Decree 12/CP

DECREE No.12-CP OF FEBRUARY 18, 1997 OF THE GOVERNMENT STIPULATING IN DETAIL THE IMPLEMENTATION OF THE LAW ON FOREIGN INVESTMENT IN VIETNAM THE GOVERNMENT Pursuant to the Law on Organization of the Government of September 30, 1992; Pursuant to the Law on Foreign Investment in Vietnam of November 12, 1996; Pursuant to the Law on the Promulgation of Legal Documents of November 12, 1996; At the proposal of the Minister of Planning and Investment, DECREES Chapter I GENERAL PROVISIONS Article 1.- This Decree details the implementation of the Law on Foreign Investment in Vietnam of November 12, 1996. The investment in the industrial zones and export processing zones and the investment under build-operate- transfer (BOT) contracts, build-transfer-operate (BTO) contracts and build-transfer (BT) contracts must comply with the relevant provisions of this Decree and other documents of the Government on the industrial zones, export processing zones and BOT, BTO and BT contracts. The international credit activities, operations of the Vietnam-based affiliates of foreign companies and other commercial and indirect investment forms shall not fall under the scope of regulation of this Decree. Article 2.- The objects entering into investment cooperation in accordance with the Law on Foreign Investment in Vietnam shall include: 1. Vietnamese enterprises, including: - State enterprises established under the Law on State Enterprises; - Cooperatives established under the Law on Cooperatives; - Enterprises of the socio-political organizations. - Enterprises established under the Law on Companies; - Enterprises established under the Law on Private Enterprises; 2. Vietnamese organizations defined in Article 65 of the Law on Foreign Investment in Vietnam, which meet the conditions set by the Government. 3. Foreign investors. 4. Enterprises with foreign invested capital. 5. Overseas Vietnamese. 6. State agencies competent to sign BOT, BTO and BT contracts. Article 3.- Basing itself on the general planning and orientations for socio-economic development of each period, the Ministry of Planning and Investment shall coordinate with the Ministries, branches and the People�s Committees of the provinces and the cities directly under the Central Government (hereafter referred to as provincial People�s Committees) in submitting to the Government for decision and promulgation a list of geographical areas where investment is encouraged, a list of projects in which investment is encouraged or specially encouraged, a list of projects in which investment is conditional and a list of fields where investment licenses shall not be granted. Article 4.- The State agencies competent to grant investment licenses defined in Article 55 of the Law on Foreign Investment in Vietnam shall include: - The Ministry of Planning and Investment; - The provincial People�s Committees which meet all the conditions according to the assignment decision of the Government; On the basis of the proposal of the provincial People�s Committee and depending on the conditions of the Management Board of each industrial zone, the Planning and Investment Ministry shall submit to the Prime Minister for decision the authorization by the Ministry of Planning and Investment to the Management Board of the industrial zone to grant investment licenses to the investment projects in the industrial zone. Article 5.- 1. In their investment activities in Vietnam, the objects involved in investment cooperation defined in Article 2 of this Decree must abide by the provisions of the Law on Foreign Investment in Vietnam, the provisions of this Decree and other relevant provisions of Vietnamese law. 2. In cases where the laws of Vietnam have not yet provided for the foreign investment relations in Vietnam, the parties may agree in their contract upon the application of foreign laws, but such agreement must not contrary to the provisions of the laws of Vietnam. Article 6.- The investment project dossiers and the documents for official work with the Vietnamese State agencies must be made in Vietnamese or in both Vietnamese and a widely-used foreign language. Chapter II FORMS OF INVESTMENT Article 7.- 1. A business cooperation contract is a document signed between two or more parties (hereafter referred to as business cooperation parties) defining responsibilities and sharing of business results among the involved parties to make investment and do business in Vietnam without establishing a legal person. Commercial contract and contracts for delivery of raw materials in return for finished products, or purchase of equipment on deferred payment and other contracts without sharing profits or business results shall not fall under the scope of regulation of this Decree. The business cooperation contracts in the field of exploration and exploitation of oil and gas and a number of other natural resources in the form of production-sharing contracts shall be subject to the oil and gas legislation, other relevant legislation and the Law on Foreign Investment in Vietnam. 2. Business cooperation contracts shall be signed by the competent representatives of the business cooperation parties. Article 8.- A business cooperation contract must include the following main contents: 1. The nationalities, addresses and the competent representatives of the business cooperation parties. 2. The business purposes and scope. 3. The contributions by the business cooperation parties and the division of the business results, the tempo of performance of the contract 4. The major products, the proportions of products for export and domestic consumption,. 5. The duration of performance of the contract. 6. The rights and obligations of the business cooperation parties 7. Amendment and termination of the contract; the transfer conditions. 8. Settlement of disputes. A business cooperation contract shall take effect from the date the investment license is granted. Article 9.- During the business process, the business cooperation parties may agree to set up a Coordinating Board to oversee the performance of the business cooperation contract. The Coordinating Board of a business cooperation contract shall not be the legal representative of the business cooperation parties The functions, tasks and powers of the Coordinating Board shall be agreed upon by the parties. Article 10.- The dossier applying for the investment license for an investment project in the form of a business cooperation contract shall consist of: 1. An application for the investment license. 2. A business cooperation contract. 3. The documents certifying the legal status and financial situation of the involved parties. 4. The economic- technical feasibility study. 5. The dossiers defined in Articles 38, 39, 45 and 83 of this Decree. Article 11.- 1. The foreign party(ies) must fulfill the tax and other financial obligations as prescribed by the Law on Foreign Investment in Vietnam; the Vietnamese party(ies) must fulfill the tax and other financial obligations as prescribed by the laws applicable to domestic enterprises. 2. Each business cooperation party shall be accountable for all of its activities before the laws of the Socialist Republic of Vietnam. Article 12- 1. A joint venture enterprise is an enterprise established in Vietnam on the basis of a joint venture contract signed between one or more Vietnamese party and one or more foreign party in order to invest and/or do business in Vietnam. 2. A new joint venture enterprise is an enterprise established between a joint venture enterprise already licensed to operate in Vietnam and a foreign investor or Vietnamese enterprise or another joint venture enterprise, enterprise with 100 per cent foreign invested capital already licensed to operate in Vietnam. In special cases, a joint venture enterprise may be established on the basis of an agreement between the Government of the Socialist Republic of Vietnam and the Government of a foreign country. 3. Joint venture enterprises shall be established in the form of limited liability companies and shall have the legal person status as prescribed by Vietnamese law; the liability of each joint venture party to the other party (ies) and to the joint venture enterprise shall be limited to the amount of its contribution to the prescribed capital of the joint venture enterprise. 4. A joint venture enterprise shall be established and operate after it is granted an investment license. Article 13.- The dossier applying for the investment license for a project in the form of a joint venture enterprise shall consist of: 1. An application for the investment license. 2. The joint venture contract. 3. The Statute of the joint venture enterprise. 4. The documents certifying the legal status and financial situation of the joint venture parties. 5. The economic-technical feasibility study. 6. The dossiers defined in Article 38, 39, 45 and 83 of this Decree. Article 14.- A joint venture contract must include the following main contents: 1. The nationalities, addresses and competent representatives of the joint venture parties. 2. The business purposes and scope. 3. The investment capital, the prescribed capital, the proportion of contribution to be made by each party to the prescribed capital, the mode and timetable for capital contribution and the tempo for the construction of the enterprise. 4. The major products, the proportion of goods for export and for domestic consumption. 5. The operating duration of the enterprise. 6. The rights and obligations of the involved parties; 7. Amendment and termination of the contract, the transfer conditions; the conditions for the termination and dissolution of the enterprise. 8. Settlement of disputes. Article 15.- The Statute of a joint venture enterprise must include the following main contents: 1. The nationalities, addresses and competent representatives of the joint venture parties, the name and address of the enterprise. 2. The business purposes and scope of the enterprise. 3. The invested capital, the prescribed capital; the proportion of contribution to the prescribed capital, the mode and timetable for contributions to the prescribed capital. 4. The number, composition, tasks, powers and term of office of the Managing Board; tasks and powers of the General Director and Deputy General Directors of the enterprise. 5. The enterprise�s representative before the Courts, Arbitration and the State agencies of Vietnam. 6. The financial principles. 7. The ratio of profit and loss share among the joint venture parties. 8. The duration of operation, termination and dissolution of the enterprise. 9. The labor relations in the enterprise, the plan on the training of managerial, technical and business staff and workers. 10. The procedure for amending and supplementing the Statute of the joint venture enterprise. Article 16.- In the process of operation if the joint venture parties agree to amend and supplement the terms of their joint venture contract and the Statute of the joint venture enterprise, such amendments and supplements shall be effective only after they are approved by the investment license granting agency. Article 17.- 1. The joint venture parties shall make contributions to the prescribed capital in accordance with the provisions in Article 7 of the Law on Foreign Investment in Vietnam. 2. The Vietnamese party(ies) may mobilize its self-procured capital and the capital sources of Vietnamese enterprises and individuals so as to ensure an appropriate proportion in the prescribed capital of the joint venture enterprise. 3. The value of capital contribution by each party shall be agreed upon by the involved parties on the basis of the market prices at the time the capital contribution is made. 4. The foreign party(ies) to the joint venture enterprise may make capital contribution in Vietnamese currency earned from the profits, or from the liquidation or transfer of the invested capital in Vietnam. 5. The contribution of the land-use right value by the Vietnamese party must be based on the specific conditions of the project to ensure the efficient use of the land for effective business. Article 18.- 1. The prescribed capital of a joint venture enterprise must be at least equal to 30 per cent of the invested capital; with regard to the projects to build infrastructure in the areas with difficult socio-economic conditions, investment projects in mountainous, deep-lying and remote areas and in reforestation, this proportion may be as low as 20 per cent provided that it is approved by the investment license granting agency. 2. The proportion of capital contribution by the foreign party(ies) shall be agreed upon by the parties to the joint venture but must not be lower than 30 per cent of the prescribed capital of the joint venture enterprise. For new joint ventures, the proportion of the foreign investors� contribution to the prescribed capital must ensure the above-said proportion. In a number of cases, depending on the business line of the project, its technology, markets, business efficiency and other economic and social benefits, the investment license granting agency may consider and allow the foreign party to a joint venture to make a capital contribution of as low as 20 per cent of the prescribed capital. 3. For important projects, when signing the joint venture contract, the joint venture parties may agree upon the time, mode and rate at which the Vietnamese party(ies) shall increase the proportion of its capital contribution to the prescribed capital of the joint venture enterprise. Article 19.- The prescribed capital may be contributed either once in full at the time the joint venture enterprise is established or by installments over a reasonable period of time; the mode and tempo of contributions to the prescribed capital must be specified in the joint venture contract and consistent with the economic-technical feasibility study. In cases where the joint venture parties fail to contribute their capitals according to the committed tempo without any plausible reason, the investment license granting agency shall be entitled to withdraw their investment license . Article 20.- During the process of operation, a joint venture enterprise must not reduce its prescribed capital. Any increase in the invested capital and/or in the prescribed capital; any change in the proportion of capital contributions shall be decided by the Managing Board of the joint venture enterprise and must be approved by the investment license granting agency. Article 21.- 1. The leading body of a joint venture enterprise shall be its Managing Board. The Managing Board shall consist of the Chairman, the Vice-Chairman and other members. The number of members of the Managing Board, the ratio of its members among the joint venture parties, the appointment of members and the Chairman of the Managing Board, the appointment of the General Director and Deputy General Directors shall comply with Article 12 and Article 13 of the Law on Foreign Investment in Vietnam. The appointment of the aforesaid members must be completed not later than 60 days from the date the investment license is granted. The Chairman of the Managing Board may concurrently hold the post of General Director of the joint venture enterprise. 2. The term of office of the Managing Board shall be agreed upon by the joint venture parties but must not exceed five years. 3. For a new joint venture enterprise, the existing joint venture enterprise shall have at least two members to the Managing Board, at least one of whom is a Vietnamese citizen who represents the Vietnamese party to the existing joint venture. Article 22.- 1. The Managing Board shall meet at least once a year. The meetings of the Managing Board shall be convened by its Chairman; An extraordinary meeting may be convened at the request of two thirds of the members of the Managing Board or of one of the joint venture parties or of the General Director or the first Deputy General Director. 2. A meeting of the Managing Board must be attended by at least two thirds of its members who represent the joint venture parties. A member of the Managing Board may authorize in writing a representative to attend meetings and vote on his/her behalf on the matters the representative is mandated to vote. The Chairman of the Managing Board may mandate the Vice Chairman of the Managing Board to convene and chair a meeting of the Managing Board. Article 23.- 1. The Chairman of the Managing Board shall have the following powers and tasks: - Convening and chairing the meetings of the Managing Board; - Playing a key role in supervising and promoting the execution of the resolutions of the Managing Board. 2. The members of the Managing Board shall not be entitled to any salary but allowances related to the operations of the Managing Board, which shall be decided by the Managing Board. These allowances shall be accounted for in the managerial expenditure of the joint venture enterprise. Article 24.- The General Director and Deputy General Directors of the joint venture enterprise shall manage and direct the day-to-day work of the joint venture enterprise. The General Director shall be the enterprise�s representative before the Courts and the State agencies of Vietnam. The General Director or the first Deputy General Director must be a Vietnamese citizen residing in Vietnam and working for the Vietnamese party. If the joint venture has only one Deputy General Director, he/she shall functions as the first Deputy General Director. The Managing Board shall determine and assign the powers and tasks between the General Director and the first Deputy General Director. The General Director shall take responsibility before the Managing Board for the operations of the joint venture enterprise. In cases where the General Director and the first Deputy General Director have different opinions on the executive work in the enterprise, the opinion of the General Director must be complied with but the Deputy General Director shall be entitled to reserve his/her opinion and submit it to the Managing Board for consideration and decision at the next meeting. Article 25.- 1. Depending on the business line and the nature of each project, the Managing Board of a joint venture enterprise may hire a managing organization to manage the business activities of the enterprise. The management hiring contract is a contract agreed upon and signed by the involved parties to hire the operation, management or exploitation of a project. The signing and performance of the contract must comply with the provisions of the laws of Vietnam. The management hiring contract must not alter the operation purposes and scope of the project already determined in the investment license. It must be approved by the investment license granting agency within 30 days from the receipt of the dossier. After this time limit, if the investment license granting agency does not approve, it shall notify in writing the investors thereof and clearly state the reasons. 2. The managing organization must operate within the scope prescribed in the already approved management contract. 3 The managing organization shall have to fulfill tax and other obligations in accordance with current provisions of law. The joint venture enterprise shall have to pay on behalf of the managing organization all these taxes to the State of Vietnam. 4. Under all circumstances shall the joint venture enterprise shall take responsibility before law for the operations of the managing organization in the performance of the contract. The General Director and Deputy General Directors of the joint venture enterprise shall have to assist and oversee the operations of the managing organization. Article 26.- An enterprise with 100 per cent foreign invested capital is an enterprise owned and established in Vietnam by a foreign investor who manages the enterprise by himself/herself and takes h