A look at Vietnam's legal system

Since Vietnam’s independence on September 30, 1945, the country has developed a socialist legal system based on the civil law system, with some major modifications from Marxist-Leninist ideology. The current legal system of Vietnam has the following characteristics:

• Legislation is the most important source of law;

• Courts are subordinate to the legislature and must make decisions based on legislation; and

• Policies are set out by the Communist Party, the only political party in Vietnam, which can lead to changes in legislation in the future.

Legislation & Legal Validity

In 2015, in an effort to reorganise the legislation of Vietnam, the National Assembly passed Law No. 80/2015/QH13 on the promulgation of legal documents, which came into effect in July 2016 (Law 80).

Law 80 contains regulations about the types of legal documents and law-making process, which consist of many types of legal documents, with differences in legal validity.

Article 4 of Law 80 specifies and categorises legal documents into 15 levels of validity of which the constitution has the highest level of validity.

The list below, from higher to lower legal validity, sets out some commonly encountered legal documents in Vietnam’s legal system. 1. The constitution; 2. Code, law and resolution of the National Assembly; 3. Ordinance and resolution of the Standing Committee of the National Assembly; 4. Order and decision of the president; 5. Decree of the government; 6. Decision of the prime minister; 7. Resolution of the Judge Council of the Supreme Court; 8. Circular of: ministers/heads of ministerial agencies; the chief justice of the Supreme Court; the chief procurator of the Supreme Procuracy; 9. Resolution of the People’s Councils of provinces; and 10. Decision of People’s Committees of provinces.

International Treaties

International treaties play an important role in the development of the legal system of Vietnam, acting as another source of law. An international treaty becomes a source of law after being ratified by the National Assembly. Several legal documents are issued to interpret the treaty’s regulations into domestic law and to replace prevailing regulations, which are contradicted by the ratified treaty. Lastly, lower authorities of the government system will base their decisions on both the ratified treaty and the newly issued legal documents for implementation.

Legal Environment

The Communist Party of Vietnam and state are making great efforts to improve the legal environment, developing the rule of law, especially for business, to turn Vietnam into an attractive investment destination. Continuous legal reform is being made to liberalise the business environment, and equally important is the restructuring of the economy to improve growth, productivity and competitiveness.

Domestic Legislation

January 1, 2017, is a notable date with the new Civil Code 2015 (Civil Code) taking effect. This Civil Code is expected to serve as the foundation for all other laws governing civil and business relationships, to enhance consistency in the legal system of Vietnam and protect civil rights of entities in a better manner.

For example, the Civil Code clearly states that all regulations of other laws must not contradict other regulations of the Civil Code.

In case of contradiction, the regulations of the Civil Code shall prevail. These types of regulation did not exist in the old Civil Code of 2005.

In addition, for the first time, the Civil Code states that courts in Vietnam shall not deny solving civil issues, because there are no existing regulations governing such issues. The Civil Code also allows courts to make decisions based on certain court precedents issued by the Supreme Court or based on the principle of fairness when there are no regulations, Customs or analogous laws that can be applied to solve the legal issue.

Another significant law, the Amended and Supplemented Law on Investment, came into effect on January 1, 2017. The number of conditional businesses for investment has been reduced from 267 to 243. This law shows the efforts of the state to remove legal barriers and encourage private sector investment in Vietnam. In 2017, as stated in Resolution 22/2016/ QH14, which was issued on July 29, 2016, the National Assembly plans to pass a new law to support the nation’s small and medium-sized enterprises. This law is expected to serve as a legal framework to encourage entrepreneurship.

Free Trade Agreements

Vietnam has committed to several free trade agreements (FTAs), which attract investors and boost international economic integration. In addition to participation in the World Trade Organisation (WTO) and the ASEAN Economic Community, Vietnam is a signatory to 12 FTAs with various countries. 10 FTAs are in effect:

• Six multilateral FTAs (Vietnam with ASEAN, ASEAN-China, ASEAN-Korea, ASEAN-Japan, ASEAN-India and ASEAN-Australia-New Zealand);

• Four bilateral trade agreements (Vietnam-Japan Economic Partnership Agreement, Vietnam-Chile Bilateral FTA, Vietnam-Korea FTA and Vietnam-Eurasian Economic Union FTA); The following 2 FTAs have been concluded:

• Vietnam-EU FTA; and

• Trans-Pacific Partnership. Vietnam officially joined the WTO on November 7, 2006, and put its commitments into force from January 11, 2007. The accession of Vietnam to the WTO has had a positive impact on the country’s market and economy, including:

• The considerable reduction of import duties on goods for domestic production as well as for private and government consumption; and

• The liberalisation of Vietnam’s services market.

The services subsectors which used to be closed or restricted to foreign investment, such as distribution, transport, telecommunications and finance, are now largely liberalised.

Corporate Law

Under Vietnam’s Law on Enterprises 2014 (LOE), a foreign investor must first apply for an investment registration certificate (IRC), and second, apply for an enterprise registration certificate (ERC) to establish a company. The LOE came into force on July 1, 2015, and regulates the establishment, organisation, restructuring, management and dissolution of enterprises in Vietnam. COMMON FORMS OF ENTERPRISE FOR FOREIGN INVESTMENTS: Limited liability company (LLC): An LLC is a legal entity established by a minimum of one member and a maximum of 50 members. Owners of an LLC are liable for the LLC’s debt and financial obligations only to the extent of the capital contributions made into the company.

An LLC mobilises its capital from capital contributions made by its owners, and it cannot issue shares. An LLC may be represented by one or a number of legal representatives.

A single-member LLC (SLLC) is a type of LLC which has only one owner. The owner can be an individual or an organisation and has unlimited authority to decide the structure and operation of the company.

The management structure of an SLLC depends on whether the owner is an individual or an organisation. If the owner of the SLLC is an individual, the structure of the company consists of a chairman and a director (or general director).

The chairman is the owner, who has unlimited power to manage the company, while the director manages daily operations of the SLLC. The chairman can also be the director or hire another individual as the director of the SLLC.

If the owner is an organisation, there are two structures to choose from. The first structure includes a chairman and a director (or general director) and a controller.

The chairman is an individual appointed by the owner and has the power to perform all rights and obligations on behalf of the owner, except for those rights and obligations allocated to the director of the SLLC. The director, appointed by the chairman, manages the daily operations of the SLLC. If the chairman manages the SLLC directly, he or she can appoint himself or herself to be the director. Otherwise, the chairman can hire another person and appoint such a person to be the director of the SLLC.

The maximum length of service of a director is five years. When the director’s tenure ends, the director can be reappointed. Rights and obligations of the director are determined by the charter of the SLLC as well as the LOE.

A controller is a person appointed by the owner. The owner decides the number of controllers. The controller has the legal right to access all documents and materials of the SLLC for inspection purposes and reports directly to the owner. Five years is the maximum length of service of a controller.

The organisational owner can choose the second structure, consisting of a members’ council, a director (or general director) and a controller. The difference between this structure and the first is the members’ council.

A members’ council is a group of people, consisting of three to seven members, appointed by the owner to act and make decisions on behalf of the owner. Five years is the maximum length of service of each member of the council. The members’ council has a chairman, who is appointed by the owner or elected by the members’ council.

A multi-member LLC (MLLC) is a type of LLC with 2-50 members. The structure of the company consists of a members’ council, the chairman of the members’ council, a director (or director general) and an internal control committee. The internal control committee is optional if the MLLC’s members’ council has less than 11 members.

Owners of the MLLC form the members’ council that has the power to make decisions relating to all rights and obligations of the MLLC. The chairman of the members’ council is elected from the council. The chairman may concurrently be the director. Joint stock company (JSC): A JSC is a limited liability legal entity established by a minimum of three shareholders. There is no limit on the number of shareholders; this is the first main difference between an LLC and an JSC. If, after its establishment, a JSC has less than three shareholders due to share transfers, it must be converted into an LLC.

Under the laws of Vietnam, a JSC is the only form of business which can issue shares. Thus, a JSC can mobilise capital by the issuance and sales of shares. Another difference between an LLC and a JSC is that the share transfer procedure for a shareholder of a JSC is simpler than that of a member of an LLC. The governance of a JSC includes a general meeting of shareholders, a board of directors, the chairman of the board of directors, a director (or director general) and an internal control committee. The internal control committee is optional if the JSC has less than 11 shareholders.

In accordance with the current LOE, the general meeting of shareholders can be held when it is attended by a number of shareholders representing at least 51% of the total votes of the company. This percentage was decreased from 65% as provided under the previous LOE. In addition, the current LOE also has provisions of independent members of board of directors (standards, conditions, terms of independent members, etc.) who are not involved in the JSC’s direct management. The current LOE liquidates the regulations wherein the general meeting of shareholders directly elects chairman of the board of directors, and the general director of the enterprise cannot be a general director of another enterprise. Partnership: Under the LOE, a partnership is a special legal entity. A partnership can have two types of partners, including a general partner and limited partner. General partners must be individuals, not organisations, and have unlimited liability over any debt and financial issues of the partnership. Limited partners can be organisations and have limited liability to the extent of their capital contributions contributed into the partnership.

The partnership must have at least two general partners. Without prior consent from all other general partners, a general partner is prohibited to be the owner of another sole proprietorship or a general partner of another partnership.

Other Forms Of Foreign Investment

LLCs, JSCs and partnerships are three types of enterprises that foreign investors can establish and participate in. However, under the laws of the country, foreign investors can also participate in Vietnam under other forms including branch, representative office (RO), business cooperation contract (BCC) and public-private partnership (PPP) contracts. Branch of a foreign company: A branch of a foreign enterprise is permitted to be established only in a few business areas that Vietnam has committed to under an international trade treaty. A branch’s scope of business is limited to the scope of business of the foreign enterprise.

Ro

An RO is a dependent unit and cannot conduct commercial activities which generate income. The RO can be established for purposes of acting mainly as the contact point of the foreign enterprise in Vietnam and conducting market research. Thus, the RO can provide a range of ancillary support to a head office overseas.

Bcc

A BCC forms a cooperation agreement between a foreign investor and domestic investor. After signing, the BCC will be registered with a business registration authority of Vietnam. PPP contracts: A PPP is a type of investment carried out based on a contract between governmental authorities and project enterprises for infrastructure projects and public services.

Changes Under The Loe

In comparison with the previous LOE, the current LOE has introduced some changes to simplify enterprise registration procedures. For example, the LOE shortens the duration of the procedure to register an ERC from five to three business days. When there is a change in an enterprise’s business line, the enterprise now only needs to inform the business registration agencies instead of submitting an ERC amendment application and waiting for a new ERC.

Furthermore, an enterprise can have more than one legal representative and more than one company seal. The number of legal representatives and seals must be written in the charter of the enterprise. Before officially using a new company seal, the enterprise needs to announce a sample of the new seal on the National Business Registration Portal of Vietnam by sending the sample to the business registration authority and paying a fee.

Another significant change of the new LOE is the simplification of enterprise reorganisation procedures. In the past, reorganisation procedures, such as mergers, acquisitions, and separation and division of enterprises were required to be done among enterprises with the same form. However, under Chapter IX of the LOE, such conditions were removed. Reorganisation can now be performed between enterprises with different forms.

Labour Law

In 2016 the government promulgated two important regulations guiding the Law on Labour 2012 (LOL) related to foreign workers, including Decree 11/2016/ND-CP implementing some articles of the LOL regarding foreign labour in Vietnam (Decree 11) and Circular 40/2016/TT-BLDTBXH guiding Decree 11 (Circular 40). This section will focus on introducing some notable points of these regulations. Subjects of the work permit: apply for a work permit from the labour authorities to legally work in Vietnam. In case of violation, not only does the foreign worker face deportation ordered by the Vietnamese government, but also the employer who employs the foreign worker will be punished under the laws.

In accordance with the LOL, domestic contractors, enterprises, organisations and individuals can only recruit foreigners working as managers, CEOs, experts and technical labour for which Vietnamese workers do not qualify. There are two important requirements under this regulation:

• Only a manager, executive, expert or technical labourer can be granted work permission. This requirement aims at preventing unemployment of Vietnamese unskilled workers and attracting only foreign workers with skills to develop the economy of Vietnam. Strikingly, by introducing such a difference with these applicable regulations, the definition of “foreign expert” is expanded to recognise practical experience of a foreign worker. A foreign worker who has an expert certificate from a foreign enterprise or organisation are recognised as experts regardless of their academic degrees.

Progress has been made compared with Decree 102/2013/ND-CP, in which the legislators required experts without academic degrees to be recognised by the foreign state. Now, with confirmation from legitimate organisations or enterprises, the foreigner worker may be granted a work permit; and

• Foreigners can be employed for positions which Vietnamese workers cannot satisfy. For instance, although Samsung is a high-tech company, from a legal perspective it can only hire foreign workers for some important positions to create jobs for domestic citizens. Before foreign workers immigrate to Vietnam, employers must submit an explanation for the demand of foreign workers to the Provincial People’s Committee. Nevertheless, there are certain cases in which foreign workers are exempted from the work permit requirement. If a work permit is not required, the employer must apply for a written confirmation from the competent labour authorities for such employee. This written confirmation will be used to prove that the employee can enter Vietnam for work purposes. In general, this provision is quite detailed and complicated, as it involves a list of many cases. The following cases of work permit exemption are popular and deserve attention:

• First, foreigner workers who work in Vietnam, in case of intra-company transfers in connection with the 11 service areas specified in Vietnam’s WTO commitments, are exempted from work permits.

For example, a tax expert of Deloitte USA can be reassigned to Deloitte Vietnam without the need to apply for a work permit; and

• Second, workers entering Vietnam to hold the positions of experts, managers, CEOs or technicians for a duration less than 30 days each time and less than 90 days of the year. Procedure for work permit issuance: To obtain a work permit, the employer must apply on behalf of the employee at the labour authorities in compliance with the laws of Vietnam.

Employers should build up an effective plan to complete legal procedures before foreign workers immigrate to Vietnam. In general, the recommended timeframe is two months before the expected working date. The employee and the employer will be able to prepare dossiers for the necessary procedures, because there may be delays due to changing requirements during the application process. The maximum effective term of a work permit is two years. Movement of foreign workers in different provinces: Before Circular 40 came into effect, foreigners were required to apply for a new work permit in case of moving to another province that was different from where the prevailing work permit was issued. This requirement was rather time-consuming and inconvenient, especially for foreign workers employed at large companies with a commercial network spanning all of Vietnam. To address this shortcoming, Circular 40 stipulates that a foreign worker with a valid work permit only needs to give written notification to the labour authority of the province where he or she moves to.

However, it is important to note that the foreigner must work at the same job position that he was granted the work permit for, regardless of such move. If, for example, a technical expert in Hanoi office is assigned to the Ho Chi Minh City office for the position of an executive manager, he is obligated to apply for a new work permit at the Ho Chi Minh City’s labour authority.

Law On Investment

Foreign investors play an increasingly important role in the development of the economy of Vietnam. Pursuing the objective to attract foreign investment, Vietnam’s law makers have set out a number of innovative investment regulations to prepare for upcoming opportunities from the ASEAN Economic Community and a series of newly negotiated FTAs.

At the centre of the legal framework for attracting investment, the Law on Investment (LOI) receives the most focus. In 2014 a new LOI with breakthrough changes aimed at improving the investment environment was passed.

In 2016 Vietnam took further action to remove legal barriers for business by revising the LOI. On November 12, 2015, the government issued Decree 118/2015/ND-CP guiding the implementation of the Law on Enterprises 2014 (Decree 118). Clarification of new concepts and scope: Many problems in implementing investment-related regulations before the LOI were the results of authorities misunderstanding legal concepts or the lack of key definitions in legislation. This led to the issue of different licensing authorities interpreting the law differently, and various aspects of the investment registration procedure became unpredictable. Therefore, clarifying key legal concepts was a notable objective of the LOI.

The concepts of “foreign investor” and “foreign-invested economic organisation” are clearly distinguished. Under the LOI, a foreign investor is a foreign individual holding foreign nationality, or an organisation established under the laws of a foreign country, conducting a business investment in Vietnam, while a foreign-invested economic organisation is a business organisation established under the laws of Vietnam whose members or shareholders consist of a foreign investor. Given these concepts, a foreign-invested economic organisation will no longer be confused with a foreign investor, and will not be required to comply with the same investment procedures applicable to foreign investors as was the practice in the past. Expansion of the freedom of business: In recent years eliminating criminalisation of business activities has been a priority of Vietnam to protect private investors. The principle that investors are entitled to carry out investments in business areas which are not prohibited by the government is now reconfirmed under the LOI. Freedom to do business can be seen from amendments to the regulations of the LOI on prohibited and conditional businesses.

Regarding prohibited business areas, the LOI adopts a “negative list” approach, meaning that investors are allowed to operate in all areas except for seven areas prescribed in Article 6 of the LOI, consisting of these business lines:

• Narcotic substances;

• Chemicals and minerals;

• Specimens of wild flora and fauna; specimens of rare and/or endangered species of wild fauna and flora;

• Prostitution;

• Human trafficking; human tissues and body parts;

• Business pertaining to human cloning; and

• Firecrackers. Regarding conditional business lines, the LOI set a decisive principle that every conditional business in Vietnam must be clearly stated in Annex 4 of the LOI, and business requirements for a conditional business can only be provided by laws, ordinances, decrees and international treaties to which Vietnam is a contracting party. Ministries and other state bodies at lower levels of Vietnam now have no right to set new business conditions in legal documents issued by them. There are 243 conditional business lines regulated in Article 7 and Annex 4 attached to LOI. When the LOI was passed, Annex 4 consisted of 267 business areas.

However, after a year of implementation, several business lines in the list turned out to be overlapping. As a result, in 2016 the National Assembly of Vietnam passed an amendment to the LOI to reduce the number of conditional business to 243. Investment forms: Investment forms are regulated in Articles 22-29 of the LOI and elaborated in Articles 44-46 of Decree 118. A foreign investor may choose one of the following investment forms:

• Establishing a foreign-invested company (joint-venture companies, 100% foreign companies);

• Contributing capital to or acquiring shares from enterprises; or

• Executing a PPP or BCC. Under Article 22 of the LOI, foreign investors can own an unlimited percentage of shares in an enterprise established in Vietnam, except shares in:

• Listed companies, public companies, securities-trading organisations and securities investment funds; and

• State-owned companies being equitised or privatised under other forms. Under Article 25 of the LOI, foreign investors can contribute capital or acquire shares in enterprises under the forms of JSCs, LLCs and partnerships.

Investments under PPP contracts are provided under Article 27 of the LOI. Under this investment form, investors and project management companies sign PPP contracts with competent authorities of Vietnam to execute an investment project to build new infrastructure works, to improve, upgrade, expand, manage and operate infrastructure works, or to provide public services.

Decree 15/2015/ND-CP on investment in the form of PPP of the government details PPP contract forms, such as build-operate-transfer, build-transfer-operate, build-transfer, build-own-operate, build-transfer-lease, build-lease-transfer, and operation and maintenance contracts, to encourage investment in public sector areas. Simplifying investment procedures: As competition for foreign-invested capital into developing countries becomes more intense, Vietnam cannot turn a blind eye to the common request of foreign investors for the simplification of investment procedures. Solving this issue is indeed necessary. The new LOI shortens the time to issue certification.

The LOI does not distinguish between an investment project of a Vietnamese investor and that of a foreign investor. The law classifies projects into two categories: a decision on investment policies project and those not subject to issuance of a decision on investment policies project. It also provides detailed guiding procedures for each project type, and application forms are regulated in Circular 16/2015/ TT-BKHDT. Article 36 of the LOI regulates cases in which an IRC is not required, as follows:

• Investment projects of Vietnamese investors;

• Investment of business organisations made by contributing capital, buying shares or buying capital contributions; and

• Investment projects of foreign-invested economic organisations to establish business organisations; made by contributing capital, buying shares, buying capital contribution of business organisations; making investments under a BCC except in the following cases: 11.

Having foreign investors holding 51% of the charter capital or more, or the majority of the general partners of the partnership are foreigners;

12.

Having business organisations which have foreign investors holding 51% of the charter capital or more, or the majority of the general partners of the partnership are foreigners holding 51% of the charter capital or more; and 13.

Having foreign investors and business organisations which have foreign investors holding 51% of the charter capital or more, or the majority of the general partners of the partnership are foreigners holding 51% of the charter capital or more. According to Article 37 of the LOI, application times for the IRC have been shortened for:

• Projects which are subject to the issuance of a decision on investment policies shall receive the IRC within five business days from the day of receipt of the decision on investment policies; and

• Projects which are not subject to an issuance of a decision on investment policies, shall receive the IRC within 15 days from the date on which competent authorities receives sufficient documents. In the case of adjusting the IRC, under Article 40 of the LOI, within 10 working days from the day on which the competent investment registry authority receives sufficient documents, the authority shall issue the amended IRC. Furthermore, the Department of Planning and Investment of each city has its own Investment Promotion Agency to facilitate all foreign investment, and a website guides investment registration procedures. Overall, registering investments is becoming easier for all investors, including foreign investors.

Regulations On Equitisation

After setbacks and slow progress in the past few years, equitisation is back at the top of the government’s agenda, with the goal of continuing to equitise state-owned enterprises (SOEs).

The year 2017 comes with many important policies and regulations influencing the equitisation process of SOEs in Vietnam. As of October 2016, 718 SOEs had remained in operation. Resolution 05-NQ/TW, Centre Committee, Communist Party of Vietnam: On November 11, 2016 Resolution 05-NQ/TW (Resolution 05) was issued outlining several major policies for further improvements in the growth model and quality, labour productivity and competitiveness of Vietnam’s economy. Resolution 05 is an important document to start with, as it sets out goals with a vision until 2020 for the new government of Vietnam. The resolution’s major policies will amend the laws of Vietnam in upcoming years.

According to Resolution 05, the equitisation process in previous years was not as successful as expected. Of those SOEs equitised during this period, only 8% of state capital was equitised. The state still holds a majority of shares in them, and thus, no significant changes in management have occurred in those enterprises.

Resolution 05 has enumerated the following government directions for the equitisation process:

• Continue to equitise SOEs, focusing on large stateowned corporations; determine the scope of equitised enterprises based on business sectors; and increase the speed of the equitisation process;

• Facilitate the equitisation process with transparency and under market mechanisms;

• Increase inspection and supervision to avoid losses of state capital and assets;

• Develop a mechanism to control merger and asset funds;

• Ensure that any equitised SOE is listed on a stock exchange within a year from its initial public offering;

• Attract strategic investors with sound capability; and

• Raise the percentage of equitised shares in each SOE to a level leading to a significant change in management. Decision 58/2016/QD-TTg of the prime minister of Vietnam: Decision 58/2016/QD-TTg, dated December 28, 2016, on the criteria for classification of SOEs is another recent significant legal document in relation to equitisation regulations of Vietnam.

Decision 58 came into effect on February 15, 2017. Decision 58 has three annexes, which provide valuable information on those SOEs to be equitised during the 2016-20 period.

Annex 1 provides information on the threshold of state ownership in different business sectors:

• Some of the listed sectors where SOEs will not be equitised include national defence and security-related sectors, manufacturing and trading of industrial explosions, lottery, public post, marine safety, air traffic services, currency printing and traffic infrastructure management;

• Some of the listed sectors which will not be equitised by more than 35% include airport management and exploration, banking, oil exploration, large-scale mining and navigation information services; and

• Some of the listed sectors which will not be equitised by more than 50% include basic chemicals manufacturing, aviation transportation, rice wholesaling, oil and fuel importing, tobacco, telecommunication services with infrastructure and electricity retailing. In annexes 2 and 3, there are lists specifying the names of SOEs that will:

• Not be equitised (103 SOEs);

• Be equitised by less than 35% (four SOEs);

• Be equitised by less than 50% (27 SOEs); and

• Be equitised by more than 50% (106 SOEs). Decision 929/QD-TTg, dated July 17, 2012, of the prime minister of Vietnam: Decision 929/QD-TTg (Decision 929) on the approval of the scheme of “restructuring of SOEs with a focus on large state-owned corporations, for the period of 2011-15” is another notable legal document in relation to the equitisation process of Vietnam.

This decision is a management document issued by the government, which sets out goals and objectives for various ministries in carrying out the equitisation process during the 2011-15 period.

At the end of 2016 the government of Vietnam reviewed the performance of its equitisation process during the implementation of this decision. Following this review, a new decision set out a new scheme for the 2016-20 period, replacing Decision 929. This new decision was delivered to the prime minister of Vietnam for approval.

When the new decision is published, the public will have more information on the action plans of the government for the equitisation process until 2020. More importantly, from these action plans, investors can learn more about the upcoming plans of the various ministries responsible for drafting and revising legal documents. The draft decree on conversion of SOEs into JSCs: At present the Ministry of Finance is drafting a decree on conversion of SOEs into JSCs (Draft Decree), replacing Decree 59/2011/ND-CP (Decree 59) which currently governs the same issue. This draft decree is an essential legal document concerning the country’s equitisation process.

After years of implementation, Decree 59 has shown its limitations in practice. Recent changes to the law on investment, law on enterprises, and law on the management and utilisation of state capital invested in business and manufacturing activities in SOEs made many regulations of Decree 59 inappropriate. Therefore, the new draft decree will be enacted in order to encourage further progress in the equitisation process.

Some key provisions of the draft decree, which may affect investors, are as follows:

• Strategic investors will be bound by regulatory, compensatory responsibilities, if there is any violation of investment commitments. The term of share transfer restriction for strategic investors will be reduced to three years. Offerings to strategic investors will only be permitted after public auction (negotiation with strategic investors before public auction is no longer allowed);

• Requirements for selecting valuation consulting firms will be detailed. Foreign valuation consulting firms can participate in the valuation process of Vietnamese SOEs; and

• A minimum of 10% of shares in the equitised SOE must be offered to the public through a public auction. Book-building will be added as a new offering method, and an SOE must submit its plan on the use of land to competent authorities and obtain approval from such authorities before initiating the valuation process.