The Foreign Investment Regulation Review: Vietnam


Foreign investment continues to play a significant part in Vietnam's advancing economy. Since the government's introduction in 1986 of investment reform, the Doi Moi policy, Vietnam's economy has continued to grow.2

Although rising inflation, over-extension of credit and poor supervision of public investments has constrained economic growth in the past few years, recent policies enacted by the government to combat these threats are starting to show promise. In 2018, Vietnam's gross domestic product (GDP) achieved estimated growth of 7.08 per cent.3 GDP in 2019 was 7.02 per cent, exceeding the Vietnamese government's GDP target of 6.8 per cent. This is the second consecutive year that Vietnam's GDP has reached over 7 per cent since 2011.4 Because of the adverse impact of the covid-19 pandemic, GDP in 2020 is expected to decrease to 2.7 percent.5 The government has recently set an average GDP growth target of 7 per cent in the five-year socio-economic development plan for the 2021–2025 period.6

A further indication of a return to growth and economic expansion is that Vietnam's consumer price index in 2019 rose by 2.79 per cent compared with the previous year.7

In 2019, the total foreign direct investment in Vietnam was estimated at US$20.38 billion, an increase of 6.7 per cent on the previous year's figure. In terms of investment by country, 125 countries and territories were recorded as investing in Vietnam in 2019; South Korea ranked first with total investment capital of US$7.92 billion, accounting for 20.8 per cent of the total capital invested into Vietnam; Hong Kong ranked second with total registered investment capital of US$7.87 billion, accounting for 20.7 per cent of the total investment capital; and Singapore ranked third with total registered investment capital of US$4.5 billion, capturing 11.8 per cent of total investment capital.8

In 2019, exports from the foreign direct investment sector (including crude oil) amounted to US$181.35 billion, an increase of 4.2 per cent compared with the previous year and accounting for 68.8 per cent of export turnover. Exports excluding crude oil were US$197.3 billion, an increase of 4.4 per cent compared with the previous year and accounting for 68.1 per cent of export turnover.9

Furthermore, from January to 4 April 2020, the largest export destinations with turnover of over US$6 billion were the United States (at US$20.2 billion), China (US$12.7 billion), Japan (US$6.4 billion) and South Korea (US$6.2 billion).10

The Trans-Pacific Partnership (TPP) treaty was rejected by the United States in 2016, but, in 2017, Vietnam entered into the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) (another version of the TPP, which excludes the United States). The 14th National Assembly of Vietnam passed a resolution approving the CPTPP and its related documents on 12 November 2018. CPTPP took effect in Vietnam as of 14 January 2019.11 In addition, the EU–Vietnam Free Trade Agreement (EVFTA) and the EU–Vietnam Investment Protection Agreement (EVIPA) were officially signed in Hanoi on 30 June 2019. The EU and Vietnam have finalised the EVFTA and EVIPA ratification process12 and the EVFTA entered into effect on 1 August 2020. Under the EVFTA, more than 85.6 per cent of tariff lines imposed on Vietnamese products equivalent to 70.3 per cent of Vietnam's export turnover to the EU will be eliminated, while the remainder will be reduced gradually and ultimately abolished over a period of up to 10 years. Likewise, Vietnam commits to remove 48.5 per cent of import tariff on goods from the EU or 64.5 per cent of the bloc's export turnover.13 The promising expectations for trade under the EVFTA and EVIPA mean that Vietnam is still looking strong for international trade going forward.

Foreign investment regime

The existing investment regime in Vietnam came into effect on 1 July 2015 and is comprised of a Law on Enterprises (LOE) and a Law on Investment (LOI), which regulate both domestic and foreign investors, for the establishment and operation of corporations and investment in projects.

A foreign investor can invest in the Vietnamese market in several ways, including:

  1. establishing a new enterprise (either a wholly foreign-owned enterprise (WFOE) or a joint venture company (JVC) between foreign investors (FIs) and local investors (LIs));
  2. making capital contributions to or purchasing shares or equity capital in companies in Vietnam;
  3. investing through a business cooperation contract (BCC) between FIs and LIs; and
  4. investing in a form of a private-public partnership (PPP), using build-operate-transfer, build-transfer-operate or build-transfer contracts, mainly for infrastructure projects or provision of public services.

As an alternative to establishing or investing in Vietnamese enterprises, foreign business entities may set up a branch or a representative office (RO) in Vietnam, which must be licensed by the relevant authorities.

An RO may be established as a dependent unit of the foreign parent company to seek and promote commercial opportunities for the parent company. Many foreign investors opt to establish ROs to explore the local market before deciding to invest in Vietnam. An RO cannot directly conduct profit-generating activities in Vietnam.

A branch may only be established by a foreign business entity in specific sectors, such as banking and insurance. A branch can directly conduct profit-generating activities in Vietnam.

Under the LOI, FIs may invest in all sectors not prohibited by law. Areas prohibited by law include:

  1. trading of drugs prescribed in an appendix to the LOI;
  2. trading of chemicals or minerals prescribed in an appendix to the LOI;
  3. trading of specimens of wild fauna or flora as set out in Schedule 1 of the Convention on International Trade in Endangered Species of Wild Fauna and Flora; of specimens of species of endangered and rare wild fauna or flora as prescribed in an appendix to the LOI;
  4. business activities dealing with prostitution;
  5. purchase or sale of human beings, human tissue or parts of the human body;
  6. business activities relating to human asexual reproduction; and
  7. trading of fireworks.

On 17 June 2020, Vietnam's National Assembly passed amendments to the LOI and the LOE, both of which will take effect on 1 January 2021. Under the amendment to the LOI, the sectors above prohibited by law have been extended to include trading in human foetuses and debt collection services.

i Conditional sectors

As with all countries, Vietnam reserves its sovereign right to restrict investment in sensitive fields by setting conditions for 'conditional sectors' that investment projects must satisfy for the purposes of national defence and security, social order and safety, social ethics and community health. The LOI includes a comprehensive list of conditional sectors.

FIs are also subject to conditions in relation to foreign ownership limitation, the form of investment and requirements of Vietnamese partners, operational contents and other conditions as stipulated in the international treaties to which Vietnam is a party. The basic conditions are found in the Schedule of Specific Commitments in Services contained in Vietnam's World Trade Organisation accession package (the WTO Commitments). More favourable conditions for FIs from ASEAN countries may be found within the ASEAN Economic Community frameworks.

Typical transactional structures

i Incorporation forms

Under the LOE, the following are the four main forms of corporate structure:

  1. limited liability company (LLC);
  2. joint-stock company (JSC);
  3. incorporated partnership; and
  4. private enterprise (i.e., sole proprietorship).

All these structures are known as 'enterprises'.

An LLC or a JSC is the most appropriate structure for foreign investors who want to set up a JVC or WFOE.

Advantages and disadvantages of LLCs and JSCs

When choosing a corporate structure, investors should be aware that an LLC and a JSC both have advantages and disadvantages.

One advantage of a JSC is that the company is permitted to issue shares to raise capital. JSCs can also issue preference shares to alter quorum and voting requirements. Purchasing minor shares in existing JSCs may also be preferable for foreign investors who are interested in testing the market before fully establishing themselves in Vietnam.

The single-member LLC structure seems to be preferred only when it is wholly owned by a foreign investor. Multi-member LLCs are still a preferred option for JVCs.

Joint venture with a local partner

In most cases, when possible, an FI will be better protected and have more control over the investment if it invests via a WFOE. However, there are certain scenarios in which it may be best for an FI to consider investing via a joint venture with a local partner.

Specific land requirements

A joint venture may be especially applicable in investments where real estate plays a significant part in the project (e.g., property development, hotels or resorts) and the land-use rights are held by a Vietnamese party. The Vietnamese party may not have the financial resources to undertake a project but may be able to contribute the land-use rights to the JVC. Many projects have begun in this form, with the FIs later buying out the Vietnamese parties to operate the projects as the sole owners.

Limits on foreign investment

Despite WTO provisions opening many sectors to foreign investment, there are still a number in which foreign investment will not be permitted unless it is in the form of a joint venture with a Vietnamese partner. The level of foreign investment in projects of this kind varies by sector. For example, in advertising, an FI may theoretically hold any amount that is less than 100 per cent of the investment, but for container-handling services the foreign ownership may not exceed 50 per cent. In such investments, a local partner will be required and the company may be structured in a way to maximise the foreign control. This structuring would need to involve establishing the company as a JSC and issuing preference shares to ensure voting control or reserving certain matters for foreign investor consent.

Sensitive sector or conditional sector

Even when 100 per cent foreign investment is permitted in a certain sector, if it is a conditional or sensitive sector, then it may often be more expedient for the local partner to first establish a domestic company, obtain all the necessary operating licences and then allow the FI to invest in the company up to the level of foreign investment permitted by law.

Strategic investment

While not a true joint venture, this form of investment, in both the private and state-owned enterprise sectors, provides a route for FIs with experience in the sector (and most often competitors of the target enterprise) to invest up to a threshold maximum percentage (for banks, the maximum is currently not more than 20 per cent for one foreign strategic investor and not more than 30 per cent for all foreign strategic investors combined). The levels of strategic investment vary from sector to sector. Typically, this type of investment offers a seat on the board and other voting or strategic privileges.

ii Corporate governance considerations

Shareholding limit for foreigners

A foreign-ownership limit in an enterprise is not provided for in the LOE but is in the WTO Commitments. The general 49 per cent cap on foreign ownership in public companies (whether listed or unlisted) was removed as of September 2015, with exceptions for companies in business sectors that are subject to conditions for FIs (as discussed in Section II), unless domestic laws provide otherwise. Foreign ownership as stipulated in the international treaties to which Vietnam is a party, or in domestic laws, also applies to public companies.

Legal representatives

Subject to the charter of the company, JSCs and LLCs may have more than one legal representative, one of whom must reside in Vietnam.

However, if a company has only one legal representative, he or she must reside in Vietnam and, when he or she leaves Vietnam, he or she must authorise another person in writing to perform the rights and obligations of the legal representative, whose authorisation will be effective until the legal representative returns or authorises another person to replace him or her. A legal representative must be replaced if he or she leaves Vietnam for more than 30 days without authorising another person to perform his or her rights and obligations as legal representative.

Related-party transactions

In general, contracts or transactions between a company and any of its management team, a member (LLC) or a significant shareholder (holding more than 10 per cent) (JSC) or their related persons must be approved by members' council (multi-member LLC), by the relevant corporate body as provided in the charter (single-member LLC) or the shareholders' general meetings or board of management (JSC).

The transaction will be null and void if the approval is not given as described above.

iii Mergers and acquisitions

There have been very few mergers in Vietnam; most transactions are either acquisitions of assets or shares in a company (including all the shares or interest in the company, when permitted). The provisions on mergers and acquisitions are set out in the LOE, but there is very little detail and therefore not much guidance for the actual process. Supplementary legislation was meant to be developed but has yet to be issued. This leaves more room for licensing authorities to operate very discretely and on a case-by-case basis, often resulting in additional delay and documentation.

Acquisition of a company

Acquiring interests or shares in a company first requires a consideration of the lines in which the company is licensed to conduct business. If there are business lines that are restricted for foreign investment, the company may need to restructure first to eliminate or carve out certain business lines from the target company or the FI may need to adjust the investment strategy to acquire a smaller percentage of the company. In either case, rigorous legal and financial due diligence checks are often necessary, especially because Vietnam has little information that is available in public databases. The issues that most often arise in such an acquisition involve labour, land use rights, loan or credit obligations, other contracts, competition or anti-monopoly matters and tax implications. Once issues are identified, sellers are often required either to correct the problems or to provide necessary indemnities and warranties to the foreign buyer.

Acquisition of assets

Acquisition of fixed assets by an FI is not possible in Vietnam. An FI would still have to establish a company in Vietnam with a licensed project and then acquire assets as part of the business plan for that company. As an investment or expansion strategy, acquiring assets is viewed as less risky than acquiring interests in a company as FIs may avoid succeeding legacy and hidden liabilities of the targeted company. However, as mentioned, this is a two-step process and requires first establishing a company in Vietnam, so this may not be the most efficient route for a first-time investor in Vietnam. If the asset is associated with a business that requires an operating licence, the investors will need to consider whether the onerous process of obtaining an operating licence outweighs the issues associated with company acquisition.

Review procedure

i Threshold for review

Investment registration procedures for issuance of an investment registration certificate (IRC) apply to all investment projects of FIs or semi-FIs (see Section VII) either made through establishing new enterprises or entering into contracts such as BCCs. Investment registration procedures also apply to semi-FIs who have new investment projects. FIs and semi-FIs who wish to establish a new company for a new investment project will apply for an enterprise registration certificate (ERC) after obtaining an IRC. Certain projects require formal review for issuance of in-principle approval by the National Assembly, the Prime Minister or provincial-level government, depending on the size and the sector of the investment projects.

ii Review time frame

The time frame for investment registration procedures is 15 working days from submission of the completed application or, if a formal review is required, then five working days from the date of the in-principle approval of the relevant authority. A time frame of 35 working days is provided for formal review by provincial-level government while no specific time frame is provided for formal review when in-principle approval is required from the National Assembly or the Prime Minister.

In practice, it normally takes much longer. The review process can encounter delays for several reasons, including the inability of the licensing authorities to review the large volume of applications, the complexity of the projects and a lack of guidelines on certain businesses or transactional structures. The average practical time is two to three months, but may be up to six to nine months or longer for complex projects.

iii Test for clearance

The fundamental test used during the review process is verifying the following:

  1. satisfaction of investment conditions for the FI (if any);
  2. conformity of the investment projects with the master plan for socio-economic development and development planning for the relevant business sectors, land-use zoning, socio-economic impacts and efficiency of the project;
  3. satisfaction of conditions for entitlement to investment incentives (if any);
  4. land-use demand for the project, conditions for land grant or lease and the need for conversion of the land-use purpose; and
  5. technological solutions (if applicable).

Besides the above tests, during the investment registration or project review, the licensing authorities also verify the satisfaction of conditions stipulated by the relevant laws for projects in conditional sectors.

Conditions vary from sector to sector, subject to the laws and regulations governing the relevant sectors. Generally, conditions shall be expressed in the following forms.

Operating licence

An operating licence is required after the ERC is issued and before commencement of relevant business in Vietnam. A licence will be required by a business having a significant impact on social or national economic interests, such as education, banking, insurance, securities, hospital and clinics, newspapers and television.

Certificate of satisfaction of business conditions

This certificate is for the purpose of ensuring that an enterprise already satisfies the compulsory requirement for its products or services for the interests of customers. For example, a food manufacturer or trader may be required to have a certificate of satisfaction of conditions for food safety.

Practising certificate

Practising certificates are required in the professional business sectors, such as the legal profession, aviation, education, construction (architecture and engineering), hospitals and clinics, accounting and auditing. The head of a company or key staff, as the case may be, of a company doing business in an area that requires a practising certificate would need to hold the required practising certificate. The certificate must be issued by the relevant Vietnamese authority. Practising certificates issued overseas may not be accepted in Vietnam, unless otherwise provided in Vietnamese laws or in an international treaty to which Vietnam is a signatory.

Certificate of professional liability insurance

To protect customers' interests, certain types of insurance are compulsory for certain business sectors, such as professional indemnity insurance for legal consultancy activities.

Legal capital

Legal capital means the minimum amount of capital required by law for the establishment of an enterprise. Legal capital is required in the banking and financial, real estate business, transportation and telecommunications sectors, among others. Charter capital (i.e., registered or authorised capital) of the enterprises subject to legal capital must be equal to or higher than legal capital.

Other required approvals of competent authorities

In some business sectors, further approvals may be required, such as approval for an environmental impact assessment report for a project in which there is a potential risk of causing adverse effects on the environment, or a construction permit for a project involving construction, approval for a plan relating to chemical-related incident prevention and responsive measures for a project relating to production and trading of certain chemicals.

Other requirements

In certain circumstances, an enterprise need not obtain any approval from the relevant authority but must satisfy conditions before conducting the relevant business, such as the requirements relating to infrastructure and technical facilities, personnel capability, etc.

Vietnam does not have an explicit test or official definition of national interest or public interest in the review process. However, the LOI sets out provisions for the prohibition of certain types of projects, which could be considered a test for national or public interest.

Vietnam does not have an explicit 'net benefits' test either. However, during the review process, investors are required to provide technical and economic statements, which include projections regarding the number of jobs created and the estimated amount of tax. Weak projections may be questioned. The licensing authorities are reluctant to grant extensions for expiring projects that are not profitable unless the investors can satisfactorily explain the reasons and have a plan to become profitable.

iv Availability of appeal or other remedies

FIs who do not agree with the decision rejecting their IRC application may file complaints according to the procedures for making a complaint against an 'administrative decision' in the Law on Complaints.

A complainant has the option to file the complaint directly to the person issuing the administrative decision or to the government office of that person, or to file a petition at the Administrative Court.

If the first option is selected and the complainant is not satisfied with the settlement of the first complaint or does not receive the settlement decision within the stipulated time, the complainant may file a second complaint to the head of the supervising office (one level higher) or file a petition at the Administrative Court. If settlement of the second complaint is not satisfactory, the complainant may file a petition at the Administrative Court.

The second complaint is not applicable if the person issuing the administrative decision at issue is a minister or the head of a ministry-ranking office. The complainant may file a petition at the Administrative Court.

If the administrative decision is issued by the chairman of a provincial People's Committee (i.e., provincial-level government), the minister concerned will be the one who receives the second complaint if the complainant elects to file a second complaint. For investment activities, the Minister of Planning and Investment will receive the second complaint.

Alternatively, FIs may opt to rely on the right provided under Article 14.2 of the LOI, which allows investors in dispute with Vietnamese state authorities regarding investment activities in Vietnam to refer the dispute to the Vietnamese courts or to arbitration.

The laws, however, do not have further guidelines on settlement of a dispute between FIs and state authorities by arbitration. Therefore, without agreement on arbitration in the specific agreements between the FIs and the state authority, or in international treaties to which Vietnam is a party, FIs will not be able to refer the dispute to arbitration for settlement.

v Practice of authorities engaging in dialogue and cooperation with other jurisdictions

It is not common practice in Vietnam for the authorities to engage in dialogue and cooperation with other jurisdictions regarding their investment application review procedures.

However, FIs may invoke the assistance of their consulate in Vietnam to speak to the Vietnam licensing authority to facilitate investment activities based on investors' rights provided for in relevant trade agreements or investment agreements.

vi The rights and standing of third parties in the review process

During the review process, the licensing authority may be required to consult different government agencies (at the provincial level or ministry level) for opinions on the conformity of an investment project with different laws of Vietnam. However, involving the public in the review process for investment project registration is not specifically provided for in the legislation (i.e., the licensing authorities are not required to seek opinion from the public during project registration or review). Nevertheless, if investment projects involve the use of land currently being used by other users or occupants, arrangements must be made with the users or occupants to provide compensation to them for having to surrender the land back to the government for leasing to the FIs. These arrangements should be completed before project registration or review, otherwise failure to complete the land acquisition procedures may result in huge delays or even failure of the investment project.

Foreign investor protection

i Local law on investment protection

FIs are given similar investment protections to those available to LIs, such as protection of assets and properties, investment capital, income and other lawful rights and interests of investors.

The LOI affirms that investment capital and the lawful properties or assets of investors will not be expropriated by administrative measures. However, the law allows expropriation for the purpose of national defence or security or other eligible national interests, with the provision that the investors are entitled to compensation at the market price for their investment, properties or assets determined at the time of the expropriation decision. The compensation to FIs will be paid in freely convertible currencies and the FIs have the right to remit the compensation out of Vietnam.

ii Bilateral, regional or other multilateral foreign investment treaties or other international trade agreements dealing with protection of foreign investment

Vietnam has more than 90 bilateral trade agreements (BTAs) and nearly 60 bilateral investment promotion and protection agreements (IAs). It is also a member of WTO agreements, including without limitation the General Agreement on Trade in Services and the Agreement on Trade-Related Investment Measures. In most cases, investment protections are provided for in IAs, with the exception of the United States, for which the investment protections are stated in the BTA.

Vietnam offers the following protections to FIs under its IAs (or the BTA, in the case of the United States):

  1. Investment promotion: in most IAs, parties undertake that they shall encourage and create favourable conditions for investors of the other party to make an investment in their territory and shall admit such investments in accordance with their laws and regulations. As a result, Vietnam and its counterpart countries reserve their sovereign right to restrict or set conditions for foreign investment according to their local laws.
  2. Fair and equitable treatment and full protection and security: in most IAs, parties must ensure that investments by investors of the other party be accorded fair and equitable treatment and full protection and security. In several IAs, however, these protections are not elaborated further and in others they are elaborated differently. In many IAs, these protections are further elaborated to the extent that a party shall not impair, by unreasonable or discriminatory measures, the operation, management, maintenance, use, enjoyment or disposal of the covered investment.
  3. Expropriation: most IAs adopt the principle that parties shall not take any measures of expropriation, nationalisation or any dispossession having an effect equivalent to nationalisation or expropriation against the investment by investors of the other party, except when the measures are taken for the public or national interest in accordance with its laws and regulations, the measures are not discriminatory, and the measures are accompanied by provisions for the payment of prompt, adequate and effective indemnity.
  4. Compensation for losses: most IAs state that where investments by investors of either party suffer losses owing to war, armed conflict, a state of national emergency, revolt, insurrection, riot or other similar events in the territory of the other party, the investors shall be accorded treatment by the latter party, as regards restitution, indemnification, compensation or other settlements, not less favourable than that accorded by the latter party to its own investors or to investors of any third state.
  5. Free transfer of funds: most IAs provide that parties shall allow without delay the investors of the other party the transfer of funds in connection with their investments and profits in freely convertible currency, including, without limitation, interests, dividends, revenues, profits and other returns, repayments of foreign loan agreements related to an investment, the capital or proceeds from the total or partial sale or liquidation of an investment and the proceeds from the settlement of a dispute and compensation and indemnities in accordance with the present agreement.
  6. Most favoured nation (MFN) treatment: most IAs provide that parties shall accord to the investments by investors of the other party a treatment that is no less favourable than that accorded to the investments by investors of any third country with the exceptions of special advantages to investors of any third country by virtue of an agreement establishing a free trade area, a customs union, a common market, an economic union or any other form of regional economic organisation or any international agreement intended to facilitate frontier trade to which the contracting party belongs at the present time or may belong in the future or through the provisions of an agreement related wholly or mainly to taxation. The MFN treatment, however, does not apply to every form of investment protection in every IA. In particular, several IAs require fair and equitable treatment with the investment by investors of any third country but limit the application to management, maintenance, use, enjoyment or disposal of investments without extension to the establishment, acquisition and expansion of investments.
  7. National treatment (NT): several IAs require a party to accord to investors of the other party no less favourable treatment than the treatment accorded to its investors. However, this NT is limited to certain areas only, such as expropriation, compensation for losses, full protection and security. NT rarely applies to investment promotion. The IA between Vietnam and Japan is one of the rare cases in which Vietnam and Japan commit to accord the investors of the other country treatment no less favourable than the treatment they accord their own investors in like circumstances in respect of establishment, acquisition and expansion of investment (with exceptions in certain sectors).

Investors from other countries may not rely on MFN treatment to claim the same treatment that Vietnam offers to Japan without the MFN treatment being offered exactly for the 'establishment, acquisition and expansion of investment' in their relevant IAs.

iii Complaint and judicial review against expropriation decisions

Investors who do not agree with an expropriation decision or a compensation determination (the administrative decision) by a government agency may file a complaint in accordance with the Law on Complaints. (See Section IV for more on complaints procedures.)

To date, there is no public report of any complaint by FIs owing to expropriation. Vietnam effectively avoids expropriation by administrative measures.

Other strategic considerations

Vietnam's emerging economy and developing legal system means more attention needs to be paid to ensuring the efficiency and certainty of transactions. Some important considerations that often arise are discussed below.

i Baby licence

In addition to an IRC, investments in many sectors and industries in Vietnam will require additional operating licences (see Section IV for the additional requirements that investors need to satisfy after obtaining an IRC). Obtaining 'baby licences' (as they are referred to colloquially) often results in delays because licensing authorities have more discretion in approving these licences. An investor should be wholly aware of the baby licences needed for a project in Vietnam. If joining a local investor, it is usually best for the local investor to secure the baby licences first to avoid any unnecessary delay or complication.

ii Anti-competition

In June 2018, Vietnam enacted a new Law on Competition, which took effect on 1 July 2019. In general, the new Law is more stringent than the old law (e.g., expending lists of prohibited restrictive agreements, narrowing list of exemption cases, etc.). The scope of the new Law is broader than the scope of the old one. The new Law applies to any practices, whether by Vietnamese or foreign individuals or entities, that have or may have a restraining impact on competition in Vietnam's market.

In addition, the new Law removes the filing threshold and authorises the government to set thresholds based on socio-economic conditions from time to time. Furthermore, as well as two options to allow or prohibit an economic concentration transaction, the new Law adds a new option to allow an economic concentration transaction with conditions.

On 24 March 2020, Vietnam issued Decree No. 35/2020/ND-CP (Decree 35) amending certain articles of the Law on Competition. Decree 35, which came into effect on 15 May 2020, provides, among other things, a mechanism to determine the relevant market, assessment of the significant competition restraining impact, or the ability to cause such an impact, of an agreement in restraint of competition, and the threshold for requiring notification of an economic concentration.

Under Decree 35, any enterprise (other than a credit institution, insurance enterprise or security company) proposing to participate in an economic concentration, including merger and acquisition, that meets any of the following criteria will be required to submit notification to the National Competition Council for preliminary review before carrying out the economic concentration:

  1. total assets in the Vietnamese market of the enterprise (or group of affiliated enterprises of which the enterprise is a member) was 3 trillion dong or more in the financial year immediately preceding the year of proposed implementation of the economic concentration;
  2. total sales turnover or input purchase turnover in the Vietnamese market of the enterprise (or group of affiliated enterprises of which the enterprise is a member) was 3 trillion dong or more in the financial year immediately preceding the year of proposed implementation of the economic concentration;
  3. the transaction value of the economic concentration is 1 trillion dong or more; or
  4. the combined market share of the enterprises proposing to participate in the economic concentration was 20 per cent or more in the relevant market in the financial year immediately preceding the year of proposed implementation of the economic concentration.

The National Competition Council will respond with its decision on whether to conduct an official review within 30 days of the date of filing a valid economic concentration notification dossier. If the National Competition Council fails to response within the 30-day period, the economic concentration can be implemented.

During an official review, the National Competition Council will consider, among other things, the factors provided under the new Law on Competition to assess whether an economic concentration falls into the prohibited or conditional category. After the official review, the National Competition Council will respond with its decision on whether the economic concentration is prohibited or can proceed with or without conditions.

iii Choice of law

It is a common request by FIs to have contracts governed by a foreign governing law when possible. However, even when a choice of law is legally permissible, it may not be the best practice. First, if the resolving jurisdiction is a foreign court, Vietnam will not recognise a foreign court judgment unless there is a specific bilateral treaty requiring it to do so or on a reciprocal basis. Second, if the resolving jurisdiction is a foreign arbitral body, then the arbitration award is enforceable in Vietnam if it does not violate the basic principles of Vietnamese law. The foreign arbitration awards need to be recognised by the competent court for enforcement in Vietnam. Similarly, if the Vietnamese courts are resolving the dispute under a foreign law, as required by Vietnamese law, or an international treaty to which Vietnam is a party, the foreign law principles must not be contrary to Vietnamese law. In a situation of this kind, the best practice is often to use Vietnamese law as the governing law and then, perhaps, a foreign jurisdiction for arbitration, thus avoiding the public policy exception to enforcement of arbitral awards.

iv Legal due diligence

It is important not to underestimate the value of a proper legal due diligence process in a developing jurisdiction like Vietnam. There are very few publicly accessible databases through which to research a company in Vietnam. Issues are usually discovered only in the context of an extensive due diligence exercise. There are many rules and regulations in Vietnam and a company may inadvertently find itself out of compliance. Conducting a proper legal due diligence process will better ensure that issues are spotted and dealt with at the earliest possible stages of a transaction.

v Land use

Many projects in Vietnam involve land use. Unlike in most Western jurisdictions, there is no title to the land itself; there are only land-use rights, which may be held and transferred, subject to satisfying the requisite conditions. Making sure that the required land is zoned for the correct purpose and has the necessary documentation for the proper land-use rights, has been properly cleared and has construction permits (if necessary) are important considerations that should be handled in the preliminary stages of a transaction.

Current developments

The current LOI and LOE took effect from 1 July 2015 and were intended to address certain gaps in the previous laws and improve the quality and efficiency of the investment climate. The key developments and changes to the LOI and LOE that affect foreign investment as discussed above are summarised below.

i Definition of investment

In the LOI, the definition of investment was clarified to include investors acting to inject capital to establish new enterprises and to make a capital contribution or purchase equity interest or shares of existing enterprises or to carry out investment projects in other forms for business purposes.

The definition now covers the investment activities previously included under the former LOI's definitions of direct and indirect investment (and which have therefore now been abolished).

ii Definition of semi-FIs

The LOI introduced a group of investors who are subject to the investment conditions and procedures applicable to FIs (semi-FIs). Semi-FIs include:

  1. a company with FIs holding 51 per cent or more of the charter capital;
  2. a company with investors that are companies such as that described in point (a) holding 51 per cent or more of the charter capital; and
  3. a company with FIs and companies such as that described in point (a) holding 51 per cent or more of the charter capital.

Under the amendment to the LOI, the foreign ownership threshold will decrease from 51 per cent to 50 per cent.

Companies with members or shareholders that are FIs (FIEs) but do not fall within the scope of semi-FIs will be subject to investment conditions and procedures applicable to LIs.

iii Introduction of public-private partnership

The LOI introduced a new investment form, the public–private partnership (PPP). For implementation of PPP investment projects, investment contracts must be signed between the competent Vietnam state authority and the investors.

iv Simplified and transparent business registration

The LOE also tries to enhance freedom and flexibility in business operations for enterprises; for example, (1) LLCs or JSCs may have more than one legal representative, (2) the ERC does not include details of the equity holding of the owners or shareholders or details of the businesses, and (3) the quorum and voting ratio in corporate governance has changed to a lower equity ratio.

The LOE, on the other hand, attempts to increase transparency in relation to the corporate information of enterprises. Enterprises are required to report changes to any of the following to the business administrative authority:

  1. name;
  2. branches or representative offices;
  3. address of the head office or any branch or representative office;
  4. business lines;
  5. charter capital;
  6. legal representatives; and
  7. owners of one-member LLCs, members of multiple-member LLCs, partners of partnerships, founding shareholders of JSCs and shareholders who are FIs.

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v Effects of the LOI and LOE on existing foreign investment

Existing FIEs continue to operate and implement their projects according to their current investment licence, investment certificate or equivalent (IC). They must comply with rights and obligations under the LOI if not in conflict with the principle of investment protection in the change of law (i.e., old incentives will be maintained) and their operation must be in line with the LOE except for the details provided in their current charter.

According to the regulations on guiding the implementation of the LOI and the LOE:

  1. existing FIEs may request the issuance of an IRC recording their projects information and an ERC recording their corporate information to replace the current IC;
  2. adjustments to projects licensed or registered before 1 July 2015 will be made in accordance with the LOI and the IRC will be issued to replace the 'project registration' section in the IC; and
  3. amendments to business registration details will result in the issuance of a new ERC replacing the 'business registration' section in the IC.


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