1. Aircraft and Engine Purchase and Sale
1.1 Sales Agreements
1.1.1 Taxes/Duties Payable Upon Execution of the Sales Agreement
Under Vietnamese law, the execution of an aircraft or engine sale agreement is not subject to any specific tax or stamp duty. It is, however, subject to the general tax regime, which may include income tax and VAT.
1.1.2 Enforceability Against Domestic Parties
Vietnamese laws do not have any specific regulations that require an aircraft or engine sales agreement to be translated, certified, notarised or legalised to be enforceable against a domestic party. Nevertheless, taking such steps would be advisable for the purpose of dispute enforcement.
1.2 Transfer of Ownership
1.2.1 Transferring Title
Under Vietnamese law, ownership of an aircraft includes rights to aircraft hulls, aircraft engines, aircraft propellers, aircraft radio equipment and other equipment used on board aircraft, irrespective of whether these components are currently installed on the aircraft or have been temporarily removed. However, Vietnam lacks independent procedures for registering rights related to specific parts or engines. All existing registration procedures are for the entire aircraft, necessitating only brief information regarding the engine's number and designation.
As Vietnamese law does not specifically provide for the transfer of title to an aircraft, engine, or other installed parts, including the auxiliary power unit (APU), such a transfer is subject to general provisions of law regarding the transfer of ownership of movable property. Generally, unless agreed or specified otherwise by the parties, the ownership of the property is transferred to the buyer from the moment the contract of sale is entered into. However, if the entity that holds the title remains the same, the sale of an ownership interest would not be effectively recognised as a sale of the aircraft or engine itself.
1.2.2 Sales Governed by English or New York Law
Generally, Vietnamese law allows the contracting parties to choose foreign laws and jurisdictions, such as English or New York law, to govern the bill of sale, as long as the application of the chosen law or its consequences do not conflict with the fundamental principles of Vietnamese law (ie, public policy).
In addition, the laws do not specifically stipulate any substantive requirements for a bill of sale to be recognised as a valid contract, aside from it needing to be written and signed by the authorised representative(s) of each party.
1.2.3 Enforceability Against Domestic Parties
Vietnamese law does not have any specific regulations that require a bill of sale to be translated, certified, notarised or legalised to be enforceable against a domestic party. To register the new owner of the aircraft with the Civil Aviation Authority of Vietnam (CAAV), a certified true copy or photocopy enclosed with the original bill of sale (for verification purposes) must accompany the application submitted to the CAAV.
1.2.4 Registration, Filing and/or Consent From Government Entities
Vietnamese law does not necessitate the registration, filing, or procurement of government consent for a bill of sale. However, for the registration of a new aircraft owner, a certified true copy or photocopy enclosed with the original bill of sale (for verification purposes) must be submitted to CAAV. Within three working days from the receipt of a complete registration application, CAAV will issue an Ownership Registration Certificate in favour of the new owner.
The execution and delivery of a bill of sale related to an aircraft or engine registered in Vietnam do not require any prior government applications or consents.
1.2.5 Taxes/Duties Payable Upon Execution of a Bill of Sale
Under Vietnamese law, executing and/or delivering a bill of sale is not subject to any specific tax or stamp duty. It is, however, subject to the general tax regime, which may include income tax and VAT.
2. Aircraft and Engine Leasing
2.1.1 Non-permissible Leases
Subject to compliance with the applicable laws, operating/wet/finance leases are permissible and recognised in Vietnam. However, an aircraft lease between a domestic party and an offshore entity is subject to the approval of CAAV.
2.1.2 Application of Foreign Laws
Vietnamese law recognises and enforces the choice of foreign law. However, the chosen foreign law will not be applicable if:
- the application of the law or the consequence thereof are inconsistent with the fundamental principles of Vietnamese law; or
- the contents of the foreign law are not identifiable regardless of the application of necessary measures prescribed by procedural law.
In addition, judgments rendered by foreign courts are not generally recognised and enforced in Vietnam, though there is a legal basis for this recognition. In particular, the courts recognise and enforce judgments (i) rendered by courts of countries with which Vietnam has signed treaties on the recognition and enforcement of court judgments or (ii) on a reciprocal basis. Vietnam has not yet signed such treaties with the UK and the US. Thus, any recognition and enforcement of a foreign court needs to rely on the basis of reciprocity, which remains without precedent.
On the other hand, although Vietnam has been a member of the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention) since 1995, and the selection of foreign arbitration may seem more practical and preferable, the recognition of foreign arbitration awards in Vietnam can be a challenging and burdensome process.
2.1.3 Restrictions Concerning Payments in US Dollars
There are no material restrictions imposed on domestic lessees making rent payments to foreign lessors in US dollars, so long as the domestic lessees fully comply with, inter alia, foreign exchange control rules, tax and antimoney laundering laws/regulations and would be able to present documentary evidence of the rent payments to the relevant authorities if so requested.
2.1.4 Exchange Controls
Generally, rent payments under a lease or repatriation of realisation proceeds between a domestic lessee and an offshore lessor can be freely conducted.
2.1.5 Taxes/Duties Payable for Physical Execution of a Lease
An aircraft lease is exempted from VAT and special consumption tax, and is subject to import duty at the rate of 0%. A lessor would be deemed to have income derived in Vietnam through leasing an aircraft to a domestic lessee; thus, the lessor is liable to pay foreign contractor tax in relation to any payment made by the lessee, which includes VAT and income tax.
2.1.6 Licensing/Qualification of Lessors
Vietnamese law does not specify any requirements in terms of licenses and qualifications for a lessor to lease an aircraft from abroad to a lessee in Vietnam. Also, under Vietnam's Commitments on the Accession to the WTO in the field of Services, there is no restriction on crossborder aircraft leasing (CPC 83104) conducted by an offshore entity from WTO members.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.