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The introduction of the Investment and Enterprise Laws 2005 was designed to improve Vietnam's business climate. But, a variety of loopholes have made implementation problematic. Hoang Mai reports.

TEETHING PROBLEMS: A number of firms have had difficulties adopting the new laws
It came as quite a shock. Representatives from the Ministry of Planning and Investment (MPI)’s functional divisions including the Foreign Investment Agency, Legislative Department, Industrial and Export Processing Zone Management Department and Investment Appraisal and Monitoring Department, were left open-jawed to hear nearly 40 interpretations by businesses of the Investment and Enterprise Laws 2005.
The agencies’ hearing with business associations and consultancies last week about the implementation of the two laws came in the lead up to the mid-term Vietnam Business Forum (VBF), to be held in June.
A lawyer from Vilaf Hong Duc law firm, representing VBF’s Production and Distribution Group, identified as many as 23 difficulties facing enterprises which desire to comply with the new laws. Problems lawyer Tran Anh Duc identified relate to business administration and registration, capital and project transfers, business transformation, joint stock companies, private enterprises and the establishment of representative offices.
Difficulties with the proposed business registration laws affecting foreign investors alarmed MPI officials. Some of the inconsistencies relate to foreign partners purchasing shares in Vietnamese enterprises, export-import rights, names of enterprises and criteria governing company directorships. A big issue relates to a law stating that foreign directors must have permanent residence in Vietnam if they are to qualify as a company’s legal representative.
According to Duc, although the Investment Law’s guiding Decree 108 lists conditional investment domains, there was no specific provision on conditional business areas. In practice, the licence-issuing agency has to consult relevant agencies and ministries, which is time-consuming.
Regarding foreign directors being permanent residents in Vietnam if they are to become legal representatives of the company, Duc pointed out that there was no explanation on ‘permanent residence’ while procedures to register for permanent residence were complicated.
Another loophole relates to the export-import rights, which is provided for in Decree 24/2007 ND-CP, but in practice import-export licences are not issued until the Ministry of Trade promulgates a guidance circular for the decree.
“Clearer guidance on all of these issues is needed as soon as possible,” Duc told MPI officials.
Le Net of Ho Chi Minh City-based LCT Lawyers found formalism common in business registration in Vietnam, which at present is conducted according to the regulations of the Enterprise Law 2005 and its instructional documents, such as Decree No. 88/2006/ND-CP.
“The “formalism” does not mean documents should be prepared in unified forms set by business management bodies. The formalism means that the business management bodies do not control and cannot control the contents of business registration they require, at least at the time businesses register to set up,” he said in his commentary paper.
Although regional countries allow businesses to use foreign names to improve their integration capability, the name of a business in Vietnam is required to be written in Vietnamese. On the other hand, foreign-invested businesses wanting to use foreign names can only use the names of their parent companies.
Le Net said that the regulations would mean the translation of some foreign names became meaningless. For example, Cong ty hau can quyen luc translated from Power Logistics Corporation, or Cong ty chuyen nhan tao translated from Artificial Pro Inc.
“The regulation of Vietnamese names, no matter they are meaningful, transparent or engraved in the heart and mind of consumers or not, is merely an extremely formalistic regulation, creating disadvantages to Vietnamese businesses compared to foreign ones operating in the same area,” Le Net said.
He suggested that when reviewing and issuing business certificates, it was advisable to simplify conditions for investors.
“Granting licenses should focus on issues such as suitability, land demand and the capability of the investor in land clearance and compensation rather than engage in formal issues such as names, notarisation and certification, or technical justification.”
“For foreign investors, these are unnecessary obstacles. In other countries there is a saying: “substance over form.” In Vietnam, the reversed saying “form over substance” seems to describe precisely this problem,” he said.
Vu Duy Thai, chairman of Hanoi Union of Industrial and Commercial Associations, also criticised the loopholes.
“Enterprises are sometimes consulted, but only symbolically. Fairly speaking, if the proper recommendations of enterprises had been even partly implemented, the shortcomings would have been considerably reduced,” Thai said.
He suggested that an explanation and feedback mechanism should be implemented to raise issues relating to future policy.
“To implement such mechanism contributes to not only sustainable economic growth, but also reduction of the evils of “back door” nepotism, cronyism and corruption in order to make the relations between state officials and enterprises clearer and closer for national interests,” Thai said.
Do Nhat Hoang, deputy director of MPI’s Legislative Department said the MPI and other relevant ministries needed detailed documents to improve implementation of the Investment Law and Enterprise Law in order to satisfy the business community.
“It is now only a matter of time before we seek public opinion for our draft documents,” Hoang said.