A New Regime of Business Fines Is Imposed in Vietnam. Should You Worry?

Vietnam’s recent change in leadership, with Prime Minister Nguyen Xuan Phuc taking office, has opened the gateway for legislative change. Signed on June 1, 2016 and effective starting July 15, 2016, Decree 50 is one adjustment that investors should make sure they understand.

Detailing penalties for administrative violations in a variety of business and investment-related situations, the decree covers the administration of public investment projects, investments in Vietnam from domestic and overseas investors, and the bidding process for public investments.

More importantly, the decree sheds light on the business registration process for different business models in Vietnam.

Fines are imposed for failure to adhere to any step of the established investment procedures, including the requirement to obtain a certificate of investment

Decree 50 seems to be an effort to improve the legal structure and bureaucracy in order to sustain Vietnam’s attractiveness to foreign investment. Despite its previous successes in attracting FDI, Vietnam’s weak legal structure and complicated bureaucracy, among other factors, have worsened the investment climate and diverted some investment to other markets in ASEAN

It should be noted that the majority of penalties involve a monetary fine and mandatory remedial measures to be taken. In all cases, individuals will face fines at half the rate that would be applied to a legal entity found in to have committed the same infraction.

Use of Public Funding

Decree 50 outlines penalties for violations in the usage of funding received from the government from the planning to the execution stages of a given project.

During the planning and proposal stage of the project, a fine ranging from VND 1 million (US$45) to VND 20 million (US$897) will be imposed when investors do not follow proper procedure, including those in relation to investment guidelines, a pre-feasibility report, a feasibility report and a budget estimate. Inadequate or false information in such documents, or failure to meet the national standards or technical regulations for such documents, are also punishable.

In the execution stage of the project, failure to report adequate and accurate information on the project progress is subject to a fine between VND 2 million (US$90) to VND 10 million (US$448).

Any deliberate attempt to withhold, destroy or falsify information on the project execution or implementation progress is fined at VND 10 million (US$45) to VND 20 million (US$897). At the same time, insufficient supervision and periodical assessment of the project or the lack thereof may subject businesses to a fine between VND 2 million (US$90) to 10 million (US$448).

In the case of misuse of public capital, a fine of VND 10 million (US$448) to 20 million (US$897) will be imposed – and the immediate withdrawal of said capital. When there is construction involved in a project using public capital, any misuse or mishandling of said capital will be fined according to the regulations on penalties for violations against regulations for construction.

The first section of the decree also details fines regarding misuse of official development assistance (ODA) in any stages of planning, execution and supervision, with fines up to VND 30 million (US$1,345) for going against the government’s approved decision on the project.

Investment Registrations

Fines ranging from VND 5 million (US$224) to VND 80 million (US$3,589) are imposed for failure to adhere to any step of the established investment procedures, including the requirement to obtain a certificate of investment, to register the investment, and to plan, execute and supervise the project.

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