next Part, further information regarding the various forms of investment under the Law on Enterprises will be provided.