Lawyer in Vietnam Oliver Massmann - Legal Update May 2016

1. Official Letter No. 789/TTg-PL on issuing documents guiding the Law on Enterprises

and the Law on Investment Issuance date: 14 May 2016 Effective date: 14 May 2016 This official letter requires Ministers and leaders of ministerial-level authorities improve and submit legal documents on conditions for business investment in conformity with the Law on Enterprises and the Law on Investment to the Government prior to 30 May 2016. Notable documents are: (i) Decree on Casino business; (ii) Decree on horse racing, dog racing and international football betting; (iii) Decree on doing business in debt purchase and sale; (iv) Decree providing for management of medical equipment; (v) Decree detailing the Law on medical examination and treatment; (vi) Decree on conditional investment businesses including additional regulations of many

Draft Decrees. 2. Penal Code No. 100/2015/QH13 issued by the National Assembly Issuance date: 27 November 2015 Effective date: 01 July 2016 This new Criminal Code will replace the old Criminal Code in 1999 and its amending/ guiding documents. Notably, the new Criminal Code provides new sanctions for violations in employment sector. Details of these sanctions are set out below: Illegal dismissal of employees In particular, if a person for his/her own sake conducts one of the following behaviors that make dismissed employees or their families fall into difficult situations or go on strike, he/ she will be subject to monetary fine of VND10 million - VND100 million, non-custodial reform of up to 1 year or IMPRISONMENT/JAIL of 3 months to 1 year:

• Illegal dismissal of employees; • Illegal issuance of decision on dismissing public servants; or • Forcing, threatening the employees or public servants to quit their jobs. The violating person will be subject to VND100 million - VND 200 million monetary fine or 1-3 year IMPRISONMENT/JAIL if he/she commits the crimes in either of the following situations: • Dismissing 2 employees and more; • Dismissing pregnant employees; • Dismissing mothers of less than 12-month old baby; or • Causing the dismissed employees commit suicide. At the same time, the violating person may also be prohibited from holding certain professional positions within 1- 5 years. Employment of employees under 16 Anyone who employs a person under 16 to do hard or dangerous work or work that involves contact with harmful substances in any of the following cases will be subject to a fine of VND 30 million - VND 200 million or up to 03-year non-custodial reform or 06 - 36 month imprisonment: • The offender previously incurred a civil penalty or has a previous conviction for the

same offence which has not been expunged; • The offence results in bodily harm to 01 people who suffers from 31% - 60% physical

disability; • The offence results in bodily harm to 02 people or more who suffer from a total physical

disability of 31% - 60%. A sanction of 03 - 07 year imprisonment applies in the following cases: • The offence has been committed more than once; • The offence involves 02 workers or more under 16; • The offence results in the death of 01 person or bodily harm to 01 person who suffers

from over 61% physical disability; • The offence results in bodily harm to 02 people, each of whom suffers from 31% - 60%

physical disability;

• The offence results in bodily harm to 03 people or more who suffer from a total physical disability of over 61%.

A sanction of 05 – 10 year imprisonment applies in the following cases: a) The offence results in the death of 02 people or more; b) The offence results in bodily harm to 02 people or more, each of whom suffers from

over 61% physical disability; c) The offence results in bodily harm to 03 people or more who suffer from a total physical

disability of over 122%. The offender might also be subject to a monetary fine of VND 10 million to VND 50 million. Evading payment of social insurance, health insurance, unemployment insurance for employees A corporate legal entity who commits the following crimes is subject to monetary fine of VND 200 million to VND 500 million: • The amount of insurance contribution evaded is VND 50 million to under VND 300

million; • The offender fails to pay insurance for 10 - 49 employees. A corporate legal entity who commits the following crimes is subject to monetary fine of VND 500 million to VND 1 billion: • The offence has been committed more than once; • The amount of insurance contribution evaded is VND 300 million to under VND 1 billion; • The offender fails to pay insurance for 50 - 199 employees; • The offender collects or deducts insurance contribution from the employees at the

amount of VND 50 million to under VND 300 million or from 10 -49 employees but fails to pay insurance [to the authority].

A corporate legal entity who commits the following crimes is subject to monetary fine of VND 1 billion to VND 3 billion: • The amount of insurance contribution evaded is VND 1 billion or more; • The offender fails to pay insurance for 200 employees or more;

• The offender collects or deducts insurance contribution from the employees at the amount of VND 300 million to under VND 1 billion or from 50 - 199 employees but fails to pay insurance [to the authority].

Coercive labor Any person that uses violence or threat of violence or other methods to force a person to work against his/her will, depending on each case, be subject to monetary fine of VND30 million – VND200 million, 06-month to 12-year imprisonment, or prohibited from holding certain positions or doing certain jobs within 01 - 05 years. 3. Law No. 107/2016/QH13 issued by National Assembly on Export duty and Import duty

(“Law 107”)

Issuance date: 06 April 2016 Effective date: 1 September 2016

Under Law 107, taxpayers also include: - organizations taking export, import entrustment; - persons upon entry or exit having goods exported, imported, sending or receiving goods

through Vietnam’s border gates, border; - persons who are authorized, guarantee and pay tax on behalf of taxpayers; - persons who have exported, imported goods being exempted from tax but after that

they are changed to be taxable objects; etc. Notably, the ordinary tax rates will be 150% of the preferential rates of corresponding goods (This ratio is currently 70%). Putting that aside, taxable value and time of duty calculation are now defined in details under Law 107. Accordingly, taxable value to determine export duty, import duty is customs value under Law on Customs while time of duty calculation is time of customs declaration registration. In addition, for the purpose of encouraging development and reasonable protection for domestic production and business in accordance with development orientation of the Vietnamese Congress, the State and international commitments, Law 107 amends, supplements many regulations regarding anti-dumping, anti-subsidy, safeguard measures; amends the principles to promulgate tariffs and tax rates; amends, supplements regulations on duty exemption for imported goods of investment preferential projects to comply with regulations under Law on Investment No. 67/2014/QH13; etc.

Goods being exempted from duty also include: (i) Goods for non-commercial purposes such as: samples, promotional publications with

small quantity; (ii) Imported goods being raw materials, materials, components which are not domestically

produced serving directly for producing information technological products, digital contents, software;

(iii) Exported, imported goods used for environmental protection; etc. It is worth noting that the complaints and how to handle relevant violations are not regulated in Law 107. Law 107 will replace Law on Export duty, Import duty No. 45/2005/QH11. 4. Law No. 106/2016/QH13 issued by the National Assembly on amending,

supplementing a number of articles of Law on Value Added Tax (“VAT”), Law on Excise Tax and Law on Tax Administration (“Law 106”)

Issuance date: 06 April 2016 Effective date: 1 July 2016 a. With respect to VAT (i) Adding two cases of VAT non-taxable subjects, including: Service of disabled, elderly

persons; Imported products which are goods processed from natural resources, minerals whose total value of natural resources, minerals and power costs are 51% or more.

(ii) Enterprises buying products of cultivation, aquaculture, seafood and fisheries which

have not yet been processed into other products or have undergone preliminary treatment for sales to other enterprises will not have to declare and pay VAT but are allowed to deduct input VAT.

(iv) Business establishments will not be entitled to VAT refund and must forward the tax

amounts of the investment projects which are not deducted to the next period in the following cases:

+ Investment projects of business establishments whose charter capital is not fully

contributed as registered; trading in the conditional business lines but the business establishments have not fully met business conditions as required

under the Law on Investment or not maintained the business conditions during operation.

+ Investment projects on mineral, resource exploitation licensed from 01 July

2016 or investment projects on goods production whose total value of natural resources, minerals and power costs are 51% or more under the investment projects.

(v) Business establishments export goods or services in a month or a quarter if having

uncredited input VAT amount of VND 300 million or more but the goods imported for export and the exported goods are not exported at locations where they have customs operation as regulated will not be entitled to VAT refund on a monthly or quarterly basis.

(vi) Taxpayers producing goods for export do not violate laws on taxation and customs in

two successive years and those who are not high risk objects will be entitled to tax refund before being tax inspected.

b. With respect to excise tax (i) Taxable price of imports is the sale price by the imported establishment. The excise tax

amount paid at importing stage of such goods will be deducted when determining the payable excise tax amount in case of sale.

(ii) For goods sold to business establishments which are the parent companies or

subsidiaries of the production establishments, import establishments or both subsidiaries of a parent company or have affiliate relation, the taxable price will not be lower by certain percent compared with the average price directly paid by commercial establishment to the production establishments as required by the Government.

(iii) There are major changes in tax rates applicable to passenger cars, for example: reducing

the tax rates applicable to passenger cars having cylinder capacity of 2,000 cm3 or less and increasing the tax rates applicable to passenger cars having cylinder capacity of 2,500 cm3 or more.

(iv) Motorhome is now subject to excise tax. In particular, tax rate of 70% from 01 July

2016 to the end of December 2016 and 75% from 01 January 2018 will apply. c. With respect to tax administration (i) Households, individuals having the annual non-agricultural land use tax of VND50,000 or

less shall be exempted from this tax from 01 July 2016.

(ii) Late payment interest shall be 0.03% rather than 0.05% and is applicable to tax debts arisen prior to 01 July 2016.

(iii) From 01 September 2016, regulations on tax payment timeframe applicable to imports,

exports will be removed. 5. Decision No. 18/2016/QD-TTg issued by the Prime Minister providing for cases

permitted to import goods under the List of used information technology products banned from import (“Decision 18”)

Issuance date: 06 May 2016 Effective date: 1 July 2016 Under Decision 18, used information technology products under the List of products prohibited to import will be permitted to import in the following circumstances: (i) Import in the form of moving production means within an organization; (ii) Import to be used as equipment of control, operation, exploitation, inspection of

production line and system, wholly or partly. (iii) Import for directly serving the software product production, process of business

progress by information technology, settlement of database for foreign partners. (iv) Such information technology products are information technology products for special

use. (v) Re-import of products whose guarantee period has lapsed after being carried abroad for repair. (vi) Import of products, components which are refurbished, renewed to replace and/or

repair those used by domestic users as such products, components are no longer produced.

Decision 18 also introduces statutory requirements and conditions for each of the above cases. 6. Decision No. 15/2016/QD-UBND issued by Ho Chi Minh People’s Committee on

decentralizing authority to receive labor regulation registration dossier of employers using 10 employees and more in the area of Ho Chi Minh City.

Issuance date: 09 May 2016 Effective date: 19 May 2016

From 19 May 2016, People’s Committee at district-level under Ho Chi Minh City will receive dossier of labor regulation registration of the following entities: One-member limited liability companies being the parent companies of a state owned economic corporation, in which the State holds less than 100% of their charter capital; Joint stock companies in which the State holds less than 50% of their charter capital or more; State administrative organizations, non-business units, organizations under districts’ management, cooperatives, individuals hiring employees under labor contracts. Foreign investors according to the Investment Law; non-profit Representative Offices of organizations of economy, commerce, finance, banking, insurance, science-technology, culture, education, health, foreign legal consulting; and other organizations, units, companies which do not fall under competence of Ho Chi Minh People’s Committee at district level will still submit application dossiers of internal labor regulation registration at Ho Chi Minh Department of Labor, War Invalids and Social Affairs. 7. Circular No. 06/2016/TT-NHNN issued by the State Bank of Vietnam on amending,

supplementing a number of articles of Circular No. 36/2014/TT-NHNN prescribing limits and prudential ratios in operations of credit institutions and foreign bank’s branches (“Circular 06”)

Issuance date: 27 May 2016 Effective date: 1 July 2016 The State bank of Vietnam has just amended, supplemented a number of provisions of Circular No. 36/2014/TT-NHNN as follows: - The ratio of purchase of and investment in government bonds over the average short-

term capital amount of the previous month will be raised from 15% to 35% applicable to foreign bank’s branches; from 15% to 25% applicable to state commercial banks.

- Short-term capital sources used for providing medium-term and long-term loans of

credit institutions, foreign banks’ branches will be reduced according to a conformable schedule to control the liquidity risks, secure the operation safety of credit institutions, foreign banks’ branches from domestic or overseas evil changes.

- Circular 06 also amends, supplements regulations on interpretation of terms and guides

in detail some regulations, how to determine some ratios, forms and transferable regulations applicable to several prudential ratios.

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Please do not hesitate to contact Oliver Massmann under omassmann@duanemorris.com if you have any questions or want to know more details on the above. Oliver Massmann is the General Director of Duane Morris Vietnam LLC. THANK YOU !