Draft Amendment to Vietnam’s Investment Law Seeks to Improve Business Environment

Posted on May 16, 2014 by Vietnam Briefing

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HANOI – During a recent meeting organized by Vietnam’s Ministry of Planning and Investment, discussions focused on draft amendments to the country’s Investment Law in order to “improve the investment environment and increase benefits for investors and businesses.”

The revision process of the Investment Law is part of the National Assembly’s 2014 program to build more efficient laws and ordinances. 

According to Deputy Minister of Planning and Investment, Dang Huy Dong, while the Investment Law has had a positive effect on the business environment in Vietnam, there were certain parts of the law that needed revising.

These inadequacies include:

• The areas encouraged under the Law are inconsistent and not focused on attracting high quality investment projects;
• Investment procedures and project implementation regulations are still too complicated.

RELATED: State Bank of Vietnam Issues New Circular on Foreign Investment

One key area of confusion in the original Investment Law centered on what the definition of a foreign owned enterprise consisted of. During the drafting process, it was decided that the capital ratio of foreign investors in an enterprise would have to be made much more specific so that it can be clearly determined whether or not an enterprise is foreign owned.

Also present at the meeting was a representative from the Vietnam National Oil and Gas Group who stated that there are a variety of problems that crop up during the stages of business investment and during the granting of an investment certificate. He called for these problems to be fixed immediately.

According to a recent government survey, investors must currently go through an average of 18 procedures related to land, construction, and implementation conditions before they can execute an investment project. Land allocation and construction formalities also remain a problem.

The draft amendment also recommends the principle of equal treatment between domestic and foreign investors with regards to investment fields and incentives.

In dealing with these drawbacks of the original law, Mr. Dong stated that the main goals of the draft amendments were to:

• Perfect mechanisms and policies;
• Create a clear legal framework;
• Create strong transition procedures in the implementation of investment projects;
• Resolve the difficulties in investing activities for enterprises;
• Improve the effectiveness and efficiency of the state management of investment activities;
• Create a legal basis to consolidate and strengthen incentives;
• Protect foreign investment;
• Expand autonomy for investors;
• Improve the investment environment by making it more transparent; and
• Increase benefits for investors and businesses.

The next step in the amendment process will take place in the near future when the country’s lawmakers gather to approve the draft as part of the government’s plan to continue improving the business environment in Vietnam.

Vietnam to Provide Economic Assistance to Foreign Firms Affected by Recent Riots

Posted on May 23, 2014 by Vietnam Briefing

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HANOI – In response to the recent violence against foreign factories in Vietnam, the government has released a number of pieces of legislation aimed at restoring order and helping companies rebuild.  The two main legal documents are Circular 01/CD-BTC and Circular No. 207/TB-VP.

RELATED: Vietnam Government Cracks Down on Protesters, Pledges to Protect Foreign Investors

Relevant Legislation

On May 16^th, the country’s Ministry of Finance released a new Circular on the procedures for ensuring safety and resuming production after workers’ protests. Circular 01/CD-BTC requires the General Department of Taxation, the General Department of Customs, the Insurance Supervisory Authority, as well as local Departments of Finance to provide immediate assistance to foreign businesses which were damaged during the anti-China protests.

A further piece of legislation recently issued by the government came out on May 20^th. Circular No. 207/TB-VP, in which Prime Minister Nguyen Tan Dung orders local authorities to simplify bureaucratic procedures, is intended to encourage firms to resume operations as soon as possible.

The Circular also requires local administrations to act quickly in order to verify and recover necessary documents needed to calculate asset impairments. In the case of loss of a total loss of documents, firms can resort to their own pledges and post-test assessments to evaluate the extent of the damage.

To aid in the completion of these goals, the Prime Minister has required the Ministry of Finance to collaborate with related administrative organs and departments in order to instruct insurance carriers how to underwrite the costs of damages and quickly calculate the coverage.

In response, the Ministry of Finance has steered the General Department of Taxation towards providing a time extension for filing tax returns for transactions originating before May 2014. The maximum duration of this extension period is two years. Firms affected by the riots will not be fined for late payment. The amount eligible for deferral is equal to the extent of the damages suffered.Input VAT for damaged goods and services without compensation are deducted or refunded to the affected firms in case of a loss of documents and invoices. Additionally, the luxury tax will be reduced by up to 30 percent in 2014; however it cannot exceed the value of the damaged property after indemnification.

Additionally, corporate income tax deductions will be allowed for losses or damages not indemnified for (or not covered by insurance); and interest expenses on loans used to contribute charter capital, to the extent these loans are used to pay for losses or damages.

Furthermore, the Circular will provide sales tax reduction and/or exemption on exports and imports of damaged goods and goods to replace those damaged. The customs body will also allow the clearance of export – import shipments of affected firms which owe tax debts.

More assistance will also be provided by the People’ Committees of provinces and municipal cities affected by the riots, these Committees will assist enterprises by providing them with reductions and/or exemptions on their land rents.

In order to ensure a sufficient supply of labor to the affected regions, the Ministry of Labor, Invalids and Social Affairs is simplifying the visa application process in order to make hiring easier for foreign investors and workers.

The original version of Circular No. 207/TB-VP (in Vietnamese) can be found here.

Restoring Confidence

Vietnam and China have had a history of conflict over disputed territories in the region.  The current unrest has come about as a result of provocative actions by China in regards to their locating a US$1 billion deep-sea oil rig in waters near the disputed Paracel Islands.

RELATED: Vietnam Lodges Protest Against Chinese Oil Rig

Initial protests were peaceful in Vietnam, however, later protests turned into riots as bad elements in the crowds began breaking into foreign owned factories, many of which were burned and looted.  The largest of these protests have centered on the industrial parks in southern Vietnam (Binh Duong and Dong Nai provinces) and Ha Tinh province.

Beginning at the end of last week, the Vietnamese authorities became much more aggressive in clamping down on the protest around the country, particularly in Hanoi and Ho Chi Minh City.  The government’s communications department sent a direct message to all Vietnamese mobile phone users from Prime Minister Nguyen Tan Dung urging people to remain calm and refrain from conducting any illegal collective action.

There has been an understandable worry that the recent protests and riots would negatively affect Vietnam’s position in the world’s supply chain – the resumption of operations by companies such as China Steel Corporation and Formosa Chemicals & Fiber Corporation has helped alleviate this anxiety.

“Everything is back to normal. We’ve been given strong indications from the Vietnamese government that they will see that order is restored in due course”, said Jerry Shum, a spokesman for Yue Yuen Industrial Holdings Ltd , the world’s biggest sports-shoe maker which supplies Nike and Adidas.

According the operators of the two Vietnamese –Singapore Industrial Parks in the south of the country, 80 percent of their 326 factories have resumed normal operations. Companies from Hong Kong, Singapore and Taiwan have also announced that their investment strategies in Vietnam remain unchanged.

On a related subject, the Taiwanese chamber of commerce in Vietnam is assessing the extent of damage in order to provide estimates that firms will use for compensation claims. Formosa Plastics Group, the largest Taiwanese investor in Vietnam, has announced that it will seek US$3 million in compensation from the government. DDK Group Co., Ltd, which produces saddles for bicycles, has declared US$4 million in damages – the company’s insurance will cover about US$2 million and the remainder of the loss is expected to be covered through compensation provided by the Vietnamese government.

Despite the unfortunate events of last week, these current governmental actions have been positively viewed by many foreign investors and have helped them continue to maintain their faith in Vietnam’s investment potential.

Indonesia revises its negative investment list for new foreign direct investment

• (original text)
• 
  
• Herbert Smith Freehills LLP, 
• David Dawborn and Haydn  Dare

May 21, 2014

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The Indonesian Government recently issued a new negative investment list in Presidential Regulation No. 39 of 2014 on the List of Business Fields that are Closed to Investment and Business Fields that are Conditionally Open for Investment (“Regulation No. 39/2014”) . This changes the permitted levels of new foreign investment in certain sectors, as outlined below.

1. Background

Indonesia’s Law No. 25 of 2007 concerning Investment mandates that BKPM is responsible for implementation of Indonesia’s investment policies. In performing this role BKPM sets out procedures for foreign entities to obtain a license issued by BKPM (the Investment Coordinating Board) in order to invest in and acquire shares in companies in Indonesia. The Indonesian government has over time issued a series of Presidential Regulations setting out an evolving list of sectors that are either wholly closed to foreign direct investment or in which foreign direct investment is limited to a certain percentage investment in the entity licensed by BKPM (the “Negative List”).

2. Changes to the Negative List

A key change introduced by Regulation No. 39/2014 is the reduction to the level of new permitted foreign share ownership in the trading sector i.e. main distributor activities which previously were open for 100% foreign ownership, have now been restricted to a maximum 33% foreign ownership. Main distributor activities include importing goods for and on behalf of the distributor and distributing goods to local distributors/retailers. Importing services performed for and on behalf of other parties (ie. not for the importer’s own goods) are, however, still open for 100% foreign ownership. Another significant change is that onshore oil and gas drilling is now closed for new foreign investment, whereas previously these services were open for up to 95% foreign ownership. New Offshore oil and gas drilling is also reduced to 75%, previously 95%.

In the telecommunications sector, new foreign investments in data communication systems are now reduced from 95% to 49%. Content services and call centres and other value added telephony services now have their own specific maximum foreign capital ownership limit of 49%, rather than previously being categorized as requiring a “partnership” with a local party (without a specific maximum foreign capital ownership level, but deemed to be permitted to have up to 100% foreign ownership). Internet interconnection services (network access point) is now also restricted to 49% foreign ownership from 65% previously - unless integrated with wired/wireless/satellite telecommunication services in which case the maximum is still 65%.

Restrictions on foreign ownership in some sectors have been relaxed in cases where they are in the context of a government approved PPP (Private Public Partnership) and where the investor company is from an ASEAN member country. For example, Power plants > 10MW, power plant transmission and electricity distribution now are open for 100% under PPP, previously 95%. Seaport facilities services are now opened for 95% if conducted under PPP, previously 49%. Specialist hospital services are now open for 70% ASEAN ownership, previously 67%. The making of film promotion facilities, advertising, posters, still, photos, slides, banners, etc is now open for up 51% ASEAN ownership, previously these were closed.

Set out below are specifics of the changes the new Negative List.

1. Sectors that are now open for foreign investment, but previously closed

• Film promotion facilities and advertising (now 51% ASEAN ownership, previously closed);
• Public opinion polling and market research (now 51% ASEAN ownership, previously closed);
• Motor vehicle periodic testing (now 49%, previously closed);
• Land transportation terminal for passenger construction (now 49%, previously closed);
• Public cargo terminal construction (now 49%, previously closed);

2. Sectors now open to a higher level of foreign investment (including due to Private Public Partnerships – PPP or ASEAN Investor treatment)

• Pharmaceuticals Manufacturing (now 85%, previously 75%);
• Venture capital financing (now 85%, previously 80%, amended to be in line with the existing regulation issued by the Minister of Finance);
• Fish catching integrated with processing (now to open 100%, previously 80%);
• Wired telecommunication services (now 65%, previously 49%);
• Internet service providers, public internet telephony services or other multimedia services (remain 49%, where integrated with wired/wireless/satellite telecommunications services the maximum foreign ownership has now increased 65%);
• Power plant >10 MW (now 100% under PPP during concession period, previously 95%);
• Power plant transmission (now 100% under PPP during concession period, previously 95%);
• Electricity distribution (now 100% under PPP during concession period, previously 95%);
• Provision of Seaport Facilities (now 95% under PPP during concession period, previously 49%);
• Technology development for electric power supply equipment (now unregulated and could be 100%, previously 95%);
• Motel and lodging services
  • now (i) 70% ASEAN Investors, in Bali and Java region only, (ii) 49% ASEAN Investors in other regions, and (iii) 51% for Non ASEAN Investors with an Indonesian small scale business partnership;
  • previously (i) 51% ASEAN Investors in all regions, (ii) 49% for Non ASEAN Investors and (iii) 51% for Non ASEAN Investors with an Indonesian small scale business partnership);
• Golf courses
  • now (i) 100% ASEAN Investors, outside Bali and Java, (ii) 70% ASEAN Investors, in Bali and Java, (iii) 49% for Non ASEAN Investors and (iv) 51% for Non ASEAN Investors with an Indonesian small scale business partnership;
  • previously (i) 100% ASEAN Investors, in Eastern Indonesia, (ii) 51% ASEAN Investors, outside Eastern Indonesia, (iii) 49% for Non ASEAN Investors and (iv) 51% for Non ASEAN Investors with an Indonesian small scale business partnership;
• Specialist/subspecialist hospital services and medical specialist clinics, and dental clinics
  • now (i) 70% ASEAN Investors in all capital cities and (ii) open 67% for all ASEAN and Non ASEAN Investors in other regions;
  • previously 67% for either ASEAN or Non ASEAN Investors in all regions;
• Specialist nursing treatment services (nursing services under CPC93191)
  • now (i) 51% ASEAN Investors in Makassar and Manado, (ii) 70% ASEAN Investors in all capital cities and (iii) 49% Non ASEAN Investors in all regions;
  • previously (i) 49% Non ASEAN investors and (ii) 51% ASEAN Investors in Medan and Surabaya;

3. Sectors that are now expressly opened to foreign investment, previously unregulated

• Biomass pellet producers (now being categorized as requiring a partnership without a specific maximum foreign capital ownership level, but deemed as permitting up to 100% foreign ownership, previously unregulated);
• Survey service for geothermal (now 95%, previously unregulated);
• Futures Broker (now 95%, previously unregulated);
• Management and disposal of non hazardous waste (now 95%, previously unregulated);
• Platform oil and gas construction (now 75%, previously unregulated);
• Wired/wireless/satellite telecommunications services integrated with internet service providers, data communication services, public internet telephony services, internet interconnection services (network access point), or other multimedia services (now 65%, previously not specifically unregulated);
• Multimode transportation (now 49%, previously unregulated);
• Spherical tank (now 49%, previously unregulated);
• Survey service for oil and gas (now 49%, previously unregulated);
• Survey service for geology and geophysics (now 49%, previously unregulated) Offshore pipe line installation for oil and gas (now 49%, previously unregulated);
• Horticulture research venture and horticulture quality test laboratory venture and other horticulture service business (now 30%, previously 95%, amended to be in line with the existing law);
• Security services, namely security consulting, provision of security guards, cash and valuables escort, provision of security services with animals, security system devices, and security education and training (now 49%, previously unregulated);

4. Sectors that are more restricted for foreign investment:

• Import and distribution as main distributors (now 33%, previously 100%);
• Storage, warehousing (now 33%, previously 100%);
• Cold storage (now Java, Bali and Sumatra: 33%, from 100%; East Indonesia/ Kalimantan, Sulawesi and Papua: 67%, previously 100%);
• Horticulture which includes cultivation, seeding and processing (now 30%, previously 95%, amended to be in line with the existing law);
• Data communication system services (now 49%, previously 95%);
• Content services and call centres and other value added telephony services now have a specific maximum foreign capital ownership of 49%, rather than being categorized as requiring a partnership (without a specific maximum foreign capital ownership level, but deemed as permitting up to 100% foreign ownership);
• Internet interconnection services (network access point) (now 49%, previously 65% - unless integrated with wired/wireless/satellite telecommunication services in which case the maximum is still 65%);
• Power plants 1-10 MW (now have a specific maximum foreign capital ownership of 49%, rather than being categorized as requiring a partnership (without a specific maximum foreign capital ownership level, but deemed as permitting up to 100% foreign ownership);
• Offshore oil and gas drilling (now 75%, previously 95%); and

5. Sectors that now confirmed closed, previously open or unregulated

• Onshore/on land oil and gas drilling (now closed, previously 95%);
• Oil and gas well operation and maintenance (now closed, previously not specifically regulated);
• Oil and gas design and engineering service (now closed, previously not specifically regulated);
• Electricity utilisation and installation (now closed, previously 95%);
• Installation of offshore oil and gas upstream production (now closed, previously unregulated);
• Onshore pipe line installation for oil and gas (now closed, previously unregulated);
• Horizontal or vertical tank (now closed, previously unregulated);
• Installation of onshore oil and gas storage and marketing (now closed, previously unregulated);
• Inspection and testing of electrical power installations (now closed, previously unregulated);
• Oil and gas technical inspection service (now closed, previously unregulated);
• Implementation of Alternative Trade (now closed, previously unregulated);
• Retail sale via mail order houses (pos) or via internet (now closed, previously unregulated);
• Textiles retail (now closed, previously unregulated);
• Games and toys in stores retail (now closed, previously unregulated);
• Cosmetic retail (now closed, previously unregulated);
• Footwear retail (now closed, previously unregulated);
• Electronics retail (now closed, previously unregulated);
• Food and beverages retail (now closed, previously unregulated);
• Futures trading (now closed, previously unregulated);
• Manufacture of crumb rubber (now closed, previously 95%);
• Retail of motorcycles and commercial vehicles (now closed, previously unregulated); and
• Passenger land transport on scheduled routes (cross border transport) and unscheduled routes (tourism transport specific destination transport, specific area transport) (now closed, previously unregulated).

3. Impact of the changes

Pursuant to Article 9 of Regulation No. 39/2014, the changes to the Negative List do not apply retrospectively to investment in specified business fields approved prior to the regulation being issued, unless such provisions are of more benefit to the relevant investment.

Indirect or portfolio investment with transactions being made through Indonesia’s domestic Stock Exchange continue to be permitted.

Santi Darmawan and Sakurayuki

Mining Law Reform in Myanmar

Myanmar Times, 12 may 2014 (original text)
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Private industry is set to benefit from proposed amendments in the mining law which is likely to be approved in the upcoming parliamentary sessions, officials say.

The amendments to the 1994 law passed the Amyotha Hluttaw in March after two years’ delay and now await a vote in the Pyithu Hluttaw, with proponents saying they’re aimed at boosting foreign investment and government revenue in the sector.

U Nay Win Tun, a prominent mining businessperson and chair of Amyotha Hluttaw Mining and Resources Committee, said the government would halve its standard production-sharing portion of 30pc of production to 15pc, while the private firm would increase its share from 70pc to 85pc with the changes.

Both foreign and local firms are able to invest in the sector under the amended law, with maximum different time limits for licences extended depending on the scale of the site.

“The law has been amended to the advantage of all different levels of communities benefiting from mineral resources,” said U Nay Win Tun.

“The mining sector will be the main economic activity in our country when the newly amended law is active.”

He said that a lack of specific knowledge of the sector among parliament members delayed the amendments.

U Nay Win Tun is the owner of Ruby Dragon Mining, which has at least five mining sites in Shan State.

Department of Mining director general U Win Htein said current foreign investment in the sector is primarily from ASEAN members.

“Now other countries are interesting in our mining sector, but [international investors] don’t want the investment if it is not responsible,” he said, pointing to the Letpadaung copper mine as a problematic investment.

The amended law is seen as a key piece of legal framework that could usher in sizable new investment in Myanmar’s natural resources sector, but has been slow to materialise as other laws like the Foreign Investment Law have made their way through Parliament relatively quickly.

The Ministry of Mines has been preparing to amend the 1994 mining law since 2012, initially targeting an early 2013 introduction.

The delays come despite international efforts to assist the Ministry of Mines. Mineral-rich Australia has been particularly active. In May 2013 a 17-member delegation from the ministry, including Minister U Myint Aung, took a two week tour hosted by AusAID to meet with Australian government officials and view mining operations in New South Wales and Queensland.

Foreign firms from countries including the US, the UK and Australia have visited the mining ministry expressing interest in long-term investment, but experts said the current regulatory regime under the 1994 law made it difficult for foreign firms to enter the sector.

“There is a lack of certainty that foreign investors usually want,” Sebastian Pawlita, a partner at Polastri Wint and Partners, a tax and legal advisory firm in Yangon, said of the 1994 law, which he described as “not attractive to investors”, in its current form.

He pointed to the need to approach the ministry for permission when moving from one stage in the mining process to the next, such as from exploration into the production phase.

“It adds to the uncertainty because you are never sure what the reply will be,” he said.

Mr Pawlita added that there needed to be more clarity surrounding the production-sharing contracts, not only to attract mining and exploration companies to Myanmar but also so that those firms could in turn attract investment.

Hluttaw members say they expect to see a number of benefits from a revamped mining law.

Amyotha Hluttaw bill committee member U Aung Kyi Nyunt said the main aims with the amendments are to generate more tax income and provide a process to legalise small-scale and illegal miners.

Cambdia Outlook Briefs 2014

No. 01: Cambodia the Next Five Years – An Agenda for Reform and Competitiveness English ( 381KB);  Khmer ( 427KB)

No. 02: Human Resource Development and Education for a Competitive and Creative Cambodia English ( 377KB); Khmer ( 444KB)

No. 03: ASEAN Economic Community (AEC) 2015 and Regional Integration: What does it really mean for Cambodia? English ( 433KB); Khmer ( 436KB)

No. 04: 2014 Cambodia Outlook Conference Policy Priorities English ( 288KB); Khmer ( 547KB)

Challenging the constitutionality of Indonesia’s Investment Law

By Yudha Fathoni, IIED Publication, 2014.

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In 2008, a high-profile case was filed by a coalition of civil society organisations in the Constitutional Court of Indonesia to challenge the validity of the 2007 Investment Law. SPI (Serikat Petani Indonesia, the Indonesian Peasant Union), and a wider national coalition, considered aspects of this law to be a threat to the rights of peasants. The court ruled that the law did not accord with the Constitution.

Initiating constitutionality review processes is one strategy used by SPI’s legal unit to advance the rights of peasants through legal avenues on behalf of its members – that is, taking a case to the Constitutional Court in order to challenge the compatibility of legislation with the national Constitution. This paper distils lessons from SPI’s experience. It discusses the steps taken, the court decision, and the lessons learnt on how to make more effective use of this legal strategy. It also touches on important parallel strategies.

To download the report English or French.