Compulsory re-registering under new Business Law gives foreign companies the jitters
25-SEP-2007 Intellasia | Vietnam Investment Review page1
Sep 25, 2007 - 7:09:05 AM
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More enterprises in Vietnam are reluctant to re-register themselves under the new Investment and Enterprise laws as administrative formalities are creating problems. Although there is still time before the deadline, the number of foreign invested enterprises (FIEs) which have applied for re-registration is low. There are reportedly only 78 cases in HCM City, 70 in Dong Nai, two in Ba Ria-Vung Tau, four in Da Nang, two in Thua Thien Hue and four in Bac Ninh.
Such figures make up a negligible slice of the estimated 6,000 FIEs established in Vietnam prior to the enforcement of the twin laws in July, 2006.
Nguyen Thanh Bien, chief of the legal division of a large-scale Taiwanese food producer, admitted that the number of re-registration applications needed to increase because only re-registered FIEs would get permission to expand their business operations or be able to convert to the business shareholding model.
"The problem that policy-makers should now ask themselves is why FIEs deliberately delayed their re-registration for the past year?" said Bien, adding that the deadline for FIEs' re-registration is July, 2008.
Bien's firm was established in 1994 in southern Dong Nai province and it has already set up several investment projects in Vietnam's northern and central provinces. The company has yet to succeed in re-registration despite being proactive. "Based on our case, we know that regulations outlined in Decree 101/2006/ND-CP, which provides guidance on re-registration, conversion and changing FIE investment licences, cannot be implemented," Bien said.
He said that upholding the company name, seals and tax codes and corporate organisational structures after being re-registered were his company's two biggest hurdles. "In accordance to Decree 101, we are allowed to keep our name, seal and tax code unchanged. But, when we re-register under the new laws, our investment certificate number and the agency, which grants us a new investment licence will change, leading to the change of seal," Bien said.
Prior to the Investment Law 2005, most of PIEs' investment licences were granted and managed by the Ministry of Planning and Investment (MPI), except those located in the industrial and export processing zones (EPSz) and bad investment capital of less than US$40 million. This also applied to projects outside of the EPZs which had an investment capital of less than US$20 million.
Since the introduction of the new Investment Law, the municipal and provincial governments have had the power to issue all of the FIE's investment certificates, regardless of their investment scale. "Our second difficulty associated with re-registration is the required re-shuffle of the company's organisational structure -the thing which our foreign bosses do not wish to change, in order to satisfy the new Enterprise Law.
"In accordance with the former Investment Law, foreign-wholly investment enterprises were allowed to decide the companies' functional divisions and managerial positions so that they mostly applied the organisational structures of the mother companies into the companies in Vietnam," Bien said.
Nguyen Hung Quang, lawyer at NHQuang & Associates law firm, who shared similar concerns, admitted that most of his foreign clients felt discouraged after consulting his firm about re-registration procedures. Quang pointed out that FIEs were afraid of lengthy re-registration procedures and acquiring their original investment licences caused enough difficulties. "In our opinion, only FIEs, which either have diversified services in operations, or desire to change their internal management structure, wish to re-register under the new laws," Quang told VIR. "Local partners in joint venture companies, in which they contributed in term of land-use rights, will never wish to re-register although their foreign partners really want conversion. This is because under the new laws, none of the local companies are allowed to contribute shares in joint ventures by land-use rights," Quang said.
Maintaining investment incentives, all of which are clearly written in former FIEs' investment licences, is another matter of concern. "Although Decree 101 allows FIEs to maintain these incentives, new investment certificates do not include such incentives, meaning that FIEs will no longer have written proof for the incentives they enjoy," Quang said.
Bien said that the remaining one-year for re-registration was too short and that state policy makers in line ministries must intervene immediately to help deal with problems PIEs were experiencing. "We are rallying our colleagues to organise round-table talks with state authorities to find solutions for both sides."
MPI officials recently suggested that they could extend the re-registration deadline for FIE conversion until 2010. However, the extension will be very difficult because the Enterprise Law must be changed.
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