Vietnam: The legal landscape

Vietnam - a great place for an exotic holiday but what about doing business there? What legal hurdles might international engineering and construction companies have to jump to do business in the Socialist Republic of Vietnam?

Since 2006, life has become easier for companies carrying on business in Vietnam. With the introduction of the Laws on Investments and Laws on Enterprises, and, a year later, accession to the World Treaty Organisation, the government of Vietnam has been attempting to increase foreign investment and make it easier for companies to set up in Vietnam and carry on business. Unfortunately, the rules are not uniform and differ according to the type of services a foreign entity wishes to provide.

Foreign Contractor’s Licence

Foreign companies wishing to provide integrated engineering services in Vietnam (e.g. advisory services, M&E, design or EPC works or turnkey projects), or to undertake general building and civil engineering works, can do so without establishing a commercial or corporate presence in Vietnam if a Foreign Contractor’s Licence (‘FCL’) is issued.

The main difficulty, however, is that the foreign company must have won a tender or have been shortlisted in a tender process before an FCL can be awarded and a prospective employer may be reluctant to award a tender on this conditional basis. It is possible, in certain circumstances, and should not deter companies from applying to undertake work but it is a difficulty that must be recognised.

Additionally, to obtain an FCL, a foreign company must establish a partnership with a Vietnamese contractor or employ a Vietnamese sub-contractor in the works. Applications for an FCL are processed by the Ministry or Department of Construction within 15 days of the application being submitted.

Establishing a corporate presence

Cross-border supply is not the only option for companies looking to provide construction and engineering services. While the rules of accession to the World Treaty Organisation do not permit companies to open a branch office to undertake integrated engineering services, a more long term business solution for companies is to establish a corporate presence within Vietnam, either in the form of a Wholly Foreign Owned Enterprise (‘WFOE’) or through a joint venture (‘JV’). There are pros and cons to both approaches but where local know-how and knowledge are considered useful then setting up a JV may be the way forward.

Investment Certificate

Whatever form of corporate presence a foreign entity wishes to establish, the lead time is between three and four months. Setting up a holding company or shell company is simply not possible in Vietnam. From the outset, the company must have a ‘project’ such as the ‘provision of engineering services for domestic and foreign enterprises within Vietnam’ and the foreign entity must apply to the relevant licence issuing body for an Investment Certificate (‘IC’).

A foreign company must establish a partnership with a Vietnamese contractor or employ a Vietnamese sub-contractor in the works

A company is required to have an office and employees and capital must be injected within 36 months from the date of the IC. Once issued, the IC is both the business registration certificate and approval to undertake the relevant investment project and the business can undertake work for foreign and domestic firms alike.

The branch office option

For foreign companies wishing to undertake general building and civil engineering works, a branch office is an option not available to firms providing integrated engineering services. Establishing a branch is much less onerous, the documentation is far more straightforward and the lead in time can be as little as one month.

Vietnam standard form building contract

Once established, a company providing construction services needs to familiarise itself with the standard form building contract used in Vietnam. This form is used by organisations and individuals procuring construction services where 30% or more of State capital is used to fund the works. Use of this standard form is also encouraged in other circumstances.
It will come as no surprise that the standard form is employer friendly but it does not leave the contractor completely without rights of redress. The contractor is given the right to claim extensions of time and to seek additional compensation in terms similar to those of standard form construction contracts in use in other jurisdictions.

While legal hurdles exist in establishing a business in Vietnam, they can be overcome and, unlike many other jurisdictions, security is not a problem for businesses and their employees. With the foreign investment now being poured into Vietnam, making the initial effort to clear the legal hurdles presented can often bring great rewards to those who try.

Kevin Hawkins is a partner and Matthew Williams is a senior associate in Mayer Brown JSM’s Ho Chi Minh City office