Vietnam has made great headway in market liberalization after more than 30 years of economic changes that began in the late 1980s. Substantial and consistent FDI inflows have aided the country’s transition from a low-income to a lower middle-income country. Vietnam has become one of South-East Asia’s most open economies, with a single investment legislation that applies to both domestic and international investors. Foreign investors now have access to the same types of investments as domestic investors. Just a few restrictions remain, as detailed further down.
REGIMES FOR INVESTMENT
Regime of common investment
Foreign investors in Vietnam are subject to the following common rules (and incidentally are also applicable to domestic investors). The laws use a “negative list” approach, which means that the bans or limits apply only to the sectors specifically named in the applicable lists. Any activities that are not specified can be done freely and without restrictions.
- Investments that is prohibited
Investment projects in industries/sectors or areas that might have an impact on national defense, national security, cultural and historical heritage, traditional practices and morality, or the environment are forbidden.
- Business lines that are conditional
The Investment Law specifies the business lines in which investment (both foreign and local) is subject to constraints (Appendix four). Currently, there are 227 conditional business lines.
The particular criteria that apply to each conditional business line are outlined in the respective industry rules and regulations. Investing in certain businesses needs previous fulfilment of government-set prerequisites (for example, the founding of credit institutions); in others, the conditions can be completed after the legal body is constituted (e.g. payment intermediation service providers).
Typical investing circumstances include the following:
Minimum capital requirements: commonly utilized by Vietnamese authorities in the early phases of economic reforms, minimum capital requirements continue as a condition to investment in just a few areas. Banking is one industry where minimum charter capital is required. Insurance, finance leasing, securities, and securities services are some additional businesses with minimum legal capital requirements.
Investor capability: Certain industries, such as insurance and banking, often need foreign investors to be licensed to provide the same services in their home country and to have appropriate worldwide expertise.
Activity-specific conditions (sometimes known as”sub-licenses”): for example, commerce in medicine or medical devices necessitates additional registrations or licenses.
Foreign investors are subject to additional investment criteria (market access conditions)
– More investment is needed: The following additional investment criteria apply:
+ Foreign natural people and legal organizations formed under the laws of another country (Foreign Investors).
+ Foreign-controlled enterprises (FCEs) include:
First-level subsidiaries are Vietnamese firms in which Foreign Investors own more than 50% of the charter capital.
Second level subsidiaries are Vietnamese firms in which first level subsidiaries own more than half of the charter capital.
Third-level subsidiaries are Vietnamese enterprises in which Foreign Investors own more than 50% of the charter capital.
– List A of Appendix 1 to Decree 31/ 2021/ND-CP contains a list of 25 industries and areas where Foreign Investors and FIEs are not eligible to invest.
– Conditional investments: Appendix B of Decree 31/ 2021/ND-CP. The following are typical market access requirements for Foreign Investors and FIEs for conditional investments (now 59 sectors):
+ Investment kind.
+ The breadth of investing operations.
+ Investor capability (e.g., financial or technological).
+ Partner participation in investing activities is required.
SPECIAL ECONOMIC ZONES
To encourage foreign direct investment, the Vietnamese government established a unique regime for Economic Zones and Industrial Zones (EZ/IZ), under which foreign investors get greater incentives and expedited investment licensing procedures. The Management Boards of the province or EZ/IZ manage FIEs located inside an EZ/IZ. They serve as a “one-stop shop” for licensing and other administrative procedures involving foreign investment in many cases. Moreover, EZ/IZs routinely impose special constraints such as import/export, environmental, labor, and others.
These unique regulations are often more beneficial than the ordinarily applied rules. Companies operating in an EZ/IZ, for example, generally benefit from CIT exemptions and reductions. The government has released a new Decree 35/2022/ND-CP on Industrial and Economic Zone Administration.
CONCLUSION
Vietnam’s success in attracting FDI should be measured not only by the amount of registered capital or disbursements but also by the efforts to improve the investment climate. In summary, with the growth potential and many advantages of the Vietnamese market, investing in Vietnam is now an attractive option for foreign investors. To be able to invest effectively in the Vietnamese market, foreign investors should note a few things as follows:
It is necessary to study the market thoroughly before deciding to invest; should learn and evaluate more closely about investment policies and regulations in Vietnam; need to pay attention to legal issues, market conditions, corporate culture and characteristics of the industry they intend to invest in; should look for local partners who can assist in the operation, search, contact the government and local agencies; understand and comply with laws, as well as tax and customs regulations; should choose a partner with adequate and reliable financial and investment capital; focuses on building and managing good relationships with local customers and partners.
With the above notes, foreign investors can effectively invest in the Vietnamese market, seeking long-term growth and profit opportunities.
HMLF is proud to be a law firm operating in many fields, of which foreign investment is one of our core areas of activity. With a team of professional, dedicated and experienced legal experts in specified fields, HMLF is confident to help business solve legal problems in the investment field.
Harley Miller Law Firm “HMLF”
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