Chronology of postwar FDI policy changes
HANOI -Vietnam's policy toward foreign investment in the country has frustrated company executives, who say
its regulations are restrictive.
Indeed, concerns over growing bureaucracy and corruption through the 1990s convinced many that Vietnam isn't yet a viable
place for investment.
Below are the major changes in Vietnam's approach to foreign investment since it first allowed foreign firms to enter the country
under its 1987 Law on Foreign Investment.
1987 Vietnam passed its first postwar Law on Foreign Investment. It provided opportunities for investment in certain sectors
via 100% foreign-owned enterprises, joint ventures and business cooperation contracts.
1988 Foreign investment worth $366 million was licensed under the new law.
1989 A crackdown on student protesters in China's Tiananmen Square shifted investor attention temporarily away from China and
helped boost investment in Vietnam, which was considered Asia's next tiger economy.
1990 Vietnam's foreign-investment law was amended to update the country's joint-venture regulations. The amendments
clarified rules for setting up joint ventures and allowed some private Vietnamese companies, as well as state firms, to form
foreign joint ventures with foreigners. It stated that foreign partners must own at least 30% of a joint venture's registered capital.
The updated law specified that the general director and first deputy director of any Vietnamese-foreign joint-venture firm must
be Vietnamese.
1992 Hanoi in December again amended its Law on Foreign Investment. It introduced build-operate-transfer, or BOT, as a
viable form of investment and said that domestic companies could contribute hard currency when setting up a foreign
partnership. It noted that those using land as their contribution must fix a monetary value to that land.
A build-operate-transfer contract will typically involve infrastructure development, where a foreign company will finance, build
and operate, and then transfer the project to the government.
The law amendment also raised the life of a joint-venture license to between 50 and 70 years from 20 years.
It regulated the establishment of export-processing zones and export-processing companies, which were designed to attract
foreign investors, and increased the tax breaks offered to some wholly owned foreign investments.
1996 Foreign investment pledges peaked at $9.4 billion.
A third amendment to the Law on Foreign Investment increased the number of BOT investment forms allowed in Vietnam and
raised their tax privileges.
It specified that foreign-invested enterprises must have legal capital, or equity, worth at least 30% of total investment capital,
and provided intellectual property right protection to foreign companies.
It allowed some provincial authorities to issue investment licenses of up to $10 million. Licenses were previously issued by the
Ministry of Planning and Investment in Hanoi.
1997 The Ministry of Planning and Investment, or MPI, issued a list of sectors that would be either closed to foreign investment
or would be open to only controlled forms of investment. The strategic sectors included oil and gas, transportation and several
service sectors.
The General Department of Statistics and MPI issued rules on reporting requirements for foreign-invested enterprises.
1998 In January, the government issued its Decree on the Encouragement and Guarantee of Foreign Direct Investment to tempt
back increasingly disillusioned investors. Among other things, the decree outlined tax breaks and preferential import controls for
foreign-invested companies.
The same month, it allowed the establishment of foreign business association, which now meets regularly with government
officials to discuss the development of Vietnam's investment climate.
Hanoi updated its BOT regulations to accommodate new tax rates and operation rules. It facilitated the building of BOT
projects by 100% foreign-owned enterprises.
In October, it issued Decree 85, which solidified rules governing who can work for a foreign company and through what official
channels they must be recruited.
1999 First wholly owned foreign insurance company, Chinfon Manulife Insurance Co., was licensed.
Hanoi introduced a 40-hour working week for certain state-sector employes. Although the move doesn't technically have an
impact on non-state companies, many staff in foreign-invested enterprises are employed via state-run agencies and foreign
executives complained some were unwilling to work more than 40 hours a week after the rule's introduction.
In July, the government lowered income tax rates for foreigners working in Vietnam.
In September, the Ministry of Trade issued Decision 1021, which relaxed regulations on the approval of export quotas for
foreign-invested companies.
2000 Lawmakers are expected in May to ratify a new set of amendments to the Law on Foreign Investment which, if passed,
will increase the number of investment forms available to foreign firms, facilitate the mortgage of land, offer greater tax cuts for
foreign companies, and a more liberal foreign-exchange conversion regime.
It will also facilitate the restructuring or closure of unprofitable foreign-invested enterprises and allow those that plan to close to
sell their land use rights.
Hanoi may also lower the profit tax rate applied to foreign firms investing in Vietnam.
Dow Jones - April 27, 2000.
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