FDI enterprises must re-register operations

Some 2,900 enterprises out of 6,000 foreign-invested companies set up in accordance with the Foreign Investment Law nationwide had failed to renew their operations as regulated by the Enterprise Law 2005 as of May 31, the Ministry of Planning and Investment reported.— Photo vietstock

Lawyers Hai Ha and Tuan Nguyen

Can you describe re-registration for an FDI enterprise?

Re-registration as stipulated in the Government's Decree No 101/2006/ND-CP, dated 21 September 2006, means foreign-invested enterprises ("FDI enterprises"), incorporated and with an Investment License granted under the old Law on Foreign Investment in Viet Nam, must re-register its operation under the 2005 Enterprise Law.

When a FDI enterprise is re-registered, it will be granted a new Investment Certificate and operate in accordance with the 2005 Enterprise Law.

Any FDI enterprise incorporated under the Investment License granted before 01 July 2006, has its operational duration expired and has yet dissolved but wish to be continuing its operation in Viet Nam, must re-register its operation with the authority of Viet Nam no later than 01 February 2014.

What are the risks if an FDI enterprise does not re-register?

An FDI enterprise which does not re-register may face the risk of not being permitted to renew its operational duration as fixed in its Investment License when it expires. This means it may have to terminate its operation in Viet Nam at the end of its duration, under the law.

What are the advantages if an FDI enterprise does re-register?

The re-registration is a legal guarantee for FDI enterprises with a long-term business strategy especially as Viet Nam opens its markets to foreign investment under its accession to the World Trade Organisation.

A re-registered FDI enterprise would enjoy the following advantages:

- They would have legal assurance to renew operational duration as fixed in the Investment License upon expiry;

- Investment incentives remain unchanged after re-registration;

- Won't be required to re-register before applying for expansion of existing business activities or before applying for new business activities which may change the project's duration;

- Either foreign investors or Vietnamese partners are given a strong legal basis to re-negotiate with each other and resolve issues in joint venture contracts.

- Enjoy the new ‘Corporate Income Tax Incentive Schedule' as stipulated in the new Law no. 32; and the Law on Corporate Income Tax, effective from January 1 2014, which provides the schedule of reducing the Corporate Income Tax Rate as follows:

1) As of January 1 2014, a new corporate income tax rate of 22 per cent;

2) As of January 1 2014, any enterprise with total revenues less than VND20 billion per fiscal year will enjoy the new 20 per cent corporate income tax rate in the following years;

3) As of January 1 2016, a new general Corporate Income Tax rate of 20 per cent.

- The prevailing Corporate Income Tax rate of 25 per cent.

When should FDI enterprises re-register?

We strongly suggest that FDI enterprises proceed with re-registration as soon as possible prior to the promulgation of the Government's new Decree replacing Decree 101/2006/ND-CP on re-registration.

The advantage of re-registering under existing Government Decree 101/2006/ND-CP is that very few documents are required compared with the complex and long list of documents that will be required in the new Government's Decree being drafted.

What are the biggest challenges for re-registration?

In our legal analysis, the biggest challenge to re-registration will be if FDI joint venture parties need to negotiate with each other to revise their joint venture charter in line with the 2005 Enterprise Law.

Parties may be stuck in negotiations if they fail to find appropriate solutions to issues of mutual interest, in accordance with the Law.

FDI enterprises could face greater obstacles if they re-register after the new draft Government's Decree on re-registration replaces the existing Government's Decree 101/2006/ND-CP.

How should the re-registration be undertaken?

Under the existing Government's Decree 101/2006/ND-CP, FDI enterprises may apply for other changes in their Investment License and FDI projects simultaneously with the re-registration; such as an expansion of their business' scope, changes to the form of enterprise (from limited liability company with one investor to limited liability company with two or more investors).

However, such changes would require FDI enterprises to submit a long list of required documents, which may prolong the duration of re-registration or even cause the re-registration to fail.

The most important issue in re-registration is to extend the FDI enterprise's operational duration. To avoid any risks, we strongly suggest that the re-registration be completed before applying for any other changes in the enterprise and/or investment project.

Is the re-registration a compulsory procedure?

Re-registration is not compulsory for FDI enterprises. However, for FDI enterprises wishing to do business long-term in Viet Nam, re-registration would be a vital element in achieving this.

Re-registration is compulsory by February 1 2014 for any FDI enterprise whose operational duration has expired but still wishes to continue operating in Viet Nam. Otherwise, dissolution will be a compulsory statutory consequence.

Is re-registration required or relevant to FDI projects under Business Co-operation Contracts?

Re-registration is not required or relevant to FDI projects under Business Co-operation Contracts ("BCC") which were granted an Investment License under the old Law on Foreign Investment in Viet Nam.

Parties can implement FDI projects and the BCC in accordance with the terms and conditions as set forth in the BCC and the Investment License.

Any change in the FDI projects and/or in the BCC will be subject to amendment of the Investment License in accordance with the 2005 Investment Law. — BIZCONSULT