Legal Update. [August, 2016] LEGAL UPDATES. Level 21, Bitexco Financial Tower No.02 Hai Trieu Street, District 1 Ho Chi Minh City, VIETNAM

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1 Level 21, Bitexco Financial Tower No.02 Hai Trieu Street, District 1 Ho Chi Minh City, VIETNAM Legal Update [August, 2016] Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For legal advice, please contact our Partners. 1

2 Corporate Dispute Resolution Financial Services Intellectual Property Real Estate & Infrastructure LEGAL [August, 2016] Part I: Legal Briefing...Page 3 Commercial...Page 3 1. Decree No. 69/2016/ND-CP on the conditions applicable to debt trading activity 2. Decree No. 93/2016/ND-CP on conditions for manufacturing cosmetics Investment...Page 4 3. Decree no. 50/2016/NĐ-CP on administrative penalties for violations of the rules on investment activities Real Estate & Infrastructure...Page 6 4. Regime on registering the mortgage of land use right and asset attached to land amended 5. New circular guiding Law on Residential Housing Part II: Issues in Focus...Page 9 Criminal liabilities of service providers for computer and telecommunications networks 2

3 Part I: Legal Briefing Part II: Issues in Focus 1. Decree No. 69/2016/ND-CP on the conditions applicable to debt trading activity Decree No. 69/2016/ND-CP on the conditions applicable to debt trading activity came into effect on 1 July The new Decree sets out mandatory conditions to be satisfied by the undertaking engaging in debt trading. In general, the conditions mostly focus on the undertaking s operation structure, minimum threshold of capital and quality of managing staff. Among those, the condition on capital appears to be the most noticeable criterion. In particular, the undertaking wishing to enter into the debt trading market must have chartered and/or investment capital at least equal to the threshold therein. Varying with each sort activity of debt trading, the minimum threshold of capital is different whereas the highest threshold is VND 500 billion relevant to business of debt trading exchange. The undertaking is not permitted to use the loan granted by a bank or credit institution to purchase the loan which has been granted by the same bank or credit institution. Within 1 year from the effective date of the new Decree, the undertaking which has been conducting debt trading but has not satisfied the conditions yet is subject to (i) ensure the satisfaction of mandatory conditions; or (ii) terminate the conduct of debt trading. By Decree 69, the undertaking which is not a bank or credit institution is, for the first time, granted legal ground for conducting debt trading as a business line instead of extraordinary activity as before. 2. Decree No. 93/2016/ND-CP on conditions for manufacturing cosmetics Decree No. 93/2016/ND-CP on conditions for manufacturing cosmetics came into effect on 01 July The key change was to specify the conditions for cosmetic manufacturers. Besides, the Decree clarifies procedures for issuance, re-issuance, amendment and revocation of Certificates of satisfaction of conditions to cosmetic manufacturing. The Government has issued Decree No. 93/2016/ND-CP providing conditions for manufacture of cosmetic products (Decree 93). It came into effect on 01 July

4 Conditions for manufacture of cosmetic products Previously, Law on Investment specifies a list of conditional business lines, including manufacture of cosmetics. However, the detailed conditions for manufacture of cosmetics products have not been issued. Under Decree 93, cosmetic manufacturers must (i) be lawful established and (ii) have a Certificate of satisfaction of conditions to product cosmetics (SC Certificate). In order to obtain the SC Certificate, a cosmetic manufacturer must fully satisfy following main conditions: (a) The person responsible for production must have specialized knowledge in one of the following faculties: chemistry, biology, pharmacology or some other faculty relevant to the work requirements. (b) For material facilities: having a location, area, factory and facilities which satisfy the requirements for a production line and for the type of cosmetic products and a store for preserving each type of materials, products, etc. (c) Having a quality control system which satisfies the requirements of raw materials, supplies, water, types of semi-finished products, production processes, and quality control section. Further notes Cosmetic manufacturers operating prior to 1 July 2016 may continue to produce the cosmetics having a valid number for receipt of their declarations of cosmetics. Such manufacturers must obtain an SC Certificate prior to 31 December If they wish to produce new cosmetics other than those cosmetics, they must conduct procedures for obtaining an SC Certificate before. Additionally, for cosmetic manufacturers having certificate of Good Manufacturing Practices of Cosmetic, prior to 31 December 2016, the Department of Health shall issue the SC Certificates to cosmetic manufacturers in list provided by the Ministry of Health. With the significant changes as above, Decree 93 creating a solid legal framework for cosmetic manufacturers and facilitate the administrative procedures. 3. Decree no. 50/2016/NĐ-CP on administrative penalties for violations of the rules on investment activities A revised Decree on administrative penalties for violations of the rules on investment activities No. 50/2016/NĐ-CP dated 01 June 2016 came into effect on 15 July 2016 and replaced the Decree No. 155/2013/NĐ-CP. The key changes are in comparison with 4

5 Decree No. 155/2013/NĐ-CP (i) Decree No. 50/2016/NĐ-CP sets a clearer scope of authority for each competent authority; and (ii) Decree No. 50/2016/NĐ-CP also provides a number of completely new provisions. The Government has issued a revised Decree No. 50/2016/NĐ-CP (the Decree 50 ). It came into effect on 15 July This Decree regulates penalties for administrative offences in the planning and investment sector, for examples penalties for violations against regulations on management and use of public capital, domestic investment and outward investment, bidding management and business registration. It is noteworthy that Decree 50 has clarified in its Article 59 that the change is not intended to impose a fine on enterprises for violations committed before the effective date of this Decree that have been dealt with by competent authorities, except for violations that are committed before the effective date of this Decree but discovered afterwards or still under consideration if its provisions are more advantageous to the violators. Scope of authority Previous position: The Government noted that the authorization to impose penalties for violations against regulations on planning and investment mainly granted to Inspectors of Planning and Investment and People s Committees at all levels. New position: The Revised Law expands and supplements the authorization to impose penalties for violations against regulations on planning and investment to tax authorities and market surveillance authorities. And at the same time, the Government clearly clarifies the authorization to impose penalties of planning and investment inspectors, tax inspectors, and market surveillance inspectors in particular violations. New provisions Decree 50 also provides a number of new provisions in comparison with Decree No. 155/2013/NĐ-CP. For example: - A fine of 2 million to 3 million VND shall apply to violation of changing the number of seals of an enterprise, branch or representative office without notifying the BRO in order for the latter to publish same on the national enterprise registration information portal. - A fine of 10 million to 15 million VND shall apply to violation of authorizing a person to act as authorized representative when such person fails to satisfy the standards and conditions. - A fine of 10 million to 15 million VND shall apply to violation of failure to provide written authorization to another person to act as representative when the 5

6 sole legal representative of the enterprise exits Vietnam. While in the past, this sanction was applicable to absence from Vietnam by the legal representative of an enterprise for more than 30 days without providing written authorization to another person to exercise the rights and discharge the obligations of the legal representative. 4. Regime on registering the mortgage of land use right and asset attached to land amended The regime on registering the mortgage of land use right and asset attached to the land is amended under a new guideline. Key change is to clarify required documents for the developer s to mortgage their residential projects or housing formed in the future. Other changes include the registration of. Read more The abovementioned is one of the noteworthy points under the Circular No. 09/2016/TTLT-BTP-BTNMT (Circular 09) jointly issued by Ministry of Justice and Ministry of Natural Resources and Environment, which takes effect on 8 August 2016 and amend the existing regime on mortgaging land use right and asset attached to land prescribing under the Circular No. 01/2014/TTLT NHNN BXD BTP - BTNMT (Circular 01) and Circular No. 20/2011/TTLT-BTP-BTNMT (Circular 20). 1/500 master plan approval required. Developer s mortgage of residential project or housing formed in the future is allowed under the Law on Residential Housing and Circular 26/2015/TT-NHNN. However, while it is a condition for the mortgage to be effective, there were no guidelines on application documents and procedure for registration of the mortgage. Circular 09 prescribes the application dossier for registration of residential project. Accordingly, the dossier applying for registration of mortgage over residential housing project consist of an application for registration of mortgage, the mortgage agreement, the certificate or Decision on conveyance of land use right or land lease, granted by the competent authority to the developer, the construction permit or investment principal approval, and the master plan 1/500 approval. As such, prior to the 1/500 master plan approval, the developers may not be entitled to mortgage their projects. Land use right can be mortgaged as a guarantee to secure the obligations of the others. The Law on Land is silent on whether land owners are entitled to use their land use rights as guarantee or not. This raises concern over the validity of guarantee agreements in which land use right is a security asset. Practically, many of guarantee agreements where land use right is security asset are rejected to be registered by the authorities. In some 6

7 dispute cases, the court has ruled these agreements invalid even they are registered with the authority. The above concern is resolved under the Circular 09 since it clearly states that land use right can be mortgaged by the land owner as security asset to secure the obligation of the others. 5. New circular guiding Law on Residential Housing Further clarifications on the foreigners quota of housing ownership, the requirement to sell future projects, the assignment of housing sales and purchase agreements, and foreigners leasing houses have all been prescribed under a new circular guiding the Law on Residential Housing. Read more The above are key changes made under Circular No.19/2016/TT-BXD issued by the Ministry of Construction on 30 June 2016, guiding the implementation of the Law on Residential Housing (LORH) and Decree No. 99/2015/ND-CP (Decree 99). Circular 19 takes effect on 15 August 2016 and replaces Circular 16/2010/TT-BXD (Circular 16). Foundation completion date clearly defined Circular 19 has set out specific regulations on determining the completion of building foundations that are a condition precedent for selling future condo units in accordance with the Law on Real Estate Business. Accordingly, if a top-down construction method is applied, the developer and their contractor may execute a record certifying the completion of building foundation when construction of the first floor has been finished. In case of normal construction methods, foundation completion is achieved when the pile cap and braced foundation have reached the height of the lowest floor. Foreign buyers quota probably reduced Under the LORH and Decree 99, the quota for foreigner to own condo units is determined on the basis of total units in a relevant condo building. However, Circular 19 clarifies that the quota is based on the total condo units used for residential purpose in that building. As such, foreigners are not allowed to own more than 30% of total units that are used for residential purposes. The same regulations are applied to every single block in a multiple block condo building. However, Circular 19 is silent on how to define if a unit (e.g. service apartment or a shop house) is for a residential purpose. As for the landed house quota, the LORH allows foreign buyers to own, within an area whose population size is equivalent to that of a ward (Ward Area), not more than 250 townhouses and/or villas. That means if, in a relevant Ward Area, there is a sole project 7

8 that has less than 250 landed houses, foreign buyers may purchase all the landed houses in that project. However, according to Circular 19, the number of townhouses and/or villas in every project that may be sold to foreign buyers must not exceed 10% of the total landed houses in that project, provided that there are no more than 250 landed houses owned by foreign buyers in that Ward Area. According to Circular 19, the number of habitats to define a Ward Area is determined in accordance with regulations on local government organization. Unfortunately, there have been no such regulations so far. Notification on foreigner s lease of house required Foreigners, prior to leasing their houses, must send notification to the residential housing control authority at the district level. The notification must consist of the owner s name, address of the leased house, the lease term, and must be attached with a copy of its respective pink book. The foreign housing owners must also fulfill their tax obligations and comply with provisions on real estate business. Assignment procedures modified Generally, the procedures for a developer to certify the assignment of the sale and purchase agreement (SPA) under Circular 19 is same as prescribed under Circular 16. However, the assignment template is no longer mandatory. The assignment agreement must be executed on a single unit basis. As such, in case there is a SPA for several units, the assignor and the developer must sign a new SPA or amend the signed SPA to reflect the assignment of the relevant units. The assignment agreement must be made into six (06) original copies, or seven (07) originals should be made in case notarization is required. A dossier submitted to the developer for certification must include: (i) 5 original copies of the assignment, (ii) 1 original copy of the SPA, (iii) tax payment voucher/tax exemption confirmation, and (iv) a certified true copy of ID/ Passport in case the assignee is an individual, a certified true copy of a certificate of incorporation in case the assignee is an entity. 8

9 Part I: Legal Briefing Part II: Issues in Focus CRIMINAL LIABILITIES OF SERVICE PROVIDERS FOR COMPUTER AND TELECOMMUNICATIONS NETWORKS On 27 November 2015, the National Assembly of Vietnam passed the new Criminal Code Law No. 100/2015/QH13. One of the most controversial articles is Article 292 on the illegal provision of services to computer and telecommunications networks. Article 292 brought up some noticeable points: (i) Criminal provisions: A person who provides any of the following services to computer or telecommunications networks without a license or against a license, and earns a profit of 50,000,000 VND to under 200,000,000 VND; or revenue from VND to under VND will be subject to penalties: a) Trading gold on accounts; b) Electronic commerce exchange; c) Multi-level marketing; d) Payment services; e) Online video games; f) Other services on computer networks or telecommunications networks as prescribed by law. (ii) Penalties: Depending on the severity of the crime, the penalty can be: a) A fine ranging from 500,000,000 VND to 5,000,000,000 VND. At the highest level, all properties of the convicted individual may be seized; b) A period of imprisonment from 03 months to 5 years. (iii) Impacts on business and society: Article 292 doesn t distinguish between deliberate crime and involuntary crime. It also doesn t take into account whether the act has a positive or negative impact on society, which means the subject matter governed by this Article is very broad. Therefore, any person or newly established company in the online/ telecommunication/ computer network fields can potentially become criminals. The fact that in Vietnam a lot of newly set-up technology 9

10 companies often try out their business operations before applying for official licenses. Under this new law, the owners/founders of such companies may be subject to criminal sanctions. Furthermore, individuals who don t do business in this field, but perhaps write new software or invent new technology that can be applied in practice and potentially earn money may also be subject to criminal sanctions. Therefore it is likely that Article 292 may create a fear of starting a new business, restrain the development of young companies as well as stunt creativity of new technology. It will create an imbalance for the online/ computer/ communication network field as many other fields only consider these acts to only be administrative violations. (iv) Validity: At first, the new Criminal Code was scheduled to come into effect on 01 July However, due to many problems it would cause upon enforcement, such as the issues discussed with Article 292, the legal effect of the new Criminal Code was postponed indefinitely by Decree No. 144/2016/QH13 issued by the National Assembly on 29 June Nevertheless, the new Criminal Code is not postponed entirely. There are some articles and clauses that still are applied and enforced, which are: a) Article 7.3 on the chronological effect of the Criminal Code that allows for suspensions or reductions of sentences for crimes. b) Article 40 on the death sentence that removes the death sentence from most crimes. Following objections from individuals, legal specialists and commercial business communities, it was announced that Article 292 will be properly amended by the Government. 10

11 For more information about any of these legal briefs, please contact the authors: Mr. Hong Bui Corporate Dr. Net Le Banking & Finance Ms. Quyen Hoang Corporate, M&A Dr. Tuan Nguyen Competition, Pharmaceutical Dr. Vinh Nguyen Dispute Resolution Mr. Binh Tran Real Estate & Infrastructure Mr. Su Tran Dispute Resolution For further information, please contact: Ho Chi Minh City Head Office Unit 03, Level 21, Bitexco Financial Tower No.02 Hai Trieu Street, District 1 Ho Chi Minh City, VIETNAM Tel: Fax: Hanoi Office Level 12, Pacific Place No 83B Ly Thuong Kiet, Hoan Kiem District, Hanoi, VIETNAM. Tel: Fax: LNT & PARTNERS ( LNT ) is a full-service independent Vietnam law firm, which focuses on advisory and transactional work in the areas of corporate and M&A, competition, pharmaceutical, real estate, infrastructure and finance as well as complex and high-profile litigation and arbitration matters. The firm is among Vietnam s most prominent, representing a wide range of multinational and domestic clients, including Fortune Global 500 companies as well as well-known Vietnamese listed companies. For more information about any of these legal briefs, please contact the individual authors or your usual LNT contact. Disclaimer: This Briefing is for information purposes only. Its contents do not constitute legal advice and should not be regarded as detailed advice in individual cases. For legal advice, please contact our Partners. 11