Corporate forms for foreign investments in Vietnam

Currently, foreign investors can engage in investment activities in Vietnamese enterprises through the following methods:

1. Establishing economic organizations ;
2. Purchasing shares, contributing capital, or acquiring equity interests;
3. Investing through Business Cooperation Contracts (BCC)
4. Implementing investment projects;
5. Investing under Public-Private Partnership (PPP) arrangements.

Among these options, the method of “purchasing shares, contributing capital, or acquiring equity interests” is the most preferred  by foreign investors when conducting business activities in Vietnam.

For each method of investment, Vietnamese law prescribes specific regulations concerning the ownership ratio of foreign investors in Vietnamese enterprises. Consequently, understanding the legal avenues through which foreign investors can participate in Vietnam’s market is of critical importance.

1. Establishing economic organizations

Pursuant to Points b and c, Clause 1, Article 22 of the Law on Investment 2020, the following provisions apply:

“Article 22. Investment in establishment of a business organization

1. Every investor shall establish a business organization in accordance with the following regulations:

…..
b) A foreign investor that establishes a business organization shall satisfy market access conditions applied to foreign investors specified in Article 9 of this Law;

c) Before establishing a business organization, the foreign investor must have an investment project and follow the procedures for issuance or adjustment of an investment registration certificate, except for establishment of a small and medium-sized start-up enterprise and a startup investment fund in accordance with regulations of the Law on Small and Medium-sized Enterprises.”

Accordingly, foreign investors establishing an economic organization must meet the following conditions:

(i) Foreign investors are generally granted market access under conditions similar to those applicable to domestic investors, except in cases specified under Clause 2, Article 9 of the Law on Investment 2020.

Based on laws, resolutions of the National Assembly, ordinances, resolutions of the Standing Committee of the National Assembly, decrees of the Government, and international treaties to which the Socialist Republic of Vietnam is a member, the Government publishes a List of Restricted Market Access Sectors for Foreign Investors, which includes:

• Business sectors where market access is prohibited, as stipulated under Decree No. 31/2021/ND-CP;
• Business sectors with conditional market access, as specified under Decree No. 31/2021/ND-CP.

For sectors included in the Restricted Market Access List, foreign investors must adhere to specific conditions, which may include:

• The percentage of charter capital ownership allowed for foreign investors in economic organizations;
• Permissible forms of investment;
• Scope of investment activities;
• Competency requirements for the investor and any partners involved in the investment activities;
• Other conditions as stipulated in applicable laws, resolutions of the National Assembly, ordinances, resolutions of the Standing Committee of the National Assembly, decrees of the Government, and international treaties to which Vietnam is a signatory.

(ii) Prior to establishing an economic organization, foreign investors are required to have an investment project and complete the procedures for obtaining or amending an Investment Registration Certificate, unless the establishment falls under the exceptions provided by law, such as the establishment of small and medium-sized enterprises (SMEs) engaged in innovative startups or startup investment funds under the legal provisions for supporting SMEs.

Moreover, the investment activities of economic organizations with foreign capital must satisfy additional conditions, such as:

“Article 23. Conduct of investment activities by foreign-invested business organizations

1. When establishing a new business organization, making investment by contributing capital, purchasing shares or stakes of a business organization, or making investment under a BCC contract, a business organization must satisfy the same conditions and follow the same investment procedures as foreign investors if:

a) Over 50% of its charter capital is held by a foreign investor(s) or, in case of a partnership, the majority of its general partners are foreigners;

b) Over 50% of its charter capital is held by a business organization(s) mentioned in Point a of this Clause;

c) Over 50% of its charter capital is held by a foreign investor(s) and a business organization(s) mentioned in Point a of this Clause.”

2/ Purchasing shares, contributing capital, or acquiring equity interests

Under Article 24 of the Law on Investment 2020, foreign investors are permitted to contribute capital, purchase shares, or acquire equity stakes in economic organizations in Vietnam. However, such activities are subject to specific conditions and regulatory requirements as outlined below:

• Satisfy market access conditions applied to foreign investors as prescribed in Article 9 of Law on Investment 2020;
• Ensure national defense and security in accordance with Law on Investment 2020;
• Comply with regulations of the law on land and conditions for receipt of land use rights and conditions for use of land on islands or border or coastal communes.

To invest in Vietnam through capital contribution, share purchase, or equity acquisition, foreign investors must meet the following conditions:

• Foreign investors are generally subject to the same market access conditions as domestic investors, except in cases specified in Clause 2, Article 9 of the Law on Investment 2020.
• Based on laws, resolutions of the National Assembly, ordinances, resolutions of the Standing Committee of the National Assembly, decrees of the Government, and international treaties to which the Socialist Republic of Vietnam is a member, the Government publishes a List of Restricted Market Access Sectors for Foreign Investors, which includes:
  • Business sectors where market access is prohibited, as stipulated under Decree No. 31/2021/ND-CP;
  • Business sectors with conditional market access, as specified under Decree No. 31/2021/ND-CP.
• For sectors included in the Restricted Market Access List, foreign investors must adhere to specific conditions, which may include:
  • The percentage of charter capital ownership allowed for foreign investors in economic organizations;
  • Permissible forms of investment;
  • Scope of investment activities;
  • Competency requirements for the investor and any partners involved in the investment activities;
  • Other conditions as stipulated in applicable laws, resolutions of the National Assembly, ordinances, resolutions of the Standing Committee of the National Assembly, decrees of the Government, and international treaties to which Vietnam is a signatory.
• Ensuring compliance with national defense and security requirements as stipulated in the Law on Investment 2020
• Ensuring adherence to land law provisions regarding conditions for acquiring land use rights, particularly in islands, border communes, wards, and towns, as well as coastal communes, wards, and towns.

3/ Investment Through Business Cooperation Contracts (BCCs)

Under the provisions of Article 27 of the Law on Investment 2020, foreign investors may engage in investment activities in Vietnam through Business Cooperation Contracts (BCCs). In detail:

• Business Cooperation Contracts (BCCs) entered into between domestic investors shall be governed by the provisions of civil law.
• BCCs signed between domestic investors and foreign investors, or exclusively among foreign investors, are subject to the procedures for obtaining an Investment Registration Certificate (IRC) as prescribed in Article 38 of the Law on Investment 2020.
• Parties to a BCC are required to establish a coordination committee to oversee the implementation of the contract. The functions, duties, and authority of the coordination committee shall be determined by mutual agreement among the contracting parties.

4/ Implementing investment projects

Pursuant to Clause 4, Article 3 of the Law on Investment 2020, an “investment project” is defined as a collection of proposals for the expenditure of mid-term or long-term capital to carry out investment activities within a particular administrative division over a specified period of time. Based on this definition, several common types of investment projects in Vietnam include:

• New Investment Projects
• Expansion Investment Projects
• Startup Innovation Investment Projects

In accordance with Sections 2 and 3, Chapter IV of the Law on Investment 2020, the process by which foreign investors are permitted to implement an investment project in Vietnam involves the following fundamental steps:

(i) Selection of the Investor for Project Implementation: The investor is selected through procedures stipulated by law, ensuring compliance with investment regulations and alignment with the objectives of the proposed project.

(ii) Submission of Application and Appraisal of Investment Policy Approval Proposal: The investor must submit a comprehensive application dossier for appraisal. This includes an evaluation of the project’s objectives, location, capital requirements, environmental impact, and alignment with socio-economic development plans.

(iii) Issuance of the Investment Registration Certificate (IRC): Upon approval of the investment project, the relevant authority issues the Investment Registration Certificate (IRC) to the foreign investor, granting the legal basis for project implementation.

(iv) Implementation of the Investment Project: Once the IRC is obtained, the investor can proceed with the deployment of the project in accordance with the approved objectives and timelines, while ensuring compliance with Vietnamese laws and regulations.

5/ Investing under Public-Private Partnership (PPP) arrangements

In addition to BCC, starting from 1 January 2021, the Law on Investment 2020 stipulated Public-Private Partnership (PPP) model has come into effect, introducing new provisions regarding investment through PPP project contracts. Accordingly, foreign investors may choose to invest, sign, and implement various types of PPP project contracts, such as:

• Build – Operate – Transfer contracts (BOT): Contract under which a PPP project investor or enterprise is assigned the right to build and operate infrastructure works and systems within a predetermined term; upon expiry of such term, the PPP project investor or enterprise transfers these works or systems to the State;
• Build – Transfer – Operate contracts (BTO): Contract under which a PPP project investor or enterprise is assigned the right to build infrastructure works and systems; after the construction is complete, the PPP project investor or enterprise transfers these works or systems to the State, and is accorded the right to operate these works or systems within a specified period of time;
• Build – Own – Operate contract (BOO): Contract under which a PPP project investor or enterprise is assigned the right to build, own and operate infrastructure works and systems within a predetermined term; upon expiry of such term, the PPP project investor or enterprise terminates the contract;
• Operate – Manage contract (O&M): Contract under which a PPP project investor or enterprise is assigned the right to operate and manage part or the whole of existing infrastructure works and systems within a predetermined term; upon expiry of such term, the PPP project investor or enterprise terminates the contract.
• Build – Transfer – Lease contract (BTL): Contract under which a PPP project investor or enterprise is assigned the right to build infrastructure works or systems, and transfer them after completion; is accorded the right to supply public products and services on the basis of operating and exploiting these works or systems within a predetermined term; the transferee signs a service lease and pays the PPP project investor or enterprise;
• Build – Lease – Transfer contract (BLT): Contract under which a PPP project investor or enterprise is assigned the right to build infrastructure works or systems, and supply public products and services on the basis of operating and exploiting these works or systems within a specified period of time; the transferee-to-be signs a service lease and pays the PPP project investor or enterprise; upon expiry of such term, the PPP project investor or enterprise transfers these works or systems to the State.
• Mixed contract: Contract which is the result of combination of mentioned contracts above.

In addition to the five common methods of foreign investment mentioned above, Vietnamese law also allows foreign investors to choose other investment forms, such as engaging in mergers and acquisitions (M&A) or making investments through franchising.

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