Data centers are witnessing a surge in investment during 2022 and 2023, with local and foreign enterprises actively participating. Vietnam has emerged as a prominent destination among emerging economies to establish colocation hubs, projected to achieve a market size of approximately $1.5 billion by 2026. The nation’s ongoing digital transformation makes it a prime candidate for data center development, as the demand for data storage and processing, both domestically and internationally, continues to escalate.
What does a data center mean?
A data center refers to a physical infrastructure consisting of buildings, cable systems, and other necessary equipment. Its primary function is to store, exchange, and handle data belonging to one or multiple unrelated organizations or individuals.
Two main types categorize data centers. The first type, enterprise data centers, involves companies constructing and owning them to meet their internal needs and serve clients or customers. The second type is service data centers that offer data storage and computing services to various companies and users.
Establishing a data center with foreign-owned capital – Licensing process
When forming a data center with foreign-owned capital, the investor has the flexibility to choose from several corporate forms to conduct their business. The choice of corporate structure depends on the number of investors involved. The subsidiary can be established as a single-member limited liability company (LLC), a two-to-50-member LLC, or a joint stock company (JSC). The LLC is the simplest format, while the JSC requires a minimum of three shareholders and has a more complex corporate structure, which may be more suitable for complex ownership scenarios.
To establish the subsidiary, the investor must initially apply for an Investment Registration Certificate (IRC). The IRC serves as the approval for the investment project. Once the investor receives the IRC, they can proceed to apply for an Enterprise Registration Certificate (ERC) to establish the subsidiary for the licensed investment project. It’s important to note that the requirement for an IRC and ERC applies not only to data centers but also to all company formations involving foreign investment.
Obtaining an IRC involves a government review process to ensure compliance with statutory and safety regulations, as well as conformity with any government master plans. Once the authorities grant the IRC, obtaining the ERC is typically a routine procedure.
Is a telecoms license necessary for a data center to offer cloud services as part of its business?
No, a separate telecoms license is not required for a data center to provide cloud services as part of its offerings. A data center can deliver cloud services, such as on-demand data processing and storage via the internet, using its cloud computing server infrastructure. Cloud services can be seamlessly integrated into the data center’s overall business without the need for a distinct telecoms license.
However, it’s important to consider the aspect of cybersecurity. According to the Cybersecurity Law, companies that provide services involving telecommunications networks, the internet, or value-added services in Vietnam’s cyberspace are required to store private information/data collected, analyzed, or processed within Vietnam for a specific period. Since data center services involve the collection and storage of private information/data, companies providing such services are subject to the provisions of the Cybersecurity Law.
Upcoming Law on Telecommunications
The upcoming revisions to the Law on Telecommunications have raised concerns regarding the inclusion of data center services. The draft proposes incorporating these services, which could potentially lead to changes in licensing requirements. If implemented, the new draft would impact various aspects of the data center business, including investment structure, foreign capital involvement, telecoms licenses, and more.
To facilitate the development of data centers, Vietnam needs to establish a clear and favorable legal framework that extends beyond the data center industry, covering areas such as real estate, electricity consumption, cybersecurity, and protection of private data information. Many experts, in their discussions with representatives of the Ministry of Information and Communications, have voiced their concerns about the potential burden that the inclusion of the data center business in the regulatory scope of the Law on Telecommunications may impose, hindering its growth. Currently, there’s an expectation to exclude data centers from the law’s scope when authorities tentatively promulgate it in the fourth quarter of 2023.
Conclusion
Data centers are clearly making their way to Vietnam, with the country witnessing a growing interest in this sector. As global digitalization continues to advance, the need for robust data infrastructure becomes crucial. With Vietnam’s strategic geographical location, increasing connectivity, and a young and tech-savvy population, the country holds immense potential in becoming a regional hub for data center operations. The ongoing discussions and revisions to the Law on Telecommunications demonstrate the government’s commitment to creating a conducive environment for data center investments. As Vietnam positions itself as a competitive player in the digital economy, the development of data centers will not only drive technological advancements but also contribute to job growth, attract foreign investments, and propel the nation towards a more prosperous and connected future.
HMLF is always available to offer assistance in understanding the procedures with authorities.
Harley Miller Law Firm “HMLF”
Head office: 14th floor, HM Town building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.
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