Residency rules eased

Under Vietnamese law, a company is represented by a person called the legal representative. Any action by the company must be done either directly by the company’s legal representative or via his or her authorisation. The legal representative acts on behalf of, and creates legal rights and obligations for, the company.

In light of this role toward third parties of a company’s legal representative, the Law on Enterprises (Articles 46 and 95) requires that the legal representative reside permanently in Viet Nam. Since the introduction of these provisions in 2005, this permanent residence requirement has created considerable concern among foreign investors seeking to appoint a foreign legal representative. The difficulty arises from the fact that very few foreigners meet the legal requirements for “permanently residing in Viet Nam”.

Decree No 139/2007/ND-CP of September 2007, issued to guide implementation of the Law on Enterprises, clarifies that a foreigner serving as a company’s legal representative must (i) register for temporary residence for his or her entire term in office, and (ii) notify the licensing authority in case of his or her absence from Viet Nam.

In practice, the first requirement was interpreted to mean that the foreign legal representative needed to obtain a temporary residence card under the requirements of the Ordinance on Entry and Exit. This has created considerable paperwork and reporting obligations for investors.

Decree No 102/2010/ND-CP issued on October 1 of this year will replace Decree No 139, effective November 15. Interestingly, Article 16 of Decree No 102 diverges from the wording of the Law on Enterprises by only requiring a company’s legal representative to “reside in Viet Nam”.

This seemingly minor change is significant. If interpreted in favour of the investor, a valid passport and a temporary residence certification should suffice to meet both the requirements of the new decree and the overriding provision in the Law on Enterprises. A temporary residence certification is not a temporary residence card, and can be obtained upon arrival in Viet Nam at an international border gate.

By dropping a single word, Decree No 102 not only removes the requirement of permanent residence, but the foreign legal representative also need no longer apply for temporary residence card as a manifestation of permanent residence. In effect, the requirement becomes one of mere physical presence in the country.

However, if the wording of Article 16 is deemed too general by authorities, and they choose to enforce in existing interpretation of the language in the Law on Enterprises, the permanent residence of the legal representative will continue to be a problem for foreign investors on one that they will be required to address in their investment plan.

Tags: Vietnam Law on Enterprises

Posted by VBN on Nov 3 2010. Filed under Enterprises. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry