NEW UPDATES IN OUTWARD INVESTMENT ACCORDING TO VIETNAMESE INVESTMENT LAW 2020
Nowadays, outward investment has become an inevitable and important trend for the development of international trade. This is the work that the investors transfer investing capital from Vietnam to foreign countries, using the profits obtained from this investing capital to carry out outward investment activities abroad.
The government encourages domestic investors to invest abroad in order to exploit, develop and expand the market; improve the export of goods and services, earn foreign currencies; access modern technologies, improve management capability and supplement resources for socio-economic development for the country. The Law on Investment 2020 and the draft of the Decree on outward investment also have new regulations consistent with the trend of international integration.
1. Business lines subject to conditional outward investment (Article 54)
From January 1st, 2021, when investing in the following industries and trades overseas, Vietnamese investors must satisfy certain conditions under the law:
- Banking;
- Insurance;
- Securities;
- Press, radio and television;
- Real estate business: Investors are enterprises established under the provisions of the Law on Enterprise. In order to limit the risk of breaking the law in foreign investment activities in the real estate business of foreign individuals, the Investment Law 2020 defines real estate trading as a conditional outward investment. The provision of conditions for investors to be legal entities will help the state management work more efficiently and strictly, avoiding the situation of individuals investing in real estate to settle abroad without investment or business goals.
The conditions for making business investments in the business lines mentioned above are specified in the laws, resolutions of the National Assembly, ordinances and resolutions of the Standing Committee of the National Assembly, decrees of the Government and international agreements on investment that Vietnam is a member.
There is another important addition about the regulations on outward investment by institutions that have foreign investing capital. Specifically, economic institutions with foreign-invested capital use undistributed after-tax profits or increase charter capital to invest abroad. This supplement, according to the Ministry of Planning and Investment, is to ensure that the foreign investment activities of foreign-owned economic institutions do not affect investment projects in Vietnam (it does not affect contributed capital to implement projects in Vietnam), ensuring management objectives for foreign investment activities in Vietnam.
In addition, this provision also aims to limit economic institutions with foreign capital from using loans to invest abroad, because they may affect investment projects in Vietnam if they must use contributed capital in Vietnam to repay.
2. Forms of outward investment
According to Article 52 of Investment Law 2020: Investors shall carry out outward investment activities in the following forms:
- Establishment of a business entity in accordance with the law of the host country: Establishment of business entities include establishment of enterprises or establishment of cooperatives and unions of cooperatives.
- Making investment on the basis of an overseas contract: Vietnamese investors will sign a business cooperation contract with the investor of the host country. This form does not need to establish a domestic economic organization in the host country.
- Contribution of capital to, purchase of shares or stakes of an overseas business entity to participate in the management of such business entity: According to the old Law, in order to participate in the management of an overseas business entity organization, an investor was only allowed to repurchase a part or all of the charter capital; however, the investor can invest in the form of "Capital contribution, purchase of shares or stakes" of such entities. Investors can purchase stocks, bonds, and other financial instruments in which investors are not directly involved in the management of investment activities. When implementing this form of investment, investors need to comply with the forms and procedures for capital contributing, purchasing shares, contribution capital.
- Trading in securities, other financial instruments, or making investments via securities investment funds and other intermediary financial institutions in a foreign country. In this form, investors can easily invest and withdraw capital when necessary; meanwhile, profit is based on the increase in the value of shares, but investors do not have the right to manage and operate in the company.
3. Regarding changes in the draft Decree guiding outward investment
The Ministry of Planning and Investment is collecting citizens' comments on a draft Decree of the Government on outward investment, guiding the Investment Law No. 61/2020/QH14, replacing Decree No. 83/2015/ND-CP regulations on outward investment. Accordingly, in addition to the regulations aimed at concretizing the investors' rights to freedom of business and investment, creating favorable conditions and encouraging effective investment and business activities, there are a number of new regulations. It is expected to be supplemented to more closely manage outward investment activities, especially projects using state capital or projects with large capital scale, using a lot of foreign currency.
a. The regulation that only legal entities can invest abroad in the real estate sector is one of the new regulations expected to be added to tighten the management of outward investment.
In particular, the Draft Decree stipulates that only enterprises established under the provisions of the Enterprise Law can invest abroad in the real estate sector.
In fact, the Investment Law of 2020 has specified that real estate trading is a conditional outward investment field and that conditions have been specified in the Draft Decree. Such provision is to limit the risks of evading the law in the outward investment in real estate business of individuals abroad. The provision of conditions for investors to be legal entities will help the state management be more favorable and strict, avoiding the situation of individuals investing in real estate to settle abroad without investing.
b. Regulations on outward investment of foreign-invested economic organizations
Foreign-invested economic organizations use undistributed after-tax profits or increased charter capital to invest abroad. According to the Ministry of Planning and Investment, supplementing this provision, is to ensure that the outward investment activities of foreign-invested economic organizations do not affect investment projects in Vietnam, ensuring the target management of foreign investment activities in Vietnam. In addition, this provision also aims to limit foreign-owned economic organizations from using loans to invest abroad, because they may affect investment projects in Vietnam if they must use contributed capital in Vietnam to repay.
c. Supplement the case that individuals are not allowed to invest abroad
Notably, in addition to adding "conditions" to restrict individuals from buying houses in foreign countries, the Ministry of Planning and Investment also stipulates the cases in which individuals are not allowed to invest abroad in accordance with regulations defined in Article 17.2 of the Enterprise Law 2020, are individuals who do not have the right to establish and manage an enterprise in Vietnam (Article 2 of the Draft Decree).
Specifically, the officials, civil servants and public employees; professional officers, non-commissioned officers and soldiers; leading officials, professional managers in State enterprises; Minors, people with limited/incapable of civil acts; ... will not be allowed to invest abroad. Of course, people who are being prosecuted for criminal liability, being detained, serving a prison sentence,... are not allowed to bring money abroad to invest.
The supplementation of the above-mentioned provisions is necessary, and consistent with Laws on cadres, Civil servants, Law on Cadres and civil servants; ensures that individuals who invest abroad have full legal status and take responsibility before the law. The above provisions also help to limit the cases in which individuals are having problems with domestic constraints when investing abroad to limit possible risks such as dispersal of assets.
4) New points in the procedures for issuance, adjustment and invalidation of Outward Investment Registration Certificates
a. Regarding the procedures for issuing outward investment registration certificates
In case the amount of foreign currency capital transferred abroad is VND 20 billion or more, the Ministry of Planning and Investment shall request the State Bank of Vietnam to provide opinions in writing. Previously, according to the 2014 Law, only projects that were not subject to an outward investment policy decision could the Ministry of Planning and Investment consult in writing from the State Bank of Vietnam. From 01/01/2021, for projects subject to policy decisions, the Ministry of Planning and Investment still has to obtain written opinions from the State Bank of Vietnam.
b. Regarding termination of validity of outward Investment Registration Certificates
The Law on Investment 2020 has extended the deadline for investors to implement investment projects according to the registration schedule with regulatory agencies and carry out procedures for adjusting the exeuction schedule of the investment project from 12 months to 24 months.
The investor is responsible for carrying out the procedures for terminating the operation of an outward investment project in accordance with the law of the host country and following the procedures for invalidation of the Outward Investment Registration Certificate.
c. Modification of outward investment registration certificates
The investor must update changes other than those prescribed in Clause 1 of Article 63 on the National investment information system.
The tax authority’s certification of the investor’s fulfillment of the tax payment obligation in case of increasing the outward investment capital. Such certification must be issued by the tax authority within the last 03 months.
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