Legal & Regulatory

Vietnam Updates Fines for Investment Violations

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Investment Violations VietnamBy: Dezan Shira & Associates
Editor: Anh Ta

Vietnam’s recent change in leadership with Prime Minister Nguyen Xuan Phuc taking office has opened the gateway for legislative change. Signed on June 1, 2016 and effective starting July 15, 2016, Decree 50 is one adjustment that investors should be sure to understand. Detailing penalties for administrative violations in a variety of business and investment related situations, the decree covers the administration of public investment projects, investments in Vietnam from domestic and overseas investors, and the bidding process for public investments. More importantly, the decree also sheds light on the business registration process for different business models in Vietnam.

Decree 50 seems to be an effort to improve the legal structure and bureaucracy in order to sustain Vietnam’s attractiveness to foreign investment. Despite its previous successes in attracting FDI, Vietnam’s weak legal structure and complicated bureaucracy, amongst other factors, have worsened the investment climate and diverted investors to other ASEAN markets. This decree seems to be an attempt to improve the transparency of the business registration and operations processes, through the outlining of possible violations, fines and remedial actions.

It should be noted that the majority of penalties involve a monetary fine and mandatory remedial measures to be taken. In all cases, individuals will be faced with fines at half the rate that would be applied to a legal entity found in violation of the same infraction. 

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Vietnam Regulatory Brief: Minimum Wage Hikes, Tax Law Amendments, and Noise Limit Adjustments

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New Regulations Define Noise Limits for Offices

The Ministry of Health issued Circular 24/2016 / TT-BYT, which places binding limits on the noise level in offices. The regulation comes under the National Technical Regulations on noise. The details of the circular are as follows:

  • For more than a minute, a person should not be exposed to sound pressure level exceeding 112 A-weighted decibels (dBA).
  • For more than an hour, a person should not be exposed to sound pressure levels exceeding 94 dBA.
  • For more than eight hours, a person should not be exposed to sound pressure levels exceeding 85 dBA.

An overall limit of 85 dBA applies to employees working on factory floors and engaged in manufacturing activities. Meanwhile, employees in the administrative, accounting and planning department should not be exposed to sounds exceeding 65 dBA. In addition, employees working in the design and computer programming department should not be exposed to sounds exceeding 55 dBA. The circular also states that the maximum limit of sound for all department is 115 dBA. Companies should ensure compliance with the latest regulation to mitigate any risk of complaints and of litigation by the government.

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An Introduction to Vietnamese Product Labeling Requirements

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Product Labeling VietnamBy: Dezan Shira & Associates
Editor: Kerstin Jost 

On the heels of inspections carried out in June, Coca Cola Beverages Vietnam Ltd. has been issued a US$19,300 fine and forced to temporarily suspend select sales for violating food safety licensing and labeling requirements. While seemingly serious in nature, the target of inspections – Samurai Energy Drink – fell afoul of regulators for a simple failure to label levels of folic acid on their beverages and to obtain licensing as a supplementary drink. Although subsequently bringing Samurai Energy into compliance, the experience of Coca Cola underscores the consequences of regulatory uncertainly in Vietnam, and the need for foreign enterprises to be aware of labeling and licensing requirements in the country.

Following its accession to the WTO in 2007, the country has seen major revisions to a number of laws, including those on establishment, investment, and trade. For all companies seeking to sell products within the Socialist Republic, product-labeling laws are of critical importance to successful customs clearance and ultimate sale within the country. Maintaining a firm understanding of recent changes, which include the revision of labeling guidelines for pre-packaged food and additives, as well as pre-packaged genetically modified ingredients, will be of great importance for those seeking to tap into Vietnam’s emerging consumer class.

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Highlights of Vietnam’s New Decree for Investment Violations

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By: Dezan Shira & Associates
Editor: Anh Ta

The recent ascension to office of Nguyen Xuan Phuc, Vietnam’s new Prime Minister, has opened the gateway to several legislative changes. One such change is Decree 50, signed on June 1, 2016 and effective starting July 15, 2016, which details updated penalties for administrative violations in planning and investment for businesses and investors. The decree covers the administration of public investment projects, domestic and overseas investment in Vietnam, and bidding investment. More importantly, the decree also sheds more light on the business registration process for different business models in Vietnam, as outlined in its penalties for registration violations in Section 4.

Decree 50 aims to improve the country’s legal structure and bureaucracy in order to sustain Vietnam’s attractiveness to foreign investors. Despite the country’s previous success in attracting foreign direct investment, Vietnam’s weak legal structure and complicated bureaucracy, amongst other factors, have worsened its investment climate and diverted investors to other ASEAN markets in recent years. This decree is an attempt to improve the transparency of the business registration and operation processes, especially in outlining the possible violations, fines, and remedial actions needed.

Most of the penalties for various violations involve a monetary fine and require mandatory remedial measures to be taken. For any monetary fine, an individual is liable to pay half the amount that an organization would be required to pay for the same violation.

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Vietnam Regulatory Brief: Foreign Investment Scrutiny, Foreign Research Restriction, and the Regulation of Photo Exhibitions

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Authorities Increase Scrutiny of Foreign Investors

The Ministry of Planning and Investment (MPI) recently issued Circular 09/2016/TT-BKHDT, which aims to inspect and assess FDI across the country. The government hopes to ensure that foreign firms observe relevant regulations and that violations will be discovered quickly. Examinations will be made in relation to capital contributions, project construction, the implementation processes, realization of investment targets, technology transfers, and fulfillment of investment requirements.

The regulation is expected to be implemented within 45 days and will include checks on tax obligations, labor regulations, land use, natural resources and environmental protection. The monitoring of companies will be conducted via routine as well as snap inspections. Despite the use of snap inspections, the circular states that all checks will be conducted in accordance with current regulations and should not overlap or affect operations of companies under inspection.

As a whole, the new bill is thought to allow for greater scrutiny of FDI, something which may discourage some from entering the country. Foreign investors in the country presently must ensure they are in compliance with all regulations to avoid any violations.

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Vietnam Market Watch: Tax Reform, Foreign Companies, and Increased Credit for Land Administration Projects

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Reforms in Tax Sector Likely

The tax authorities plan to create regulations to prevent tax losses and enforce transfer pricing as announced by the Deputy Minister of Finance on July 8. The regulations will create a legal framework to restructure the tax sector. Authorities also plan to improve competitiveness and implement administrative reforms by focusing on e-tax payments and building data on taxpayers. In the first six months of the year, tax collections from individuals and corporate incomes increased from 12 to 16 percent. Between January and June, tax collections in Da Nang and Ho Chi Minh City increased from 18 to 22 percent.

Taxes paid by foreign companies reached 49 percent of previously set targets. Tax officials have monitored businesses to correct incomes and have also helped firms in preparing tax reports. In addition, the Finance Ministry is also preparing a proposal to reform corporate income taxes for small and medium-sized companies. If approved, the regulation will apply from January 1, 2016 to 2020. The draft proposes two types of corporate income tax – 17 and 15 percent from the present 20 percent. The proposed reforms are in line with the government’s Resolution 19, which aims to improve the business environment in the country. Resolution 19 will put Vietnam on par with the top four ASEAN countries in the implementation of tax procedures by 2020.

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Understanding Vietnamese Mergers and Acquisitions

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How to acquire a company in VietnamBy: Dezan Shira & Associates
Editor: Eugenia Lotova

As Vietnam increasingly becomes a hub for foreign businesses, the government is streamlining the mergers and acquisitions (M&A) process to encourage investment in new sectors of the economy. While establishing a business in Vietnam may prove too cumbersome for some hopeful entrants, the M&A route provides a unique solution to many of these obstacles. With this path, investors will enjoy preexisting access to consumers, locations, and distribution channels. This local knowledge can prove critical to successful operations within Vietnam’s vibrant but rapidly changing investment environment .

To successfully carry out M&As within Vietnam, it is important to recognize the legal foundation of current policies, and to understand the procedures and limitations associated with acquisitions in Vietnam.

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Vietnam Regulatory Brief: European Visa Waivers, Preferential Income Tax Guidelines, and Emerging Insurance Standards

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 Visa Waiver Program Extended for More Countries in Europe

On June 30, Vietnam extended its visa waiver program to a number of countries in Europe. Implementing these changes, Resolution No. 56/NQ-CP will grant visa free entry to citizens from the United Kingdom, France, Germany, Spain, and Italy who wish to enter Vietnam for a maximum of 15 days.

The waiver of visa requirements applies regardless of the passport and immigration purpose. The waiver extension will remain valid for at least a year and end on June 30, 2017 if it is not renewed. The resolution directs relevant ministries, government agencies, and provincial administration officials to implement changes immediately. The new law will enable easy access to Vietnam for nationals from the aforementioned countries. This is a favorable development for companies from United Kingdom, France, Germany, Spain, and Italy that wish to invest in Vietnam, as it makes entry more convenient for business personnel to travel to the country.

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Formosa’s US$500 Million Settlement Set to Usher in New Era for Environmental Enforcement

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Formosa Fish Deaths Vietnam SettlementBy: Kurt Nguyen

Dead fish washed ashore. Polluted water. Fishermen losing their economic livelihood and having their well-being threatened. A Taiwanese company implicated. This is not 2016; the year is 2008, and we are looking at the Thi Vai river in southern Vietnam’s Mekong Delta, with an MSG factory upstream owned by Vedan. This was the first prominent case of environmental regulation being enforced upon a major foreign firm. Comparing Vedan’s case with Formosa’s makes the selective enforcement of regulations quite clear, and this could very well have a negative environmental fallout. Nevertheless, although an unofficial settlement was reached, saving Formosa’s operations in Vietnam for the time being, there are reasons to believe that Formosa will mark a turning point in the prosecution of cases of this caliber moving forward.

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Vietnam Regulatory Brief: Import Standards, Offshore Indirect Investment Requirements, and Proposed SME Tax Breaks

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New Requirements for Machinery, Equipment to Take Effect on July 1, 2o16

The Ministry of Science and Technology (MoST) issued a decree describing the requirements and procedures for import of used machinery, equipment and production lines which will take effect on July 1, 2016. Under the decree: used machinery, equipment and production lines which are not specifically prohibited from importing into the country may be imported if they meet the following conditions:

  • They are imported within 10 years from the manufacture date.
  • They are manufactured based on standards which conform to Vietnam’s National Technical Standards or National Standards; or that confirm with standards of G7 countries on safety, energy saving and environment protection.

The above requirements are exempted if the list of machinery, equipment and production lines has been approved in the investment license application dossier. In addition, used replacement components and spare parts can only be imported if companies need to fox or replace the currently used ones.

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