External News

date: 21-11-2014 16:38:20

“Permanent residence”, “temporary residence” or “residence”?

The article by Truong Huu Ngu - Legal Consultant, LOGOS Law LLC is published on The Entrepreneur & Law Review issue 17, dated 05.2011.


Nowadays, the fact that foreigners hold management positions in companies – both “purely Vietnamese” and with foreign investment capital – in Vietnam has become popular. Besides, the foreigners may also hold the positions of legal representative of enterprises in Vietnam. This is fully in compliance with regulations of current laws.

To beat about the bush with a term
The legal representative is not an independent position, but always associates with a leading position in the company, for example, the legal representative of a limited liability company is often the Director or Chairman of Member Board, that one of a joint stock company is often the General Director or Chairman of Board of Management. The participation of a company, in its name, in the relationship with the outside world must be through the legal representative or the person authorized by the legal representative. The legal representative also has some important duties provided by the Law on Enterprises 2005, such as managing the use of the seal, informing the capital contribution progress to the business registration authority, controlling the internal transaction within the company, etc.
With the important role of the legal representative, the Law on Enterprise provides that the legal representative must be a “permanent resident” in Vietnam. Upon this requirement, if the term “permanent resident” is understood according to Ordinance on exit, entry and residence of foreigners in Vietnam, very few foreigners can become the legal representatives of Vietnamese enterprises due to the fact that only foreigners who have contributed to the career of development and protection of Vietnam Fatherland, or who have got spouses, children, parents of Vietnam citizens permanently residing in Vietnam may be granted the Permanent Residence Card. Maybe because of this, Decree 139/2007/NĐ-CP guiding the implementation of the Law on Enterprises is more “flexible” while just require the foreigners to be “temporary residents”. Now this Decree has been replaced by Decree 102/2010/NĐ-CP issued by the Government that is effective from 15 November 2010. Decree 102/2010/NĐ-CP even uses a new term, i.e. requires the foreigners to “reside” in Vietnam. While it is confused whether “residence” here must be understood as “permanent residence” or “temporary residence” in Vietnam, the business registration authority (Business Registration Section under Department of Planning and Investment of Ho Chi Minh City) remains to require Temporary Residence Card from the foreigners when the enterprises register the change of legal representatives who are foreigners. Particularly, under the requirement of this authority, one among the papers in the registration document for the change of legal representative of the enterprise who is a foreigner is the Temporary Residence Card of the new person.
This requirement may arise from regulations on personal certification papers in document of enterprise registration at Article 24 of Decree 43/2010/NĐ-CP regarding the enterprise registration, accordingly for foreigners who are permanent residents in Vietnam, the personal certification papers will be Temporary Residence Registration issued by relevant authority of Vietnam and effective passport.
Inflexible and mechanical
In my viewpoint, the requirement of business registration authorities that enterprises shall submit the Temporary Residence Card of the legal representative who is a foreigner under the above mentioned procedures is unreasonable.
The first reason is that the base on regulations at Article 24 of Decree 43/2010/NĐ-CP is an inflexible and mechanical understanding and applying of the law. This article only lists the personal certification papers of foreigners according to each type of foreigner in Vietnam, namely permanent resident or non-permanent resident, and does not imply that the foreigner is required to reside in Vietnam at the time he/she becomes the legal representative of the enterprise (the time the enterprise submits the registration document). The foreigner is only required to meet the requirements in residence in Vietnam during the time he/she holds the position of legal representative.
The second reason is that such a requirement makes enterprises to take a “bypass”, that means to apply for Temporary Residence Card first. In order to do that, the enterprise has to “put” the foreigner into the enterprise first (not yet holding the position of the legal representative) by registering the foreigner as a member of the company or member of Board of Management, or applying Work Permit for the foreigner with the purpose of applying the Temporary Residence Card first, and then register the foreigner as the legal representative. This of course takes from the enterprise further time, effort and even money.
The third reason is that if the requirement of Temporary Residence Card is to ensure the residence of the foreigner, let the process of “post-mortem” to handle the matter since according to provision of laws on administrative violation the enterprise may be fined up to VND 7 million if the legal representative does not reside in Vietnam.
The fourth reason is that if the requirement is to ensure the actual residence in Vietnam of the foreigner at the time the enterprise submits the document, the passport with temporary residence certification of the border gate Customs (which the foreigner can easily apply when legally enter into Vietnam) is quite enough.
Therefore, the requirement that the enterprise shall submit Temporary Residence Card of the foreigner legal representative as mentioned above must be cancelled immediately. The remarkable matter here is that even inside the business registration authority there is not the consistence in the same administrative procedure. In particular, if the enterprise executes the procedure of changing the foreigner legal representative at the Business Registration Section of Department of Planning and Investment of Ho Chi Minh City, as above mentioned, temporary residence card of the foreigner is required, but if that procedure is under power of the Investment Registration Section (in charge of granting licenses to both investment projects with local capital and ones with foreign capital) of the same Department, the temporary residence card is not required. I myself have directly assisted many enterprises with foreign capital to change the legal representative to a new foreigner one at Department of Planning and Investment and Management Board of industrial parks in other cities and provinces such as Binh Duong, Dong Nai, Ba Ria – Vung Tau, etc., but these authorities never have the requirement similar to the Business Registration Section of Department of Planning and Investment of Ho Chi Minh City, and these authorities only require a valid copy of passport of the new legal representative of the enterprise.
We can see that this “creation” of Department of Planning and Investment of Ho Chi Minh City originates from the unclearness, un-concreteness and inconsistence in relating regulations of the law, leading to different interpretations of management bodies, and enterprises do not know which way to take. This is the symbol of “9 not’s” feature of the law system as for enterprises, as the recent evaluation of the Team of implementation work of the Law on Enterprises and Law on Investment, consists of: not sufficient, not clear, not concrete, not compatible, not explicit and not predictable, not reasonable, not effective and not valid. In order to execute the administrative reform, these faults in the law system must be eliminated.