Linklaters Insights: Vietnam year in review 2019 and year to come 2020

One of the key changes is the clarification of the entities that are subject to the mandatory requirement of opening and using direct investment capital accounts (DICA). In particular, the vague definition of foreign direct investment (FDI) enterprises is now clarified to include (i) newly foreign invested companies, which must obtain an investment registration certificate for incorporation; (ii) those not falling into the first category but having foreign investors holding 51% or more of the charter capital resulting from capital contribution, share purchase, demerger, division, merger, consolidation; and (iii) enterprises incorporated by foreign investors to implement public-private partnership (PPP) projects. In addition, foreign investors participating in a business cooperation contract or directly implementing unincorporated PPP projects are also required to open and use DICAs.

The transfer price in a transaction involving only non-residents can be denominated and paid in a foreign currency, whereas the transfer price in a transaction involving only residents or between non-residents and residents must be denominated and paid in Vietnamese dong. In the case of FDI enterprises, payment of the transfer price between non-residents or between residents is not required to be made into a DICA, whereas payment of the transfer price in a transaction between non-residents and residents must be made via a DICA. In the case of transferring a business cooperation contract or PPP projects, payment of the transfer price between non-residents and between non-residents and residents must be done through a DICA, and only payment between residents is not required to be made via a DICA.

New guidelines for wind power projects

The Ministry of Industry and Trade (the MOIT) issued a circular introducing a new PPA template and providing detailed guidance for wind power projects development, with effect from 28 February 2019. The new PPA generally adopts a more buyer-friendly approach (ie more favourable to the national utility, EVN) than the previous one.

Compared with the previous regulation, this new circular also introduces a number of important changes to the development of wind power projects, including more stringent requirements in several respects, eg:

new definitions of offshore and onshore wind turbines. Classification depends on whether the centre of the turbine foundation is located inside or outside the sea water's line, which is the average of all the lowest tide values over 18.6 years, as set out under the Government's Decree 40/2016/ND-CP;
detailed steps to include a wind power project in the power master plan, with further requirements and stricter conditions. The proposal for adding a new project into the power master plan must be submitted by the local People's Committee to the MOIT. The inclusion of a new project in the power master plan will need to comply with the provisions of the new Law on Planning. There is currently significant delay in getting new wind power projects included in the master plan, due to a range of ambiguities arising under the new Law on Planning;
new requirements for contents of the feasibility study (FS). A signed grid connection agreement is no longer a requirement for construction commencement. However, a grid connection plan must be included in the FS; and
the area of land used for a wind power project needing to correspond to the capacity and scale of the project. The permanent land use ratio cannot exceed 0.35ha/MW and the temporary land use ratio of 0.3ha/MW.

Year to come 2020

Proposed amendments to Law on Enterprises and Law on Investment

Proposed changes to the Law on Enterprises and Law on Investment are scheduled to be passed in 2020.

The key changes proposed in the latest draft of the Law on Investment include (i) that while an investment registration certificate (IRC) for outbound investment by Vietnamese investors is still required, the circumstances under which the Vietnamese investors have to amend/update such an IRC are limited; (ii) clarification that investment in a public company will be subject to the Law on Securities; and (iii) removal of the requirement for an IRC for foreign investors' establishing innovative small or medium-sized start-up enterprises in accordance with the law.

Based on the latest draft of Law on Enterprises, the amendments are aimed at resolving many unclear legal issues in the current law. Several major changes include (i) removal of the requirement to hold a number of shares within six consecutive months in order to exercise certain shareholder rights (eg nomination of board members); and (ii) inclusion of new criteria for becoming a CEO of a public company in Vietnam (including that a CEO of a public company cannot be a family member of any board member of such public company).

Draft Public-Private Partnership Law

The Government has recently submitted to the National Assembly for comment a draft Public-Private Partnership (PPP) Law, which has attracted much debate both in relation to the positive and negative changes affecting investors.

Importantly, most of the key incentives and protections in the existing regulations for foreign investment in build-operate-transfer/PPP projects remain in the draft law. However, the draft law does raise some issues that may affect the attractiveness of the Vietnamese market to foreign investors, and the appetite of foreign lenders.

The key issues include (i) compulsory requirements for use of local contractors/sub-contractors and local suppliers; (ii) a requirement for financing to be completed within 12 months or a maximum of 18 months for large projects, and the project contract only taking effect upon financial close; (iii) application of regulations on management and use of public investment; (iv) compensation for expropriation and requisition in accordance with Vietnamese law, which does not follow international practice; and (v) a requirement for Vietnamese law to be the governing law of the project contract.

In addition, the draft PPP Law also introduces a risk-sharing mechanism under which any upside or downside in terms of revenue compared with the revenue committed in the project contract shall be shared between the Government and the investors in certain cases (where, even after certain adjustments are made to the price or charge of the product or service or to the PPP contract term – the actual revenue still exceeds or falls short of the committed amount in the project contract).

The draft PPP Law is scheduled to be tabled for approval at the next National Assembly session in 2020. When passed, this will be the first PPP Law of Vietnam.

Draft amended Labour Code

The long-awaited revised Labour Code was passed on 20 November 2019 and will take effect from 1 January 2021.

The key changes include (i) employees having, for the first time, the right to establish and join an organisation, other than a trade union, to represent and protect their rights; (ii) expansion of the right of employees to unilaterally terminate their labour contracts without cause by providing prior notice, to capture not only labour contracts with an indefinite term (as in the current Labour Code) but also labour contracts with a definite term; and (iii) expansion of the scope of circumstances in which an employer is permitted to unilaterally terminate a labour contract.

Other major amendments are that (iv) the cap of overtime per month is increased from 30 hours to 40 hours, and the permitted scenarios in which the 300-hour cap of overtime per year applies is expanded; (v) the retirement age will be gradually increased to 62 for male employees, and 60 for female employees, from 1 January 2021; and (vi) any employer having fewer than 10 employees will be also required to establish internal labour regulations but, unlike employers having more than 10 employees, such internal labour regulations are not required to be registered with the labour authority to be effective.

Draft implementing decree on cybersecurity

After the Cybersecurity Law came into effect on 1 January 2019, the Government continued its quest to put together detailed regulations for its implementation. However, progress so far has been sluggish.

The first revision of the decree on this subject has been debated for nearly a year and its issuance may well be delayed until 2020. Among the provisions awaiting guidance, the business community is paying special attention to a data localisation requirement applicable to domestic and foreign service providers in cyberspace.

Several drafts published to date suggest a service provider will need to store data and open a representative office or branch in Vietnam if it provides certain 'cyber services' to Vietnamese users, collects and processes users' personal and other information, and commits a violation of cybersecurity law to be specified in the decree. There will likely be a grace period of six months or a year to comply with any data localisation request from the authority.

Proposed new premium feed-in tariff for solar power projects

The premium premium feed-in tariff (FiT) rate of 9.35 US cents/kWh for solar power projects expired on 30 June 2019 (except for Ninh Thuan) .

The Government has yet to approve a new FiT policy applicable to solar power projects coming into operation from 1 July 2019. According to the latest available information, there will likely be a fixed FiT applied to rooftop projects, but the Government has indicated that the FiT rate for other types of solar power projects will only be applied to those projects that already have signed PPAs and are to be put into operation within 2020. All other solar power projects will have to follow an auction mechanism whereby investors would be required to bid the lowest price.

It is unclear exactly when the new FiT rates will be issued, but the regulation approval process may take at least a few more months to complete.