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It is time to abolish the Law on Investment

The article titled: “It is time to abolish the Law on Investment” from Lawyers Duong Tieng Thu, is published on Sai Gon economic times, dated 08 December 2011.

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The contradictions of the Law on Investment with the Law on Enterprises are causing difficulties that need not occur in the operation of enterprises.

… From real stories

The first story happened in a joint venture company A in province X.

Upon the incorporation, the company A had its shareholders as local individuals and was granted business registration certificate by the business registration office. After that, the shareholders of the company signed contracts to transfer all their shares to foreign investors. When the documents for registration of the change of shareholders were submitted to the business registration office, this body thought that at the time of change registration, the company is a wholly foreign owned company hence it was required to apply for investment certificate in accordance with the Law on Investment. Because the business registration office has got no function to grant investment certificate, it passed all the application documents of the company to the management board of industrial zone of the province to request for granting the investment certificate to the company (for further information, the company has established a factory in the industrial zone and this project was granted investment certificate by the board of management of industrial zone). In its turn, the board of management of industrial zone thought that the investment certificate granted was for the project of the company in the industrial zone, and it did not replace the business registration certificate granted by the business registration office for the incorporation of the company. The document was finally passed to the Ministry of Planning and Investment for instruction and nobody knows when the matter will be settled.

The second story happened in city Y.

The company B is a one-member limited liability company with wholly foreign owned capital that has been granted investment certificate in accordance with the Law on Investment. After a period of operation, the foreign investor of company B transferred his whole contributing capital to a local investor. The capital transfer was approved and issued with the investment certificate in the name of the local investor by the Department of Planning and Investment of Ho Chi Minh City. After that, the company B registered for the change of its head office with the local licensing body. Thinking that it is a company with entire local capital, the company B prepared the document in accordance with the provisions applied to local enterprises. However, the documents for registration of change of head office were refused by the local business registration office and this body forced the company to prepare the documents as if applied to enterprises with foreign capital.

What relevant lesson has been learnt?

The above examples show the insufficient situation in the transfer of shares/contributing capital. In both cases, the capital transfer by the local investor or vice versa was at a standstill due to the troubles between the business registration certificate (in accordance with the Law on Enterprises) and the investment certificate (in accordance with the Law on Investment). In a broad sense, this is a contradiction of the Law on Investment with the Law on Enterprises.

However, this is only the surface contradiction, and within a deeper scope we will learn more important relevant lessons.

Firstly, the mechanism of granting investment certificates in accordance with the Law on Investment is promulgated with the desire to strengthen the State management to the investment activities. This mechanism has created more and more inconveniences to the investors and contradicts with the Law on Enterprises. It causes the application for investment certificates to gradually become a burden to investors.

Secondly, the barriers in the Law on Investment in the past affected mainly the enterprises with foreign invested capital, now extend its negative effect to the local enterprises. A small example may prove this.

According to the Law on Investment, projects with capital of 15 billion VND or more or in conditional investment fields (irrespective of the capital rate) are required to apply for investment certificates, meanwhile the scope of conditional investment fields is rather broad (from fields that affect national defense, national security, social safety and order; finance and banking; fields that affect community health; culture, information, press, publication; entertainment services; real estate business; research, exploring, searching and exploiting natural resources; ecological environment; to fields of developing the education and vocation, etc.) Therefore, if a doctor wants to register a medical clinic (in the form of an enterprise) at home, he is also required to apply for investment certificate in accordance with the Law on Investment 2005 since the operation field of that medical clinic may be deemed as “field that affects community health”. In the meantime, the procedure of establishment of a medical clinic before 2005 was very simple: the doctor was required only to incorporate the enterprise in accordance with the Law on Enterprises 1999 and it was not necessary for him to apply for an investment certificate.

Thirdly, the question that the investment certificate is used for what purpose and create what benefit for the enterprise still has not been answered by the Law on Investment. The reality shows that the additional application for the investment certificate does not participate in the improvement of investment activity of the enterprises and there is not any obvious benefit in respect of the State management.

In the context that enterprises have to overcome difficulties (especially difficulty in cash flow) in order to exist, they need a more open mechanism to access local as well as overseas capital sources. Therefore, maybe it is time to abolish the Law on Investment.

([*] ) Phuoc & Partners Law Co., Ltd