Uncovering potential risks is imperative for foreign investors starting a business in Vietnam. Amid promising opportunities, ventures are entwined with inherent risks, particularly in the legal realm due to their complexity.
Through this article, PLF aims to equip foreign investors with insights into the intricate legal risks of investing in Vietnam, thereby enhancing their investment strategy, regulatory compliance, and risk management.
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1. Risks from limited access to legal changes
Overview of Vietnam’s Legal System
The legal system of Vietnam amalgamates elements from both continental European legal systems (Civil Law), which focuses on establishing regulations to govern social relations, and the Anglo-Saxon legal system (Common Law), which emphasizes precedent. Accordingly, Vietnam recognizes laws officially promulgated by the legislative body, the National Assembly, in addition to sub-law documents promulgated by other agencies such as the President, the Government, Ministries, and Prime Ministers. Prime Minister,…
Development and Transparency in Legal Promulgation
In a recent development, Vietnam has started incorporating elements of the customary legal system by recognizing and publishing legal precedents, serving as a basis for handling similar disputes. As of now, the Supreme People’s Court has released 70 such precedents, which have been widely disseminated. It is anticipated that the recognition and publication of case law will accelerate in the future to better address the growing demands for dispute resolution.
Transition Period for Legal Changes
One of the key principles guiding the process of developing and promulgating legal documents in Vietnam is to ensure openness and democracy in soliciting and addressing feedback from individuals, agencies, and organizations. Draft legal documents proposed mainly by ministerial-level agencies are made available for public review and commentary on either the respective agency’s official website or the National Assembly’s electronic information portal at: [link] (in Vietnamese language). In addition, bulletin boards at People’s Committees at all levels are also used to propagate and update new regulations. Draft legal regulations are even sent to associations so that individuals, agencies, and economic organizations can access and contribute ideas to further improve legal regulations.
For laws and codes passed by the National Assembly, a transition period is typically implemented between adoption and enforcement to allow ministerial-level agencies sufficient time to issue implementation guidelines and for individuals, agencies, and organizations to familiarize themselves with the changes. For instance, the Enterprise Law No. 59/2020/QH14 and the Investment Law No. 61/2020/QH14, passed on 17 June 2020, became effective on 01 January 2021, while the Labor Code No. 45/2019/QH14, passed on 20 November 2019, took effect on 01 January 2021.
Therefore, abrupt changes in the law almost modifications are rare, except in response to extraordinary circumstances such as the challenges posed by the COVID-19 pandemic during the period 2020-2021.
Challenges for Foreign Investors
However, most foreign investors do not have a good grasp of the legal system and law-making principles in Vietnam, so they are limited in accessing legal changes related to investment activities and business operations.
At PLF, we offer In-house legal services, including the provision of updates on legal regulations impacting our clients’ business operations. We aim to aid clients in maintaining compliance and minimizing legal risks to the least extent possible.
2. Risks from legal blind spots
Nature of Legal Blind Spots in Vietnam
In Vietnam, as stated above, legislation is carried out by promulgating legal norms to regulate social relationships that exist or may arise in the future. This leads to a number of cases where legal regulations have insufficient scope to regulate or can only partially regulate, or the content is not suitable for newly arising relationships because the complexity and factors related to relationships need adjustment have not been fully anticipated. Therefore, these legal blind spots hinder law enforcement agencies, businesses and investors from finding reasonable solutions.
Diverse Interpretations and Implications
This situation leads to different interpretations from different perspectives due to different wishes and objectives. While state management agencies aim to rigorously oversee relationships and issues within their jurisdiction, investors and businesses often encounter challenges due to the lack of clear regulations.
Case Study: Competition Law 2004 vs. 2018
An illustrative example is the Competition Law 2004. Introduced in 2004, when most Vietnamese businesses were still unfamiliar with the concept of mergers and acquisitions (M&A), the Competition Law at that time was considered a step beyond expectations of the law to regulate relationships related to mergers and acquisitions (economic concentration) in the future. Because of this, the Competition Law 2004 does not meet the requirements to regulate and manage actual merger and acquisition transactions with the many variations thereafter. By 2018, as Vietnam was considered a quite exciting market in mergers and acquisitions activities, the Competition Law 2018 was introduced to address these shortcomings and effectively fill the gaps left by its predecessor, specifically:
- Adding additional acts of agreement to limit competition;
- Regulations on determining market share and combined market share;
- Regulations on submitting documents when participating in economic concentration,…
Balancing Flexibility and Challenges
These legal blind spots, from a positive perspective, afford state management agencies with flexibility and discretion but can pose challenges for individuals, organizations, and investors engaged in investment and business activities. Furthermore, due to different perspectives on approaching the issue, reconciling viewpoints between management agencies and investors, organizations, and individuals engaged in investment and business activities, especially within the framework of business law in Vietnam, is very difficult.
Given this situation, the State of Vietnam encourages and welcomes feedback and proposals for amending regulations to enhance practicality and the regulatory role of the state.
At PLF Law Firm
In navigating Vietnam’s complex regulatory landscape, accessing essential requirements and identifying legal risks can be challenging. Our In-house counsel and Compliance & Tax services provide invaluable support for foreign investors in mitigating or neutralizing risks.
Contact us today via email at inquiry@plf.vn or +84913 902 906 or Zalo | Viber | WhatsApp to receive a free 30-minute consultation.
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Find out additional details on Investment Registration Certificate and Sub license in Vietnam.
