Asia Pacific Trade & Commerce Client Conference

Asia Pacific Trade & Commerce Client Conference 27 August 2015 | Baker & McKenzie, Hutchison House, Hong Kong

1. Import / Export & Customs Determination of validity of customs declarations The General Department of Customs of the Ministry of Finance issued Official Letter No. 11836/TCHQ-GSQL on 30 September 2014 answering queries, made by the General Department of Tax, regarding the determination of the validity of customs declarations, in the dossiers of businesses exporting goods to Lao Bao Trade and Economic Zone. According to the Official Letter, the declarer is not required to submit the registration numbers of the vehicles transporting exported goods via the border gates. It is also not compulsory to include information, contained in the commercial invoices, in the declarations, as the invoices are not considered to be proof documents for this purpose.

Supervision of exported goods Official Letter No. 11029/TCHQ-GSQL was issued on 10 September 2014 by the General Department of Customs www.bakermckenzie.com under the Ministry of Finance on the supervision of exported goods which were cleared by customs and are being stored in warehouses and goods that are stored at For further information please contact customs agencies at seaports (the "Customs Inspection Area"). Fred Burke Tel: +84 8 38295585 [email protected] Invoices used in customs dossiers Official Letter No. 11910/TCHQ-GSQL was issued on 1 October 2014 on invoices used in customs dossiers during export procedures.

Implementation on C/O issuance procedures In Official Letter No. 12733/BTC-TCHQ dated 10 September 2014, the Ministry of Finance proposed that the Government Office approve the implementation on Certificate of Origin ("C/O") issuance procedures from the Vietnam Chamber of Commerce and Industry ("VCCI").

License for importing radio frequency transmitters and transceivers The Ministry of Information and Communications issued Circular No. 18/2014/TT-BTTT detailing Decree No. 187/2013/ND-CP, dated 20 November 2014 of the Government setting forth the import of radio frequency transmitters and transceivers. All radio transmitters and transceivers (except accessories and spare parts) specified in Appendix I of the Circular are required to have an import permit. An application for a permit to import radio frequency transmitters and transceivers must include commercial invoices and contracts as supporting documents. An import permit will be issued within 7 working days following the date receipt of all required application documents.

Exemption from import duty of imported spare parts On 29 January 2015, the Ministry of Finance issued Circular No. 10/2015/TT-BTC guiding Decision No. 54/2014/TT-TTg on regulating the exemption of imported spare parts used for producing and assembling certain medical equipment which have been prioritized for research and manufacturing, from import duty ("Circular No. 10"). The tax exemption period for such products will last for 05 years,1 commencing from the start date of the project, in accordance with the guidelines referred to in Section 15, Article 100 of Circular 128/2013/TT-BTC.2

______1 Article 2, Circular No. 10 2 Circular No. 128/2013/TT-BTC dated 10 September 2013 of the Ministry of Finance on customs procedures, customs supervision and inspection; export tax, import tax, and administration of tax on exported goods and imported goods.

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Development planning for cargo warehouses at border gate areas between Vietnam and China On 03 February 2015, the Ministry of Industry and Trade issued Decision No. 1093/QD-BCT, approving development planning for cargo warehouses at border gates areas between Vietnam and China until 2025. The overall target of the plan is to develop a cargo warehouse system and logistical services program, with the aim of delivering a modern and efficient system that can meet the needs of receiving and storing goods for import and export, thereby helping to improve and encourage import and export activities in border gate areas of Vietnam and China.

Preferential import duty rate applicable to gas to rise up to 27% as of 6 December 2014 On 5 December 2014, the Ministry of Finance promulgated Circular No. 185/2014/TT-BTC amending the preferential import duty rates applicable to a number of gas and oil items under group 27.10 in the Preferential Import Tariff. Accordingly, the preferential import duty rate applicable to leaded or unleaded motor gas is increased by 9%, i.e., from 18% to 27% as of 6 December 2014. The preferential import duty rate of 27% is also applicable to tetrapropylen, white spirits; low aromatic solvents containing by weight less than 1% aromatic content, etc.

Scope of customs activities and remedies to prevent smuggling and illegal goods transportation through national borders. On 02 January 2015, in accordance with the Ministry of Finance's proposal, the Government issued Decree No. 01/2015/ND-CP detailing the scope of customs activities and integrated responsibilities in preventing smuggling and illegal goods transportation through national borders ("Decree No. 01"). Customs activities are permitted in specific border gates, as regulated by Articles 3 to 9, including by land and sea, domestic and international railway, airports, seaports and domestic waterways, which are utilized for export, import, exit, entry and transfer activities, as well as international postal services outside border gate areas and other areas. Furthermore, the scope of customs activities in border gates areas by land and seaway is stipulated in the Annex

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attached to Decree No. 01.

Guidance in the implementation of a number of articles on the Law on Customs 2014 On 29 December 2014, the Ministry of Finance promulgated Official Letter No. 19046/BTC-TCHQ guiding the implementation of some articles of the Law on Customs 2014. This Official Letter was sent to Customs Departments in provinces and cities. Accordingly, this Law took effect on 1 January 2015. If the content of the regulations in the current legislation does not conflict with the regulations in this Law, the regulations contained in the current legislation will remain in force, until there is another legal document issued replacing them. The Ministry of Finance guides the provisions regarding: the locations where customs formalities are executed; conditions for customs agents; privilege given to enterprises; time limit for submission of customs documents; time limit for customs authorities to carry out customs formalities; predetermination of HS codes; additional customs declarations; procedure for goods inspection, including cases where the customs declarer is absent; the custom procedure applied when goods are imported for outsourcing and manufacturing exported goods; the time limit to store goods at bonded warehouses; the time limit to store goods at retail collection points; storing goods at duty- free stores; sorting and identifying remaining goods; and other inspection and supervision procedures.

New regulations providing further guidance on the implementation of the Customs Law in the sector of customs procedures, inspection and supervision Implementation of the National One-Stop-Shop Mechanism Priority regime for enterprises

Customs supervision at seaport border gates propose the application of barcodes The Ministry of Finance issued an Official Letter No. 195/BTC-TCHQ ("OL 195") dated 07 January 2015 on guiding procedures of customs supervision at seaport border gates to apply a barcode to imported and exported goods delivered by containers. Accordingly, OL 195 provides regulations on supervising imported and exported goods within the border area. The

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procedure for monitoring goods brought into the border area shall consist of the following steps: (i) compile list of containers/customs cleared goods; (ii) print list of containers/customs cleared goods; and (iii) inspection and certification.

Requirements and procedures for acceptance of test laboratories for assessing IT products On 30 December 2014, the Ministry of Information and Communications issued Circular No. 28/2014/TT-BTTTT providing for regulations on requirements and procedures for acceptance of test laboratories ("Circular No. 28"). The provisions follow the mutual recognition agreement ("MRA"), when assessing the suitability of telecommunications and information technology ("IT") products used in managing the quality of goods and services in the field of telecommunications and information technology, according to current Vietnamese regulations. Circular No. 28 also controls post management applied to the testing laboratories after they are accepted.

Customer procedure for goods stored in bonded warehouses On 10 March 2015, the Customs issued Official Letter No. 174/GSQL-TH responding to Official Letter No. 015/2015/SEV-HN on 04 February 2015 of the Vietnamese branch of Sagawa Express Limited Company on customs procedure for goods stored in bonded warehouse. Where an enterprise has surplus materials and supplies under the processing contracts in a bonded warehouse and has completed procedures for exporting goods to foreign businesses with delivery specified in the bonded warehouse, these goods are owned by the foreign enterprise and the stock in warehouses is under customs supervision.

Customs procedures applicable to exit, entry and transit means of transport Circular No. 42/2015/TT-BTC dated 27 March 2015 was issued by the Ministry of Finance stipulating the customs procedures applicable to exit, entry and transit means of transport. According to the regulations of this Circular, customs declarants who conduct customs procedures electronically shall be entitled to select the procedures for paying 5  Baker & McKenzie – Asia Pacific Trade & Commerce Client Conference | 27 August 2015

customs fees for exit, entry and transit means of transport. Accordingly, customs declarants can opt to pay customs fees for entry, exit and transit either on a monthly basis, or alternatively each time they conduct such transport activities. To make monthly payments, customs declarants are required to register in written form to the Customs Sub- Department, where they will be required to complete the customs procedure for their means of transport, and obtain approval from said Customs Sub-Department.

Customs values applicable to imported and exported goods Circular No. 39/2015/TT-BTC was issued by the Ministry of Finance on 25 March 2015 regulating customs values applicable to imported and exported goods. Under the Circular, customs values applicable to exported goods refer to the selling price of goods prior to reaching the export gate, excluding international insurance fees and international transportation fees. Customs values are determined based on the price indicated on the goods purchase contracts, or other form with equivalent legal validity.

2. EU/Vietnam free trade agreement On 4th of August, VN and EU reached an agreement in principle for a free trade agreement (FTA), after two and a half years of intense negotiations. After this, negotiating teams will settle down technical issues and it is likely to enter into force in late 2017 or early 2018. Accordingly, Vietnam has agreed to eliminate 99% of their import tariffs, with transition periods to a maximum of 10 years. The EU will do the same in seven years. Besides eliminating tariffs, Vietnam will also remove almost all of its export duties. EU would remove 99.2% of tariff lines, or 99.7% of Vietnam’s goods shipped to that market seven years after the trade accord takes effect. (for detailed :http://english.vietnamnet.vn/fms/business/138696/tariff- cuts--exemptions-for-vietnam-eu-fta-clarified.html and http://tuoitrenews.vn/business/29782/vietnamese- enterprises-to-reap-huge-benefits-after-signing-of-eu-trade- pact ). There is, however, a discrepancy between theory and practice. While on paper, 99 per cent of all tariff lines will benefit from the elimination of duties, many European companies will not be able to take advantage of the deal because of its rigid rules of origin scheme.

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On government procurement, the EU and Vietnam have agreed on disciplines largely in line with Government Procurement Agreement (GPA) rules of the WTO, achieving a degree of transparency comparable to other EU Free Trade Agreements with developed countries and more advanced developing countries. The agreement will also improve the protection in Vietnam of Geographical Indications (GIs) representing EU flagship agricultural products, such as Champagne, Parmigiano Reggiano cheese, Rioja wine, Roquefort cheese and Scotch Whisky. Vietnamese GIs too will be recognised as such in the EU, providing the adequate framework for further promoting imports of quality products such as Mộc Châu tea or Buôn Ma Thuột coffee. The FTA includes a robust and comprehensive chapter on Trade and Sustainable Development, covering labour and environmental matters of relevance in trade relations between the EU and Vietnam. Commitments to the core labour standards and Conventions of the International Labour Organisation (ILO) ensure the respect of fundamental workers' rights by both parties. In addition, the chapter includes commitments which will support the conservation and sustainable management of natural resources (including wildlife, forestry, and fisheries). Special attention is devoted to areas such as Corporate Social Responsibility and fair and ethical trading schemes. The Agreement will also contain a legally binding link to the Partnership and Cooperation Agreement (PCA) that governs the overall relationship between the EU and Vietnam, thereby ensuring that human rights, democracy, and the rule of law are essential elements of bilateral trade relations.

http://wtocenter.vn/infocus/vn-eu-fta http://aric.adb.org/fta/viet-nam- european-union-free-trade- agreement http://ec.europa.eu/trade/policy/countries-and- regions/countries/vietnam/ http://www.efta.int/media/documents/legal-texts/free-trade- relations/vietnam/EFTA- Vietnam%20Joint%20Study%20Group%20Report.pdf

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Commerce

3. New Investment Law issued - Market Access Impact The National Assembly of Vietnam passed the Investment Law 20153 on 26 November 2014. The Investment Law 2015 takes effect on 01 July 2015. The Investment Law 2015 replaces Investment Law 2005,4 and the Resolution on Projects and Works of National Importance.5 This law is one of the most important legal foundations for foreign investors in Vietnam, defining the limits of market access and national treatment they may expect in light of Vietnam's international commitments. I. General Updates

The Investment Law 2015 sets out important new regulations regarding the following trade related matters among others: A. Acquisition of Shares or Charter Capital

Under the current Investment Law 2005, the purchase of shares or equity by an investor so that the investor can participate in the management of an enterprise is considered direct investment; whereas, any purchase of shares that does not trigger participation in the management of the target enterprise is considered an indirect investment. However, this distinction between indirect and direct investment is not well-drawn, as all investors are typically accorded with certain rights to participate in the management of an enterprise corresponding to their equity holding ratio in such enterprise. Indeed, the Investment Law 2015 ceases to distinguish the purchase of shares or equity as a direct or indirect form of investment. Acquisitions of shares or charter capital only trigger the obligation to register the acquisition with the licensing authorities in two cases - i.e. the purchase of shares or equity by a foreign investor into: • an enterprise operating in business sectors where foreign investors are subject to restrictive conditions, or ______3 Law on Investment No. 67/2014/QH13, passed by the National Assembly on 26 November 2014, effective on 01 July 2015 ("Investment Law 2015"). 4 Law on Investment No. 59/2005/QH11, passed by the National Assembly on 29 November 2005, effective on 01 July 2006 ("Investment Law 2005"). 5 Resolution on projects and works of national importance to be submitted to the National Assembly for decision on their investment No. 49/2010/QH12, passed by the National Assembly on 19 June 2010, effective on 01 August 2010.

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• a target enterprise results in that foreign investor owning 51% or more charter capital of the targeted enterprise. • The target single member limited liability company ("SMLLC") or multi-member limited liability company ("MMLLC") will need to subsequently register for the amendment of its enterprise registration certificate ("ERC"), unlike in a case where the target enterprise is a JSC, where no further ERC amendment is required.

B. Foreign investment approvals and notifications

Under the new Investment Law 2015, all ‘foreign investment’ – meaning investments by foreign investors and also economic organizations in Vietnam with 51% or more foreign investment capital (‘Majority EFIC’) – will need investment approval in Vietnam. C. Investment registration

Foreign investors, as defined by the Investment Law 2015, are foreign nationals and foreign corporate entities who must have an investment project in Vietnam and be issued with an investment registration certificate ("IRC"). On obtaining the IRC, they must establish a corporate entity and be issued with an enterprise registration certificate. Majority EFICs are also subject to the same IRC licensing procedures as foreign investors. For example, if the Majority EFIC establishes a new enterprise with even 1% ownership in Vietnam, that investment will also be subject to such IRC licensing procedures. D. Investment registration certificates

Foreign investors must submit an application dossier to the licensing authority and request the issuance of an IRC before implementing the investment project. Depending on the size and nature of the investment project, different ‘preliminary approvals’ will need to be obtained before the IRC is issued. For these investment projects subject to preliminary approval, the IRC will be issued within 5 working days of issuance of the preliminary approval, which takes at least 35 days. Investment projects that are not subject to preliminary approval will be issued the IRC within 15 days upon receipt of the dossier.

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E. Industry-Specific Regulation

The Investment Law 2015 does not itself, provide for a cap on foreign participation in Vietnamese enterprises (listed or unlisted) but states that foreign investors can own unlimited charter capital in a corporate entity, subject to exceptions under laws on securities, exceptions regarding equitized state-owned enterprises, and restrictions under international treaties and other Vietnamese laws. The Investment Law 2015 lists 267 business sectors subject to these conditions – applicable to both Vietnamese and foreign investors. This list is updated occasionally by the government. The conditions applicable to investments in these sectors are currently provided either in specialized laws governing the sectors in question or in the commitments made in international agreements or organizations of which Vietnam is a member, such as the WTO, which are generally commitments in terms of foreign participation in these sectors. In terms of procedure, investment projects on this conditional list but which do not fall under the list of investment projects subject to the preliminary approval of the National Assembly, the Prime Minister, or the People’s Committee, will only have to obtain an IRC and ERC by going through the prescribed licensing procedures, but must fulfil the condition stipulated under the relevant laws and regulations before implementing the investment project. II. Decision of the People's Committee of Ho Chi Minh City to suspend the issuance of investment certificates for foreign-owned enterprises operating in the logistics business On 18 August 2014, the People’s Committee of Ho Chi Minh City (“PC”) issued Official Dispatch No. 6613/VP-DT ("OD No. 6613") to instruct the licensing authorities of Ho Chi Minh City (i.e., the Department of Planning and Investment ("DPI"), the Ho Chi Minh City Export Processing and Industrial Zones Authority ("Hepza"), the Management Authority for Southern Area Development ("MASD"), Saigon Hi-Tech Park ("SHTP"), etc.) to suspend the issuance or amendment of investment certificates or investment licenses for 100% foreign-owned enterprises operating in the logistics business. The suspension will be waived until the Prime Minister issues detailed directives and instructions. From our unofficial consultation with the DPI, OD No. 6613 was issued due to conflicting regulations on logistics activities between Vietnam’s WTO Commitments and the

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Government's Decree 140/2007/ND-CP dated 5 September 2007. Vietnam’s WTO Commitments allow for a wholly-owned foreign company to provide “freight transport agency services” (CPC 748) since January 2014, while Decree 140 still requires an investment project to be in the form of a joint venture without limitation in foreign ownership as a condition to provide these kinds of services. However, this discrepancy seems to be the reverse with respect to “other supporting and auxiliary transport services” (CPC 749), with Decree 140 allowing for wholly-owned foreign companies to provide such services, while the WTO Commitments require a joint-venture. Please note that OD No. 6613 does not only put a stop on “freight transport agency services” and “other supporting and auxiliary transport services”, but may also be broadly applied to all logistics activities. However, in reality, we still see several official letters from the Ministry of Planning and Investment and the Ministry of Industry and Trade responding to consultations from local authorities, in which the Ministries opine that 100% foreign owned enterprises are allowed to provide “freight transport agency services” (CPC 748)” since 11 January 2014 while a joint venture is still required to provide “other supporting and auxiliary transport services (CPC 749)”. With such guidance, the Ministries have acted in the right direction to follow the regulations of the WTO Commitments in accordance with the principle of law application and interpretation, i.e., in case of any discrepancy between an international treaty and local laws, the treaty will supersede and prevail. For ease of reference, regulations of the WTO Commitments and Decree 140 regarding CPCs 748 and 749 are quoted here: • WTO Commitments:

Freight transport agency services (CPC 748): Commercial presence: None, except that upon accession joint ventures with foreign capital contribution not exceeding 51% can be established. Seven years after accession, none.

Other (part of CPC 749) Commercial presence: Upon accession, foreign service suppliers are only permitted to provide services through the

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establishment of joint ventures with Vietnamese partners with the capital contribution from the foreign side not exceeding 49%. After 3 years from the date of accession, this limitation shall be 51%. Four years thereon, this capital limitation shall be abolished. • Decree 140

Freight transport agency services (CPC 748): “In the case of business in transportation agency services, the foreign entity shall be permitted to establish a joint venture company in which the capital contribution ratio of the foreign investor does not exceed 51%, and as from year 2014, the establishment of a joint venture company shall not be restricted in terms of the capital contribution ratio of the foreign investor;”

Other (part of CPC 749) “In the case of business in other subsidiary services, the foreign business entity shall be permitted to establish a joint venture company in which the capital contribution ratio of the foreign investor does not exceed 49%; this restriction shall be 51% as from year 2010 and [this restriction] shall terminate in year 2014.” Investment Treaty Under the Framework Agreement on Comprehensive Economic Cooperation ASEAN - India On 22 April 2015, the Government issued Resolution No. 29/NQ-CP approving the Investment Treaty Under the Framework Agreement on Comprehensive Economic Cooperation between ASEAN and India, which was signed on 12 November 2014 in Myanmar. According to this resolution, the Ministry of Foreign Affairs shall stipulate applicable external procedures. The Ministry of Planning and Investment will act as the chair and coordinator of the concerned ministries and agencies implementing the Investment Treaty.

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