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The British and Vietnamese Governments signed an Investment Promotion and Protection Agreement (IPPA) in Hanoi on 1 August. The agreement entered into force on the day of signature.

IPPAs are government-to-government treaties of long duration designed to boost investor confidence and to encourage investment flows.  They set high standards of investor protection applicable in international law, and help reassure businesses looking to invest in higher risk markets.

Unlike local laws on foreign investment, which can change as Governments do, IPPAs cannot be changed unilaterally. IPPAs provide a legally binding commitment on the part of signatory governments not to discriminate against each other’s companies operating in each other’s market. Key elements are: 

  • Protection of investments against discrimination in the host country;
  • Compensation in the event of expropriation of assets; 
  • Unrestricted remittance of dividends etc;
  • The option of international arbitration in the event of a dispute between the investor and host state. 

Overseas investment is a vital part of the UK’s economy. The UK was the world’s largest foreign direct investor in 2000 with investments of over £600 billion. Net earnings from foreign direct investment in 2000 totalled £44 billion.  

For a copy of the IPPA text in either English or Vietnamese please contact: Mrs Nguyen Ha Giang, British Embassy: tel: 04 936 0500, email: [email protected].


The Foreign Investment Law was first drafted in late 1980s and finished in 1996. In the second half of 1999, the Ministry of Planning and Investment reviewed the law. A number of changes were approved in May 2000 at the National Assembly Conference.

Voting in joint ventures (Article 14.1)

The most principal matters relating to the organisation and operation of a joint venture enterprise including the appointment and dismissal of the general director and the first deputy general director; amendment of, and addition to, the enterprises charter are to be decided unanimously by the members of the board of management present at the meeting. Parties to a joint venture may agree on other matters in the charter of the joint venture, which would require a unanimous decision. The new Article 14.1 further reduces the issues, which require unanimous decision of the Board of Management.

Conversion and other rearrangements (Article 19a)

A foreign invested enterprise or a BCC party, during its operation, is entitled to change its investment form or divide, separate, consolidate and merge with another enterprise. The Government is to make provisions for the conditions and procedures under which an enterprise may change its investment form or divide, separate, consolidate and merge with another enterprise. The amendment recognises that businesses may restructure and provides a legal basis for restructuring.

Investment protection (Article 21, 21a)

The amended FIL lists specific methods by which the State will restore a partys position if there is adverse changes of law affecting investment projects. Under the old FIL, adverse change of laws protection was limited to law changes that affected matters listed in the projects investment licence. Clause 2 of the new Article 21a provides for new investment incentives to apply to existing investment projects.

Foreign exchange (Article 33)

The amended FIL introduces a major step in reform of foreign exchange legislation by providing that all projects have a right to buy foreign exchange from a commercial bank to meet the requirements of current transactions or other permitted transactions in accordance with legislation on foreign exchange control. The new article also provides two levels of assurance for currency availability, one an assurance of support, the other an assurance to balance currency needs.

Assignment of capital (Article 34)

Regulator approval is no longer required for transfer of capital. However, for joint venture enterprises, the right of first refusal of the non-transferring parties still applies. Whether this will resurrect itself in the implementing decree remains to be seen. Further, transfer of interest in a 100% foreign owned enterprise is no longer subject to the requirement that such interest be first offered to Vietnamese enterprises. This will help foreign investors restructure their investment in Vietnam while remaining 100% foreign owned.

Bank accounts (Article 35)

The previous law placed a restriction on the use of offshore bank accounts. This amendment appears to remove that restriction.

Financial matters

- Loss carried forward (Article 40): The five-year loss carry forward will now officially apply to all forms of foreign invested enterprise and foreign parties to BCCs (but not to foreign branches).

- Mandatory reserve fund and other funds (Article 41): The mandatory reserve fund requirement (5% of profit until 10% of legal capital is accumulated) appears to have been removed (although this may be reintroduced through subordinate legislation).

- Remittance tax (Article 43): Previous rates of withholding tax (5%, 7% and 10%) have now been reduced respectively to 3%, 5%, 7% depending on the level of contributed capital.

- Further incentives to overseas Vietnamese (Article 44): While profits tax applying to overseas Vietnamese remain the same, withholding tax on repatriation of profits is reduced to 3%.

- Land use rights (Article 46): Article 46.2 clarifies that it is the Vietnamese party (when contributing land use right value) or the State (when leasing directly to the project vehicle) that will be responsible for compensation, site clearance and completing procedures to obtain the land use rights. Article 46.3 permits foreign invested enterprises to mortgage the value of land use rights.

- Import duty & VAT exemptions (Article 47):

1. Export and import duties levied on exports and imports of foreign invested enterprises and parties to a BCC shall be applied according to the Law on Export and Import Duties.

2. A foreign invested enterprise and BCC parties are exempt from import duty in respect of:

a Equipment and machinery imported to form fixed assets

b Specialised means of transport being part of the technological production line imported to form fixed assets or means of transport imported to transport workers to and from work

c Components, spare parts, details, appurtenances, appliances, samples or parts associated with the above equipment, machinery and specialised means of transport;

d Materials or raw materials imported to manufacture equipment or machinery being part of the production line or to manufacture components, spare parts, details, appurtenances, appliances, samples or parts associated with the above equipment and machinery;

e Construction materials which are not yet domestically produced. The exemption from import duty referred to above is also applicable to the cases of extending project scale, substituting or renovating technology.

3. Material, raw materials or spare parts, which are, imported for production under a project in the area with difficult socio economic conditions or with specially difficult socio economic conditions are to be exempt from import duty for five (5) years from the first production year.

4. The Government shall stipulate the exemptions from, and deductions of, export and import duties on the goods of other projects where investment needs to be encouraged.

Primarily, this amendment merely elevates to law status that which had been included in various amending decrees published in the last two years. The one significant change is Article 47(3) that provides for a five-year duty free right in respect of production materials for certain projects. A proposed exemption from VAT was deleted from the final version.

Termination (Article 52)

Termination provisions have been varied to allow the parties to agree reasons for termination and to remove the right of a party to unilaterally seek MPI approval to terminate a project.

Liquidation (Article 53

Article 53 clarifies the operation of the Bankruptcy Law when liquidating a project. The amended FIL also states that where the Vietnamese party has contributed land use rights value as its legal capital contribution, the remaining value is to be considered as an asset on liquidation.

Approval process (Articles 55, 59 and 60)

Article 55: The amended FIL introduces the process of investment registration, instead of approval, for certain projects.

Article 59: This article is simplified to provide for the government to follow up with specific application requirements. This will enable the introduction of simplified procedures for those projects required to be registered as opposed to approved.

Article 60: The registration process should see a licence issued within 30 days, as opposed to 45 days for the approval process.

Reward (Article 63)

A second paragraph has been added to Article 63 to provide for reward for contribution to national construction and development.

Inspections (Article 64)

The amended FIL provides for financial inspections only once per year unless there is evidence of breach of law. Minutes of inspection are to be provided.

Implications of the change

This is intended to reduce bureaucratic interference in the operations of a business and reduce the potential for corruption. This is another amendment in the "wait and see" basket.

State obligations (Article 66)

The amended FIL provides for the Government to sign agreements or contracts with foreign investors or take measures of investment guarantee or security.

(For further information please contact law firms Freshfiled or Freehills)