Highlights of Vietnam’s New Decree for Investment Violations

  • August 02, 2016

The recent ascension to office of Nguyen Xuan Phuc, Vietnam’s new Prime Minister, has opened the gateway to several legislative changes. One such change is Decree 50, signed on June 1, 2016 and effective starting July 15, 2016, which details updated penalties for administrative violations in planning and investment for businesses and investors. The decree covers the administration of public investment projects, domestic and overseas investment in Vietnam, and bidding investment. More importantly, the decree also sheds more light on the business registration process for different business models in Vietnam, as outlined in its penalties for registration violations in Section 4.

Decree 50 aims to improve the country’s legal structure and bureaucracy in order to sustain Vietnam’s attractiveness to foreign investors. Despite the country’s previous success in attracting foreign direct investment, Vietnam’s weak legal structure and complicated bureaucracy, amongst other factors, have worsened its investment climate and diverted investors to other ASEAN markets in recent years. This decree is an attempt to improve the transparency of the business registration and operation processes, especially in outlining the possible violations, fines, and remedial actions needed.

Most of the penalties for various violations involve a monetary fine and require mandatory remedial measures to be taken. For any monetary fine, an individual is liable to pay half the amount that an organization would be required to pay for the same violation.

Highlights

Section 1: Violations in the management of public investments

The decree outlines the penalties for violations in the usage of investments received from the government from the planning to the execution stages. During the planning and proposal stage of a project, a fine ranging from VND 1 to VND 20 million will be imposed when investors do not follow procedures, including creating investment guidelines, a pre-feasibility report, a feasibility report, and a budget estimate. Inadequate or false information in such documents, or failure to meet the national standards or technical regulations for such documents, are also punishable. In the execution stage of the project, failure to report adequate and accurate information on the project progress is subject to a fine between VND 2 and VND 10 million. Any deliberate attempt to withhold, destroy, or falsify information on the project execution or implementation progress is fined at VND 10 million to VND 20 million. At the same time, insufficient or lacking supervision and assessments of the project may subject businesses to a fine between VND 2 million to 10 million.

In the case of misuse of public capital, a fine of VND 10 million to VND 20 million will be imposed with immediate withdrawal of said capital. When there is construction involved in a project using public capital, any misuse or mishandling of said capital will be fined in accordance to the regulations on penalties for violations against regulations for construction.

The first section of the decree also details fines regarding misuse of official development assistance (ODA) in any stage of planning, execution, and supervision, with fines up to VND 30 million for going against the government’s approved decision on the project.

Section 2: Violations in local and overseas investment

Fines ranging from VND 5 million to VND 80 million are imposed for failure to adhere to any step of investment procedures, including obtaining a certificate of investment, registering the investment, planning, executing, and supervising the project in Vietnam. In particular, investors should take note of all the investment procedures as outlined in Vietnam’s Law on Investment, as a failure to follow these procedures or to commence the project within 12 months of successful registration can lead to a fine of VND 40 million to VND 60 million.

For outward investments, a fine of VND 50 million to VND 60 million is imposed for improper registration, and failure to report truthfully on the investment and its progress can incur a fine of VND 30 million to VND 40 million.

For foreign investors, several tax incentives are available in Vietnam. However, failure to properly apply for such incentives or to fulfill conditions for incentives after applying can incur a fine of VND 10 million to VND 20 million.

Section 3: Violations in bidding management

For investments that involve bidding, the decree outlines penalties for violations at each step of the process, including selecting a contractor/investor, expressing interests, preparing necessary documents, organizing the bidding, negotiating the contract, and posting bidding information.

Prior to the bidding process, failure to follow procedures for making, appraising, and approving contractor/investor selection or failure to satisfy the technical and procedural requirements of the project can incur a fine of VND 10 million to VND 30 million. A fine of VND 5 million to VND 15 million is imposed when documents such as the request for expression of interest, prequalification documents, and bidding documents are not made, appraised, and approved. A higher fine of VND 15 million to VND 30 million will be imposed if such documents go against any domestic laws and assessment standards, violate competition laws, or do not follow the approved contractor/investor selection plan.

In the organization of bidding, lack of transparency in the verifying, evaluating, and notifying of bidders can lead to a fine ranging from VND 10 million to VND 20 million. Breaching the approved contractor/investor selection plan or violating the rules of bidding will incur a fine of VND 30 million to VND 40 million.

Insufficient communication and failure to provide bidders with adequate information is fined between VND 1 million to VND 10 million. For other violations in administrative matters of bidding, investors may face a fine between VND 5 million and VND 15 million.

Section 4: Violations in business management

This section outlines the penalties for violations in registering, operating, and closing down businesses of various natures.

Certification of enterprise registration is required, and amendments to this document made behind schedule are punishable under Decree 50. Depending on the tardiness, a fine beginning at VND 1 million and topping out at VND 15 million after 91 days is imposed. Failure to publish enterprise registration on the National Enterprise Registration Portal will also lead to a fine of VND 1 million to VND 2 million, while failure to publish the enterprise information, business and investment plans, and performance reports can lead to a fine of VND 10 million to VND 15 million.

In the establishment of the enterprise, a fine of VND 2 million to VND 30 million can be imposed when requirements regarding business type, number of members, and value assets assessment are not properly reported. Other report-related offences are fined up to VND 5 million and can be found in Articles 30-32 of the decree.

In the operation of a business, violations in the organization of the business and appointment of director and the Control Board are fined up to VND 10 million. In the dissolution of an enterprise or shutdown of branches, a fine of up to VND 10 million can be imposed for lack of proper reporting to registration, tax, and local authorities, as seen in Articles 37-38.

The decree also details penalties specific to each category of business type. In particular, violations of social enterprises are fined between VND 15 million and VND 20 million for not fulfilling their missions, according to Article 40. For business households, fines of up to VND 7 million can be imposed for violations in registration, operation, and dissolution.

Decree 50 is a step toward greater transparency in Vietnam’s legal framework regarding investment. Investors need to pay great attention to the added penalties outlined in the decree when operating and doing business in Vietnam to avoid incurring unnecessary costs. Our advisors and experts at Dezan Shira have the knowledge of the new decree as well as the investment climate in Vietnam to help you make the right business decisions. For more information and assistance, please contact us .(JavaScript must be enabled to view this email address) or visit our website.

This article was first published July 2016.
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