LAW

ON FOREIGN INVESTMENT IN VIETNAM

In order to expand economic co-operation with foreign countries, develop the national economy and increase exports on the basis of the efficient exploitation of natural resources, labour, and all other potential of the country;
In order to encourage, and create favorable conditions for the investment in Vietnam by foreign organizations and individuals and the expansion of co-operation and investment between foreign countries and Vietnamese economic organizations from all sectors;
In order to encourage foreign organizations and individuals to invest in Vietnam and to encourage Vietnamese enterprises from different economic sectors to expand further their co-operation and investment with foreign countries;
In accordance with articles 24, 25 and 84 of the Constitution of the Socialist Republic of Vietnam;
This Law makes provisions for investment by foreign organizations and individuals in the Socialist Republic of Vietnam.

Chapter I

GENERAL PROVISIONS

Article 1

The State of the Socialist Republic of Vietnam welcomes and encourages foreign organizations and individuals to invest capital and technology in Vietnam on the basis of respect for the independence and sovereignty of Vietnam, observance of Vietnamese laws, equality and mutual benefit.

The State of Vietnam guarantees the ownership of invested capital and other rights of foreign organizations and individuals, and provides favorable conditions and simple procedures for investment in Vietnam.

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In this Law, the following terms shall have the meanings ascribed to them thereunder:

1. foreign party means one or more foreign individuals or legal economic entities.

2. Vietnamese party means one or more business enterprises from any economic sector.

3. Foreign investment means direct investment in Vietnam, in accordance with the provisions of this Law, of foreign currency or such assets as may be approved by the Vietnamese overnment by foreign organizations and individuals for the purposes of contractual business co-operation, or for the establishment of a joint venture enterprise or an enterprise with one hundred (100) per cent foreign owned capital.

4. The two sides means the Vietnamese party and the foreign party.

5. Multi-party means a Vietnamese party and more than one foreign party, or a foreign party and more than one Vietnamese party, or more than one Vietnamese party and more than one foreign party.

6. A business co-operation contract means a contract in writing for business co-operation signed by the two or more parties which comprise the two sides.

7. A joint venture contract means a contract in writing for the establishment of a joint venture enterprise, signed by two or more parties which comprise the two sides, or a contract for the establishment in Vietnam of a new joint venture enterprise and Article 1 foreign organization or individual.

8. Contributed capital means the capital contributed by a foreign or Vietnamese party which forms part of the capital of a joint venture enterprise but does not include any loans or other credits provided to the joint venture enterprise.

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article 4 of this Law.

10. Prescribed capital means the initial capital of a joint venture enterprise as stated in its charter.

11. A joint venture enterprise means an enterprise set up in Vietnam either by the two sides pursuant to a joint venture contract, each side comprising one or more parties, or pursuant to an agreement between the Government of the Socialist Republic of Vietnam and Article 1 foreign government, or means a new enterprise set up in Vietnam by an existing joint venture enterprise which has contracted with a foreign organization or individual.

12. An enterprise with one hundred (100) per cent foreign owned capital means an enterprise the capital of which is one hundred (100) per cent owned by foreign organizations or individuals and which is authorized by the Government of the Socialist Republic of Vietnam to be established in Vietnam.

13. An enterprise with foreign owned capital means either a joint venture enterprise or an enterprise with one hundred (100) per cent foreign owned capital.

14. Export Processing Zone means an industrial zone with specific boundaries established by the Government and containing one or more enterprises specializing in production of goods for export and in provision of services in relation to export oriented production and other export activities.

15. Export Processing Enterprise means an enterprise establishedand operating within an Export Processing Zone.

16. Build-Operate-Transfer Contract means a document in writing signed by foreign organizations or individuals and an authorized State body of Vietnam for the construction and commercial management of an infrastructure project for a fixed duration. Upon expiry of the

duration the foreign organizations or individuals shall, without compensation, transfer the project to the Government of Vietnam.

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1. Foreign organizations and individuals may invest in Vietnam in any sectors of its national economy.

2. The State of Vietnam encourages foreign organizations and individuals to invest in the following sectors:

3. Implementation of major economic programs, export oriented production, and import substitution.

4. The use of high technology, skilled labour, and concentrated investment in the exploitation and exhaustive utilization of potential resources and in the increasing of the production capacity of existing factories.

5. Production which is labour intensive and uses existing materials and natural resources available in Vietnam.

6. Building of infrastructure projects.

7. Foreign currency earning services such as tourism, ship repairing, airports, and sea ports and other services.

A detailed list of the areas in which foreign investment is encouraged will be published by the State body in charge of foreign investment. Vietnamese private economic organizations shall be permitted to enter into business co-operation contracts with foreign organizations and individuals, in the economic sectors, and subject to the conditions, stipulated by the Government.

Chapter II

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Article 4

Foreign organizations and individuals may invest in any of the following forms:

1. Contractual business co-operation.

2. Joint venture enterprise or corporation, generally called joint venture enterprise.

3. An enterprise with one hundred (100) per cent foreign owned capital.

Article 5

Any two or more parties may, pursuant to a business co-operation contract, enter into production sharing or other co-operation.

The two sides shall agree upon, and expressly state in the business co-operation contract, the objects and nature of the business, their respective rights, obligations and responsibilities, and the relationship between them.

Article 6

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Each joint venture enterprise shall be a legal entity which is subject to the laws of Vietnam.

Article 7

The foreign party to a joint venture enterprise may make its contribution to prescribed capital in:

1. Foreign currency.

2. Plant, buildings, equipment, machinery, tools, components, and spare parts.

3. Patents, technical know-how, technological processes, and technical services.

The Vietnamese party to a joint venture enterprise may make its contribution to prescribed capital in:

1. Vietnamese currency or foreign currency.

2. Natural resources as stipulated by the Government of Vietnam.

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4. The value of the right to use land, water and sea surface in accordance with regulations stipulated by the Government of Vietnam.

5. Plant, other building structures, equipment, machinery, tools, components and spare parts.

6. Supervision of construction and commissioning of plant, patents, technical know-how, technological processes and technical services.

The parties may agree to contribute to prescribed capital in forms other than those described above.

Article 8

There shall be no ceiling to the proportion of contribution made by Article 1 foreign party to the prescribed capital of a joint venture enterprise. The minimum proportion of contribution shall be thirty (30) per cent of the total prescribed capital contributed by the two sides. In the case of a multi-party joint venture enterprise, the minimum proportion of capital contribution to be made by each Vietnamese party shall be determined by the Government. The value of the capital contribution made by each party shall be assessed on the basis of international market prices and expressed in the charter of the joint venture enterprise in either Vietnamese or other currency as is agreed upon. In respect of important economic stablishments determined by the Government, the parties shall agree gradually to increase the proportion of the Vietnamese party's contribution to the prescribed capital of the joint venture enterprise.

Article 9

All assets of the joint venture enterprise shall be insured by Article 1 Vietnamese insurance company or other insurance company as agreed upon by both parties.

Article 10

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Article 11

In order to maintain foreign currency balance in a joint venture enterprise the parties shall agree upon the proportions of products to be allocated respectively for the purposes of export from and sale in Vietnam. All foreign currency earned from exports and other sources shall, at least, be sufficient to meet all foreign currency requirements of the joint venture enterprise so as to ensure its normal operation and to protect the interests of the foreign party.

Article 12

The body in charge of a joint venture enterprise shall be the board of management. Each party to a joint venture enterprise shall appoint members to the board of management in proportion to its contribution to the prescribed capital of the enterprise. In the case of a joint venture with two sides, each side shall have at least two members appointed to the board.In the case of a multi-party joint venture, each party shall have at least one member on the board. If, in a joint venture enterprise, there is one Vietnamese party and more than one foreign party, or one foreign party and more than one Vietnamese party, then each of the two sides shall have at least two members appointed to the board.

The chairman of the board of management shall be appointed in accordance with the agreement of the parties.

The general director and deputy general directors shall be appointed by the board of management to conduct the day-to-day business of the joint venture enterprise and shall be responsible to it for the operation of the joint venture enterprise. Either the general director or the first deputy general director of the board of management shall be a Vietnamese citizen.

Article 13

All principal matters which relate to the organization and operation of the joint venture, namely its business objectives, business planning, and key personnel, shall be determined by a unanimous decision of the board of management.

Article 14

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Each enterprise with one hundred (100) per cent foreign owned capital shall be a legal entity which is subject to the laws of Vietnam. In accordance with the decision made by the Government and on the basis of agreements with the owners of the enterprises, Vietnamese business enterprises shall be permitted to purchase part by part the capital of enterprises in important economic sectors.

Article 15

The duration of an enterprise with foreign owned capital shall be determined by the Government in respect of each project but shall not exceed 50 years.

Based on regulations made by the Standing Committee of the National Assembly, the Government may determine a longer duration in respect of each project but the maximum duration shall not exceed seventy (70) years.

Article 16

Vietnamese citizens shall be given priority in the recruitment of personnel for an enterprise with foreign owned capital.

Where advanced technical qualifications are required and Vietnamese persons having those qualifications are not available, the enterprise may recruit foreign personnel.

The rights and obligations of the Vietnamese employees working in an enterprise with foreign owned capital shall be provided for in labour contracts.

The salaries and allowances of Vietnamese employees shall be paid from the bank account of the joint venture enterprise in Vietnamese or foreign currency.

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An enterprise with foreign owned capital may open its bank accounts in both Vietnamese currency and foreign currency at Vietnamese banks, joint venture banks or foreign bank branches established in Vietnam.

In special cases an enterprise with foreign owned capital may open Article 1 loan account at a bank located in a foreign country subject to an approval given by the State Bank of Vietnam.

Article 18

An enterprise with foreign owned capital shall keep its books of account in accordance with conventional international principles and standards approved by the Ministry of Finance of the Socialist Republic of Vietnam and shall be subject to audit under the supervision and control of the financial bodies of Vietnam.

Article 19

The establishment, transfer of capital, and dissolution of an enterprise with foreign owned capital shall take place in accordance with its charter and in compliance with Vietnamese laws.

An enterprise with foreign owned capital shall have the status of Article 1 legal entity from the date of registration of its charter by the State body in charge of foreign investment.

Article 19a

Foreign organizations and individuals may invest in Export Processing Zones in Vietnam in any of the forms provided for in article 4 of this Law.

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The transfer of goods between business enterprises in the Vietnamese market and Export Processing Enterprises shall be regarded as export-import business and shall be regulated in accordance with the regulations of export-import law.

The Government shall promulgate regulations on Export Processing Zones and Export Processing Enterprises.

Article 19b

Foreign organizations and individuals investing in Vietnam for the construction of infrastructure projects may sign Build-Operate-Transfer Contracts with authorized state bodies of Vietnam. The foreign organizations and individuals shall be entitled to enjoy the rights and shall carry out the obligations stated in the contracts.

The Government shall make detailed regulations on investment in the form of Build-Operate-Transfer Contracts.

Chapter III

INVESMENT GUARANTEE MEASURES

Article 20

The Government of the Socialist Republic of Vietnam guarantees that any foreign organization which, or individual who, invests in Vietnam shall be treated fairly and equitably.

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The capital and assets invested in Vietnam by foreign organizations or individuals shall not be requisitioned or expropriated through administrative measures. An enterprise with foreign owned capital shall not be nationalized.

In cases where the benefits of the parties to a licensed business co-operation or to a licensed enterprise with foreign owned capital are reduced due to any change in the law of Vietnam the State shall take appropriate measures to protect the interest of the investors.

Article 22

Foreign organizations and individuals investing in Vietnam shall have the right to transfer abroad:

1. Their share of profits derived from business operations.

2. Any payments due as a result of provision of technology or services.

3. The principal of any loan made in the course of a business operation together with interest thereon.

4. Their invested capital.

5. Other sums of money and assets lawfully owned by them.

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Foreigners working in Vietnam for enterprises with foreign owned capital or performing business co-operation contracts shall, following payment of income taxes as stipulated by Vietnamese law, be authorized to transfer abroad their incomes in accordance with the foreign exchange control regulations of Vietnam.

Article 24

The conversion of Vietnamese currency into foreign currency shall be effected at the official exchange rate published by the State Bank of Vietnam.

Article 25

Resolution of any dispute between the parties to a business co-operation contract or a joint venture contract, or between either a joint venture enterprise or enterprise with one hundred (100) per cent foreign owned capital and any Vietnamese economic organization or other enterprise with foreign owned capital shall be attempted by negotiation and conciliation.

If, however, the parties to a dispute fail to agree, then the dispute shall be referred to a ietnamese economic arbitration body or other arbitration or judicial body as may be agreed.

Chapter IV

RIGHTS AND OBLIGATIONS OF FOREIGN ORGANIZATIONS AND INDIVIDUALS

Article 26

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In the case of profits derived from oil and gas and certain other valuable and rare resources, profits tax shall be levied at a higher rate in accordance with accepted international practice.

Article 27

Depending on the sector of the economy in which the investment is made, the location of investment, the scale of capital contribution, the volume of exports, the volume of substitutions for imports of those products which are as yet not produced or not produced in sufficient quantity in Vietnam, the nature and duration of the business, a joint venture enterprise may be exempted by the State body in charge of foreign investment from payment of profits tax for a maximum period of two years commencing from the first profit making year and it may be allowed a fifty (50) per cent reduction of profits tax for a maximum period of the two successive years.

Operating losses incurred by a joint venture enterprise in any year may be carried forward to the following year and set off against the profits of that year. Any losses remaining after such set off may be carried forward on the same basis for up to five successive years.

In respect of enterprises with one hundred (100) per cent foreign owned capital the Government may, in cases where encouragement of investment is needed, decide to give preferential treatment to those enterprises as regulated in paragraph 1 and paragraph 2 of this article.

Article 28

In special cases where encouragement of investment is needed, a reduction of profits tax may be granted by the State body in charge of foreign investment by an amount of up to ten (10) per cent of the profit earned and the period of exemption from or reduction of profits tax may be extended for a period longer than that provided for in article 27 of this Law.

Article 29

An enterprise with foreign owned capital and the foreign parties to a business co-operation contract shall pay rent for the use of land, water surface, and sea surface in Vietnam. They shall pay a royalty in the case of exploitation of natural resources.

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After payment of its profits tax, a joint venture enterprise shall appropriate five per cent of the remaining profits to establish a reserve fund. Such reserve fund shall be limited to twenty five (25) per cent of the prescribed capital of the enterprise. The percentage of profits which shall be used to set up other funds shall be determined by agreement between the parties and stated in the charter of the enterprise.

Article 31

An enterprise with foreign owned capital shall, in accordance with the laws of Vietnam, pay to the State Treasury of Vietnam the sums required for social insurance of the employees of the enterprise.

Article 32

Where any foreign organizations or individuals reinvest part of their share of the profits, they shall receive a refund from the tax authorities of the amount of profits tax already paid on that part of those profits.

Article 33

Upon transfer of their profits abroad, the foreign organizations or individuals concerned shall pay tax at a rate of between five (5) per cent and ten (10) per cent of the transferred profits.

In special cases where encouragement of investment is needed, exemption from, or reduction of, the tax may be granted by the State body in charge of foreign investment.

Article 34

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Article 35

Products exported or imported by either an enterprise with foreign owned capital or the parties to a business co-operation contract shall be subject to export and import duty in accordance with the Law on Export and Import Duties on Commercial Goods.

In special cases where encouragement of investment is needed the State body in charge of foreign investment may grant exemption from, or reduction of, the export and import duty.

Article 35a

Export Processing Enterprises shall be entitled to:

1. exemption from payment of export duty on goods exported to foreign countries and from payment of import duty on goods imported from foreign countries.

2. enjoy preferential tax rates as stated in article 28 and article 33 of this Law. The Government shall stipulate specifically the preferential tax rates for each type of Export Processing Enterprise.

Chapter V

STATE BODY IN CHARGE OF FOREIGN INVESTMENT

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The State body of the Government of the Socialist Republic of Vietnam in charge of foreign investment is vested with the overall responsibility for matters relating to the investment activities of foreign organizations and individuals in Vietnam.

The State body in charge of foreign investment shall have the following powers and duties:

1. To assist foreign and Vietnamese parties in the negotiation and conclusion of business co-operation and joint venture contracts, assist foreign organizations and individuals in the establishment in Vietnam of enterprises with one hundred (100) per cent foreign owned capital, and assist in the resolution of all other matters at the request of those organizations and individuals.

2. To consider and approve business co-operation, joint venture and build-operate-transfer contracts, to permit foreign organizations and individuals to establish enterprises with one hundred (100) per cent foreign owned capital and to approve the charters of enterprises with foreign owned capital.

3. To determine and grant preferential treatment to enterprises with foreign owned capital and to parties to business co-operation contracts.

4. To monitor and supervise the performance of business co-operation contracts and the operation of enterprises with foreign owned capital.

5. To analyze the economic activities of enterprises with foreign owned capital.

Article 37

An application for approval of a business co-operation contract or a joint venture contract, the establishment of an enterprise with one hundred (100) per cent foreign owned capital or for investment incentives shall be submitted to the State body in charge of foreign investment by the parties or, alternatively, by the foreign investing organization or individual concerned. The application shall be accompanied by the business co-operation or joint venture contract, the charter of the joint venture enterprise or enterprise with one hundred (100) per cent foreign owned capital, a study of the economic and technical feasibility of the project and such other documents as may be required by the State body in charge of foreign investment.

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The application shall be considered by the State body in charge of foreign investment and its decision shall be communicated to the parties concerned within three months from the date of its receipt of the application. Approval shall be communicated by the issue of an investment license.

Chapter VI

FINAL PROVISIONS

Article 39

In accordance with the principles provided in this Law the Government of the Socialist Republic of Vietnam shall enact regulations which provide for the creation of favorable conditions for verseas Vietnamese to invest in Vietnam as their contribution to national reconstruction.

Article 40

The Government of the Socialist Republic of Vietnam may, in accordance with the principles provided in this Law, conclude with foreign governments, agreements on co-operation and investment which are consistent with the economic relationship between them.

Article 41

The Regulations on Foreign Investment in the Socialist Republic of Vietnam issued with Decree No.115-CQ dated 18 April 1977 together with all other provisions inconsistent with this Law are hereby repealed.

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The Government of the Socialist Republic of Vietnam shall issue detailed provisions for the implementation of this Law.

This Law was approved by the Legislature VIII of the National Assembly of the Socialist Republic of Vietnam at its 2nd Session, on December 29, 1987.

FOR THE NATIONAL ASSEMBLY
PRESIDENT OF THE NATIONAL ASSEMBLY




Le Quang Dao