A model of Mong Duong II thermal power plant in northern Quang Ninh province. The plant is invested by the US. File Photo

(Biz Hub) — Viet Nam has been entering into bilateral investment treaties (BITs) with other countries since the early 1990s and continues to use such treaties today. Although many of these earlier treaties have now been superseded by more complicated and sophisticated trade agreements such as double taxation agreements (DTAs) and other bilateral mechanisms, BITs remain important for Viet Nam and its trading partners, and particularly so for investors from emerging nations with relatively immature tax laws and regulatory environments. Viet Nam's BIT also serve to underpin the bilateral investment conditions between Viet Nam and other developed and developing nations that have not yet negotiated DTA agreements with the country.

Of the Indochinese nations, Viet Nam has been the most active in upgrading its BIT agreements to more all-encompassing DTAs. By comparison, Cambodia currently has no DTAs in place, and Laos only two.

The purpose of a BIT between two countries is reciprocal encouragement, promotion and protection of investments in each other's territories by companies based in either country. These treaties typically cover the following areas:

· Scope and definition of investment;

· Admission and establishment;

· National treatment;

· Most-favored-nation treatment;

· Fair and equitable treatment;

· Compensation in the event of expropriation or damage to the investment;

· Guarantees of free transfers of funds; and

· Dispute settlement mechanisms, both state-state and investor-state.

Viet Nam has over 40 BITs in place, and continues to use them in its bilateral relationships. While the BIT signed between Viet Nam and Italy was ratified way back in 1990, others still continue to be put into position. The BIT agreement between Viet Nam and the United Arab Emirates, for example, was ratified in Abu Dhabi as recently as 2009.

While BIT agreements as a general rule of thumb may be now purely a matter of academic or historical interest among more developed nations with a wealth of DTA and other agreements under their belts, for some of the emerging nations such as Viet Nam, BITs provide a useful starting mechanism for understanding the legal, tax and dispute resolution mechanisms for investors into the country. As such, BITs are a useful starting point to clarify legal and tax treatments under bilaterally agreed conditions and should be understood as a bilateral document of first resort when understanding the investment environment, and protection mechanisms that Viet Nam offers its many trading partners.

These tend to be of particular importance for understanding the rights of companies investing from or into emerging markets throughout Asia, Africa, Latin America and the Middle East.

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This article was first published on Vietnam Briefing.

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