Vietnam Updates Fines for Investment Violations
Vietnam’s recent change in leadership with Prime Minister Nguyen Xuan Phuc taking office has opened the gateway for legislative change. Signed on June 1, 2016 and effective starting July 15, 2016, Decree 50 is one adjustment that investors should be sure to understand. Detailing penalties for administrative violations in a variety of business and investment related situations, the decree covers the administration of public investment projects, investments in Vietnam from domestic and overseas investors, and the bidding process for public investments. More importantly, the decree also sheds light on the business registration process for different business models in Vietnam.
Decree 50 seems to be an effort to improve the legal structure and bureaucracy in order to sustain Vietnam’s attractiveness to foreign investment. Despite its previous successes in attracting FDI, Vietnam’s weak legal structure and complicated bureaucracy, amongst other factors, have worsened the investment climate and diverted investors to other ASEAN markets. This decree seems to be an attempt to improve the transparency of the business registration and operations processes, through the outlining of possible violations, fines and remedial actions.
It should be noted that the majority of penalties involve a monetary fine and mandatory remedial measures to be taken. In all cases, individuals will be faced with fines at half the rate that would be applied to a legal entity found in violation of the same infraction.
Violations Relating to the Use of Public Funding
Decree 50 outlines penalties for violations in the usage of funding received from the government from the planning to the execution stages of a given project. During the planning and proposal stage of the project, a fine ranging from VND 1 million (US$45) to VND 20 million (US$897) will be imposed when investors do not follow proper procedure, including creating investment guidelines, a pre-feasibility report, a feasibility report or 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 million (US$90) to VND 10 million (US$448). Any deliberate attempt to withhold, destroy or falsify information on the project execution or implementation progress is fined at VND 10 million (US$45) to VND 20 million (US$897). At the same time, insufficient supervision and periodical assessment of the project or the lack thereof may subject businesses to a fine between VND 2 million (US$90) to 10 million (US$448).
In the case of misusage of public capital, a fine of VND 10 million (US$448) to 20 million (US$897) will be imposed with immediate withdrawal of said capital. When there is construction involved in a project using public capital, any misusage or mishandling of said capital will be fined in according to the regulations on penalties for violations against regulations for construction.
The first section of the decree also details fines regarding misusage of official development assistance (ODA) in any stages of planning, execution and supervision, with fines up to VND 30 million (US$1,345) for going against the government’s approved decision on the project.
Investment Registrations Violations
Fines ranging from VND 5 million (US$224) to 80 million (US$3,589) are imposed for failure to adhere to any step of established 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 (US$1,794) to 60 million (US$2,692).
For outward investments, a fine of VND 50 million (US$2,243) to 60 million (US$2,692) is imposed for improper registration, and failures to report truthfully on the investment and its progress can incur a fine of 30 million (US$1,345) to 40 million (US$1,794).
For foreign investors, tax incentives are available in Vietnam. However, failure to fulfill conditions related to incentives after incentives have been applied can incur a fine of VND 10 million (US$448) to 20 million (US$897).
Bidding Management Violations
For investments that involve bidding, decree 50 outlines penalties incurred for violations at each step of the process, including the planning, contractor/investor selection, expression of interest, document preparation, bidding organization, contract negotiation, and posting bidding stages.
Prior to the bidding process, failure to follow procedures for making, appraising and approving contractor/investor selection plans, or failure to satisfy the technical and procedural requirements of the project can incur a fine of VND 10 million (US$448) to 30 million (US$1,345). A fine of VND 5 million to 15 million (US$672) may also be imposed when documents, such as the request for an expression of interest, prequalification documents and bidding documents are not produced, appraised and approved. A higher fine of VND 15 million (US$672) to 30 million (US$1,345) 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 bidders can lead to a fine ranging from VND 10 million (US$448) to 20 million (US$897). Going against the approved contractor/investor selection plan or violating the rules of bidding will incur a fine of VND 30 million (US$1,345) to 40 million (US$1,794).
Insufficient communication and failure to provide bidders with adequate information is fined between VND 1 million (US$45) to 10 million (US$448). For other violations in administrative matters of bidding, investors can face a fine between VND 5 million (US$224) and 15 million (US$672).
Business Management Violations
This section outlines the penalties for violations in registering, operating and closing down businesses within Vietnam
Certification of enterprise registration is required for all businesses seeking to invest within Vietnam, and amendments to this document made behind schedule are punishable under Decree 50. Depending on the tardiness of registration or amendments, a fine between VND 1 million (US$45) and 15 million (US$672) can be imposed. Failure to publish enterprise registration on National Enterprise Registration Portal will also lead to a fine of VND 1 (US$45) million to 2 million(US$90); while failure to publish the enterprise information, business and investment plans, and performance reports can lead to a fine of VND 10 million (US$448) to 15 million (US$672).
In the establishment of the enterprise, a fine of VND 2 million (US$90) to 30 million (US$1,345) 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 (US$224) and can be found in Articles 30-32 of the decree.
In the operation of a business, violations in the organization of the business, appointment of director and the Control Board are fined up to VND 10 million (US$448). In the dissolution of an enterprise or shutdown of branches, a fine of up to VND 10 million (US$448) can be imposed for lack of proper registration and reporting to tax and local authorities, as seen in Articles 37-38.
For different business types, the decree also details penalties specific to each category. In particular, violations of social enterprises are fined between VND 15 million (US$672) and 20 million (US$897) for not fulfilling their missions, according to Article 40. For business households, fines up to VND 7 million (US$314) can be imposed for violations in registration, operation and dissolution.
Further Support from Dezan Shira & Associates
This article was first published August 2016.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India and emerging ASEAN, we are your reliable partner for business expansion in this region and beyond.