Any investment project made in a conditional sector or by foreign investors or foreign-controlled companies is subject to the conditions and market access restrictions.

Such investment projects must also be registered with investment licensing authorities.

Provincial level Departments of Planning and Investment (DPIs) or Management Boards of Economic and Industrial Zones or Management Boards of Industrial Zones are responsible for issuing Investment Registration Certificates (IRCs).

Prior in-principle approvals by the National Assembly of Vietnam, the Prime Minister or the People’s Committees of provinces and centrally administered cities may also be required.

The Ministry of Planning and Investment (MPI), the Ministry of Science and Technology (MOST) and the State Bank of Vietnam (SBV) are also frequently involved in the FDI approval process.

No time limit

Mandatory

Conditional sector, market access restrictions and national security / public order.

No

FDI pre-approval (if required): no timelines for the National Assembly and the Prime Minister. Provincial-level People’s Committees must issue or refuse to issue in-principle approvals within 35 days.

The timeline for the DPI or Management Board of an Economic Zone/Industrial Zone to issue an IRC is 15 days. IRCs for projects with in-principle approval are issued within five working days after the in-principle approval is issued and the approval of selection of investor is obtained.

The timelines for ERC issuance is three working days.

In practice, the legally prescribed timelines are often exceeded.

Without an IRC, a foreign investor will not be able to incorporate a company (obtain an ERC) to implement the investment project.

In theory, it is possible to initiate legal actions against such decisions in court based on the Law on Administrative Procedures. However, the outcome of such claims will be uncertain.

No special measures

After over 30 years of economic reforms which started in late 1980s, Vietnam has achieved significant progress in market liberalization. Large and stable foreign direct investment (FDI) inflows have helped propel the country from a low-income to a lower middle-income country. Vietnam has become one of the most open economies in South-East Asia, with a single investment law applicable to both domestic and foreign investors. The forms of investment available to foreign investors are now the same as those used by domestic investors. Only a number of restrictions remain as set out further below. There is also a national security review process, and if land to be used in a project is located in areas sensitive to national security and defense, the approval process may involve local authorities consulting with central Ministries before issuing relevant approval, which may further delay the process.​​​​​​

INVESTMENT REGIMES

(a) Common investment regime

The following common rules apply to foreign investors in Vietnam (and incidentally are also applicable to domestic investors). The rules are based on a “negative list” approach: i.e., the prohibitions or restrictions apply only to the sectors expressly mentioned in the relevant lists. All activities which are not listed can be carried out freely without any conditions.

Prohibited investments

Investment projects in industries / sectors or locations that may potentially affect national defense, national security, cultural and historical heritage, traditional customs and morality, or the ecological environment are prohibited.

Conditional business lines

The Law on Investment provides a detailed list of business lines where investment (both foreign and domestic) is subject to conditions (Appendix four). There are currently 227 conditional business lines. 

The specific conditions applicable to each conditional business line are set out in the relevant industry laws and regulations. Investment in some industries requires prior satisfaction of conditions established by the government (e.g. the establishment of credit institutions); in other industries, the conditions can be met after establishment of the legal entity (e.g. payment intermediation service providers).

Typical investment conditions include:

• Minimum capital: frequently used in early stages of economic reforms by Vietnamese authorities, minimum capital requirements remain as a condition to investment in only a few sectors. Banking is an example where minimum charter capital is a key condition. Some other industries where minimum legal capital requirements apply are insurance, finance leasing, securities and securities services.  

Although there is no minimum capital requirement in most sectors, it is important to note that the authorities have a certain degree of discretion in assessing the adequacy of the capital investment allocated to a project.                                                                       

A draft SBV regulation on foreign borrowing would provide that a low charter capital would correspondingly reduce the capacity of a foreign-invested company to obtain loans from foreign lenders. 

• Investor capability: Some sectors, such as insurance and banking, generally require the foreign investor to already be licensed to provide the same services in its home jurisdiction and have sufficient international experience.
• Activity-specific conditions (commonly referred to as “baby licenses” or sub-licenses): for instance, trading in medicine or medical devices requires further registrations or licenses.

(b) Additional investment requirements applicable to foreign investors (market access conditions)

Additional investment requirements: Additional investment requirements apply to:

• Foreign natural persons and legal entities established under foreign laws (Foreign Investors).
• Foreign invested enterprises (FIEs) controlled by Foreign Investors, which include:
  • First level subsidiaries: Vietnamese companies where more than 50 percent of the charter capital is held by Foreign Investors.
  • Second level subsidiaries: Vietnamese companies where more than 50 percent of the charter capital is held by first level subsidiaries.
  • Third level subsidiaries: Vietnamese companies where more than 50 percent of the charter capital is held by Foreign Investors and first level subsidiaries.

Prohibited investments: List A of Appendix 1 to Decree 31/ 2021/ND-CP provides a list of 25 industries and sectors where investment by Foreign Investors and FIEs is not permitted. 

Conditional investments: List B of Appendix one to Decree 31/ 2021/ND-CP. Typical market access conditions applicable to Foreign Investors and FIEs for conditional investments (currently 59 sectors) are:

• Foreign ownership limits.[1]
• Form of investment.
• Scope of investment activities.
• Capacity (e.g. financial or technical) of investors.
• Requirement for partners participating in investment activities.

SPECIAL ECONOMIC ZONES

To attract foreign direct investment, the Vietnamese government created a special regime for Economic Zones and Industrial Zones (EZ/IZ) where foreign investments benefit from enhanced incentives and simplified investment licensing procedures. FIEs located within an EZ/IZ are administered by Management Boards of the province or of that EZ/IZ, acting in many instances as a “one-stop-shop” for licensing and various administrative procedures involving foreign investment. EZ/IZs frequently have special import/export, environment, labor, and other rules. Generally, these special rules are more favorable than the commonly applicable rules. For instance, companies operating in an EZ/IZ typically benefit from corporate income tax (CIT) exemptions and reductions. The government recently issued a new Decree 35/2022/ND-CP dated 28 May 2022 on the Management of Industrial and Economic Zones.

Any investment project made in a conditional sector or by Foreign Investors or foreign-controlled FIEs is subject to the conditions and restrictions described in question 1. Such investment projects must also be registered with investment licensing authorities (please see question 5).

All investment projects in Vietnam implemented by Foreign Investors or foreign-controlled FIEs must be registered with provincial level authorities responsible for issuing Investment Registration Certificates (IRCs). Depending on the specific parameters of each investment project, prior in-principle approvals may also be required. There are three levels of authorities for in-principle investment approvals:

The National Assembly of Vietnam is responsible for pre-approval of:

• Projects having significant impact or a potentially serious impact on the environment and human habitat, such as construction of nuclear power plants.
• Projects that require changing the land use purpose of a land area of 500 hectares or more where rice cultivation yields two annual crops.
• Projects that require the relocation and resettlement of 20,000 people or more in mountainous areas or 50,000 people or more in other areas.
• Projects that require application of a special mechanism or policy that should be decided by the National Assembly.

The National Assembly must also approve certain categories of public investment projects under the Law on Public Investment.

The Prime Minister has the authority to approve:

• Projects in the following sectors, irrespective of the source of investment (domestic or foreign) and amount of invested capital:
  • Projects that require the relocation and settlement of 10,000 people or more in mountainous areas and 20,000 people in other areas.
  • Construction of airports and runways, international airports, airport cargo terminals with a capacity of 1 million tons or more per year.
  • Projects in air passenger transportation.
  • Large scale ports and port infrastructure.
  • Petroleum processing projects.
  • Investment projects in gambling and casino activities, except for video games with prizes for foreigners.
  • Development of residential housing projects and urban areas with an area of 300 or more hectares or with a population of 50,000 or more people. 
  • Investment in certain cultural heritage projects.
  • Development of infrastructure in industrial and export processing zones.
• Investment projects of Foreign Investors[1] in telecommunications services business with network infrastructure, afforestation, publishing, and journalism.
• Investment projects which fall under the approval authority of at least two provincial-level People's Committees.
• Other investment projects subject to in-principal approval or approval of the Prime Minister.

Although not expressly mentioned in the Law on Investment, in practice, the Prime Minister also approves investments in power projects not included in a national power development plan. This is done through the mechanism of amendment of the relevant power development plan.

People’s Committees of provinces and centrally administered cities are responsible for approving:[2]

• Projects that use land allocated or leased by the State without auction or bidding or transfer.
• Projects that require changes of land use purposes.[3]
• Development of residential housing projects and urban areas with an area of less than 300 hectares or with a population of less than 50,000 people.
• Investment in certain cultural heritage projects, except for those subject to Prime Minister approval.
• Golf course construction projects.
• Foreign investment projects implemented in areas potentially affecting national defense and security.

Certain public investment projects under the Law on Public Investment may also be subject to approval by provincial level People’s Committees.

At the provincial or centrally administered city level, two bodies are authorized to register investment projects and the companies established to implement them:

• Departments of Planning and Investment (DPIs) issue IRCs and register corporate entities established to implement approved or registered investment projects and issue Enterprise Registration Certificates (ERCs).
• Management Boards of Economic and Industrial Zones or Management Boards of IZs are authorized to issue IRCs and ERCs for projects located within their respective EZs or IZs.

Other government agencies involved in the investment approval process are the following:

• Ministry of Planning and Investment (MPI)

The MPI is the government agency in charge of investment activities of both domestic and foreign investment in the country. In addition to its key role in proposing or adopting laws and regulations affecting investment activities (elaboration of national strategic plans, such as national power development plans, laws, government decrees, ministerial circulars, guidance, etc.), the MPI is responsible for evaluating important investment projects subject to Prime Minister pre-approval.

• Ministry of Science and Technology (MOST)

Vietnam encourages foreign investment in high-tech industries. The Law on High-Technology No. 21/2008/QH12 dated 13 November 2008 (as amended) sets out general incentives applicable to investment in high technology industries through a series of preferential treatments and incentives. Many such projects benefit from land rental exemptions for extended periods. Tax incentives include tax exemptions or reductions. For instance, the CIT rate for high-tech projects are in the range of 10 percent to 15 percent, while the standard CIT rate is 20 percent. In certain especially encouraged industries preferential personal income tax rates may also be granted. MOST is consulted in relation to high-tech projects prior to the issuance of IRCs.

• State Bank of Vietnam (SBV)

The SBV issues and enforces capital control and foreign exchange regulations applicable to capital and current transactions. As the banking industry supervisor, it issues establishment and operation licenses to subsidiaries, branches and representative offices of foreign credit institutions (mainly commercial banks and finance companies). 

The Law on Investment provides that if a more recent law or regulation is adopted providing for a less favorable investment regime than the one initially granted to investors, then the initial investment incentives and benefits will be maintained. There are only limited exceptions to this rule:

• Protection of public interest, rights and interests of the entities regulated by the more recent law or regulations.
• In criminal cases, a law can only be applied retroactively if it is more favorable to the convicted person. The Law on Enterprises also allows retroactive regulatory review of enterprise registration dossiers. If it is discovered that false information was submitted when registering a company, then the company’s ERC could be withdrawn.[1] There is no time limitation for the licensing authorities to issue this penalty.

FDI filing in Vietnam is a pre-condition to implementation of investments by Foreign Investors and foreign controlled FIEs. Please see question 1 for a description of the FDI approval and registration procedures. 

Offshore acquisition structures

Offshore structures are commonly used to facilitate corporate transfers and circumvent onshore approval processes. They typically use foreign governing law, and disputes are referred to foreign jurisdictions. Offshore structures are also perceived to allow greater certainty in respect of enforceability of shareholder agreements. However, there are some significant obstacles to their effectiveness:

• Corporate and governance aspects of the transaction are still greatly influenced by mandatory provisions of Vietnamese investment and company laws (for instance, domestic corporate governance structures must be consistent with the Law on Enterprises, and the charter of the domestic company will prevail over any bilateral arrangements between investors).
• Transfers of shares in listed companies are subject to Vietnamese stock-exchange rules.
• An existing offshore structure of an acquisition target must be in place to facilitate a wholly offshore indirect transfer of the domestic target. 

Nominee structures

Nominee structures were very commonly used by foreign investors in Vietnam, especially at early stages of the country’s economic reforms when many restrictions on foreign ownership persisted. However, there is no legal framework for nominees in Vietnam and, as a civil law jurisdiction, the common law legal concept of trust is not recognized. As a result, disputes arising from the use of nominee structures are quite frequent and many foreign investors have suffered significant financial losses and were exposed to serious reputational risks. These structures must be approached with caution and appreciation of the relevant risks.

As discussed in question 1, the regulatory frameworks applicable to domestic and foreign investments are converging towards a common investment regime with foreign investment restrictions and limitations currently confined to relatively short negative lists of market access conditions, and the additional requirement imposed on Foreign Investors and foreign-controlled FIEs to register their investment projects before they can incorporate a legal entity. There is also a national security review process, which involves local licensing authorities consulting with the Ministry of Defense and the Ministry of Public Security. This applies to foreign investments in localities at the national border, sea side and other localities having an impact on national defense and security.​​​​​​

Investment Registration

The first stage of implementation of a foreign investment project is investment registration and issuance of an IRC. The issuance of the IRC may be subject to prior in-principle approval by the National Assembly, the Prime Minister, or the provincial People’s Committee as discussed in our answer to question 3.

The timelines for the authorities to issue the in-principle approval vary depending on the authority whose pre-approval must be sought. The legally prescribed time limit for the provincial-level People’s Committees to examine applications and issue in-principle approvals is 35 days from the date of receipt of a complete application dossier. For higher value investment projects requiring pre-approvals by the National Assembly or the Prime Minister there are no timelines for the issuance of in-principle approvals.

The time limit for a licensing authority (in most cases, provincial DPI) to consider and issue an IRC is 15 days if the investment project is not subject to the in-principle approval requirement. IRCs for projects with in-principle approval are issued within five working days after the in-principle approval is issued and the approval of selection of investor is obtained. In practice, the legally prescribed timelines are often exceeded.

The IRC mentions the specifics of the investment project and the incentives to which a “preferential” or “especially preferential” project is entitled to (if any).

Company incorporation

Once an investment project is registered and the corresponding IRC has been issued, the foreign investor can conduct business in the Vietnamese market and is allowed to implement the registered investment project through the same types of legal vehicles used by Vietnamese investors. The corporate forms most commonly used by foreign investors are limited liability companies and joint-stock companies. These companies must be incorporated by way of applying for and obtaining an ERC. The established company will become a foreign-invested company and will be able to implement the registered investment project. An FIE may carry out multiple investment projects.

Post-licensing

The registration of an investment project and incorporation of a legal entity to implement it are the two main stages of the foreign investment licensing process. However, in many business sectors, further licenses may apply. The process is often referred to as “post-licensing”. Indeed, the project may require other approvals, such as construction permits, trading licenses, etc.

Foreign investment registration and company incorporation procedures require engagement of competent government agencies at every stage of the procedure. Failure to file would result in the absence of investment registration and impossibility to incorporate a project vehicle in Vietnam. Therefore, it is difficult to imagine a situation where an unregistered investment project with no established vehicle could do business in Vietnam.

Investment registration (obtaining an IRC) is a mandatory step and must be completed before an investment project can be implemented. Without an IRC it is not possible for Foreign Investors or FIEs to incorporate a new legal entity to implement the investment project (see our answer to question 7).

The Law on Investment is silent on the possibility to challenge decisions of investment licensing authorities. In theory, it is possible to initiate legal actions against such decisions in court based on the Law on Administrative Procedures. However, the outcome of such claims will be uncertain given the very broad discretion of the authorities in the assessment of investment projects, and difficulties to prove that the challenged decision violates the investor’s legitimate rights and benefits.

The issuance of an IRC for a foreign investment project (and of an ERC) is typically a major condition precedent in sales and purchase agreements. The parties also frequently use escrow structures to ensure all required regulatory approvals are in place before the transaction is settled. 

For high-value projects requiring National Assembly or Prime Minister approval, it is critical to engage early with the authorities at both local (provincial People’s Committees) and national levels. Formal and informal prior consultations allow the relevant government authorities to avoid surprises (and hence unfavorable reactions) and to better understand the benefits and risks related to the proposed project. Strong support by government agencies of the investor’s home country (embassies, trade representatives, development agencies) is also very often critical.

In many sectors, such as renewable energy or banking and finance, reliable and well connected local partners / consultants may be very useful in managing government relations. 

The Vietnamese government has not adopted special measures aimed at securing the protection of national assets in the wake of the COVID-19 pandemic to the detriment of foreign investors in the country. Immediately after easing COVID-19 related restrictions in early 2022, the government made great efforts to ensure recovery of pre-pandemic FDI inflow levels and to capture investments redirected from the People’s Republic of China (China) to shelter from the ongoing U.S.-China trade tensions and strict lockdowns in China.

Until now, the Vietnamese government has not applied formal minimum legal capital requirements, except in limited highly regulated industries. However, in practice in many locations licensing authorities do evaluate the financial capacity of foreign investors and FIEs, as there are still many foreign invested companies established with a rather thin capitalization. This may change in the near future. The authorities’ approach does not seem to be the imposition of a direct thin capitalization rule. However, this may be achieved through the introduction of a cap on foreign borrowing for investment projects calculated as a multiple of the charter capital of the foreign invested company in Vietnam if the draft SBV circular is adopted in its current form.

Vietnam’s legal framework for foreign investment has been in constant evolution since the adoption of the first Law on Foreign Investment in 1987. The currently applicable rules are set out in two fundamental laws: the Law on Enterprises No. 59/2020/QH14 and the Law on Investment No. 61/2020/QH14. Both laws were issued on 17 June 2020 and became effective on 1 January 2021, and both laws were further amended in January 2022. The two laws are supplemented by a series of implementing regulations, such as:

• Decree No. 01/2021/ND-CP dated 4 January 2021 on Enterprise Registration.
• Decree No. 31/2021/ND-CP dated 26 March 2021 detailing and guiding implementation of some articles of the Law on Investment (this decree contains the negative lists of business sectors where foreign investment is prohibited or conditional).
• Decree No. 47/2021/ND-CP dated 1 April 2021 providing guidance on certain articles of the Law on Enterprises. 

The SBV recently published a draft circular to regulate off-shore borrowing by companies incorporated in Vietnam (including FIEs). If adopted in its current form, the new circular will restrict foreign borrowing by limiting the permitted purposes of such loans, imposing stricter limitations on the size of foreign borrowing, and introduce hedging requirements and caps on the cost of foreign borrowing. There will also be an express prohibition on the use of foreign borrowing for financing of share or equity acquisitions in Vietnam.

For more information contact Gaston Fernandez, Partner, Hanoi and Ho Chi Minh City