In both developed and emerging markets, project financing has long been an essential part of financing options for infrastructure projects. One of the requirements for Vietnam joining the World Trade Organization (WTO) was to improve the legal framework in favour of foreign investors. There have been key developments in Vietnam in recent years with the introduction of an exhaustive statutory legal framework to regulate investment in the public infrastructure sector. Among these, Decree No. 15/2015/ND-CP on the public-private partnership form (effective on 10 April 2015)2 and Decree No. 30/2015/ND-CP on the selection of investors (effective on 22 April 2015) are the key pieces of legislation governing various kinds of projects, including build-operate-transfer, operate-transfer, build-transfer-operate and build-transfer schemes). These Decrees outline the procedures for executing a public-private partnership (PPP) project as well as preparing the project proposal, governmental approval and making an announcement. Moreover, it also enables investors in a PPP project to mortgage concession rights under the contract and allows lenders to a PPP project to appoint a qualified third party to exercise the step-in rights of the lender. In brief, this legislative integration provides Vietnamese PPP projects with an environment of global flexibility through an open mechanism. Great improvement has been seen, giving better support to foreign investors in terms of getting project funding, partnerships and improving rights of foreign investors.

In most Vietnamese power and infrastructure financing, funding by international financial institutions3 contributes a considerable proportion, in which both export credit agency-backed loans and commercial loans are very common. However, lending to a project entails a high level of risk, so these institutions usually pay particular attention to project feasibility, as well as credit risk evaluation. Moreover, some development banks also offer financial advisory mechanisms in the project, and some seek to have a particular level of control over the borrower's assets (i.e., some kind of guarantee or security). By and large, the evolving trend of financial institutions in project finance has not only facilitated project cash flow and flexibility but also allows them to proactively diversify and hedge risks with their portfolio.


The year 2017 and first quarter of 2018 have seen significant development in Vietnam's regulatory environment for projects and construction business. The Civil Code and the Law on the State Budget 2015 came into force on 1 January 2017; Circular No. 39/2016/TT-NHNN setting out new policies on lending transactions of credit institutions or foreign banks' branches came into effect on 15 March 2017; Decision 11/2017/QĐ-TTg by the Prime Minister providing a mechanism for encouraging solar power development in Vietnam entered into force on 1 June 2017; and Circular No. 06/2017/TT-BKHDT providing guidelines on procurement information and contractors selection via e-procurement platform took effect on 1 March 2018.

At the end of 2017, Vietnam had reached a record high of US$35.88 billion of registered capital of foreign direct investment (FDI), which is 44.4 per cent higher than the same period in 2016. As reported by the Ministry of Planning and Investment, in the first quarter of 2018, there has been foreign investment in 19 out of 21 branches in the national economic classification system and in 49 provinces and cities of Vietnam.

Owing to fast growth in the renewable energy sector (e.g., wind and solar power), the Prime Minister issued Decision No. 11/2017/QD-Ttg to provide foreign investors with an overview of the legal framework that applies to this sector. The government set out targets of generating 4,000MW in solar energy and 2,000MW in wind energy by 2025. In 2017, the model power purchase agreement was issued in Circular 16/2017/TT-BCT. The following developments have taken place:

    1. In late 2017, Bac Lieu province authority signed a memorandum of understanding with Korean SY Group to jointly develop the biggest solar power project in Vietnam in two phases from 2017 to 2019. The capacity is up to 300MW in an area of 400 hectares and the total construction investment is more than US$450 million.
    2. Cang Song Than solar power project has a capacity of 500.96kWp and became operational after four months of construction.
    3. Bau Ngu project located in Binh Thuan province, in an area of 75 hectares with total construction investment of more than 1.15 trillion dong, commenced construction in 2018 and is expected to be operational in June 2019.
    4. Khanh Hoa People's Committee has granted policies for investment in five solar power projects:
      • Suoi Dau floating project has a capacity of nearly 50MW and total construction investment of more than 1.204 trillion dong;
      • Cam Rank lake floating project has total construction investment 1.356 trillion dong;
      • Cam Lam Vietnam project has total construction investment of 1.103 trillion dong;
      • An Viet project has total construction investment of 1.198 trillion dong; and
      • Long Son project has a capacity of up to 200MW and total construction investment of 4.9 trillion dong.

There was heightened activity in the oil and gas sector in 2017 after a period of stagnation. During the first phase of the White Lion project (Su Tu Trang), 300 million tons of crude oil was reportedly exploited. The White Lion project will be the main source for the Dinh Co 2 gas processing plant, which will become operational in 2020. However, there have been some delays to several upstream development projects owing to the tension between Vietnam and China (e.g., Repsol's Blocks 136-06 and 07-03 (Ca Rong Do)). In February 2018, the US$9 billion Nghi Son Refinery and Petrochemical complex began operation. The complex is expected to meet Vietnam's growing demand for petrochemical refining products. After being postponed many times because it was underfinanced by PetroVietnam, the US$5 billion Long Son Petrochemicals complex has passed the engineering, procurement and construction (EPC) contractor selection. Construction will commence this year.

The real estate market showed positive signs of development and higher growth in 2017 compared with 2016. Trading volume increased sharply, with 68,000 successful transactions. Since the feasibility study report was completed for the project of building Long Thanh International Airport, the resolution for piloting specific mechanisms and policies for Ho Chi Minh City's development, and the schedules for Phu Quoc, Van Don and Cam Ranh to fulfil their roles as special administrative-economic zones, were adopted by the National Assembly. As a result of this, real estate prices have been rapidly increasing and this sector is one of the fastest-growing in Vietnam's economy.

There are a lot of notable PPPs and other public procurement projects that have been granted investment certificates. Japan has invested US$2.79 billion in Nghi Son 2 thermal power plant in the form of build-operate-transfer (BOT). They have also invested in Van Phong 1 thermal power BOT plant in Khanh Hoa, which has a capacity of 1,320MW and registered investment capital of US$2.58 billion. Singaporean investors have invested in Nam Dinh 1 thermal power BOT plant project, which has investment capital of US$2.07 billion and a capacity of 1,109.4MW.


i Transactional structures

In addition to the traditional funding methods widely used in private infrastructure projects and public procurement projects, different funding PPP structures have been increasingly applied to projects in the construction, transportation, energy and water system sectors, with a great effort by the Vietnamese government to promote the application of PPP financing in public infrastructure. Decree No. 15/2015/ND-CP on Investment in the Form of Public-Private Partnership lists seven types of PPP structure (BOT, build-transfer-operate (BTO), build-transfer (BT), build-own-operate (BOO), build-lease-transfer (BLT), build-transfer-lease (BTL) and operation and maintenance (O&M) contracts) and allows parties to opt for the most structures of those suitable or a similar structure, depending on the size of the project and the sophistication of the parties involved. In practice, the transportation sector typically utilises the BOT and the BT structure, while the structure of most projects in the energy sector (thermoelectric power plant and hydroelectric plant) and the water management system is the BOO.

The private investor in a PPP project may need to obtain an investment registration certificate before entering into a contract with the authority if the certificate is required by law. After the contract is signed by the parties, a project company will be established for the construction, management and operation of the project. In some cases, the guarantee and undertaking agreement may be issued by the authority to secure the loan of the project company or the investors for the purposes of carrying out the project.

The ownership structures of project financing can vary. For some highly specialised and sensitive subsectors, the control from the government is high, some can be divided in a 51:49 ratio, and some can be mainly private investors with no restrictions.

ii Documentation

The documentation for a particular project depends on its set-up. However, the most important documents in project finance transactions are no different from those used in similar transactions worldwide. These include a set of project documents (e.g., an agreement between the authority and the investors, a land lease agreement, a construction contract, consulting agreement for project management, corporate documents of the project company) and financial documents (e.g., facility agreement, security documents, guarantee and an undertaking agreement from the authority body). Investors need to obtain a licence from the government body in securing the contract before setting up its organisation management.

iii Delivery methods and standard forms

In Vietnam, EPC and EPCI forms of construction contract are largely based on the International Federation of Consulting Engineers (FIDIC) forms and must comply with the requirements under Decree No. 37/2015/ND-CP, Circular No. 09/2016/TT-BXD and Circular No. 30/2016/TT-BXD. Construction contracts by state bodies, enterprises funded with at least 30 per cent of state capital, or enterprises using at least 30 per cent state-owned capital or state-owned capital exceeding 500 billion dong must use the specimen forms incorporated in Circular No. 09/2016/TT-BXD, and follow the guidance of Decree No. 37/2015/TT-BXD. In the EPCM form (often referred to as turnkey contracts), the client selects the contractor to provide 'management services' for the whole project on behalf of the client. The contractor shall not only provide the management services, but also simultaneously provide the actual EPC contract and management. The form depends on the client's requirements or on the nature of the contract, and is to be negotiated between the contracting parties. In practice, it is common to find FIDIC forms applied by the construction projects in Vietnam with direct changes to the general forms (which is very unusual in international practice). AIA, NEC3 and JCT forms are rarely applied, but their basic structures may be included in certain contract forms. Notably, under Circular No. 30/2016/TT-BXD, an EPC contract applies solely to construction projects and contract packages whose execution time is required to be shortened; or those with high requirements for engineering, technology and uniformity from the engineering design, procurement and construction phases to the training-in, commissioning and project-transfer phases. In addition, the EPC contract's costs shall be managed in such a manner as not to exceed the EPC contract price.4

In circumstances involving foreign contractors, consortiums are also used where there is more than one contractor jointly engaged on the contract or supporting the local workforce. They collaborate, with each taking responsibility for their respective areas of work and expertise. Normally, in the consortium there will be one contractor taking the lead (consortium leader) and the EPC contract will be signed by all parties.

On the other hand, the DDB contract is not as popular in Vietnam, and it may vary from time to time, depending on the contract type. The use of different contract models will vary according to the parties' wishes and according to previous favourable experiences.


i Management of risks

In construction contracts, risk allocation, which defines the roles and responsibilities for risks, has a tremendous effect on cost, time, quality and the potential for disputes, delays and claims. In fact, the contractual misallocation of risk has proved to be a pre-eminent cause of construction disputes in Vietnam.

There are certain risks involved in construction projects that are normally classified in our jurisdiction as follows:

    1. construction risk (geological, subsurface condition; changing in scope of work, design; accident or damage to people and property; performance of contractor; labour issues);
    2. environment, health and safety risk (affection of the construction project to the environment, health, safety of people, especially to labour and third parties);
    3. contractual and legal risk (jurisdiction, negotiation interpretation and of contract, insurance coverage, changes in law requirement, dispute resolution, payment);
    4. political risk (corruption, terrorism, policy enactment);
    5. force majeure (acts of God and other uncontrollable unforeseeable risks); and
    6. financial and economic risk (mostly inflation, capital investment, interest rates and other macroeconomic risks).

The above risk categories enable risk management planning. In other words, normally, for the above risks, the project development team is able to contemplate and identify which strategy is suitable for each kind of risk, then design specific actions to implement that strategy.5 These strategies typically comprise:

    1. avoidance: including changes in plan, resource expansion, time extension, insurance coverage to reduce risks;
    2. risk transfer and allocation;
    3. diversifying the investment portfolio to reduce risks;
    4. mitigation: reducing probability and consequences of risk by accepting threshold, analysing risks and taking preventive actions;
    5. localisation: alliance, corporate with Vietnamese entity; and
    6. bargaining power: to negotiate a good contract to reduce risks.

ii Limitation of liability

A fundamental principle of risk management is to allocate the risks to the party best able to manage them (i.e., risk allocation). Normally, contracts are formed such that they have a cap on the contract's overall limitation of liability and liquidated damages instead of actual damages, and 'the court respects what the contract says'. The cap is negotiated between the employer and the contractor, following the FIDIC form and standard form of the Ministry of Construction Department (according to Decree No. 37/2015/ND-CP on Contracts in Construction Activities; the Law on Construction; Circular No. 09/2016/TT-BXD from the Ministry of Construction; the FIDIC forms; the Civil Code; and Decree No. 37/2015/ND-CP on Construction). Notably, however, under the specimen EPC contract provided by Circular No. 30/2016/TT-BXD, the maximum rate of penalty shall not exceed 12 per cent of the breached contract value.6 This is a departure from the FIDIC principles, where there is no penalty but liquidated damages shall apply as the only damages recoverable with regard to delays. In addition, third-party liability shall be applicable to the party at fault or who through negligence, tort or damage gives rise to the claims of third parties, or the matter shall be decided by the courts.

However, liquidated damages is not a recognised remedy under Vietnamese law. Though the Civil Code 2015 generally allows the parties to agree on the limitation of liability, the predetermination of the damages amount is not clearly accepted under the law and may be unenforceable.

Moreover, specifically, neither party shall be liable to the other party for loss of any part of the construction work, loss of profit, loss of any contract or for any indirect or consequential loss or damage that may be suffered by the other party in connection with the contract, except the payment on termination and for indemnity. The total liability of one party to the other party will not exceed the sum stated in the contract price or the contract value stated in the construction contract.

In the case of force majeure, the contract will relieve the parties' responsibility from losses or damages or performing their contractual obligations because force majeure is defined as circumstances that are beyond the control of the parties, as well as making performance impracticable or impossible. Construction contracts usually define and classify force majeure events clearly and to a certain level. In the case of force majeure, employers or contractors shall not be responsible for losses or delays in work. The contractor, however, shall make its best efforts to minimise losses for the employer if a force majeure event occurs. Both parties shall endeavour to return to normal operation straight after the event.

iii Political risks

Political risks are those that investors may face when investing in a particular country, including political events, law and policies by the government, the monetary system, inflation, war, strikes. All of these should be taken into account by foreign investors prior to investing in a country. In Vietnam, investors should consider all of the above risks before investing, as these can affect the project. Even since Vietnam joined the WTO, policies in Vietnam have been generally unstable and many obstacles in the political system will make it difficult for investors. Inflation and corruption are also important factors that merit investors' serious attention. Political risks can affect the operation and profitability of a construction as directly and quickly as any other financial, legal or market risk factors. The impact of political risk is considered to be long term and unpredictable, as the risk rises over time, resulting in greater potential risks for investors. It is advisable that investors examine and understand the political risks by closely examining the location's history, political institutions, incentives given to foreign contractors, and political forces in the country.

Another serious and sensitive issue in Vietnam is the dispute that began in the South China Sea with the Chinese invasion of Vietnamese territory. This issue has had a domino effect on other economic and politic factors in Vietnam, which may destabilise the country's political system. For example, the government has requested to suspend (some sources say cancel) two offshore oilfield blocks operated by Repsol in September 2017 and March 2018.


In project finance, lenders would involve certain types of security over the project to secure the debt repayment. In fact, this is essential and significantly involved in every project finance, and lenders would need to take it into account as one of the main factors in deciding whether to provide the loan.

Security and collateral typically used by lenders take a number of common forms such as:

    1. mortgages over the project site, buildings, equipment, accounts and debt claims;
    2. assignment of project contracts and any bonds or guarantees for these contracts;
    3. assignment of insurance policies; and
    4. a guarantee from the borrower's parent company or another party over the borrower's liabilities under the facility contract.

Note that a debt claim is regarded as a property right and can be mortgaged without the consent of the debtor. Under Vietnamese law, a mortgage is security interest and can be registered with the National Registration Agency for Secured Transactions (NRAST). For specific mortgage transactions, such as land use rights or sea-going ships, registration is compulsory under the law. However, assignment is an exception and in some domestic and small-scale financings, lenders would choose mortgage over assignment because of its protection from state authority when registered. In the case of mortgages, all the property rights of the borrower under project contracts shall be mortgaged to the lenders. The new Civil Code 2015 makes express provision regarding two critical features of a secured asset: the right to reclaim collateral and payment priority of the secured party on the condition that the security is valid against third parties.7 This validity is determined from the time of registration of the security or from when the secured party keeps or possesses the collateral, which is distinctly different from the old provision, which only took account of the time of registration.

Moreover, in terms of security enforcement, drawbacks of the old law have been addressed to harmonise with Decree No. 163/2006/ND-CP on Security Transactions (amended by Decree 11/2012/ND-CP). The new Civil Code 2015 provides for the separation of land use rights and the property attached to the land during security enforcement, should the parties have mutually agreed thereon.8 This, serves, to some extent, as a breakthrough by the new civil law, in that it eradicates many obstacles and difficulties in enforcing the secured asset in the event that only the land use right is mortgaged but not the property attached to the land, and vice versa.

Enforcement priority is based on the time of registration with NRAST, with early registration prioritised over the later; registered over non-registered; and early over later for agreements entered into. Even though Vietnamese law accepts future assets for the purpose of setting up a mortgage, the registration of such assets may be troublesome depending on the type of assets and under the authority of which state body they fall. For example, vessels shall be registered at the Maritime Department, aircraft shall be registered with the Aviation Department with specific regulations and requirements.

A guarantee from the borrower's parent company or corporate guarantee is often obligatory in project finance. If the borrower does not have a parent company then a third party, which could be a financial institution or a company, may take on the role. In megaprojects, such as refineries or large infrastructure projects, the lenders usually require a government guarantee and undertaking (GGU) as a precondition. Regulations on GGUs have recently been tightened by the government, which only grants GGUs to those projects of national socio-economic importance. Vietnamese law allows the beneficiary to enforce the seizing of the guarantor's assets in the event that the guarantor does not fulfil its payment obligations, and to file a lawsuit against the guarantor if the seizure cannot be effected.


In public contracting, performance security is compulsory. It is a condition precedent to setting up construction contracts, except for internal lump-sum contracts, contracts in projects carried out by households and self-performed construction contracts. The value of performance security runs from 2 per cent to 10 per cent of the contract value and can be higher in high-risk contracts but no greater than 30 per cent of the contract value.

Performance security may be in the form of a deposit, escrow, or bond, but the government encourages the use of performance bonds. The performance bond is provided by the contractor to secure its obligations during the performance of the construction contract and only becomes null and void when the obligations are completely fulfilled or when the employer has received warranty security for a construction and equipment provision contract.

An advance payment bond (APB) is another important security in construction projects. In the public sector, it is mandatory for an employer to obtain an APB from the contractor before making any advance payment if the construction contract requests advance payment equivalent to more than 1 billion dong. The APB's value is equivalent to the advance payment. The minimum value of an advance payment in an EPC contract is 10 per cent but no greater than 50 per cent of the contract price.


Vietnamese legislation gives creditors three main tools to protect their rights over property obligation: litigation or arbitration, enforcement of security and bankruptcy proceedings. While litigation or arbitration can be applied for most transactions, the applicable scope of the remaining tools is to be limited. For instance, the existence of an unsecured debt or partially secured debt is a prerequisite for a bankruptcy petition filed by the debtor or, of course, the existence of secured debt for enforcement of security.

Recently, there have been many major changes in Vietnamese bankruptcy law with the release of the Law on Bankruptcy 2014, which took effect on 1 January 2015. In particular, there are three outstanding changes:

    1. An insolvent enterprise is an enterprise having failed to meet a debt obligation for three months from the deadline for payment. Accordingly, after three months from the deadline, creditors can apply for bankruptcy proceedings.
    2. The valid requirements for creditors' meetings are more favourable for creditors: 'The attending creditors represent at least 51 per cent of the total unsecured debts.'
    3. New regulations on asset management officers being individuals specialised in the management and liquidation of the assets of an insolvent entity during the process of a bankruptcy settlement.

According to the Law on Bankruptcy 2014, secured debts shall be settled independently and outside the sequence of redistribution of assets after the decision to open bankruptcy proceedings has been issued by the court. The sequence shall be applied as follows:9 (1) cost of bankruptcy proceeding; (2) unpaid salaries, severance pay, social insurance and medical insurance to employees, other benefits according to the labour contracts and collective bargaining agreements; (3) debts incurred after the initiation of bankruptcy that are used for resuming the business operation; (4) financial obligations to the government; (5) unsecured debts payable to the creditors on the list of creditors; and (6) secured debts that are not paid because the value of the collateral is not enough to cover the debts.

In terms of debt security, secured transactions are to be registered on a case-by-case basis with secured transaction registries, such as NRAST, the Office for Registration of Land Use Right, the Civil Aviation Authority of Vietnam and the Vietnam Maritime Administration. The secured lender should firstly file a notice of enforcement of security to the secured transaction registries to enforce its rights over the collateral or security. Unless otherwise agreed by the parties involved, some secured assets will be disposed of via auction. Normally, the main contract and security contract clearly specify the methods as well as the rights and obligations of the parties regarding the disposal of secured assets.


i Licensing and permits

The Law on Environment Protection dated 23 June 2014, and Law on Construction dated 18 June 2014, which were approved by National Assembly of Vietnam in January 2015, beside ordinary rules and requirements, core amendments and modifications, regulate investors and contractors especially in sectors that have an impact on the environment. In accordance with the Law on Environment Protection, investors are required to submit a strategic environment review, environment impact review and an environment protection plan to local authorities for ratification and certification within 10 days (which used to be five days in the previous version). In addition, project investors must obtain the Operation Ability Conditions Certificate in accordance with the Law on Construction. Although the Law on Environment Protection governs all territories of Vietnam, regional provinces may also establish supplementary legal documents on construction licensing and permits for surveys and exploitation. In addition, investors should also be aware of the new Decree No. 155/2016/ND-CP dated 18 November 2016, which determines the penalties for administrative violations against regulations on environmental protection, including not only warnings, fines and additional penalties (such as licence suspension), but also remedial measures.

ii Equator Principles

The Equator Principles have not been adopted by any financial institution in Vietnam. However, Circular No. 39/2016/TT-NHNN, which came into effect on 15 March 2017, stipulates the requirement for lending transactions to be in conformity with the legislation on environmental protection. This stipulation is made on the basis of the possibility of an event of force majeure.

iii Responsibility of financial institutions

Currently in Vietnam, financial institutions do not have criminal liability, only individuals can plead guilty to committing a crime. However, they may have administrative liability if they violate administrative provisions relating to financing activities that are stated in the Law on Financial Institutions. Civil liability may also be applied if they breach their obligations in agreements or contracts with sponsors.

Remarkably, the new Criminal Code 2015 (amended in 2017 and effective as of 1 January 2018) now concerns criminal liability for legal entities (including financial institutions). According to Article 76 of the Code, legal entities shall only bear criminal responsibility for specific criminal offences, such as monopolising the security market, committing insurance fraud and violating competition regulations.



The PPP model was subject to intensive reforms in 2015. Accordingly, the supreme laws governing PPP transactions include the Law on Public Investment and the Law on Bidding. The Law on Public Investment continues to focus on the state's investment in business organisations and public infrastructure, such as roads, transit, schools and hospitals. Meanwhile, the process and bidding procedures to select appropriate bidders for public or state-owned projects are subject to the Law on Bidding.

As regards the role of related parties in PPPs, concrete legislation10 has created more incentives and attraction for non-government parties (i.e., private investors or bidders). As a result of this legislation, PPPs in Vietnam are more open, flexible and equal, and are in line with international practice. For example, Decree No. 15 covers not only traditional projects (i.e., BOT projects, BTO projects or BT projects), but also expressly provides additional project structures not typically seen under old PPP regimes (i.e., BOO, O&M, BTL and BLT).

ii Public procurement

The Law on Bidding (which entered into force on 1 July 2014) is the principal piece of legislation governing public procurement and establishes general rules for the selection of tenderers, responsibilities of concerned parties and the bidding process. In addition, a number of legal documents supporting the implementation of the Law on Bidding have also been issued by the government and its bodies.11 Accordingly, public procurement may be conducted through open bidding or limited bidding, although open bidding is more popular.

Despite recent advancement in the legal framework specifying that public procurement shall adhere to the principles of openness, transparency, fair competition and impartiality, restrictions on foreign bidders' participation in bidding process in public procurement still exist. For example, 'A foreign bidder must engage in a partnership agreement with domestic contractors or use sub-contractors when participating in international bidding in Vietnam, unless domestic contractors are not fully able to participate in any part of the procurement.'12

In a particular bid, the competent authority shall be the employer itself or empower a state-owned company to organise the bidding and review applications. For instance, the Ministry of Transportation approved the investment plan for the Ho Chi Minh City–Long Thanh–Dau Giay Expressway project and empowered Vietnam Expressway Corporation (VEC, the 100 per cent state-owned company) to be the project employer.

In the near future, the National Assembly is expected to issue a new law that specifically addresses PPPs and other public procurement methods instead of relying on the Law on Bidding.


i Foreign contractors

Under Decree No. 59/2015/ND-CP (amended by Decree 42/2017/ND-CP) on Construction Project Management, a foreign contractor may only conduct construction activities in Vietnam after obtaining a construction operation licence from the construction management authority. If bidding is required according to the bidding law of Vietnam, the foreign contractor must have won the bidding or contract award. If a tender is not required but the foreign contractor wishes to bid, the following conditions must be satisfied:

    1. it has the bidding winning decision or contract award from the project owner; and
    2. it meets capacity conditions to fulfil the contract according to the laws on construction.

Under the Law on Construction, the foreign contractor must file the report with the relevant authorities as indicated in its licence and register the details of its management office (e.g., the address, fax and telephone number, the seal, the representative and tax code) and apply for work permits for its foreign experts or workers in accordance with the Law on Labour, for quality inspection of imported machinery and equipment and for inspection of construction equipment safety and means of transportation relating to its business in Vietnam. The foreign contractor must enter into a consortium agreement with a Vietnamese contractor or subcontract to a Vietnamese contractor unless there is no Vietnamese contractor who is qualified to execute any tasks of the bidding package. The consortium agreement or the agreement in principle with a local subcontractor (if any) shall be a component of the application pack for a construction operation licence from the Vietnamese authority. Foreign contractors are required to follow all standard construction requirements under Vietnamese law.

ii Foreign investment

Generally, foreign investors may engage in the Vietnamese market in several ways, including establishing a branch or a new company (subsidiary or joint venture), entering into business cooperation contracts or purchasing the shares of an existing company. The procedure for a particular foreign investor shall depend on the way it chooses to enter the market and shall be found in the Law on Investment together with relevant guidance documents.

Different policies will be applied to the particular industry that the foreign investors are entering into. In several sectors where foreign investment is encouraged by law – such as high-tech production, IT products, software products, digital content, production of new materials, new energy, clean energy and renewable energy, production of energy-saving products, etc. – the foreign-owned company may be entitled to tax incentives such as exemption or deduction of tax. On the other hand, restrictions (in respect of the ownership ratio, type of the subsidiary company, method of investment, permitted business activities, etc.) have been imposed on investment in several industries, such as advertising; courier services; equipment repair and maintenance (excluding ships); travel agencies and tour operators; film production, distribution and screening; telecommunication services; distribution; education; e-gaming; maritime transport; container handling and related services; road and rail transport; and aircraft maintenance and repair. The industries that have limits on foreign ownership are those classified as of economic importance, such as civil aviation, banking, agriculture, audio-visual services, transportation, telecommunications, and the publishing and press sectors. Investment in services or commercial sectors not listed in the Vietnam's WTO Commitments on Services are generally rejected by the competent authorities. Restrictions on the ownership ratio for foreign investors in listed and other public companies have recently been lifted. Instead of a 49 per cent cap, foreign investors now are allowed to hold an unlimited proportion of voting shares in Vietnamese public companies, including listed companies, except for those in specific sectors.

iii Removal of profits and investment

There are no special fees or taxes on foreign investment or ownership of a project company, other than those in the general Vietnamese taxation regime. Some projects such as BOT or special PPP projects are entitled to favourable tax treatment.

The current foreign exchange regulations of Vietnam require that all transactions, payment, advertisement, listing price and recording price in contracts within the territory of Vietnam must be in Vietnamese dong except for certain permitted exceptions regulated in the Ordinance on Foreign Exchange, or approved by the Prime Minister. However, foreign investors or foreign-invested companies can convert operating funds or profits from one currency into another currency for the payment of imported goods and services, repayment of a foreign loan and accrued interest and repatriation of investment (profit and investment capital after payment of relevant corporate income tax) overseas subject to the submission of the required evidence to the banks. The foreign earnings of investors in Vietnam must be converted into the foreign currency before being repatriated in the investors' home country.

An FDI company is entitled to remit the profits to a foreign shareholder after it has fulfilled its financial obligations, submitted an audited financial report and finalised tax declaration to the tax authority. The foreign investor or the FDI company must notify the tax authority of the profit remittance plan at least seven working days before the remittance date. No fees or taxes are imposed on remittances of investment returns or loan payments, except for bank fees and charges.


i Special jurisdiction

There are no special courts or dispute resolution proceedings covering disputes arising from construction or project finance. There are currently seven specialised courts, including the Criminal Court, the Civil Court, the Economic Court, the Administrative Court, the Labour Court, the Juvenile and Family Court, and the Administrative Handling Court.13 In practice, such disputes are usually brought before an economic court or civil court.

ii Arbitration and ADR

Thanks to the recent development of a progressive legal framework and improved levels of attainment regarding international standards for domestic arbitration centres, more and more complex and sophisticated disputes arising from construction and project finance are being brought to arbitration. Moreover, the fact that Vietnam is a signatory to the 1958 New York Convention14 encourages parties involved in international construction disputes to bring their cases to arbitration.

The Supreme People's Court has stated that: 'A dispute shall be settled by arbitration if the parties have an arbitration agreement.'15 Accordingly, a project finance or construction dispute shall not be subject to automatic domestic arbitration. In particular, the parties shall bring the dispute before a competent court if they have not concluded an arbitration agreement.

Recent developments in both regulatory reforms and practical processes have shown that the judiciary is more and more 'arbitration-friendly'. In particular, Resolution No. 01/2014/NQ-HDTP has limited the scope of the term 'in contradiction to the fundamental principles of the Vietnamese law' to be interpreted as 'violating the fundamental principles of the act having the overall effect in making and enforcing the Vietnamese law'. This new interpretation would arguably exclude any court interference seeking to avoid unfavourable arbitral awards, as well as minor violations outside the spectrum of 'fundamental principles of the Vietnamese law'.

Since Vietnam is as yet not a signatory to the ICSID16 Convention, foreign investors may only sue the Vietnamese government pursuant to bilateral investment treaties (BIT) or multilateral investment treaties (i.e., BIT Vietnam–United States, BIT Vietnam–Singapore, etc.) or the UNICITRAL Arbitration Rules.

VIAC17 is currently the most well-known arbitration institution, with 151 cases handled in 2017, the second-highest number since its establishment. The construction cases heard by VIAC accounted for 24 per cent of the total number of VIAC cases in 2017 (an increase of 9 per cent compared with 2016).

The introduction of Decree No. 22/2017/NDCP on Commercial Mediation can be seen as a positive step forward in the establishment of alternative dispute resolution.


Current projects and construction in Vietnam are generally reflective of an emerging market. Although most aspects of the jurisdiction are basically in line with international practice, there are certain deviations. For instance, regular contract forms in Vietnam are not comparable to the standardised FIDIC form. Moreover, there are particular issues that have not yet been recognised by the Vietnamese jurisdiction, such as the provision of liquidated damages.

In Vietnam, the PPP model is considered to be the main instrument for improving infrastructure. The government, especially the Ministry of Planning and Investment, has recently devoted a great deal of effort to formulating a policy on supporting the parties in PPP projects. Therefore, potential domestic investors, as well as probable foreign investors, are now willing to join PPP projects. Many projects are currently being managed by the Ministry of Transport, most of which deal with the building of new highways, and are worth trillions of Vietnamese dong.18 In other words, the involvement of private investment is clearly playing an important role in the development of construction in Vietnam. At present, the country is looking forward to remarkable changes in infrastructure and other areas of the public sector.

Nevertheless, Vietnam still faces various problems. In practice, there are certain obstacles for investors in PPP projects. For instance, investors are facing difficulties working with the authorities, as local authorities do not have much experience in PPP projects and there is little guidance on selecting investors. Moreover, in many PPP projects, investors have claimed that they had to bear more risks in carrying out the projects. They seemed to be in a disadvantaged position when negotiating with government bodies on contracts relating to PPP. To attract more investors and improve the PPP regime, the state ought to identify as many risks as possible and find suitable methods to allocate them legitimately and transparently so that the risks to investors can be reduced.

Provided these major issues can be addressed in the future, more and more foreign capital will be put into PPP projects in Vietnam.


1 Nguyen Trung Nam (Tony) is managing director at EPLegal.

2 This Decree has been clarified by Circular 02/2006/TT-BKHDT, which took effect on 18 April 2016, and Circular 06/2006/TT-BKHDT, which took effect on 20 September 2016.

3 Mainly including commercial banks, export credit agencies, multilateral institutions, development banks, and other finance companies.

4 Article 3, Circular No. 30/2016/TT-BXD.

5 Patrick Mead, 'Current Trends in Risk Allocation in Construction Projects and Their Implications for Industry Participants', Construction Law Journal (2007).

6 Clause 22.2, Penalty for breach of contract – Specimen EPC Contract, Circular No. 30/2016.

7 Article 297.2, the Civil Code 2015: 'When the security takes effect against a third party, the secured party is entitled to reclaim the collateral and the payment prescribed in Article 308 of this Code and relevant laws.'

8 Article 326.1, the Civil Code 2015: 'With respect to the mortgage of property on land without a mortgage on land use rights but the owner of the property on the land is also the land user, such land use rights shall also be part of the realised property, unless otherwise agreed.'

9 See Article 54 of the Law on Bankruptcy.

10 I.e., the Law on Investment, Law on Bidding, Decree No. 15/2015/ND-CP on Investment in the Form of Public-Private Partnership, and Decree No. 30/2015/ND-CP dated 17 March 2015 Guiding the Implementation of a Number of Articles on Investor Selection of the Law on Bidding.

11 Decree No. 63/2014/ND-CP, Decree No. 37/2015/ND-CP, Circular No. 01/2015/TT-BKHDT, Circular No. 05/2015/TT-BKHDT, Circular No. 11/2015/TT-BKHDT, Circular No. 07/2015/TTLT-BKHDT-BTC (Chapter III of the Circular No.07/2015/TTLT-BKHDT-BTC has been replaced by Circular No. 04/2017/TT-BKHDT).

12 See Article 5.1.h of the Law on Bidding.

13 According to Article 3 of Circular No. 01/2016/TT-CA issued by the Supreme People's Court.

14 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

15 According to Article 5.1 of the Law on Commercial Arbitration.

16 International Centre for Settlement of Investment Disputes.