Draft Decree Aims to Drive Innovation in Vietnam’s Industrial Parks and Economic Zones

A new draft decree has been issued regulating industrial parks and economic zones in Vietnam and seeking their transformation into high-tech zones and urban service areas. Feedback on the draft is currently being sought. Here’s what it says.

In May 2022, the Vietnamese government issued Decree No. 35/2022/ND-CP regulating the operation of industry parks (IPs) and economic zones (EZs). This revised regulation has addressed many shortcomings and administrative procedures that disrupt investment activities in IPs and EZs in Vietnam.

However, the Ministry of Planning and Investment has pointed out that the decree has not encouraged IPs and EZs to attract more innovative businesses. For this reason, the ministry is seeking public input on a draft law aimed at attracting more high-quality investment and greater innovation in the development of IPs and EZs.

In this article, we will explore the revised decree and its benefits to relevant stakeholders investing in industrial parks and economic zones in Vietnam. This includes the legal framework and regulations for foreign firms and investors.

What’s in the Decree No. 35/2022/ND-CP?

On July 15, 2022, Decree No.35/2022/ND-CP on the management of IPs and EZs took effect, replacing Decree No.82/2018/ND-CP. This underlines a big leap forward in completing the legal framework for investment in IPs and EZs.

Two new IP models

• Specialized IP: An industrial park that caters to the production of goods in a particular industry or sector; at least 60 percent of its industrial land is designed to attract investment projects in that particular industry or sector.
• High-tech IP: Industrial parks that draw high-tech and IT investment per the list of sectors and industries receiving special investment incentives in the Law on Investment. At least 30 percent of its industrial land is designed to attract investment projects in these industries and/or sectors.

Simplified infrastructure development and establishment of industrial parks

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With the abolishment of unnecessary procedures, per the new decree, industrial park investors and infrastructure companies can reduce project development time. This will, in turn, help local authorities to maximize the effectiveness of their project investment activities.

For example, it is stipulated in Decree No. 82/2018/ND-CP, that to obtain a license to invest in an industrial park, investors must go through complex and time-consuming administrative procedures over the course of 12 to 24 months and in some cases up to 36 months.

The revised decree, however, no longer mandates that investors acquire an IP establishment decision from the Provincial People’s Committee. Instead, an IP will be deemed as having been established since the date of issuance of the investment registration certificate.

New regulations on investment in IP infrastructure

The draft decree adds a number of eligibility requirements and criteria for the evaluation of investors in bidding for the development of IP infrastructure projects.

In the draft decree, the investor must satisfy the requirements for:

• Real estate businesses outlined in law on real property; and
• Compliance with the regulatory provisions of the Land Law, and Forestry Law with respect to leasing and subleasing land and changing the approved land-use purpose to execute the IP project.

When selecting an investor, the following evaluation standards shall apply:

• Qualification and past performance evaluation: Does the firm have the experience necessary to complete the project?
• Technical evaluation: Does the firm have the necessary technical skills and know-how to complete the project?
• Finance evaluation: Does the firm have sufficient funding in place to complete the project?

Transforming IPs into urban service zones

A key feature of Decree No. 35/2022/ND-CP is the government’s approval of the transformation of IPs to urban service areas.

Under the revised decree, there are a number of conditions and procedures for converting industrial parks to urban service areas. This includes:

• Conform to the provincial or urban development planning framework of the centrally affiliated city or province where the conversion happens.
• The industrial park is one that is a part of the urban area of a special-category city, a central category-I city, or a provincial category-I city.
• The time from the date of establishment to the date that the proposed conversion is considered must be a minimum of 15 years, or half of the permitted life of the proposed IP to be converted.
• This conversion is agreed upon by the investor and over two-thirds of businesses in the industrial park in the area to be converted.

How will the decree benefit foreign investors?

Reduces time, costs, and risks associated with enforcement

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The abolition of several procedures is intended to promote the development of IP projects, including the eco-industrial parks, specialized IPs, and high-tech IPs. The revised decree has also addressed some inconsistencies in different legal provisions and ruled out some obstacles regarding legal risks in investment activities in IP projects. Thus, the aforementioned amendments to the legal framework will be important in attracting major infrastructure developers.

Incentives for the development of eco-industrial parks

Additionally, the Decree No. 35/2022/ND-CP also sets out more specific criteria for “eco-industrial parks” outlined in Decree No. 82/2018/ND-CP and provides substantial incentives for foreign investors in the development and construction of eco-industrial park projects. This will, in turn, stimulate sustainable development among significant IP projects and allow room for innovating new environmentally friendly IP and EZ models moving forward.

More development IP and EZ regulations needed

However, the Ministry of Planning and Investment points out that the slow pace of renovating new IP and EZ models, along with limitations in foreign capital attraction, has failed to see Vietnam’s IPs and EZs reach their full potential.

Specifically, there have been no significant changes to the legal framework regulating IPs and EZs. Vietnam has developed a decree on IP and EZ management but these operations affect many other sectors, including investment, land, construction, housing, and labor.

The ministry also indicates that the investment incentives and support policies are insufficient for promoting investment flows in Vietnam. These policies are considered unsynchronized, complex, overlapping, and lacking stability. This may lead to difficulties in attracting foreign direct investment in areas with poor socio-economic conditions, including building strong institutional foundations for the development of specialized IPs, EZs and industrial clusters moving forward.

It’s with this in mind that the Vietnamese government has issued the draft law on the management of IPs and EZs. The draft law has proposed six groups of implementation policies to create a conducive business climate, incentivize foreign investment, and create breakthrough innovation for IP models.

Moving forward

Vietnam’s industrial parks and economic zones have seen notable developments in model innovation and infrastructure over the past decades. The Vietnamese government has made inroads in transforming and promoting high-tech and eco-industrial parks, encouraging foreign firms to explore the country’s potential and make substantial investments. If the new draft decree is issued, investors will be able to enjoy a number of incentives and the procedures for projects at IPs will be substantially simplified. However, the government will require foreign-invested enterprises to make sustainable development and technological innovation a focal point. Thus, firms should follow and keep-up with the development of laws on IPs and EZs in the coming years.

For support with legal and regulatory requirements in Vietnam, contact the legal experts at Dezan Shira and Associates.

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