Tiếng Việt (Vietnamese)

2013 - 11 Newsletter

In this volume


-         "Japan Trade and Investment promotion" seminar

-          NYSBA - Seasonal meeting 2013

-          CISG seminar organized by Ministry of Industry and Trade


Legal Updates

-          Penalizing administrative violations in accounting and independent audit

-          Policy on enterprise income tax microfinance organizations

-          Operation network of commercial banks

-          Social Insurance 


Legal Analysis

-           Government's efforts to eliminate the dollarisaion problem


See more...

2013 - 09 Newsletter


In this volume:



-          Foreign investment and international trade opportunities


Legal Updates

-          The law on judicial expertise

-          Business in prizing-winning electronic games for foreigners

-          Contributing capital, buying compulsory shares of credit institutions

-          The law on corporate income tax and the law on value- added tax


Legal Analysis

-          The guiding decree on work permit

See more...

2013 - 05 Newsletter

In this volume:

Bulletin – Upcoming Events
-    APEC Ease Of Doing Business Workshop Enforcing Contracts In Vietnam
Legal Updates
-    managing and using ODA and preferential loans from the sponsors
-    sales and purchase of goods and related activities of foreign-owned enterprises
-    establishment of SMEs Development Fund
-    high value transaction to be reported
-    electronic transaction in tax payment
-    food advertisement under management of the Ministry of Health
Legal Analysis
-    Amended Ordinance on forex control

See more...

The International Comparative Legal Guide to: Project Finance 2013 Edition - Vietnam Chapter

The International Comparative Legal Guide to: Project Finance 2013 Edition
Vietnam Chapter

Tony Nguyen Trung Nam / EP Legal
Dang Thi Thu Quyen / EP Legal

1              Overview
1.1        What are the main trends/significant developments in the project finance market in Vietnam?

Project financing in Vietnam in recent years focuses mainly on the energy and real estate sectors.  Real estate and housing development projects used to attract many investors and bankers, however, the real estate market in Vietnam has been in a crisis since the beginning of last year, therefore banks are not interested in pouring money into this sector like they were before.

Foreign banks and foreign bank branches are major lenders to foreign direct investment projects in Vietnam.  However, according to the Law on Credit Institutions, a foreign bank branch and a locally incorporated bank cannot provide a loan to a single borrower exceeding 15 per cent of its own equity.  Given the fact that most foreign banks have relatively small balance sheets in their Vietnamese branches and subsidiaries (despite the capacity of the parent banks), this regulation puts some limits on the capacity of project financing of foreign bank branches in Vietnam.

1.2        What are the most significant project financings that have taken place in Vietnam in recent years?

Some significant project financings in Vietnam:

-          Emirates NBD Bank PJSC Group (United Arabian Emirates) - $200 million package financing tourism, resort and hotel projects of the joint venture between Swiss Attixs Hospitality Group and  Bao Lam Investment and Trading Joint Stock Company in Khanh Hoa province.

-          The Vietnam Development Bank (VDB) will provide credit of VND 2,500 billion for Vietnam Electricity (EVN) to implement Vinh Tan 2 Thermo-Power Plant and Duyen Hai 1 Thermo-Power Plant this year.  As of  31 December 2012, VDB provided VND 36,902 billion in credit for 80 EVN’s power generation and power grid projects.

-          A USD 300 million credit loan contract was signed between Petro Vietnam Exploration Production Corporation (PVEP) and a group of foreign banks in Hanoi on 18 January 2013.  The loan is to fund PVEP’s domestic and international exploration over the next five years.

-          Sumitomo Mitsui Bank Corporation and Citibank provided the Vietnam Development Bank with loans of USD 270 million to carry out phases No.3 and No.8 of the Hanoi-Hai Phong Highway project under the credit insurance of Nippon Export and Investment Insurance (NEXI) of Japan.

-          The Vietnam Bank for Industry and Trade and the Vietnam Electricity Group on Thursday signed a VND 6.2-trillion (about USD 290 million) credit contract to finance Duyen Hai 3 thermal power plant.

-          Leaders of the Ministry of Industry and Trade and Vietnam Oil and Gas Group have signed a pledge on a government guarantee worth VND 4 trillion (about USD 190 million) for developing the basic components of the Nghi Son Oil Refinery project. 

2              Security
2.1        Is it possible to give asset security by means of a general security agreement or is an agreement required in relation to each type of asset? Briefly, what is the procedure?

Depending on the type of assets, one or many types of the following security are available: pledge of property; mortgage of property; performance bond; security deposit; and escrow deposit.

Security agreements must be made in writing.

A pledge of property means the delivery by the pledgor of property under his/her ownership to the pledgee as security for the performance of an obligation.  A pledge of property shall be effective as of the time of delivery of the property to the pledgee.

A mortgage of property means the use of a mortgage as security for the performance of a obligation to the mortgagee without transferring such property to the mortgagee.

A performance bond means a sum of money, precious metals, gemstones or other valuable objects (performance bond property) delivered by one party to another party for a period of time as security for the entering into a contract, or performance of an obligation.

A security deposit means a sum of money, precious metals, gemstones or other valuable objects (security deposit property) delivered by a lessee of moveable property to the lessor for a period of time as security for the return of the leased property.

An escrow deposit means a sum of money, precious metals, gemstones or other valuable papers deposited by an obligor into an escrow account at a bank as security for the performance of an obligation.

Depending on the type of assets and methods of security, there are requirements on notarisation and registration for the security to take effect:

·         A mortgage agreement must be notarised if the security assets are real property (land use rights and assets affixed to land).

·         The security transaction must be registered at the competent registration agency in case of a: mortgage of land use rights and assets affixed to land; pledge or mortgage of an aircraft; and mortgage of a marine ship.

The competent registration agencies are the provincial-level maritime bureau or the seaport authority (if the security asset is a marine ship), the Civil Aviation Administration of Vietnam (if the security asset is an aircraft), the land use rights registry (if the security asset is real property (land use rights)).

Security assets: objects used as security for the performance of a civil obligation may be:

·         existing objects or objects to be formed in the future;

·         money, bonds, shares, promissory notes and other valuable papers; 

·   property rights (copyright and IP rights, rights to recover debts, rights to receive sums insured, capital portions contributed to an enterprise, contractual rights, etc.); or

·         land use rights and rights to exploit natural resources.

2.2        Can security be taken over real property (land), plant, machinery and equipment (e.g. pipeline, whether underground or overground)? Briefly, what is the procedure?

Yes (see question 2.1).

Real property: a mortgage is the most common method for creating a security interest on land use rights and assets affixed to land (plants, houses, etc.).  (Note: Vietnam does not recognise the ownership of land and natural resources but only the right to use the same. See question 7.3.)

Movables: such as machinery and equipment.  A pledge and a mortgage are the most common methods used to create a security interest.

See question 2.1 for procedures.

2.3        Can security be taken over receivables where the chargor is free to collect in the receivables in the absence of a default and the debtors are not notified of the security? Briefly, what is the procedure?

Security can be taken over a receivable under a mortgage (see question 2.1) without requiring consent from the party obliged to pay the debt.  However, to enforce the security, the mortgagee is obliged to provide information about the right to reclaim the debt upon request of the party obliged to pay such debt.

2.4        Can security be taken over cash deposited in bank accounts? Briefly, what is the procedure?

Yes (see question 2.1).

Security can be taken over cash deposited in bank accounts by:

·         Using such deposit to open an escrow account at the bank where the cash is deposited.  The procedures shall be carried out under the instruction of the bank. 

·         By a pledge of a savings deposit card if the account is a saving account, the pledgee shall have the right to demand that the organisation that is the recipient of the savings deposit freeze the savings deposit account of the pledger and the pledge shall be effective as of the time the account is frozen.  A written security agreement between the secured party and the securing party is required.

2.5        Can security be taken over shares in companies incorporated in Vietnam? Are the shares in certificated form? Briefly, what is the procedure?

Yes.  Security can be taken over shares in companies incorporated in Vietnam (see question 2.1).

Shares in companies incorporated in Vietnam are in certificated form and security can be taken over such shares by a pledge or a mortgage.  Shareholders and the number of shares they hold are also recorded in the Shareholders’ Book in joint stock companies or the Members List recorded in Business Registration Certificate in limited liability companies.

Besides the requirement of a written form, there is no requirement of notarisation or registration required for the enforcement of security taken over shares (see question 2.1). However, the secured party should take certain actions/measures to ensure the shares cannot be transferred or be used as a security asset to third parties.

2.6        What are the notarisation, registration, stamp duty and other fees (whether related to property value or otherwise) in relation to security over different types of assets (in particular, shares, real estate, receivables and chattels)?

See question 2.1.

With regard to notarisation, a notarisation fee is required.

With regards to the registration of security transactions (mandatory registrations or voluntary registrations), a registration fee is required.

2.7        Do the filing, notification or registration requirements in relation to security over different types of assets involve a significant amount of time or expense?

Generally, no.

The law regulates that the registries shall process registration dossiers, complete registration of changes or written notices of the handling of security assets, correct errors in secured transaction registrations and deregister secured transactions on the date of receipt of a valid dossier.  If they receive a dossier after 15:00 hours, they shall complete the registration on the subsequent working day.  When necessary to prolong the time limit for processing a registration dossier, the prolonged time limit must not exceed 3 working days.

2.8        Are any regulatory or similar consents required with respect to the creation of security over real property (land), plant, machinery and equipment (e.g. pipeline, whether underground or overground) etc.?

The creation of security over real property (land use rights), plant, machinery and equipment requires consent of the legitimate owner of the assets.  No additional regulatory or similar consents are required.

3              Security Trustee
3.1        Regardless of whether Vietnam recognises the concept of a “trust”, will it recognise the role of a security trustee or agent and allow the security trustee or agent (rather than each lender acting separately) to enforce the security and to apply the proceeds from the security to the claims of all the lenders?

Vietnam does not currently recognise the concept of a security trustee but does largely recognise the right of parties to authorisation.  Therefore, the lenders can authorise the security trustee or security agent by a power of attorney or an authorisation contract in order to enforce the security on behalf of them and apply the proceeds from the security to the claims of lenders.

3.2        If a security trust is not recognised in Vietnam, is an alternative mechanism available (such as a parallel debt or joint and several creditor status) to achieve the effect referred to above which would allow one party (either the security trustee or the facility agent) to enforce claims on behalf of all the lenders so that individual lenders do not need to enforce their security separately?

As mentioned in question 3.1 above, a security trustee can enforce claims on behalf of all lenders by way of authorisation.  Another mechanism is if the facility agent is one of the lenders and therefore may also act for all other lenders to enforce the security of such respective loan if the lenders are joint obligors against the repayment obligation.

4              Enforcement of Security
4.1        Are there any significant restrictions which may impact the timing and value of enforcement, such as (a) a requirement for a public auction or the availability of court blocking procedures to other creditors/the company (or its trustee in bankruptcy/liquidator), or (b) (in respect of regulated assets) regulatory consents?

In the event that the owner of the security asset is under bankruptcy proceedings, handling of the security asset shall be carried out by the liquidating team.

If ownership of the security asset is required to be registered (such as land/land use rights; automobiles; aircraft; and marine ships, etc.), the owner of the asset to be handled/enforced must sign an ownership transfer agreement for the enforcement of the security.  In the absence of such transfer agreement/collaboration from the debtor, the enforcement of the security shall be conducted by court/arbitration proceedings and an enforcement agency.

4.2        Do restrictions apply to foreign investors or creditors in the event of foreclosure on the project and related companies?

Foreign investors or creditors are subject to restrictions as mentioned in question 6.1 below.

5              Bankruptcy Proceedings
5.1        How does a bankruptcy proceeding in respect of the project company affect the ability of a project lender to enforce its rights as a secured party over the security?

As of the date the courts receive applications for the opening of bankruptcy proceedings, the settlement (by the court) of the request to handle/enforce security assets of the project company for secured creditors (except where so permitted by court) for fulfilment of property obligations by the debtor – which fall into the state of bankruptcy – will be suspended.

However, the security (established before the courts receive the applications for opening of bankruptcy procedures) shall be prioritised for repayment by such security assets; if the value of the security assets is not enough for debt repayment, the outstanding debts shall be repaid in the course of asset liquidating phase of the bankruptcy proceeding.

5.2        Are there any preference periods, clawback rights or other preferential creditors’ rights (e.g., tax debts, employees’ claims) with respect to the security?

During the bankruptcy proceedings, the unsecured creditors, the property-managing and liquidating teams have the right to challenge the validity of the mortgage or pledge agreements that have been effected within three months prior to the courts receiving the application for opening bankruptcy proceedings.

See question 5.1 for priority repayment of secured debts with respect to the security.

5.3        Are there any entities that are excluded from bankruptcy proceedings and, if so, what is the applicable legislation?

There are no enterprises, cooperatives or unions of cooperatives, operating according to the provisions of the law, which are excluded from bankruptcy proceedings.

The Law on Bankruptcy and its guiding legal documents will be applied to bankruptcy proceedings.

5.4        Are there any processes other than court proceedings that are available to a creditor to seize the assets of the project company in an enforcement?

If the parties to the security express consent to arbitration, then arbitration proceedings are available to a creditor to seize the assets of the project company in an enforcement. The arbitral award will be filed with the enforcement agency.

The creditor can file an application to open bankruptcy proceedings against the debtor for the unsecured part of the debt if it is due and the debtor fails to settle such unsecured debt.

6              Foreign Investment and Ownership Restrictions
6.1        Are there any restrictions, controls, fees and/or taxes on foreign ownership of a project company?

Restrictions on foreign ownership of a project company are provided in the WTO accession commitment of Vietnam and the corresponding domestic regulations.  Such restrictions are regulated according to the business sector in which the project company operates.

There are no fees or taxes on foreign ownership of a project company.

6.2        Are there any bilateral investment treaties (or other international treaties) that would provide protection from such restrictions?

There are certain BITs/FTAs (such as BIT Vietnam - Japan) that provide preferential treatment with regards to foreign ownership of a project company in certain business sectors.

6.3        What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected?

The Law on Investment provides regulations on nationalisation or expropriation of project  companies and assets under which investment capital and lawful assets of investors shall not be nationalised or confiscated through administrative measures, where it is really necessary for defence, security or national interests.  If the State acquires compulsorily or requisitions assets of an investor, such investor shall get paid or be compensated at the market price at the time of the announcement of the compulsory acquisition or requisition.

7              Government Approvals/Restrictions
7.1        What are the relevant government agencies or departments with authority over projects in the typical project sectors?

In general, the licensing authorities dealing with projects are the provincial Departments of Planning and Investment and Industrial Park Managements.  Depending on each typical project sector, other government agencies that may be involved are the Prime Minister, the State Bank of Vietnam, the provincial People’s Committees, the provincial Departments of Industry and Trade, and the provincial Departments of Natural Resources and Environment.

7.2        Must any of the financing or project documents be registered or filed with any government authority or otherwise comply with legal formalities to be valid or enforceable?

Yes, foreign-invested projects are always subject to registration at the relevant licensing authority in accordance with the applicable procedures.  In addition, middle-term and long-term offshore loans must be registered with the State Bank of Vietnam in order to recognise the loans and make enforceable the drawdown and repayment of loans. Security transactions dealing with assets involving land use rights must be registered with the relevant land use rights registry.  The formalities and application dossiers follow the regulations in force.

7.3        Does ownership of land, natural resources or a pipeline, or undertaking the business of ownership or operation of such assets, require a licence (and if so, can such a licence be held by a foreign entity)?

Vietnam does not recognise the ownership of land and natural resources but only the right to use the same.  In order to be granted such right, one must apply for a licence/certificate at the relevant government authority.

Such licence can also be held by a foreign entity meeting the requirements and application procedures in force.  However, access to land use rights is restricted for foreign investors: they can only lease land with a determined lease term, in accordance with the project life.

7.4        Are there any royalties, restrictions, fees and/or taxes payable on the extraction or export of natural resources?

Yes, the extraction and export of natural resources are subject to the natural resources tax, with different tax rates depending on types and groups of natural resources.  For example, the tax rate for oil exploration is 6-40% of the average daily crude oil exploration capacity.

Exploration for minerals or mining is not allowed unless a licence is obtained first. The restrictions on the extraction and export of natural resources may exist in accordance with particular geographic areas, policies in force, etc.

7.5        Are there any restrictions, controls, fees and/or taxes on foreign currency exchange?

Yes, foreign currency exchange is subject to the control policy provided in the Ordinance on Foreign exchange control of Vietnam and its guiding regulations issued by the State Bank of Vietnam from time-to-time.  One of the restrictions is that all transactions and payments within the territory of Vietnam must not be effected in foreign currency, except for transactions with credit institutions, payments made via intermediaries and in permitted cases.

There are no taxes applied on foreign currency exchange.  Applicable fees are imposed by each particular credit institution.

7.6        Are there any restrictions, controls, fees and/or taxes on the remittance and repatriation of investment returns or loan payments to parties in other jurisdictions?

In principal, there are no restrictions on the remittance of investment returns and loan payments.  These can be effected upon the observation of the registration and compliance requirements and upon the fulfilment of financial and tax obligations with the Vietnamese government.  In particular, the remittance of principal investment capital and profits and the payment of any interest on loans and other lawful revenue to overseas countries must be effected via a registered foreign currency account opened at authorised credit institutions.

7.7        Can project companies establish and maintain onshore foreign currency accounts and/or offshore accounts in other jurisdictions?

Yes, they can open and maintain onshore foreign currency accounts at authorised credit institutions in Vietnam.

Project companies may open offshore accounts in other jurisdictions if they get the permission of the State Bank of Vietnam to do so, giving that they shall have branches or representative offices overseas or they wish to open an offshore account in order to receive loan capital, to fulfill undertakings or to perform contracts with foreign parties.

7.8        Is there any restriction (under corporate law, exchange control, other law or binding governmental practice or binding contract) on the payment of dividends from a project company to its parent company where the parent is incorporated in Vietnam or abroad?

In general, payment of dividends from a project company to its onshore or offshore parent company is not restricted but must fully comply with the regulations in force regarding corporate governance, exchange control (if the parent company is offshore), tax obligations, etc.

The conditions of the payment of dividends under corporate law is that the company must have fulfilled its tax and other financial obligations, established required funds of the company and fully covered the current losses in accordance with regulations of laws and the charter of the company and that after the payment of such dividends, the company is still able to satisfy its debts and other property obligations.

7.9        Are there any material environmental, health and safety laws or regulations that would impact upon a project financing and which governmental authorities administer those laws or regulations?

Yes, depending on each particular project, environmental, health and safety requirements must be met as pre-licensing or post-licensing conditions, which may affect the process of project implementation and thus impact the project financing.

The relevant governmental authorities are the People’s Committees, the Industrial Park Managements, the Departments of Natural Resources and Environment, the Departments of Health, the Police Departments, etc.

7.10      Is there any specific legal/statutory framework for procurement by project companies?

In principle, the procurement by project companies are regulated by agreements between the parties and civil laws.  Specific legal frameworks (e.g. the Bidding Law) may only be applied to projects with 30% or more of its capital sourced from the State’s capital.

8              Foreign Insurance
8.1        Are there any restrictions, controls, fees and/or taxes on insurance policies over project assets provided or guaranteed by foreign insurance companies?

There is no additional restriction in terms of control on insurance policies over project assets provided or guaranteed by foreign insurance companies in comparison to insurance policies over project assets provided or guaranteed by local companies.

Earnings generated from issuing insurance policies over project assets provided or guaranteed by foreign insurance companies (paid by organisations/individuals in Vietnam) are subject to value added tax and foreign contractor withholding tax.

8.2        Are insurance policies over project assets payable to foreign (secured) creditors?

Insurance policies over project assets are payable to foreign (secured) creditors.  However, the insurer issuing  insurance policies to overseas insureds has to obtain proper licence to conduct such business.

9              Foreign Employee Restrictions
9.1        Are there any restrictions on foreign workers, technicians, engineers or executives being employed by a project company?

In companies established under the Vietnamese laws, at least 20% of management positions must be filled by local people, however foreign invested companies in Vietnam can have 3 foreigners in managing positions.

Foreign employees can be employed by a company in Vietnam for positions which cannot be filled by Vietnamese employees.  Generally, such foreign employees must have at least 5 years’ experience or a university degree, a clean criminal record, a health certificate, etc. Generally foreign workers must obtain a work permit to work in Vietnam (some exceptions are allowed, e.g. working for less than 3 months in Vietnam).

10            Equipment Import Restrictions
10.1      Are there any restrictions, controls, fees and/or taxes on importing project equipment or equipment used by construction contractors?

Yes, imported equipment should not be among those in the list of goods of which importing is prohibited or temporarily stopped.  Some equipment is subject to conditional importation under an import licence.  Imported equipment will also be subject to customary procedures and import taxes.

10.2      If so, what import duties are payable and are exceptions available?

Import duties are specific to the item being imported.  Vietnam is a party to a number of international trade/investment agreements (FTAs, BITs, WTO accession commitments, etc.) which provide preferential duty rates.

There are circumstances of tax exemptions, such as equipment temporarily imported for use within a specified period, equipment imported to form fixed assets of encouraged projects, equipment imported for use in petroleum activities (which could not be produced locally), etc.

11            Force Majeure
11.1      Are force majeure exclusions available and enforceable?

Force majeure exclusions are recognised and enforceable in Vietnam.

12            Corrupt Practices
12.1      Are there any rules prohibiting corrupt business practices and bribery (particularly any rules targeting the projects sector)? What are the applicable civil or criminal penalties?

The Anti-corruption Law provides regulations on corruption in both business and non-business practices.

This law applies to: public servants, officers in agencies or units of the People's Army; officers in agencies or units of the People's Police; leading managerial officials in state-owned enterprises; leading managerial officials who are representatives of the state- contributed capital in enterprises; and persons assigned with tasks or official duties.

Penalties include administrative penalties/remedies (fine, confiscation of corruption-related properties, recovery of corruption-related properties), or criminal penalties (imprisonment; death penalty), or both, depending on the degree of the offence.

13            Applicable Law
13.1      What law typically governs project agreements?

Projects implemented in Vietnam are generally governed by Vietnamese laws.  If the project is wholly or partly implemented in another jurisdiction(s), the parties can choose foreign law as the applicable law.

However, please refer to question13.3.

13.2      What law typically governs financing agreements?

Financing agreements for projects located in Vietnam are generally governed by Vietnamese laws.  In practice, where there are foreign parties either English or Singapore law is commonly agreed by the parties as the governing law.

However, please refer to question 13.3.

13.3      What matters are typically governed by domestic law?

The parties of a transaction (including financing agreements and project agreements) involving foreign element(s)* can choose foreign law as the applicable law, except in the following cases:

Transactions established and implemented entirely in Vietnam.
Agreements to implement construction projects having capital or being financed by 30% or more of state budget (not including capital contributed/financed by state-owned companies).
Petroleum contracts to implement or facilitate petroleum activities to which Petrovietnam is a party, etc.
* At least one of the participating parties is a foreign body, organisation or individual, or a Vietnamese residing overseas; the basis for the establishment, alteration or termination of the transaction was the law of a foreign country, or such basis arose in a foreign country; or the assets involved in the transaction are located in a foreign country.

14            Jurisdiction and Waiver of Immunity
14.1      Is a party’s submission to a foreign jurisdiction and waiver of immunity legally binding and enforceable?

Court judgments of a foreign court and foreign arbitral awards may be recognised and enforceable in Vietnam through a recognition and enforcement procedure at a Vietnamese court.

Where a sovereign is acting in a commercial capacity, it will not be entitled to claim immunity.

15            International Arbitration
15.1      Are contractual provisions requiring submission of disputes to international arbitration and arbitral awards recognised by local courts?

Yes, Vietnamese courts recognise contractual provisions requiring the parties to submit their disputes to arbitration.

An international arbitration award can only be enforced if it is recognised by a Vietnamese competent court.  The recognition and enforcement procedures are provided in the Code of Civil Procedures.  There are a number of circumstances where a foreign arbitral award cannot be recognised in Vietnam, one of which is that the recognition and enforcement of the foreign arbitral award is contrary to the fundamental principles of Vietnamese laws.

15.2      Is Vietnam a contracting state to the New York Convention or other prominent dispute resolution conventions?

Vietnam is a contracting state to the New York Convention and the ASEAN Comprehensive on Investment Agreement (ACIA), which includes a chapter on investor-state dispute settlement.

15.3      Are any types of disputes not arbitrable under local law?

All disputes arising from commercial activities* are arbitrable under Vietnamese laws (Law on Commercial Arbitration).

*Commercial activities mean activities for the purpose of generating profit, including: the sale and purchase of goods; provision of services; investment; commercial promotion; and other activities for the purpose profit.

15.4      Are any types of disputes subject to mandatory domestic arbitration proceedings?

No.  Mandatory domestic arbitration is subject to the construction of the arbitration agreement.

16            Change of Law / Political Risk
16.1      Has there been any call for political risk protections such as direct agreements with central government or political risk guarantees?

Risk of a change in the law: commitments of local and central government regarding investment guarantees in the event of changes in law or policies are recorded in the Investment Certificate issued to the project company, the Law on Investment and international treaties to which Vietnam is a party.

There are no other political risk guarantees available.  Vietnam has always experienced a stable political situation. No reports were found concerning calls for political risk protections.

17            Tax
17.1      Are there any requirements to deduct or withhold tax from (a) interest payable on loans made to domestic or foreign lenders or (b) the proceeds of a claim under a guarantee or the proceeds of enforcing security?

Interest payable on loans made to foreign lenders by domestic borrowers is subject to foreign contractor withholding tax.

There are no requirements to deduct or withhold tax from interest payable on loans made to domestic lenders by domestic individuals or on loans made to domestic lenders by foreign borrowers.

The proceeds of a claim under a guarantee or the proceeds of enforcing security shall be treated as and subject to requirements applied to earnings from performance of the obligation(s) under the principal contract.

17.2      What tax incentives or other incentives are provided preferentially to foreign investors or creditors? What taxes apply to foreign investments, loans, mortgages or other security documents, either for the purposes of effectiveness or registration?

There are no tax incentives or other incentives provided preferentially to foreign investors or creditors over domestic ones.  Incentives are provided depending on the type of tax with particular conditions and requirements, project sectors, geographical areas and each particular project.

Vietnam has entered into Double taxation avoidance agreements with 61 countries (8 are not yet in force).

No taxes are applied specifically on foreign investments other than corporate income tax imposed equally to companies regardless of the source of investment.  For taxes imposed on loans, mortgages or other security documents, please refer to question 17.1.

18            Other Matters
18.1      Are there any other material considerations which should be taken into account by either equity investors or lenders when participating in project financings in Vietnam?

Material considerations which should be taken into account:

Necessary approvals for the financing (internal approval, external approval).
Restricted rights of foreign investors over land use as a security asset.
Mandatory registration of security in regards to land use rights.
Registration of offshore loans before any drawdown.
Foreign contractors withholding tax structure.
Applicable law, dispute settlement body and the enforcement of court judgment/arbitral awards in Vietnam.

18.2      Are there any legal impositions to project companies issuing bonds or similar capital market instruments?  Please briefly describe the local legal and regulatory requirements for the issuance of capital market instruments.

Regarding the issuance of bonds, companies must satisfy several conditions, such as: a minimum 20% of the whole project capital remains the owner’s equity; issuance of bonds to the international market must observe the regulations on borrowing and repayments of offshore loans; the company has been operating for at least one year and earned profits in the previous year; and the issuance is properly approved by the relevant authority body of the company, etc.

Regarding the issuance of other capital market instruments, only joint stock companies are allowed to do such.  If securities are issued to the public, companies will have to observe strictly the requirements imposed by the Law on Securities regarding contributed charter capital (VND 10 billion for shares and bonds, VND 50 billion for fund certificates), profits earned in the previous year, plan for utilisation of the proceeds earned, and undertaking from the issuing organisation to discharge obligations to investors, etc.  In addition, the public issuance must be registered with the State Securities Commission in accordance with regulations in force.


This article appeared in the 2013 edition of The International Comparative Legal Guide to: Project Finance; published by Global Legal Group Ltd, London