New decree a key building block

Decree 78 follows the 2005 Investment Law, and the 2002 Construction law. There are no substantial different provisions that apply specifically to investments under the form of these contracts rather than other forms of investment.

Investment under BOT, BTO, BT contracts can be now resumed following almost a year in which there were no legal guidelines for the contracts after the 2005 investment Law took effect.

Key definitions

A BOT contract is defined under 2005 Investment Law and Decree 78 as a contract signed between competent state authorities with investor(s) to build and operate infrastructure within a period expires, investor(s) shall transfer the works without compensation, to the state.

Under BTO contracts, investor(s) shall be given the right within a period of time after transferring the built infrastructure work to the state. For the BT contracts, after build and transfer, the investor(s) shall be given favorable conditions to run other projects to recover their investment costs and earn profits.

Promoted sectors

The government encourages investment under the BOT, BTO, or BT contracts in construction, infrastructure operation, or renovation, enlargement, modernization, operation and management of certain works such as roads, bridges, tunnels, railways, airport, sea and river ports, water supply factories, water drainage systems, waste treatment systems, power plants, power grids, and other infrastructure.

The new law do not require investors to satisfy any thin capitalization limitation, but Decree 78 requires investors to fund equity of at least 30 per cent, 20 per cent or 10 per cent of the total investment hits three levels respectively (i.e.: below VND 75 billion, from VND 75 billion to VND 1.5 trillion, and from above VND 1.5 trillion).

Decree 78 also requires investors to obtain performance bonds (like bank guarantee or other security interest) worth at least 3 per cent, 2 per cent, or 1 per cent of the total investment respectively for the aforementioned three levels of investment.

Investment licensing

For most other modes of investment, the licensing powers are mostly allocated to local authorities, but Decree 78 states that all BOT, BTO, BT contracts must be appraised and licensed by the Ministry of Planning must submit 10 sets of documents to the MPI, which will conduct the appraisals with the relevant authorities within 33 working days before issuing the investment licenses.

If a new incorporation is proposed under a BOT, BTO or BT contract, after obtaining the investment license, investors shall apply to establish a company according to the provision of the 2005 Enterprise Law.

It is unusual that Decree 78 does not set forth any differences in appraisal procedures in the case that MPI, or its subordinate body, is party to the BOT, BTO, or BT contracts.

Increasing incentives

Decree 78 stipulates a number of significant incentive for investment project under the form of BOT, BTO, or BT contracts, including that BOT and BTO companies shall enjoy the same corporate income �tax incentives as specially encouraged project for the whole project life; tax exemption shall be granted to the royalties generated from technology and intellectual property transfer if any; exemption shall be granted o land-use fee or rental for the whole project life; the government may designate guarantors for investors� loans and other support is promised by the decree during the project�s operation.

Foreign laws applicable to the contracts

Article 16 of the decree stipulates that, with respect to foreign-invested project, parties to the contacts are allowed to apply foreign laws to the contracts, provided that such agreement does not contradict with the basic principles of Vietnamese law.

There remain some concerns over the legality of this article. How it will justify Article 5 of the 2005 Investment Law, which requires that all investment activities in Vietnam must comply with provisions of the this law and related provisions, parties to contracts can select to apply the foreign law and international practices only incase there is no relevant provision under Vietnamese law.

Article 23 of the Investment Law allows the government to issue detailed provision governing the sectors, conditions, procedures and modes of BOT, BTO, and BT investment, and right and obligation parties to BOT, BTO, and BT contracts.