In the developed world, with strategic location, supportive policies and regulations, and a young and well-qualified labour force, Vietnam has become a more attractive market for foreign investors. To make foreign investment in Vietnam more accessible, the National Assembly of Vietnam approved the Law on Investment No. 61/2020/QH14 on June 17, 2020, which came into effect from January 1, 2021.
We summarise below the major points regarding investment in Vietnam under this Law.
Types of Investment in Vietnam
Investment activities in Vietnam are divided into the following groups:
Investment in the establishment of an economic organisation;
Investment in the form of contributing capital into or purchasing shares or purchasing capital contribution of business organizations;
Implementation of an investment project;
Investment in the form of a business cooperation contract; and
New forms of investment and types of business entities prescribed in the Government’s regulations.
Below, we will analyse the various investment options. Investing via the Establishment of a Business Entity
A foreign investor establishing an economic entity should meet market access conditions for foreign investors specified in the Law.
Before establishing a business organisation, the foreign investor must have an investment project and carry out the procedures for Investment Registration Certificate (IRC) issuance or amendment.
From the issuance date of Enterprise Registration Certificate (ERC) or other similar legal documents, the business entity established by the foreign investor shall be treated as the investor who executes the investment project according to the IRC.
Carrying Out Investment Project(s) of Foreign-invested Business Entities
If falling into one of the following categories, the foreign-invested enterprises (FIE) must satisfy the conditions, as well as conduct investment procedures, applied to foreign investors conducting investment activities such as establishing another economic organisation; contributing capital, purchasing shares or stakes of another business entity; or even investing under a business cooperation contract:
Having foreign investor(s) holding more than 50% of charter capital of the FIE.
Having business entity(ies), whose charter capital is held by foreign investor(s) for more than 50%, holding more than 50% of charter capital of the FIE.
Having both foreign investor(s) and business entity(ies) where more than 50% of the FIE’s charter capital is held by foreign investor(s).
An existing FIE in Vietnam can execute procedures to implement its new investment project without establishing a new economic entity.
Investing by Contributing Capital or Purchasing Shares or Stakes
Capital contribution or shares/ stakes purchased by a foreign investor must satisfy the following:
Being in line with market access conditions for foreign investors as prescribed in the Law;
Ensuring then provisions of national defense and security mentioned in the Law;
Complying with the Law on Land in terms and conditions for receiving land use rights, and conditions for using land on islands, in border communes or coastal communes. A foreign investor must register capital contribution or shares/ stakes purchased before the change of members or shareholders in one of the following cases:
The ownership ratio of foreign investors in a business entity, which operates in the sectors with conditional market access for foreign investors, is increased due to the capital contribution or shares/ stakes purchased.Ø The capital contribution or shares/ stakes purchased results in more than 50% of the charter capital of the business entity held by foreign investor(s) and/or business entity(ies). This 50% of charter capital is held by foreign investor(s) resulting from one of two cases – either from less than or equal to 50% to more than 50%; or as an additional increase from more than 50% owned already.
The foreign investor contributes capital, or purchases shares or stakes of a business entity having a certificate of rights to use land on an island, in a border or coastal commune, or in another area that affects national defense and security.
Investing Under a Business Cooperation Contract (BCC)
Business cooperation contracts signed between a domestic investor and foreign investor, or between foreign investors, shall comply with the procedures for IRC issuance prescribed by the Law.
The Ecovis professionals highly recommend that foreign investors should research investment regulations and procedures to have a good preparation for a long-term investment plan as well as to take time and cost efficiency.
For further information about the business investment activities in Vietnam, please contact:
Nghia Tran, Partner, ECOVIS AFA VIETNAM, Da Nang City, Vietnan