In the current economic integration conditions, Vietnam always creates favorable conditions for foreign investors to be allowed to operate in Vietnam. However, there are still certain limitations in investment activities of foreign investors compared to domestic investors. The following article will provide information about the conditions for foreign investors when investing in Vietnam.
1. General provisions on investment in Vietnam
a. Foreign investors
Pursuant to clause 19 Article 3 of the Law on Investment 2020 (“LOI”), “foreign investor” means:
– Individual holding a foreign nationality;
– Organization established under foreign laws
These entities carrying their business investment activities in Vietnam through investment capital, which means money and other assets prescribed by the civil law and international treaties to which the Socialist Republic of Vietnam is a signatory for the purpose of carrying out business investment activities.[1]
b. Business lines that are allowed for foreign investors
Pursuant to Article 6 and Point a Clause 2 Article 9 of LOI, except for business lines with prohibited and restricted market access to foreign investors and banned business lines, foreign investors are allowed to carry out investment activities in Vietnam in the remaining lines.
Note: Under Decree 31/2021/ND-CP (“Decree 31”), for business investment activities carried out in Vietnam, investors who are Vietnamese citizens and hold foreign citizenship are entitled to choose to apply market access conditions and investment procedures as follows: regulations applicable to domestic or foreign investors. In case of choosing to apply market access conditions and investment procedures as prescribed for domestic investors, investors who are Vietnamese citizens and have foreign nationality are not entitled to exercise their rights and regulatory obligations for foreign investors.[2]
2. Conditions of business lines with market access conditions applied to foreign investors
Pursuant to Clause 3 Article 9 LOI, Article 15 Decree 31, when investing in Vietnam, foreign investors must meet the following market access conditions:
a. Capital owning percentage of foreign investors in economic organization
Clause 10 Article 17 Decree 31 states the limitations on the percentage of owning capital of foreign investors under the more international treaties on investment as the following:
– In case multiple foreign investors contribute capital to, purchase shares or stakes in a business organization that is regulated by one or some investment-related international treaties, the total holdings of the foreign investors in the business organization must not exceed the highest limit imposed by one of those international treaties on holdings of foreign investors in a specific business line;
– In case multiple foreign investors from the same country or territory contribute capital to, purchase shares or stakes in a business organization, the total holdings of these investors must not exceed the limit prescribed by the international treaty applied to these investors.
– For public companies, securities companies, securities investment fund management companies or securities investment funds, securities investment companies in accordance with the law on securities, in case the law on securities with other regulations on foreign investors’ ownership ratio, the provisions of the law on securities shall apply
– In case a business organization has multiple business lines that are regulated by investment-related international treaties that provide for foreign investors’ holdings differently, the foreign investors’ holdings in such business organization must not exceed the limit on foreign investors’ holding in the business line with the lowest limit.
b. Forms of investment
– Establishing new economic organizations: follow Article 22 LOI
– Contributing capital, purchasing shares or purchasing capital contributions: follow Article 24, 25, 26 LOI
– Execution of an investment project: follow Chapter IV on Execution of an investment project of Decree 31 and Part 2 Chapter IV of LOI.
– Investment in the form of a business cooperation contract (BCC contract): follow Article 27, 28 LOI.
– Investment in the Form of Public Private Partnership (PPP) Contracts: follow Law on PPP.
c. Scope of investment
– For business lines that do not have market access for foreign investors: Foreign investors are not allowed to make business investments according to the List of business lines that do not have market access for foreign investors in List A Appendix I Decree 31.
– For business lines with conditional market access for foreign investors: Foreign investors carry out investment activities in business lines according to List B, Appendix I, Decree 31.
– For the remaining business lines: Market access conditions are applied as prescribed for domestic investors, according to Clause 1, Article 9 of LOI.
d. Investor capacity; partners participating in investment activities
– The capacity of a foreign investor in this case is understood as the investor’s financial capacity, the ability to ensure financial resources for their business investment activities.
When foreign investors want to carry out investment activities in Vietnam, they need to prove their financial capacity to ensure that investment activities take place smoothly and achieve their goals.
– For partners participating in investment activities: follow Law on PPP.
e. Other conditions under Vietnamese law
In addition to the above conditions, Clause 3 Article 15 Decree 31 states that foreign investors must meet the following conditions (if any) when investing in Vietnam:
– Land using, Labor; natural resources, minerals;
– Production and supply of public goods and services or state monopoly goods and services;
– Owning and trading in housing and real estate;
– Applying forms of State support and subsidies to a number of industries, fields or developing regions and territories;
– Participating in programs and plans to equitize state-owned enterprises;
– Other conditions as prescribed in laws and resolutions of the National Assembly, ordinances and resolutions of the National Assembly Standing Committee, Government decrees and international treaties on investment that do not allow or Restrict market access for foreign-invested economic organizations.
3. Conditions of business lines with market access conditions
Pursuant to Clause 6 Article 7 LOI, when investing in business lines with market access conditions under Appendix IV LOI, foreign investors must meet the following conditions:
a. Licensing
A license is a type of document issued by a competent state agency, allowing a foreign investor to conduct one or more business activities as possible.
For example: Petroleum business license; Automobile transport business license, etc.
b. Certification
A certificate is a form of confirmation by a competent state agency that a foreign investor has satisfied the legal conditions to conduct certain business activities.
For example: Certificate of eligibility for veterinary business; Certificate of eligibility for pharmaceutical business, etc.
c. Diploma
A diploma is a document issued by a competent authority to foreign investors with sufficient professional qualifications and experience in a certain field and industry.
For example: Lawyer practice diploma, Veterinary practice diploma, etc.
d. Document of confirmation/approval
Document of confirmation/approval is a document issued by a competent state agency to confirm or approve a certain business investment condition.
Normally, this document is expressed in the form of a document confirming legal capital for a number of business sectors and trades that require legal capital.
There are also other conditions that foreign investors must meet to carry out business investment activities without requiring written confirmation from a competent authority.
The following chart illustrates the procedure when determining business line to investing in Vietnam:
[1] Clause 23 Article 3 LOI
[2] Clause 2 Article 16 of Decree 31
