With the aim of creating a breakthrough for the business environment in the country and improving the administration process for investors, on 25 November 2014, the National Assembly of Vietnam adopted the new Law on Investment (the “2014 Investment Law”) and Law on Enterprises (the “2014 Enterprise Law”), which came into force on 1 July 2015. After five years of these laws, and to make Vietnam a more attractive investment destination, on 17 June 2020 the National Assembly passed Law No. 61/2020/QH14 on Investment (the "2020 Investment Law") and Law No. 59/2020/QH14 on Enterprises (the “2020 Enterprise Law”), replacing the 2014 Investment Law and the 2014 Enterprise Law respectively.

Investment Treatment and Protection

As detailed in its investment laws, Vietnam provides equal treatment before the law to all investors from all economic sectors, and as between domestic and foreign investment. The Government recognizes and protects the ownership of assets, invested capital and revenue and other lawful rights and interests of investors. The Government also guarantees to open the investment market in compliance with schedules committed in international treaties to which Vietnam is a member.

As part of its accession to the WTO, Vietnam ratified TRIMs. In order to comply with TRIMs requirements, the investment laws specify that the State will not impose any of the following requirements on foreign investors:

• Priority purchase of domestic goods or services;
• Export requirements or export limitations;
• Foreign exchange balancing;
• Localization ratios of goods produced;
• Minimum level of research and development activities in Vietnam;
• Obligation to supply goods or services in a particular location; and/or
• Obligation to establish head offices in a particular location.

Vietnam started negotiating bilateral investment treaties (“BIT”) only in the 1990s and until now it has signed more than 80 BITs, including those with most of its important trade and investment partners. All BITs typically provide for:

• National treatment, with certain exceptions;
• Fair and equitable treatment;
• The Most Favoured Nation treatment;
• Protection against nationalization or expropriation (allowed for a public purpose only on a non-arbitrary and non-discriminatory basis) and the obligation to provide prompt (without undue delay and including interests), adequate (typically the market value before the expropriation decision was made public) and effective compensation (realizable and freely transferable);
• The right to repatriate returns and assets; and
• Recourse to international arbitration.

Foreign Investment Entry

There are three main legal sources that define the specific restrictions to foreign investment entry: (i) the 2020 Investment Law and its guiding subordinate regulations; (ii) sectoral laws and regulations; and (iii) specific commitments of Vietnam in multilateral and bilateral treaties.

Under the 2020 Investment Law, major investment conditions for foreign investors are separated into two groups: (i) business investment conditions which apply to any investor (regardless of whether such investor is a local individual or entity or a foreign individual or entity) engaging in certain conditional business lines; and (ii) market access conditions which foreign investors must satisfy to invest in certain restricted sectors (the “List of Restricted Sectors”).

The List of Restricted Sectors comprises: (i) the list of industries and trades for which there has not yet been a market entry for foreign investors; and (ii) the list of industries and trades for which market entry is conditional. The 2020 Investment Law provides a new approach to market access conditions, what has been called the “negative-list” approach. Particularly, for business sectors which are not included in the List of Restricted Sectors, the market access conditions applicable to foreign investors are the same as those applicable to domestic investors. This “negative-list” approach demonstrates efforts made by local authorities that should help resolve the conflicting interpretations of previous laws and create a consistent legal framework for market entry.

The precise nature and extent of foreign direct investment entry restrictions in conditional sectors are stipulated in sectoral laws and regulations and international treaties of which Vietnam is a member. Typical restrictions include ceilings on foreign ownership, joint venture requirements, and restraints on operations.

Government Approval and Registration

The 2020 Investment Law and the 2020 Enterprise Law provide for two separate registration procedures namely investment registration and enterprise registration. The investment registration is required only for investment projects owned by foreign investors or foreign-invested enterprises with over 50% foreign ownership (“over-50% FIE”). Under Article 23.1 of the 2020 Investment Law, over-50% FIEs will be subject to the same conditions and investment procedures applicable to foreign investors if: (a) over 50% of its charter capital is held by foreign investors; (b) over 50% of its charter capital is held by an enterprise under Item (a); or (c) over 50% of its charter capital is held by foreign investors and enterprises under Item (b).

In cases where the investors being foreign investors or over-50% FIEs want to set up an enterprise in Vietnam, they normally go through the following two steps:

• First, the investors must apply for an Investment Registration Certificate (“IRC”) which certifies, among other things, the intended investment project of a foreign investor (i.e., setting up a company in Vietnam to own/run a project or provide services, etc.). An IRC is issued either by the local department of planning and investment (“DPI”) or by the Management Committee if the foreign-invested enterprise is located in a special purpose zone (industrial zone, export processing zone, high-tech zone or economic zone). Statutorily, an IRC would be granted within 15 days. Nevertheless, this timeline might be delayed due to the workload of the authority or the complexity of the project; and

• After receiving the IRC, the investor is required to apply for the issuance of the Enterprise Registration Certificate (“ERC”) which certifies the incorporation of the investor’s company in Vietnam. The ERC is issued by the provincial DPI where the registered office of the company is located and can be issued within three working days.

Under the 2020 Investment Law, M&A transactions (e.g., purchase of shares in a local company) are not required to obtain an IRC. Nevertheless, acquisition of shares in a local company is required to obtain an approval from the local DPI if: (i) the target company operates in a sector without restrictions on market entry; or (ii) as a consequence, the foreign investor or over-50% FIE hold 50% or more of the charter capital of the target company. Thus, a foreign investor is not required to register with and obtain approvals from the local DPI for his/her/its share acquisition if the share acquisition does not lead to foreign ownership in the local company of up to 50% and the company does not operate in a sector with market access restrictions.

Forms of Investment

The 2020 Investment Law provides for the following investment forms:

• to establish an economic organization (“EO”) to implement an investment project;
• to contribute capital, purchase shares or capital contribution into an EO; and
• to invest by way of a contractual arrangement, including investment contracts in the form of a business co-operation contract (“BCC”) and a public private partnership (“PPP”).

Establishing An EO

An EO is an organization established and operating in accordance with the laws of Vietnam. EOs include enterprises, co-operatives and unions of co-operatives and other organizations conducting business investment activities. Before the establishment of an EO, a foreign investor must have an investment project, carry out the procedures for registration of an investment project by way of obtaining an IRC and must satisfy certain market access conditions on ownership and any other conditions prescribed in international treaties. Subject to the market access restrictions in certain economic sectors, foreign investors may choose to establish a wholly foreign-invested enterprise (“WFIE”) or a joint venture with a Vietnamese partner(s) (“JV”). In practice, the sectors which require the corporate form of JV are very limited.

WFIE is an independent legal entity owned and established by a foreign investor(s). A WFIE may cooperate with another existing WFIE and/or foreign investor(s) to establish another new WFIE. A WFIE allows an investor to have independence and full management control over business operations, yet they assume full responsibility for its debt and liabilities.

The WTO Commitments and other international treaties to which Vietnam is a member permitted the establishment of WFIEs in a great number but not all sectors in Vietnam. In a few exceptions, a foreign investor is required to have a Vietnamese JV partner if the market access restriction is so regulated in international treaties to which Vietnam is a member. In this case, a foreign investor must set up a JV with a Vietnamese partner(s). The maximum ownership of a foreign investor in a JV depends on the business sector. Usually, the foreign investor may hold a majority share, except for certain business sectors which place a cap on foreign ownership (e.g., in purchasing shares in a local bank in which the foreign ownership ratio can only be up to 30%).

Branches and Representative Offices

The laws of Vietnam allow certain foreign business entities to establish two other forms of commercial presence in Vietnam: a branch or a representative office. Both must be licensed by the relevant authorities.

A foreign company that wishes to establish a representative office in Vietnam must be duly established for at least one year in accordance with the laws of its home jurisdiction. Representative offices are not independent legal entities and cannot directly conduct profit-making activities in Vietnam.

Foreign businesses can establish their branch(es) in Vietnam in accordance with the WTO Commitments and other international treaties to which Vietnam is a member. Under the WTO Commitments, a branch may be established in Vietnam by a foreign business entity in certain areas subject to certain phasing (e.g., non-life insurance, securities, computer and related services, management consulting services, construction, and franchising).

Branches of foreign companies are different from representative offices in the way that a branch is permitted to conduct revenue-generating activities in Vietnam. To be permitted to open a branch, a foreign company must be duly established for at least five years in accordance with the laws of its home jurisdiction.

Investing in An Existing Enterprise

Foreign investors may also choose to invest directly in Vietnam by making capital contribution to an EO or purchasing shares or portion of capital contribution in an existing EO (i.e., M&A transactions), subject to the following restrictions:

• The cap on foreign ownership in public companies is regulated by the laws on securities;
• The caps on foreign ownership in companies engaged in conditional business sectors are provided for in the laws and regulations governing those sectors; and
• The cap on foreign ownership can also be provided for in international treaties to which Vietnam is a member.

Investing via Contractual Arrangements 

In addition to investment forms of setting up companies in Vietnam or purchasing shares in Vietnam-based companies, Vietnamese investment laws also allow foreign investors to invest via the form of contractual arrangements, normally for large or special projects. The forms of contracts are listed below.

A Business Cooperation Contract (“BCC”) is an agreement between investors in which the parties agree to cooperate to undertake certain business activities in Vietnam (e.g., cooperation in telecommunications or oil production projects) and to share the revenue or profits therefrom. The investment form of a BCC establishes a partnership which does not create a new legal entity in Vietnam.

Public Private Partnership (PPP) investment form is a contract between a State agency and an investor (either local or foreign) or the project enterprise (which is set up by the foreign investor) in order to develop, manage and operate an infrastructure project (e.g., roads and electricity systems) or to provide public services (e.g., health care). PPP investments are allowed in transportation, lighting systems, water supply systems, drainage systems, waste and wastewater collection and treatment systems, power plants and transmission, and infrastructure facilities for healthcare, education, culture, sport, industry and agriculture, etc.

The main legislation governing PPP projects are Law on Investment in the Form of Public and Private Partnership of 2020 (“2020 PPP Law”) and Decree No. 35/2021/ND-CP of the Government dated 29 March 2021 (“new PPP Decree”). The 2020 PPP Law caps the State’s capital contribution to a project of up to 50% of the total investment of the project.

An investor may select various types of PPP investments/contracts which include Build-Operate-Transfer (“BOT”), Build-Transfer-Operate (“BTO”), Build-Operate-Own (“BOO”), Build-Transfer-Lease (“BTL”), Build-Lease-Transfer (“BLT”) and Operate-Manage (“O&M”). In essence, BOT, BTO, BOO and O&M contracts permit the investor to charge fees to end users for delivering services, while the remaining (i.e., BTL and BLT) permit the investor to received periodic fixed payments by the authority as agreed in the contract.

A BOT contract is a contract between a governmental agency and an investor in order to construct and operate a facility for a fixed duration. Upon expiry of the contract’s duration, the investor will transfer the facility to the State of Vietnam without compensation.

A BTO contract is a contract between a governmental agency and an investor for the construction of a facility. Upon completion of construction, the investor transfers the facility to the State of Vietnam without compensation. In exchange, the government will grant the investor the right to commercially operate the facility for a fixed duration in order to recover the invested capital and obtain profits.

A BOO contract is a contract between a governmental agency and an investor for the construction of a facility (e.g., an energy project). Upon the completion of construction, the investor owns and has the right to commercially operate the facility for a fixed term.

A BTL contract is a contract between a governmental agency and an investor for the construction of a facility. Upon the completion of construction, the investor transfers such facility to the State. Nevertheless, the investor is granted the right to provide services on the basis of operating and exploiting the facility for a fixed term on a lease basis.

A BLT contract is a contract between a governmental agency and an investor for the construction of a facility, and upon the completion of construction, the investor is granted the right to provide services on the basis of operating and exploiting such facility for a fixed term on a lease basis. When the term of the lease expires, the investor will transfer the facility to the State.

An O&M contract is a contract under which an investor is hired to operate and manage part or the whole of an existing infrastructure project for an agreed term.

The 2020 PPP Law also allows an arrangement which is a combination of the contracts mentioned above.

Corporate Forms

Investors who decide to establish a legal entity in Vietnam may select one of the following types of enterprise structures:

• Limited liability companies (“LLC”) that may have a single member/shareholder (“SM-LLC”) or multiple members (up to a maximum of 50) (“MM-LLC”). A single investor can only set up an SM-LLC. If there are two or more owners, an MM-LLC must be chosen;
• Shareholding (joint stock) companies (“JSC”) must have a minimum of three shareholders. The company is allowed to issue shares (including common and preference shares). The management structure follows international standards and is based on a general meeting of shareholders, a board of management, a general director, and for certain cases, an inspection committee;
• Unlimited or limited liability partnerships. A partnership requires at least two individuals to act as general partners (i.e., partners who are liable with their private assets for debts incurred by the partnership). This usually rules a partnership out as a suitable investment vehicle; and
• Private enterprises (i.e., sole proprietorship).

A WFIE in the form of an LLC or a JSC is the most common corporate form of foreign investors in Vietnam. Both LLC and JSC forms shield their owners from liabilities incurred by the LLC or JSC. This means that owners may lose the capital that they contributed to the LLC or JSC but are not liable for the debts of the LLC or JSC.