Q&A: Legal advice for establishment of Joint Venture Company

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Legal advice for establishment of Joint Venture Company

Question: We are foreign investor (hereinafter referred to as “Client”) is now seeking legal advices for establishment of Joint Venture Company with business principal activities of (i) Operations of freight transport agency; (ii) Operations of customs clearance agency; (iii) Operations of general management consulting services (the company is not allowed to provide legal services, tax services, accounting and auditing services, tax consultancy services, consulting services for managing short-term investment portfolio, or consulting services regarding education, employment, vocational training, policies related to labor – employment relationship, lobbying). (iv) Warehouse services (except for real-estate business); (v) Brokerage services for transport of goods; (vi) issuing transport documentation services (the company is not allowed to directly involved in the transport of goods and implementation of commercial activities) (These services are performed on behalf of the owners) (hereinafter referred to as “FIC”), please provide us the legal service and your fee?

Answen: SBLAW is grateful to present you our Legal Services Proposal for your review and consideration.       

1.Setting up Foreign Invested Company in vietnam

The establishment of a FIC in Vietnam requires an Investment Certificate from the licensing authority. Depending upon the location of the company, the licensing authority may be the Provincial People’s Committee (for companies located outside industrial or export processing zones) or the provincial Industrial and Export Processing Zones Management Authority (for companies located in industrial or export processing zones).

We would like to clarify that the procedure for establishment of a FIC in Vietnam generally takes a rather long time in comparison with other countries in the region. Our practical experiences show that although the total time for establishment of a foreign invested company as stipulated under Vietnam Investment Law 2005 is only 45 days, the actual process may take a longer time due to that the competent authority must consult other relevant offices to evaluate the investment project. With respect to Investment Project, total investment capital of which is from 300,000,000,000 VND upward, Investor is required to prepare Feasibility Study for the Investment Project.

Generally, the relevant licensing authorities shall evaluate the legitimacy and the feasibility of such Investment Project to determine on granting of the Investment Certificate on the following basis:

  1. the legal framework including Vietnam’s WTO Commitments, Vietnam Investment Law, Vietnam Enterprise Law, Regulations applicable to specific industries as well as the master economic development plan of the city or province that the FIC shall register its head-office.
  2. Your financial ability, investment capital to put in the Investment Project, facilities and human resources serving the implementation of such investment project in Vietnam.

By the way, we also would like to note that in the year of 2014, Vietnam National Assembly adopted a new law on Investment and Enterprise which shall become effect from 1st July 2015. Accordingly, the licensing procedure for setting up FIC shall have to undergo two following steps:

– Step 1: Obtainment of Investment Certificate. The Law requires that within 15 working days from submission of the application dossier the competent authority shall have to issue the Investment Certificate for Foreign Investor. However, having preliminarily discussed with the Licensing Authority, with respect to your proposed business lines which are classified to conditional investment sector, the Licensing Authority still need to consult relevant Ministries before granting Investment Certificate. Thus, we do not expect that this process can be completed within 15 working days.

– Step 2[1]: After obtainment of Investment Certificate, Client shall be required to obtain the Certificate of Business Registration. The Law requires that within 05 working days from submission of application dossier, the competent authority shall have to issue the Certificate of Business Registration for forming the Foreign Invested Company.

2.OUR SPECIFIC COMMENTS

2.1.Operations of freight transport agency is classified to CPC 748: According to roadmap of opening market under Vietnam’s WTO commitments, from the year of entering into WTO, Foreign Investors shall be required to setup joint venture with Vietnamese Partner in which foreign ownership must not exceed 51%. 7 years after entering into WTO, foreign ownership restriction shall be removed. Thus, with respect to these services, Investor shall not face with difficulties in obtaining Investment Certificate for establishment of joint venture company;

2.2.Operations of customs clearance agency:  According to roadmap of opening market under Vietnam’s WTO commitments, from the year of entering into WTO, Foreign Investors shall be required to setup joint venture with Vietnamese Partner in which foreign ownership must not exceed 51%. 5 years after entering into WTO, foreign ownership restriction in Joint Venture Company shall be removed. Thus, with respect to these services, Client is allowed to setup Joint Venture Company with a Local Investor in which the Ownership of the Client can be up to 99%. We also would like to further note that in this case, experience of the Local Investor in the field of logistic services shall be considered as one of important factors that determine success possibility of the case;

2.3.Operations of general management consulting services (the company is not allowed to provide legal services, tax services, accounting and auditing services, tax consultancy services, consulting services for managing short-term investment portfolio, or consulting services regarding education, employment, vocational training, policies related to labor – employment relationship, lobbying is classified to CPC 865. According to our practical experience, Vietnam Law does not restrict Foreign Investor in investment in this field. Thus, Client shall not face with difficulties in obtaining approval for this service.

2.4.Warehouse service (except for real-estate business) is classified to Warehousing Service (CPC 742). According to roadmap of opening market under Vietnam’s WTO commitments, from the year of entering into WTO, Foreign Investors shall be required to setup joint venture with Vietnamese Partner in which foreign ownership must not exceed 51%. 7 years after entering into WTO, foreign ownership restriction shall be removed. Thus, Client shall not face with difficulty in obtainment of approval from the competent authority. However, we still would like to note that, for conducting warehouse service, you must lease a land lot having sufficient space that enable the FIC to provide warehouse services to customer.

2.5.Issuing transport documentation services (the company is not allowed to directly involved in the transport of goods and implementation of commercial activities) (These services are performed on behalf of the owners) is classified to CPC 749. According to roadmap of opening market under Vietnam’s WTO commitment, from the year of entering into WTO, Foreign Investors shall be required to setup joint venture with Vietnamese Partner in which foreign ownership must not exceed 49%. 3 years after entering into WTO, foreign ownership must not exceed 51% and 4 years after that, foreign ownership restriction shall be removed.

2.6.Other critical factors

In this case, in order to secure the high success possibility, we highly recommend Client to carefully account following factors:

Location of the Joint Venture: In Vietnam, location of a foreign invested company is very important. Location of the Joint Venture Company must strictly comply with master plan of the City. We noted that the Joint Venture Company shall conduct warehousing services. In this case, a land lot having sufficient space for warehousing services shall be strictly required. A plan for leasing existed warehouses from other suppliers for re-leasing is not recommended. According to our practical experience, locations in Industrial Zones shall be a good option. The Licensing Authority may refuse to grant the License if Client fails to provide sufficient explanation on such matters.

Investment Capital of FIC: Under Vietnam Law, your proposed business does not require for minimum rate of investment capital. However, upon applying for investment certificate, Client shall need to provide an estimate of capital required for operating the Foreign Invested Company in a medium or long term. For a number of business activities as mentioned in your email, the competent authority may require Client to consider an amount of investment capital from 700,000USD upward. In case Client finds such amount is not feasible, Client should consider removing un-necessary business lines.

Experience of Client: Experience of Client and Vietnam Partner in the field is also one of important factor that determining the success possibility of the case. Foreign Investor and Vietnam Partner having no experience in the field is generally not favoured by the Licensing Authority.

  1. Scope of works

Following works are proposed based on the request of Client. However, depending on the specific position/situation of Client, several work items may not be necessary. Meanwhile, other works may be required. However, any additional works shall not fall under the scope of this Legal Service Proposal, but could be provided upon request.

SCOPE OF SERVICES
Preparation of the application documents:

  • Notifying application documents required in accordance with Vietnamese law;
  • Drafting application documents required for submission purpose in English language;
  • Liaising with you to discuss the draft application documents;
  •  Amending the application documents based on your comments;
  • Obtaining preliminary comments from the licensing authority on the draft application documents;
  • Finalizing the application documents following comments from the licensing authority; and
  • Translating the final version of the application documents into Vietnamese for execution.
Licensing procedures:

  • Submitting the application dossier to the licensing authority on your behalf;
  • Monitoring and following up with the relevant authorities on the approval process;
  • Keeping you updated on the developments and additional requirements, if any; and
  • Assisting you in obtaining Investment Certificate for FIC
Post-licensing procedures:

  • Placing an announcement on establishment of FIC on the newspaper;
  • Obtaining Tax Code Registration for FIC;
  • Obtaining Seal Sample and Certificate of Seal Sample Registration

Roadmap for carrying out above scope of work can be described in details as follows:

  1. Preparing the application dossier: We shall collect necessary information and documents from you. Upon receipt of necessary information and documents from you, we shall translate documents from English into Vietnamese and prepare the application dossier under the standard forms. The initial drafted application dossier shall be sent to you for your comments. Then, after updating the application dossier based on your comments, we shall obtain the preliminary comments from the competent authority and send the finalized application dossiers for you to sign and seal. We anticipate that this phase shall be completed within from 12 working days. The prepared documents shall then be sent to you for review, signing and seal.
  2. Submission of application dossier: Within 02 working days from receipt of duly signed and sealed application dossier, we shall submit the application dossier to the competent authority.
  3. Licensing Process: Within 4 months from submission of application dossier to Licensing Agency, we shall obtain the Investment Certificate for Client. The process can be longer as it takes time to consult relevant Ministries such as Ministry of Traffic and Transport, Ministry of Industry and Trade, Ministry of Planning and Investment, and the Ministry of Finance. In such case, S&B Law shall try its best to accelerate the licensing process.
  4. Post licensing: Within 13 working days we shall complete the post licensing procedures such as publishing the establishment of FIC, obtaining Seal Sample, Certificate of Seal Sample Registration and Tax Code Registration for FIC.