Imagine that, on a beautiful day, you stand in front of a fancy private club. To get in, you need to show the gatekeeper your membership card. Of course, you don’t forget to bring enough money to buy stuffs there, once inside.
In the world of the New Investment Law (NIL), the membership card represents market access conditions (MACs); the private club is Vietnam market while money you brought can be linked to investment business conditions (IBCs).
Needless to say, you need to know all the stuffs before making your investment.
If the New Investment Law (NIL) just blows a light wind through the investment world, the changes on MACs do spark a storm, in a sense that it blows away the entire old system.
The below note discusses how.
(1) – MACs & new changes to MACs under the NIL
What are MACs?
MACs refer to market access conditions applicable to foreign investors[1]
Can you give me an example of MACs?
If XYZ, a US investor, wishes to set up an advertising company in Vietnam, it must joint venture with a local partner. MAC in this case is the mandatory involvement of the local partner.
Why should I care about MACs?
If you are a foreign investor,[2] MACs are the first gate you must pass. MACs tell you whether and to what extent you can run a specific business in Vietnam.
Tacitly, MACs show a clear border on what a foreign investor can do (somewhat limited) and what the local counterpart can (often everything not prohibited by the laws).
What changes do the NIL make to MACs?
The NIL for the first time introduces the negative approach by unifying a variety of regulations on MACs into just one or two decrees to be issued by the Government.
What is the negative approach by the way?
Simply put, negative approach represents a mechanism where a foreign investor can basically do whatever business it wants unless expressly prohibited by laws. In case of the NIL, as long as a business fall outside the Government’s list(s) of sectors which are conditional on or restricted to foreign investment (the Restrictive Businesses or the MAC List), the foreign investor is free to dance.[4]
This contrasts with the ‘positive approach’, currently employed by the Government of Vietnam, where foreign investors can only do whatever expressly opens up to them.
How such changes affect our business?
For many foreign investors, the current positive approach is a more than just a big headache.
Why? this is because licensing authorities may easily turn down a project on the ground that Vietnamese law is silent on the business that project covers.
Now, with the introduction of the negative approach, the above arbitrary judgements of the licensing authorities can be eliminated.
Simply put, as long as your business does NOT fall outside the MAC List, the licensing authority must let you go. This is even more critical for startups who offer new innovative product or service that hasn’t been on the market before.
Please don’t forget that in the past, it took months for State bodies of Vietnam to argue with each other on how to name services to be provided by Grab and Uber before letting them in.
From now on, instead of swimming in a sea of laws on MACs, what you need to do is to check if your business is fall inside the MAC List or not. There can be 02 possible answers, namely:
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- If No, congratulations! You have passed the MAC gate. Please roll down to Point 2 below.
- If Yes, why don’t we sit down and we may talk about it a little bit.
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(2) – IBCs & New Changes to IBCs under the NIL
Congratulation! You have passed the MAC gate.
But wait! You still need to check the IBCs.
What are IBCs?
IBCs are post-establishment professional conditions that basically both local and foreign owned companies must meet in order to actually conduct a specific business or investment activities.
Can you give me an example of IBCs?
If ABC Company wishes to run a school, it must satisfy specific conditions on, number and qualifications of teachers or teaching rooms’ equipment, etc. Such specific conditions are IBCs.
Why should I care about IBCs?
Please note only when your newly-born Vietnamese company has met such conditions, can it provide services or sell products. This means that you need to foresee what is waiting your Vietnamese venture ahead and how hard it is to get across such conditions before making investment.
What changes do the NIL make to IBCs?
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- addition of some new activities e. –notably health care of elderly, children, the disabled; architectural services, clean water supply, etc.
- on the opposite direction, removal of some business activities from the list, – notably logistics, franchise, maritime vessel agency, some real estate support services, etc.
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(3) – Are they different from MACs and how?
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- IBCs sharply differ from MACs in that the former (a) cover both local and foreign invested enterprises and (ii) are required at the post-establishment stage. Specific IBCs are listed in a single appendix of the NIL.[3]
- On the opposite site, MAC must be met when a foreign investor applies for setting up its Vietnam-based subsidiary or acquiring a local one i.e. pre-establishment stage.
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NOTES:
[1] These MACs are now provided in a variety of legal instruments and international treaties
[2] Foreign investors include companies established under Vietnamese law but controlled i.e. – 50% shares or more by the original foreign investors.
[3] Appendix IV of the NIL.
[4] Article 9 of the NIL.
