Have there been any recent regulatory changes or interesting developments?
Recent legal developments have seen changes to Vietnam’s Law on Investment, which now clearly provides for a list of prohibited conditional business lines. In addition, Vietnam’s Law on Enterprises has amended one of the requirements so that investors no longer have to provide codes of business lines and register their seal. Notably, the Law on Housing has been updated so that foreign individuals and organizations may own, in aggregate, 30% of flats in a condominium or 250 single houses in a given district area. Decree 15/2015/ND-CP, promulgated on February 14, 2015, is a good sign for bankable infrastructure development. This regulation broadens the types of Public-Private Partnership arrangements and provides more incentives in the tendering process.
What challenges and opportunities exist for investors in your jurisdiction?
In Vietnam, there are several challenges which foreign investors face, including: finding investable targets (primarily due to lack of quality deals of scale) and lack of publically available company and market data; complicated administrative procedures; a complex and non-transparent legal system; interpretation of legislation differing between each of the provinces and an ineffective court system.
However, there are an increasing number of attractive opportunities in various sectors such as real estate, FMCG, F&B, energy and hospitality. Especially now, since legislation has been gradually changed, in accordance with international commitments, and expanded for more business lines to open up to foreign investors. The Government of Vietnam has introduced other reforms to simplify procedures and reduce administrative burdens.
What areas of risk require greater attention in 2015?
Foreign investors must be cognizant of risks stemming from Vietnam’s labour market demographics and laws, logistics and utilities, infrastructure, trade & investment regulations, crime levels and security issues, and covering all bases to ensure their businesses keep safe.
Potential risks posed by a low skilled labour pool, high costs and limited labour market flexibility and any risks associated with importing foreign skilled labour.
Operational risks for any supply chain and infrastructure challenges to a company’s existing operations within Vietnam.
Financial risks posed by the level of financial market sophistication, tax regimes and the legal system.
Business disruption risks with the threat of crime, terrorism, and international conflict.
Furthermore, investors should also be aware of compliance risks such as legal or regulatory sanctions, material financial loss, and loss of reputation due to a failure to comply with requirements of the law, industry standards and policies. In an M&A transaction in Vietnam, these risks can be minimized by carrying out thorough legal due diligence, understanding local expectations and aligning key stakeholders.
Can you outline the process of an M&A with foreign investors?
Although it depends on the content and form of a specific M&A transaction (purchase and sale of the company’s shares or amalgamation/merger of companies etc.), generally, there are 4 steps:
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Steps |
Activities |
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Planning M&A strategy |
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Valuation and due diligence |
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Negotiation and closing the deal |
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Post-deal |
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Why is it important to consider the tax issues and implications of a possible deal at the very outset?
Tax considerations affect the transaction’s structure. Often there is more than one way to structure a transaction to achieve the parties’ business goals, so tax advice early on can yield meaningful economic benefits. Generally, acquisition transactions will be subject to tax if it is structured as a purchase of shares or assets in cash, bill of exchange or other form of payment. On the other hand, the transaction might not be taxable if it falls in a merger involving the exchange of shares or assets of the target company’s shares for the securities of a buyer or agent, with direct or indirect relationships between the buyer and seller, and the shareholders of both parties.
In practice, a capital transaction between the parties with direct or indirect relationships (e.g. belonging to a corporation) that has the main purpose of restructuring the organization without profit, the transaction value will be then determined to be equal to the cost price. Consequently, this kind of transaction does not accrue profit and thus, will not incur tax.
What key trends and strategies do you expect to see over the coming year?
The current trend of cross-border M&As will continue to increase in 2015 and beyond, especially in banking, real estate, FMCG, electronics, software development, outsourcing, F&B and logistics etc. There will be continued strong inbound M&As primarily from the Asia-Pacific, especially Korea and Japan. Domestic participation will be steady among companies strategically merging to increase their resources and competitiveness as the local market matures, with continued limited outbound M&A activity. A young population and GDP growth will drive deal flows with strong prospects found in consumer, healthcare, agriculture and education. Bank sector consolidation will continue as expected, although slower than anticipated. Progress on the Vietnamese Government’s initiative to encourage investment into SOEs will remain slow, although state sector equitization may offer long term opportunities.
Source: http://gatewaynorway.no/
Key words: legal development, Vietnam´s law, investment
