Doing Business In Vietnam – Contracts and Commercial Law – Vietnam

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1. What role will the government of Vietnam play in approving
and regulating foreign direct investment?

The Ministry of Planning and Investment (MPI) is the central
administrative body that oversees all investment activities,
including foreign investment. The MPI is responsible for drafting
legislation, developing policies, providing guidance and
consultation, and coordinating with other authorities. The MPI also
serves as the contact point for foreign invested enterprises (FIEs)
should problems or questions arise.

However, it is important to understand that the local Department
of Planning and Investment (DPI), under provincial/city
People’s Committees, directly administers foreign investment
activities and issues investment registration certificates (IRCs)
for almost every type of foreign investment within their
province/city. An IRC is required for most foreign-invested
investment projects (except for small and medium-sized creative
start-up projects1 or a creative start-up investment
fund). Some projects, especially those that are termed
“conditional,” important projects, or projects that are
very large, require in-principle approval, sometimes by the
National Assembly, sometimes by the Prime Minister, or more often
by the provincial/city People’s Committees, prior to issuance
of an IRC.

The Prime Minister establishes management boards to administer
FIEs that are located in an industrial zone, high-tech zone,
economic zone, or export processing zone (generally IZ). An FIE in
an IZ is subject to the IZ’s rules on import/export,
environment, labor, etc., in addition to the general rules of the
government and the MPI. An IZ management board is authorized to
issue an IRC for a project within its administrative area.

After the IRC is issued, the foreign investor will apply for and
obtain an Enterprise Registration Certificate (ERC) from the DPI.
The IRC approves the investment project, and the ERC permits the
foreign investor to establish and operate the company. The foreign
investor can conduct business only after obtaining both the IRC and
the ERC.

Other more specialized ministries may be involved in foreign
investment. For example, in high-tech projects, the Ministry of
Science and Technology has an administrative role. It develops
industry-specific policies for foreign investment and assures that
the application of foreign investment regulations is in harmony
with the industry’s own rules.

2. Is it possible for foreign investors to conduct business in
Vietnam without a local partner? What corporate structure is most
commonly used and best for foreign investors?

In general, for many businesses, foreign investors and domestic
investors are treated equally in the choice of direct investment
forms and in the percentage of ownership. Conditions on certain
forms of investment apply to every investor. However, there are
some businesses for which conditions are imposed only on foreign
investors. For example, in certain limited fields and industries a
cap is placed on the percentage of foreign shareholding. Investment
conditions are now more relaxed. Currently, the cap on foreign
capital contribution is as follows:

• In commercial services, the cap is determined in accordance
  with Vietnam’s international undertakings. For example, under
  Vietnam’s WTO commitments:
• • In telecommunications services, the cap is 49% for
    facilities-based telecommunications services, 50% for internet
    access services, 70% for certain virtual private networks and
    value-added services, and 65% for other non-facilities-based
    telecommunications services;
  • In container-handling services (except services provided at
    airports), the cap is 50%;
  • In commercial advertising services, there is no cap, but the
    foreign investor needs to establish a joint venture with a local
    stakeholder that has already registered for advertising under its
    business registration.
• The cap may be different in certain specialized regulations,
  such as the legislation on civil aviation and the legislation on
  publications and the press.

In fields and industries that are not subject to any cap (which
includes most fields and industries), foreign investors can conduct
business without a local partner. The corporate structures
available for a wholly foreign-owned enterprise are as follows:

• For a single investor, a sole proprietorship or a one-member
  limited liability company;
• For two or more investors, a two- to 50-member limited
  liability company, partnership, or joint stock company.

The limited liability company is the corporate structure most
commonly used by foreign investors.

3. What laws influence the commercial relationship between
local agents/distributors and foreign companies?

All civil transactions, including trading and business
activities, are generally governed by the Civil Code. The
relationship between a local agent and a foreign company is mainly
governed by the Commercial Law and its implementing regulations.
There are no specific regulations that govern the relationship
between a local distributor and a foreign company. Generally,
“distribution” and “trading” by an FIE are
permitted, except for a list of specific products that are
restricted to foreign investors (e.g., tobacco, pharmaceutical
products, books, rice). The process to obtain a distribution
license does not always go smoothly, because the government’s
concern is that foreign companies will only set up distribution
companies in Vietnam rather than develop or invest in manufacturing
activities, which bring more economic and social benefit to the
country.

4. In what manner does the government of Vietnam regulate
merger and acquisition activities by foreign investors? Are there
any specific areas or industries that are heavily restricted or
completely prohibited to foreign investors?

All civil transactions, including trading and business
activities, are generally governed by the Civil Code. The
relationship between a local agent and a foreign company is mainly
governed by the Commercial Law and its implementing
regulations.

There are no specific regulations that govern the relationship
between a local distributor and a foreign company.

As stated above, generally, “distribution” and
“trading” by an FIE are permitted.

5. How do local labor laws regulate the treatment of employees
and expatriate workers in Vietnam?

The Labor Code sets forth rules for the employment of both
Vietnamese and expatriate employees who are working in Vietnam. In
general, working conditions under the law and rights and
obligations under a labor contract are the same for both Vietnamese
and expatriate employees. Furthermore, an expatriate can work in
Vietnam while he/she is employed by a foreign company located
offshore.

There are several distinctions between the employment of an
expatriate and the employment of a Vietnamese citizen.

Work Permits for Expatriate Employees

With limited exceptions, most expatriates who work in Vietnam
are required to have a work permit. An expatriate is exempt from
the work permit requirement in specific circumstances, such as:

1. He/she is an owner or a capital contributing member of a
   limited liability company established in Vietnam, or a chairman or
   a member of a management board of a joint stock company established
   in Vietnam, with a level of capital contribution currently fixed at
   at least VND3,000,000,0002;
2. He/she is head of either the representative office or a project
   or is the person mainly responsible for the operation in Vietnam of
   an international organization or a foreign NGO. This exemption does
   not include the chief representative of a foreign trader’s
   representative office;
3. He/she enters and stays in Vietnam for less than three
   consecutive months to provide services or handle complicated
   technical or technological problems that affect or could affect
   production/business and these problems cannot be adequately
   addressed within Vietnam. However, if the situation requires the
   expatriate to stay in Vietnam for three months or more, a work
   permit is necessary;
4. He/she is a foreign lawyer with a Certificate of Law Practice
   in Vietnam granted by the Ministry of Justice, or has a media
   license issued by the Ministry of Foreign Affairs, or is approved
   by the Ministry of Education to carry out research and teaching in
   Vietnam;
5. He/she is married to a Vietnamese and living in Vietnam;
6. He/she is seconded to Vietnam as permitted under Vietnam’s
   WTO Commitments. Under Appendices 1 and 2 of Circular 35, the 11
   permitted services include: business services (such as:
   professional services, computer and related services, research and
   development services, rental services without operator),
   communication services, construction and related engineering
   services, distribution services, educational services,
   environmental services, financial services, medical and social
   services, tourism and related travel services, recreational,
   cultural and sporting services, and transport services;
7. He/she provides expert and technical consultancy services or
   undertakes other tasks with respect to research, formulation,
   evaluation, monitoring and assessment, or management and
   implementation of a program or project using official development
   aid (ODA) in accordance with an international treaty on ODA signed
   by both Vietnam and the foreign country;
8. He/she is appointed by a competent authority in a foreign
   country to teach at an international school that is managed by a
   foreign diplomatic office or an international organization in
   Vietnam or is permitted by the Ministry of Education and Training
   to teach and research in Vietnam’s education and training
   institutions;
9. He/she works as an expert, manager, executive director, or
   technician for less than 30 days each visit and does so no more
   than three times in one year;
10. He/she implements an international treaty to which a Vietnamese
    government authority, provincial body, or central socio-political
    organization is a signatory;
11. He/she is a student studying in a foreign school or institution
    having an agreement on internship in agencies, organizations, and
    enterprises in Vietnam;
12. He/she is a relative of a member of a foreign representative
    agency in Vietnam who is exempt from obtaining a work permit under
    an international treaty of which Vietnam is a party;
13. He/she is preparing to establish a commercial presence.

Vietnam made a strong commitment with respect to employee
immigration in the tourism industry in 2009: the ASEAN Mutual
Recognition Arrangement on Tourism Professionals (MRA-TP). The
MRA-TP took effect in ASEAN in 2015. Under the MRA-TP, Vietnamese
may work in ASEAN member countries and vice versa. It is likely
that a meaningful number of tourism industry employees have entered
Vietnam to work under the MRA-TP. Other industries may follow.

In order for an expatriate to be issued a work permit, an
employer must first prepare a plan to recruit an expatriate for
each job for which a sufficient number of Vietnamese do not
qualify, and file such plan 30 calendar days or more prior to the
proposed recruitment. The plan must be filed with and approved by
the Chairman of the provincial People’s Committee.

To receive a work permit, an expatriate employee is required to
present a health certificate, police record, certificates of
professional expertise, and an education certificate, among other
documents. The maximum duration of a work permit is two years, and
a work permit is extended one time only. Once the extended work
permit expires, a new dossier for a new work permit must be
made.

Compulsory Social, Unemployment, and Health Insurance
for Vietnamese and Expatriate Employees

Social insurance (SI) is compulsory for Vietnamese employees who
work pursuant to indefinite term contracts or contracts with a term
of one month or more. Compulsory SI also practically applies to a
foreign employee who is licensed to work in Vietnam and enters into
an indefinite-term labor contract or a definite-term labor contract
with a term of at least one year with an employer based in Vietnam.
Both the employer and the employee are required to contribute to
the state social security fund. Contributions are based on the
gross monthly salary that is actually payable to the employee. It
is capped at 20 times the basic minimum salary (currently
VND1,490,000). Currently the employer contributes 32% and the
Vietnamese employee contributes 10.5% of the employee’s salary.
An expatriate is exempt from social insurance contributions until
January 1, 2022.

Unemployment insurance only applies to a Vietnamese employee who
has a labor contract either of indefinite term or a term of three
months or more. The employer and the employee each contribute 1% of
the employee’s gross monthly salary calculated up to the salary
cap mentioned above. Contributions are based on the employee’s
gross monthly salary and are also capped at 20 times regional
minimum salary. Expatriate employees are not subject to
unemployment insurance.

Both expatriate and Vietnamese employees are subject to
mandatory health insurance coverage if they work under a labor
contract of an indefinite term or a term of three months or more.
Contributions are based on the employee’s gross monthly salary
and are also capped at 20 times the basic minimum salary. The
employee contributes 1.5% while the employer contributes 3% of the
employee’s gross monthly salary.

There are other differences in the working conditions between
Vietnamese and expatriate employees. For instance, an employer and
a Vietnamese employee are allowed to sign a maximum of two labor
contracts that are definite term contracts with a term of up to 36
months, while there are no limitations on the number of definite
term contracts that an employer can sign with an expatriate
employee. As discussed, an expatriate employee is required to have
a work permit to work in Vietnam and a work permit and employment
are co-terminus.

Internal Labor Regulations

Internal Labor Regulations (ILRs) are mandatory for an employer
that has more than 10 employees (Vietnamese and expatriate). An
employer must register its ILRs with the labor authorities and post
them in the workplace.

The ILRs must include the following major components:

• Working hours and rest breaks;
• Rules and discipline in the company;
• Occupational safety and hygiene in the workplace;
• Protection of assets and confidentiality of technology and
  business secrets of the company; and
• Conduct that is in breach of labor regulations, penalties
  imposed for those breaches, and responsibility for damages.

Carefully worded ILRs will enable the employer to take
disciplinary action against an employee or unilaterally terminate a
labor contract in the case of poor performance by an employee. If
an offense is not specified in a company’s ILRs, or if the
company does not have duly registered ILRs, it will be difficult to
dismiss an employee. Attention should be paid to contents and
registration.

6. What role do local banks and government agencies play in
regulating the treatment and conversion of local currency,
repatriation of funds overseas, letters of credit, and other basic
financial transactions?

Opening Bank Accounts

A foreign investor can transfer capital or foreign currencies
into Vietnam via foreign currency accounts opened at licensed
credit institutions, and then it can convert such foreign currency
into Vietnamese dong. Depending on the investment purpose, a
foreign investor is required to open an indirect investment capital
account (IICA) or a direct investment capital account (DICA). The
IICA must be a Vietnamese dong (VND) account and it can be used
only for indirect investment purposes: (i) capital injection,
purchase and sale of shares, stakes in Vietnamese companies that
are not “foreign direct invested enterprises” and not
listed on the stock exchange; (ii) capital injection, purchase, and
sale of shares or stakes in Vietnamese companies that are listed on
the stock exchange; (iii) purchase and sale of bonds and other
types of securities on the Vietnamese securities markets; (iv)
purchase of VND-valuable papers issued by Vietnamese entities; (v)
entrustment of investment in VND via a fund management company,
securities company, or other entities that are licensed to conduct
investment entrustment; (vi) capital injection or transfer of
stakes in securities management fund or a fund management company;
and (vii) other indirect investment forms permitted by law.

If a foreign investor invests in a “foreign direct invested
enterprise” (FIE) that fits one of the categories below, the
FIE (not the foreign investor) is required to open the DICA (not an
IICA) either in US dollars or in both US dollars and Vietnamese
dong. The categories of such “foreign direct investment
enterprises” include:

• newly established FIE by a foreign investor; the foreign
  investor is required to obtain an investment registration
  certificate (IRC) under the Law on Investment;
• other enterprises that are 51% or more foreign-owned, including
  (i) enterprises in which foreign investors contribute capital or
  purchase shares, (ii) enterprises that are established based on
  separation, split, merger, or consolidation, and (iii) new
  enterprises that are established in accordance with specialized
  laws; and
• project companies established by foreign investors to carry out
  public private partnership (PPP) projects.

Apart from FIEs, foreign investors participating in business
cooperation contracts (BCCs), and foreign investors directly
implementing PPP projects (if not establishing project companies in
Vietnam), are also required to open DICAs.

A DICA in US dollars can be used for the following purposes:

• Receiving an amount of direct-invested capital in foreign
  currency from foreign and Vietnamese investors contributing to
  FIEs;
• Receiving drawdowns and loans in foreign currency from domestic
  and overseas term loans of an FIE;
• Receiving proceeds generated from the transfer of the value of
  invested capital and investment projects;
• Receiving amounts of foreign currency from foreign currency
  payment accounts of FIEs and foreign investors participating in
  BCCs and implementing PPP projects opened at licensed banks;
• Receiving other lawful amounts in foreign currency generated
  from foreign direct investment activities in Vietnam;
• Repaying principal and paying interest and charges for
  FIEs’ term loans in foreign currency;
• Transmission of foreign currency amounts to foreign currency
  payment accounts of FIEs and foreign investors participating in
  BCCs and implementing PPP projects opened at licensed banks;
• Selling foreign currency to licensed banks in order to deposit
  into Vietnamese dong accounts of FIEs and foreign investors;
• Paying for the transfer of invested capital and investment
  projects;
• Paying for the remittance of profits and other legal receipts
  in foreign currency, generated from their foreign direct investment
  activities, out of Vietnam;
• Paying for the transfer of foreign investors’
  direct-invested capital in foreign currency out of Vietnam in case
  of FIEs’ dissolution or termination; transfer of the ownership
  of invested capital and investment projects; and reduction in
  invested capital or completion, liquidation and termination of
  investment projects as stipulated by investment laws; and
• Paying other legal receipts in foreign currency regarding
  foreign direct investment activities in Vietnam.

Remittance of Profits/Loans

Profits that may be remitted abroad include (i) profits
distributed or received in a fiscal year as recorded in the audited
financial statements and annual tax return, and (ii) retained
earnings minus investment capital that the foreign investor has
used or has committed to reinvest in Vietnam. The law imposes an
obligation on the foreign investor to inform the local tax
authority of its intention to remit profits abroad at least seven
(7) working days prior to the proposed date of remittance. Below
are notable conditions and requirements to remit profits
abroad:

• A foreign investor is entitled to remit its profits abroad once
  the fiscal year ends and after the FIE has fulfilled its financial
  and tax obligations. This occurs after the FIE has filed its
  audited financial statement and its annual tax return with the tax
  authorities.
• A foreign investor is not allowed to remit its profits abroad
  if there are any accumulated losses in the audited financial
  statements, even if the FIE has profits in the relevant fiscal
  year, or make any interim dividend payment.

Any offshore loans (long-term and medium-term) must be
registered with the State Bank of Vietnam (SBV). A drawdown of
offshore loans can be conducted only after the borrower has
registered such offshore loans with the Central Bank. Furthermore,
the borrower is not allowed to repay its offshore loan if it fails
to register it with the Central Bank.

Purchase of Foreign Currencies

Generally, access to foreign exchange is not difficult. Foreign
investors have the right to purchase foreign currency. Foreign
employees who have foreign currencies may make bank transfers or
carry foreign currencies abroad. If foreign employees have lawful
income in Vietnamese dong, they are entitled to convert Vietnamese
dong into foreign currencies to transfer or carry abroad. Proof of
payment of tax may be required. In the case of an indirect
investment offshore, such as the purchase of foreign shares, both
Vietnamese and foreign investors must meet conditions set by the
SBVN. The SBVN approves such indirect investment on a case-by-case
basis.

7. What types of taxes, duties, and levies should a foreign
investor expect to encounter in negotiating an inbound investment
in Vietnam?

The main taxes that may affect a foreign-invested enterprise
are:

• Corporate income tax
• Value-added tax
• Personal income tax
• Import/export duties
• Foreign contractor tax
• Special consumption tax

We will not analyze each of them in detail. Briefly, Vietnam
will gradually reduce import duties according to its international
commitments and agreements. Vietnam applies the same VAT and CIT
rates to both local and foreign entities.

Corporate Income Tax (CIT)

CIT Rate. The common CIT rate for foreign invested enterprises
and local enterprises is 20%. If a project meets specific
conditions and criteria as set out in the Law on CIT and in the
Investment Law, an investor may enjoy a lower tax rate (10%, 15%,
or 17%). Subject to location, sectors, and industries, the maximum
period to enjoy a preferential CIT rate will vary. The CIT rate
applicable to exploration and exploitation activities of oil, gas,
and other rare natural resources ranges from 32% to 50%.

Tax Holidays. Subject to the nature, location, and scale of a
project, an enterprise may be entitled to a full tax holiday
ranging from two to four years.

Tax Reduction. A further 50% tax reduction applies to certain
projects. The period of reduction can be from four years to nine
years from the year in which the full tax holiday ceases.

Value Added Tax (VAT)

There are three rates: 0%, 5%, and 10%. In most cases, the rate
is 10%. The 0% rate applies to: (i) international transportation;
(ii) exported goods and services; (iii) construction activities and
installation of work in a foreign country or within duty-free
zones; or goods/services provided to foreign customers pursuant to
Government regulations; and (iv) goods and services that are not
subject to VAT once these goods and services are exported.

Personal Income Tax (PIT)

For tax purposes, a Vietnamese tax resident is a person who:

• Stays in Vietnam for 183 days or more in a calendar year or
  within a period of 12 consecutive months or has a house lease
  contract with an aggregate term of 183 days or more within a
  tax-assessable year;
• Has registered his/her residential address in Vietnam; or
• Has a temporary residence card.

A Vietnamese tax resident must pay income tax on his/her
worldwide income. The tax brackets are progressive and the top
bracket, which applies to monthly income over VND80,000,000
(US$1.00 = VND23,500), is 35%.

If a person is not a Vietnamese tax resident as defined above,
his/her income is taxed on the basis of gross income generated in
Vietnam at rates varying depending on the type of income.

Import/Export Tariff

Vietnam applies both an ad valorem and a specific rate system.
Depending on the kind of goods as identified in the Harmonized
System (HS) code, the preferred tariff rate and the specific tax
amount may vary. Import duties are subject to frequent change. In
addition to the preferred tariff, Vietnam also accords a better
tariff to certain goods that originate from a country that has a
trade agreement with Vietnam (e.g., ASEAN Free Trade Agreement,
China-ASEAN Agreement, Korea-ASEAN Agreement, India-ASEAN
Agreement, Bilateral Trade Agreement with the US, Vietnam-EU FTA,
Vietnam-UK FTA, Vietnam-Japan FTA, Comprehensive and Progressive
Agreement for Trans-Pacific Partnership, etc.).

Export duties are charged only on a few items, basically natural
resources such as minerals, forest products, and scrap metal. Rates
range from 0% to 45%.

Foreign Contractor Tax (FCT)

The FCT is a type of withholding tax that is comprised of two
taxes: Value Added Tax (VAT) and Income Tax. For an entity, the FCT
is comprised of Corporate Income Tax (CIT) and VAT. VAT and
Personal Income Tax (PIT) apply to an individual foreign
contractor. Depending on the nature of a transaction, VAT may be
exempt, and the CIT rate may vary. Despite the variations, FCT is
generally 10%

The FCT is generally a tax imposed on a foreign entity that
provides services in Vietnam and does not generally apply to a
foreign contractor that sells its goods in Vietnam or provides
certain services.

A foreign institutional contractor can pay the FCT tax by one of
three methods: the declaration method, the hybrid method, or the
direct method.

If a foreign contractor fails to meet conditions to apply the
declaration or the hybrid methods, it must apply the direct method.
This is the most frequent situation. In such case, the Vietnamese
party must withhold the FCT before paying the foreign institutional
contractor. Depending on the nature of the transaction and
services, each component of the FCT-VAT and CIT may vary.

As mentioned above, generally, the combined FCT rate is about
10%.

Special Consumption Tax (SCT)

There are 10 goods (e.g., cigarettes, beer, alcohol,
automobiles, airplanes, yachts, etc.) and six services (karaoke
bars and massage parlors, casinos and gaming with prizes, betting
businesses, golf businesses, lottery businesses, etc.) that are
subject to the SCT. The SCT rates range from 7% to 150%.

8. Do comprehensive intellectual property laws exist in Vietnam
and do they provide the same levels of protection for foreign
investors as local companies? Will local courts and tribunals
enforce IP laws uniformly, regardless of the nationality of the
parties?

Vietnamese law on the registration of intellectual property
rights (IPRs) conforms to international norms.

The IPRs recognized in Vietnam are as follows:

• Copyright of literary, artistic, and scientific works;
  copyright-related rights of performers, audio and visual fixation,
  broadcasts, and encrypted program-carrying satellite signals;
• Industrial property rights comprised of inventions, industrial
  designs, layout designs of integrated circuits, trade secrets,
  trademarks, trade names, and geographical indications;
• Plant varieties and plant reproductive materials.

Domestic Laws and International Agreements

Vietnam has a number of comprehensive and modern laws on the
administration and regulation of IPRs. Vietnam is a member of most
international conventions and treaties, including the Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS).

Vietnam entered the Comprehensive and Progressive Agreement for
Trans-Pacific Partnership (CPTPP) in 2018.

Enforcement of IPRs in Vietnam

When the intellectual property rights of an entity are
infringed, the entity can follow either administrative or judicial
procedures to enforce its rights. However, Vietnam’s protection
of IPRs may not satisfy the expectations of some manufacturers and
IPR holders. Enforcement often needs to be conducted promptly;
however, delays frequently occur because there are time-consuming
procedures and the lack of human resources within enforcement
bodies. Those factors interfere with the effort to stop
counterfeiting, especially against small counterfeiters.

One matter that remains unresolved is the lack of a mechanism to
recognize well-known (or famous) marks in Vietnam. When an
application for registration of a mark by the owner of a well-known
trademark is rejected because it has already been applied for or
registered, the owner may attempt to have its trademark recognized
by filing a complaint with Vietnam’s National Office of
Industrial Property (NOIP). The complaint must be accompanied by
certain required documents and other evidence. If the complaint is
successful, the owner’s mark will be recognized as well-known.
In such cases, the prior application or registration will be
rejected or cancelled. However, there is no certificate granted to
the owner to certify that its mark is a well-known mark, which
leaves the mark open to future challenge.

While there is no legal difference in the enforcement of IPRs on
behalf of foreign or domestic holders, far more foreign IPR holders
than domestic IPR holders seek enforcement of their IPRs.
Regardless of the IPR holder’s nationality, enforcement is
weak. However, greater numbers of domestic IPR holders are seeking
to enforce their rights. Monetary fines have recently increased but
are still not adequate to prevent initial and recurring
violations.

9. If a commercial dispute arises, given the choice between
local courts or an international arbitration venue, which would
offer a more beneficial forum for fair dispute resolution for
foreign investors?

In Vietnam, there are two types of arbitration: foreign and
domestic. Foreign arbitration is an arbitration process that is
governed by a foreign law (e.g., arbitration at the Singapore
International Arbitration Centre, whose rules of arbitration are
governed by Singapore law). On the other hand, domestic arbitration
is arbitration governed under Vietnam’s Law on Commercial
Arbitration (e.g., at the Vietnamese International Arbitrator
Center [VIAC]), whose rules of arbitration are governed by
Vietnamese law. In this question, we understand “international
arbitration venue” means a foreign arbitration not located in
Vietnam.

We provide our brief comparison between a local court and an
international arbitration venue through the following criteria
(there are still other criteria; however, to the extent of this
section, we only present some of them):

Probability of Enforcement in Vietnam

Generally speaking, a commercial dispute that is settled through
a local court will have a higher probability of enforcement in
Vietnam in comparison with a foreign arbitral award.

A first-instance judgment of a local court, as the main
authority to settle disputes (including commercial disputes) in
Vietnam, will be enforced by the enforcement authorities of
Vietnam, if the judgment is not disputed. If the judgment is
disputed, there will be an appeal process. After an appellate
proceeding, a local court renders a judgment of appeal and this
judgment comes into force (voluntarily by the parties or through
the involvement of an enforcement authority) when it is issued,
without any need to be recognized.

An award rendered by an international arbitration venue, on the
other hand, will need to be recognized by a Vietnamese court before
it can be enforced in Vietnam. Foreign arbitral awards require a
filing with the Ministry of Justice (MOJ). This is the first step
toward recognition. Within several days the MOJ will send the
foreign award to the appropriate local court, which will determine
whether it will be recognized and enforced in Vietnam. Decisions
made by a local court regarding recognition and enforcement of the
foreign award are final and cannot be appealed. Reviews in Vietnam
of foreign arbitral awards are generally intended not to relate to
the merits, but revolve around whether procedural and provisional
requirements have been met. Even so, local courts may sometimes
apply broader, more restrictive conditions when they review a
foreign arbitral award.

Time and Costs

The settlement of a commercial dispute by a local court is
time-consuming. Proceedings at a local court need to follow several
steps and local courts are mostly not flexible in these steps. Even
when a first-instance judgment is rendered by a local court, the
parties may have to deal with an appeal or a retrial. This also
increases costs incurred by the parties.

Meanwhile, the time required for settlement of a commercial
dispute at an international arbitration venue seems to be faster
due to the flexibility of the international arbitration venue.
Also, an award rendered by an international arbitration venue is
final and cannot be appealed, so the case may not be brought to
different levels of proceedings. However, as discussed, an award
rendered by an international arbitration venue will need to be
recognized by a Vietnamese court before it can be enforced in
Vietnam. The recognition procedure may be time-consuming. On the
other hand, administrative fees, costs of arbitrators, travel
costs, expert consultation, and other necessary services for
arbitration can run much higher in an international setting. For
disputes of smaller value, the benefits of domestic arbitration
will easily outweigh those of foreign arbitration.

Range of Options

Generally, the parties have more choices for how their dispute
will be resolved if the dispute is settled in an international
arbitration venue. For example, the parties can select a sole
arbitrator or an arbitration tribunal to settle their dispute. The
parties can also select the seat of arbitration, language of
arbitration, etc., to the extent permitted by applicable
arbitration rules. To the contrary, if the dispute is settled by a
local court, the parties, of course, cannot select a judge to
handle their case, and are restricted in other ways

Conclusion

In general, a local court has the advantage of enforcement of
its judgments/decisions. However, an international arbitration has
the advantage of time, range of options (place of hearings,
language, etc.), and sometimes cost. Parties must look at the
parties to the dispute, the amount in question, time and cost,
availability of qualified arbitrators, and the ease of enforcement
in Vietnam, to conclude which is the better option.

10. Does Vietnam currently have any data privacy laws or
regulations? how do they affect business activities?

Various regulations govern the collection, receipt,
transmission, and use of personal data. General rules on protection
of personal data can be found in the Law on Cyberinformation
Security No. 86/2015/QH13 (November 19, 2015). Large changes in
privacy regulation are expected to be launched in 2022.

The Law on Cybersecurity No. 24/2018/QH14 (June 12, 2018)
regulates cyber activities that impact national security and social
order and safety. Article 26 of the Cybersecurity Law requires
establishment of a physical presence in Vietnam and the storage of
certain data in Vietnam. However, these requirements are yet to be
enforced as guidance is missing. Various sector-specific
regulations also apply.

Notably, Vietnam’s Ministry of Public Security has released
the full text of a new draft decree on personal data protection
expected to take effect on December 1, 2021. The draft decree, in
its current iteration, regulates the cross-border transfer of data,
processing of sensitive personal data, and the rights of
individuals.

The new rules are based on the European General Data Protection
Regulation. As such, this transition could be a means for Vietnam
to integrate into a circle of countries that have already adopted
fairly sophisticated rules for dealing with privacy. But for
Vietnam, considering its current level of protection, the new rules
will be a fairly large step.

The draft decree would introduce a number of new and material
changes to the existing regime on data privacy protection. As more
enterprises embrace new technologies and increase their digital
footprint, they naturally collect, receive, transmit, and use
ever-increasing amounts of data from their customers, employees,
and various other subjects.

11. What practical advice can you share with investors who
decide to do business in Vietnam?

Impatience is a factor in some unsuccessful deals. As in other
parts of Asia, the personal connection with a counterpart or
important customer is important. This process of establishing a
good working relationship can be slightly time-consuming, but
certainly worthwhile in the long run.

The character of the business and commercial environment is more
and more Vietnamese. There are several local companies with
high-level commercial and industrial capability, and many are
interested in teaming up with foreign investors. As usual, care is
important, but opportunities are large.

12. Are there any recently passed laws or regulations in
Vietnam, including COVID-related, that are expected to affect the
activities of foreign investors in the future?

To date, there is no COVID-related law in Vietnam that directly
targets the activities of foreign investors.

As COVID waxes and wanes and moves around the country, national
and local temporary regulations have been issued to govern types of
business, physical interaction, traffic and road checks, testing,
vaccinations, quarantine, and more.

Currently, Vietnam has allowed the re-opening of many
businesses. The regulatory environment is restrictive and is
responsive to the prevalence of actual and projected cases. The
expectation is that the physical environment will be responsive to
the current and projected COVID landscape.

* * *

This publication was originally prepared for use by Meritas,
an association of independent law firms”. It also appeared in
Lexology on 31 December 2021.

Footnotes

1. Under the EL, a creative start-up
project is defined as an investment project that implements ideas
on the basis of exploiting intellectual property, technologies and
new business models and is able to grow quickly.

2. US$1 = VND23,500

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.