Vietnam: Setting Up And Operating In Vietnam

CHAPTER ONE - INVESTMENT REGIME

This chapter sets out the framework for foreign investment. This outline should be seen as simply a point of reference, as special projects will have special needs.

1.1. Enterprise Law ("EL") and Investment Law ("IL")

The EL creates a unified legal framework to conduct business. The EL provides various business structures from which both foreign and domestic investors can choose. Special forms of business structures that are available for foreign investors are discussed in Section 1.7 below. The EL also provides rather complete regulations on corporate governance. The EL is best understood as a broad law that covers all business structures, whether foreign-owned or domestically-owned.

The IL specifically addresses investment. It provides details on procedures to carry out investment activities, the rights and obligations of investors, assurances of the legitimate rights and interests of investors, investment incentives, state management of investment in Vietnam, and rules on offshore investment from Vietnam.

Except for establishment of a small or medium-sized creative start-up¹ enterprise or a creative start-up investment fund in accordance with the Law on Supporting Small and Medium-sized Enterprises, a foreign investor which invests in Vietnam by establishing a new legal entity first needs to apply for an investment registration certificate ("IRC") for its investment project. After the IRC is issued, the Investor will then apply for an enterprise registration certificate ("ERC") which allows it to establish the company. Licensing procedures are discussed in Section 1.6 below.

The EL and the IL have been supplemented. Some of the key regulations include:

• Decree No. 01/2021/ND-CP (January 4, 2021), providing detailed guidelines for enterprise registration ("Decree 01/2021/ND-CP");
• Decree No. 31/2021/ND-CP (March 26, 2021), detailing and guiding implementation of a number of articles of the Law on Investment ("Decree 31/2021/ND-CP");
• Decree No. 47/2021/ND-CP (April 1, 2021), detailing and guiding implementation of a number of articles of the EL ("Decree 47/2021/ND-CP")
• Circular No. 03/2021/TT-BKHDT (April 9, 2021), issuing standard forms necessary to comply with investment procedures and investment reports, outward investment activities and investment promotion activities ("Circular 03/2021/TT-BKHDT"); and
• Decision No. 29/2021/QD-TTg (October 6, 2021 on special investment incentives ("Decision 29/2021/QĐ-TTg").

Setting up and operating enterprises are subject to industry-specific legislation. Industry-specific legislation includes, for example:

• Law on Credit Institutions;
• Law on Petroleum;
• Law on Civil Aviation;
• Law on Publishing;
• Law on Press;
• Law on Education;
• Law on Securities;
• Law on Insurance Business;
• Law on Lawyers;
• Law on Notarization.

If there are any differences among the IL, the EL, and industry-specific legislation on procedures and conditions to establish an enterprise, its ownership structure, or its re-structuring or dissolution, then industry-specific legislation will prevail.

1.2. Vietnam's commitments to WTO and other regional FTAs

1.2.1. Vietnam's commitments to WTO

Vietnam became a member of WTO in January 2007. In anticipation of accession, the National Assembly ratified Vietnam's WTO commitments by Resolution No. 71/2006/QH11, on November 26, 2006 ("Resolution 71"). This Resolution provides that, where there are discrepancies between Vietnam's WTO commitments and Vietnamese law, the WTO commitments Vietnam made will prevail. In brief, The legal environment for conditional or restricted investment in services has changed since WTO accession. Some change has been positive, some negative. On the positive side, Vietnam allows foreign investment in industries which were previously restricted. Vietnam's WTO commitments dealing with "indirect investment" affirms that foreign investors may purchase shares of domestic enterprises. In addition, the application of WTO commitments creates a fairer investment environment.

1.2.2. Vietnam's commitments under other regional FTAs

The establishment of the ASEAN Economic Community ("AEC") in 2015 was a major milestone in the regional economic integration agenda offering opportunities in the form of a huge market to its members. One of the four AEC pillars is creation of a single market and production base through the free flow of goods, services, investment, skilled labor, and freer flow of capital. These objectives aim for a more liberalized market that provides greater opportunities to trade and do business within the region. It is intended to result in reduced trade costs and improved investment regimes to make ASEAN a more attractive investment destination for both international and domestic investors².

The CPTPP was signed in March 2028 by 11 member States. Vietnam ratified the CPTPP and it took effect on January 14, 2019. Under the CPTPP, Vietnam's commitments cover, among other things, various trading businesses, such as trade in goods, customs and trade facilitation, trade remedies, services, etc.

A notable commitment under the CPTPP is import duty reductions. All CPTPP members have committed to eliminate import duties for almost all tariff lines. The market access commitments are presented in detail for each tariff line in Members' Import Tariff Schedules. In general, most CPTPP members apply the same preferential import duties to other CPTPP partners.

In addition, the CPTPP provides specific commitments to the members in the areas of labor, services and investment sectors, environment, government procurement, intellectual property, investor-state dispute settlement, etc.

Vietnam and the European Union signed the EVFTA and the EVIPA in June 2019. Both the EVFTA and the EVIPA were ratified by the European Parliament in February, 2020 and approved by the Vietnamese National Assemply in June, 2020. EVFTA came into force on August 1, 2020. To take effect EVIPA still needs to be ratified by the Parliament of all 27 EU member States.

EVFTA is a new-generation FTA between Vietnam and the EU with 27 member States, and a wide range and high degree of commitments. Vietnam's commitments under EVFTA are generally similar to the level and the coverage of its commitments under CPTPP.

Section 1.13 contains a broader discussion of investment conditions, including those imposed as a result of Vietnam's accession to WTO, AEC, CPTPP and EVFTA.

1.3. Key administrative bodies

The Ministry of Planning and Investment ("MPI") is the central administrative body that oversees all investment activities, including foreign investment. The MPI is responsible for drafting legislation, developing policies, providing guidance and consultation, and coordinating with other authorities. In addition, the MPI will evaluate important investment projects selected by the Prime Minister ("PM"). The MPI is also the contact point for foreign invested enterprises ("FIEs")--that is, any investment entity with some foreign investment--in respect of problems or issues that arise. The MPI is headquartered in Hanoi and has representative offices in Ho Chi Minh City ("HCM City") and elsewhere throughout the country.

Provincial/city People's Committees directly administer their own foreign investment activities and issue (or authorize the Department of Planning and Investment ("DPI") to issue) IRCs for almost all types of foreign invested projects within their province/city. IRCs are discussed in more detail at Section 1.6.

If an FIE is located within an IZ, it is under the administration of the provincial IZ's Management Board or sometimes, a Management Board of that IZ. For example, the Vietnam Singapore Industrial Zone administers all FIEs located in that IZ. An FIE in an IZ operates subject to the IZ's rules on import/export, environment, labor, etc., in addition to the general rules of the Government and the MPI. The Provincial Management Board or a Management Board of an IZ is authorized to issue an IRC for a project located within its province or IZ.

Only provincial/city People's Committees and Management Boards of IZs have the authority to issue IRCs to foreign invested projects. Even so, some conditional projects and some large-size or important projects need approval in principle by the PM or the National Assembly. Projects that need the PM's approval or the National Assembly's approval are listed in Appendix 4 of this Chapter.

The DPI, which administers investment activities for the provincial/city People's Committees, oversees the licensing process. The DPI issues ERCs for almost all types of foreign invested companies.

Other, more specialized ministries are also involved in foreign investment. The DPI often consults line ministries prior to making its recommendation to the People's Committee for issuance of the IC. For example, for high-tech projects, the Ministry of Science and Technology ("MOST") plays an administrative role in developing the industry's specific policies for foreign investment and in overseeing the application of foreign investment regulations to be sure they are in harmony with the industry's own rules.

1.4. Foreign investment guarantees and investment preferences

In enacting the IL, the Government has committed to creating a safe and friendly environment for foreign investment. The Government expressly states that it provides equal treatment before the law to all investors, including domestic investors and foreign investors. However, the law itself makes distinctions. The Government guarantees that it will neither expropriate nor nationalize investment capital, real property, nor assets of investors, inclusive of foreign investors.

In addition, in the event that law or policy subsequently promulgated provides greater benefits and incentives than those previously given to investors, such larger benefits and incentives will automatically apply retroactively to those investors. On the other hand, if the law or policy subsequently promulgated provides lower benefits and incentives than those previously given to investors, those investors will continue to be entitled to the investment incentives in accordance with the previous regulations except for cases in which change in the law is for the reasons of national defense and security, social order and safety, social morals, the health of the community, or environmental protection. If changes adversely affect existing investors, the Government commits to adopt offsetting, particular measures, such as deducting actual losses and damages suffered by the investor from taxable income, changing the operational objectives of the investment project, and supporting the investor to remedy loss and damage. This undertaking appeared also in the prior law, and there is a record of Government adherence to this undertaking.

Business entities are offered certain incentives to invest in Vietnam, mostly in the form of tax exemptions or reductions. These incentives, along with rules on the operation of business activities, are presented in the appendix that appears at the end of this Chapter. Compared to the former law, incentives are more limited, reflecting a more selective investment environment.

Depending on the sector, an investor is entitled to investment preferences and special investment preferences (collectively "Investment Preferences"). Investment Preferences are available to both domestic and foreign investors. They are based on various factors, but the project location and the business sector are the two major considerations.

1.4.1. Preferences based on locations

Tax and other Investment Preferences are granted to investors in geographical locations in which investment is encouraged. These include geographical locations with socio-economic difficulties, geographical locations with special socio-economic difficulties, economic zones, export processing zones, and hi-tech parks.

The list of geographical areas in which investment is encouraged is provided in Government Decree 31/2021/ND-CP.

1.4.2. Preferences based on sectors

Sectors in which investors are entitled to Investment Incentives (both tax and non-tax) generally include but are not limited to:

1. High-tech activities, industrial products that support high-tech, and research and development activities, production of products formed from scientific and technological results according to the provisions of law on science and technology;
2. Manufacture of new materials, new energy, clean energy, or renewable energy; production of products with an added value of 30% or more and energy-saving products;
3. Manufacture of electronics, prioritized mechanical products, agricultural machinery, automobiles, automobile parts; and shipbuilding;
4. Manufacture of products on the List of prioritized industry products;
5. Manufacture of products of information technology, software, and digital content products;
6. Breeding, growing and processing agricultural, forestry, and aquaculture products; forestation and protection of forests; salt production; fishing and fishing logistics, creation of plant and animal varieties, and production of products of biological technology;
7. Collection, processing, reprocessing or reuse of refuse;
8. Investment in development and operation, and management of infrastructure facilities, and development of public transportation in urban areas;
9. Pre-school education, general education, vocational education, university education;
10. Medical consultation and treatment; manufacture of medicines, raw materials for production of medicines, preservation of medicines, and scientific research scientific research on preparation technology and biotechnology for production of new drugs; manufacture of medical equipment;
11. Investment in facilities for training and competition of sports for disabled people or for professional sportsmen; and protection and promotion of the value of cultural heritage;
12. Investment in centers for geriatrics, psychiatry or treatment of patients exposed to Agent Orange, and centers for care of the old, disabled, orphans, or street children without support;
13. People's credit funds, and micro-financial institutions; and
14. Manufacture of products, provisions of services that create or join value chains or industry link clusters.

Appendix 2 to this Chapter lists criteria necessary to qualify for different corporate income tax ("CIT") rates for businesses established after January 1, 2021.

In addition to the corporate income tax preferences stated in Appendix 2, Decision 29/2021/QD – TTg offers many special investment incentives for investment projects specified in Clause 2, Article 20 of the IL³. For example, the preferential tax rate of 9 percent for a period of 30 years or the preferential tax rate of 7 percent for a period of 33 years applies to income of economic organizations with investment projects (listed in clause 2, Article 20 of the IL) and sastifying certain criteria stated in Decision 29/2021/TTg.

Non-tax Investment Preferences include exemption from or reduction of land use tax, land use levy, land rent or water surface rent in accordance with the land law and the law on taxation.

Appendix 3 to this Chapter lists the sectors in which investors are entitled to Investment Preferences (both tax and non-tax). The list was issued in conjunction with Decree 31/2021/ND-CP.

1.5. Government's special policies for high-tech industries

Vietnam especially encourages foreign investment in high-tech projects. The MOST identifies the kinds of projects that are considered to be high-tech projects.

As they are especially encouraged by the Government, high-tech projects enjoy the best preferential treatment and incentives. For example, the tax rate is the lowest, the tax exemption period is the longest, etc. While we discuss taxes at Chapter Two in more detail, briefly, the corporate income tax rate for a high-tech project can be as low as 10% or 15%, depending on the specific nature and the location of the project. Interestingly, for a high-tech project in software development, individuals who are involved in software development will benefit from preferential personal income tax rates. Furthermore, a company with a project to do research, to develop technology, or to train professionals in science and technology can be exempt from the payment of land rental for a certain period of time.

The Law on High-Tech, effective on July 1, 2009, provides only general policies on high-tech investment. A legal framework for high-tech investment must continue to develop to address certain gaps, including a mechanism to apply for high-tech status outside a high-tech park.

1.6. Licensing procedures

Generally speaking, foreign investors are able to choose from the same forms of business structures available to Vietnamese investors. The main difference is that when a foreign investor invests in Vietnam, it must register the investment project and apply for an IRC for its investment project first. After the IRC is issued, the foreign investor will continue applying for and obtain an ERC to establish the new company.

There are lists of investment projects that require in-principle approval from the National Assembly, the Prime Minister, or the provincial People's Committee ("In-principle Approved Investment Lists") before the IRC can be issued. In-principle Approved Investment Lists are provided for in Appendix 4 to this Chapter.

Different projects are licensed by different licensing authorities, depending mainly on the project's location.⁴

An IRC is project-specific in another sense. While there are standard documents to be submitted, additional documentation, such as an Environmental Impact Assessment Report ("EIAR"), land documents, and permits are required for certain projects.

An IRC is compulsory for:

1. an investment project of foreign investors irrespective of the percentage of foreign investment;
2. an investment project of a company in which foreign investors directly hold more than 50% of its charter capital;
3. an investment project of a company in which more than 50% of its charter capital is held by a company/companies specified in point (ii) above (second level of foreign ownership) ; and
4. an investment project of a company in which more than 50% of its charter capital is held by a foreign investor(s) and a company/companies specified in point (ii) above.

While an ERC contains only particulars of business registration, an IRC contains particulars of a specific investment project. An FIE may carry out more than one investment project.

The statutory time limit for a licensing authority to consider and issue an IRC is 15 days if the investment project is not subject to the In-principle Approved Investment List, and 5 working days after the in-principle approval is issued and the approval of selection of investor is obtained if the investment project is subject to the In-principle Approved Investment List. The statutory time limit for the authorities to issue the in-principle approval varies depending on whether the investment project needs to be approved by the National Assembly, the Prime Minister, or the provincial People's Committee. Specifically, the statutory time limit for the provincial People's Committee to consider and issue the in-principle approval is 35 days from the date on which a sufficient application dossier is received; however, there is no specific time limit for the National Assembly or the Prime Minister to issue an in-principle approval.

Although statutory time limits are sometimes observed, they are unfortunately often exceeded.

The actual time will probably vary for each company, depending on the extent of special conditions requested by or being offered to the company. The justification for special treatment should be carefully documented ahead of time, and informal discussions with the licensing authority beforehand are important. This will help make the application process proceed more smoothly.

An IRC will specify the privileges to which a "preferential" or "especially preferential" project is entitled in respect of tax holidays, etc.

It is important to know, in advance, what are the essential approvals and licenses required for a project. An IRC is the first step. Other approvals may be required. For example, the construction of a factory requires approvals by certain authorities, such as the land administration body and construction department in that locale.

Appendix 6 of this Chapter provides a chart that describes procedures to start an investment project depending on the type of the project under the IL.

1.7. Forms of investment

As mentioned above, foreign and domestic investors have virtually the same choice of direct investment vehicles. However, some industries place restrictions on the vehicles foreign investors can adopt.

Generally speaking, domestic and foreign investors can choose the following forms of investment:

1. a business entity in which foreign investors own 100% of the capital;
2. a joint venture company between domestic and foreign investors;
3. investment under a business cooperation contract ("BCC");
4. reinvestment in an existing enterprise;
5. purchase of shares or contribution of capital and participation in the management of an enterprise;
6. investment in the merger or acquisition of an enterprise;
7. other forms of investment.

This section further explains these forms of investment.

1. The first two forms will result in the establishment of a business entity. Both domestic and foreign investors may choose from the following types of enterprise structures:
   
   1. One-member limited liability company ("LLC") for a single investor. An individual domestic investor may establish a private enterprise but an individual foreign investor may not.
   2. Two-to-fifty member LLC.
   3. Joint stock company ("JSC") for a minimum of three shareholders.
   4. Partnership is a business structure available to foreign investors. However, as the liability of a partnership is not limited to the capital contributed by its general partners, but extends to their other assets, it is rarely used.
   Appendix 1 to this Chapter compares these structures.
2. Investment through contracts:
   
   1. Investors may enter into BCCs to cooperate in production with agreed profit-sharing, production-sharing, and other forms of business cooperation.
   2. Investors may implement an investment project under the public-private partnership scheme ("PPP"). PPP can be used to implement investment projects in the following areas: (i) transportation; (ii) power grids and power plants, except for hydroelectric plants and other cases of state monopoly under the provisions of the Electricity Law; (iii) irrigation, provision of clean water, drainage and wastewater treatment and waste treatment; (iv) medical and education; and (v) information technology infrastructure. In principle, investors will be responsible to fund and to carry out PPP projects. State capital can be used in PPP projects only for the following purposes: (i) supporting the construction of infrastructure works and systems; (ii) making payments to PPP project enterprises providing public products and services; (iii) paying compensation, site clearance, support and resettlement expenses; supporting the construction of temporary structures; (iv) payment of revenue reduction; (v) payment of expenses of competent agencies, contracting agencies, PPP project preparation units, and bid solicitors for performing activities under their tasks to implement PPP project in accordance with the Law on Public-Private Partnership; and (vi) payment of expenses of the PPP project appraisal council, the unit assigned to appraise the PPP project. The proportion of state capital contributing to a PPP project as prescribed at points (i) and (ii) above must not exceed 50% of the total investment of the project. Investors may sign PPP contracts such as BOT (Build-Operate-Transfer), BTO (Buiild-Transfer-Operate), BOO (Build-Own-Operate), O&M (Operate-Manage), BTL(Build-Transfer-Lease) and BLT(Build-Lease-Transfer) contracts with State agencies to execute a PPP project.
3. Investors may also choose to further invest in business development in the following ways:
   
   1. Expand the scale, capacity, or capability of an existing investment;
   2. Update technologies, raise product quality, reduce environmental pollution.
4. Investors may invest in Vietnam by contributing capital to or purchasing shares from other existing business entities. The ratio of capital contributed or of shares purchased by foreign investors in some fields and industries is subject to industry-specific legislation and regulations.
5. In addition, investors have the right to merge or to acquire existing companies and branches. The merger and acquisition of companies and branches is subject to the EL, the Competition Law, and other laws. Each case may have its own set of conditions.

1.8. Business lines and investment objectives

An enterprise may have a single or multiple business lines and investment objectives, subject to conditions regarding investment sectors.

Investment objectives or activities must be implemented within the time schedule registered in the IRC. Article 48.2 of the IL entitles the licensing authority to terminate a project in specific cases.

In the case of a project with multiple objectives, the IRC sets out different investment preferential tax treatment for different groups of activities. For ease of tax registration, an enterprise needs to account separately for investment activities taxed at different preferential rates.

1.9. The legal representative of an enterprise and the corporate seal

Every legal entity must have at least one legal representative. The EL does not limit the number of legal representatives that a legal entity can have. Generally, a legal representative has the right, on behalf of the entity, to enter into and perform all civil transactions that bind the entity. The company's charter must specify the number, managerial positions, and rights and obligations of the company's legal representative(s). The company must ensure that there is always at least one legal representative residing in Vietnam. If the company has only one legal representative residing in Vietnam and if s/he is absent from Vietnam, s/he must authorize in writing another person to exercise the rights and perform the obligations of the legal representative. In such case, the legal representative remains responsible for the performance of the authorized rights and obligations by the person authorized.

A partnership does not have a single legal representative, as any general partner can represent the firm.

A company may have one corporate seal and may make duplicates of its seal. The EL allows the company to decide on the form, quantity of the duplications, contents, custody and the management of its seal.

1.10. Corporate governance

An enterprise's internal rules are set forth in its charter (which is similar to a company's bylaws or articles of association). The charter must set out certain guidelines on the management and organization of the company, as stipulated in the EL.

The EL introduces basic rules on corporate governance. In general, such rules follow international norms.

Appendix 1 to this Chapter compares, among other things, rules on corporate governance of different types of companies.

1.11. Term of enterprise and dissolution

The term of an enterprise can be indefinite, unless its charter provides otherwise. However, the term of an invested project may not exceed 50 years. Investment projects in economic zones, in locations with socio-economic difficulties or extreme socio-economic difficulties or investment projects with large investment capital but slow return of capital may be granted a term of up to 70 years. Upon expiration of the term of an investment project, foreign investors can continue to use their enterprise to carry out other new projects, or they may renew the existing one as long as the total duration of a project including extension must not exceed the maximum duration mentioned above.

The term of a project located in an IZ is limited by the duration of the IZ's own IC. The term of a project located in an IZ commences from the date the project's IC is issued and if its term is longer than the term of the IZ, then its term will end on the date the IC of the IZ expires. If the IZ's IC is extended, enterprises in the IZ may apply to extend their own project terms to coincide with the expiration date of the extended IC.

An enterprise is dissolved in the following circumstances:

1. The operating duration expires if a fixed duration is stated in the enterprise's charter, and there is no decision to renew;
2. The owners of the enterprise decide to dissolve it;
3. An enterprise lacks the minimum number of members required by law (ie, two members in a two-to-fifty-member LLC or three shareholders for a JSC) for six consecutive months;
4. The ERC is withdrawn.

An enterprise may be legally dissolved only after it settles its debts and liabilities. If an enterprise is unable to pay its debts when due, it may become subject to bankruptcy procedures.

1.12. Enterprise capital

There are several concepts of capital under the EL and IL:

1. Legal capital: The minimum capital that is required by law to form an enterprise. A legal capital requirement exists only for a few specific business lines only (eg, insurance, banking).
2. Invested capital: An amount of money and other assets needed to carry out the investment project, including charter capital.
3. Charter capital: An amount of capital that members or shareholders contribute or commit to contribute within a certain period as stated in the charter.
4. Capital contribution: The portion of a company's charter capital that an owner actually contributes.

Enterprises in the businesses listed in Appendix 5 to this Chapter have a minimum legal capital requirement, which simply means a minimum amount of charter capital must be contributed in order for the IRC or the ERC to be issued.

An LLC must register its proposed schedule for contribution of capital. The timeline for contribution cannot be longer than 90 days counting from the date on which the ERC is issued. The investors are obligated to follow the registered schedule. The charter capital of a JSC on the date on which the business is registered (the date the ERC is issued) is the total par value of shares for which founding and other shareholders have subscribed, as stated in the company charter; such number of subscribed shares must be paid in full within 90 days from the date the ERC is issued. Founding shareholders must together subscribe and pay in full at least 20% of the enterprise's ordinary shares which are offered for sale within the 90 day period stated above. This is a significant obligation and some strategies have developed to meet this obligation.

Charter capital is the real equity. Invested capital may include, in addition to charter capital, non-equity capital such as loans and accumulated, after-tax profits.

Although it is permissible to reduce charter capital, increasing the charter capital is easier than reducing it.

1.13. Conditional investments

1.13.1. Conditional business lines

Under the IL, a foreign invested project which proposes to operate in sectors or locations which may be adverse to national defense, national security, cultural and historical heritage, traditional customs and morality, or the ecological environment may not be licensed.

There are other sectors in which participation, although not prohibited, is "conditional". The IL provides a detailed list of conditional business lines which apply to both foreign and domestic investment. The conditional investment sectors are listed in Appendix 4 to the IL. The list consists of 227 business lines. The detailed conditions to engage in such business lines listed in Appendix 4 to the IL are provided for in industry-specific legislation, decrees of the Government, and international treaties to which Vietnam is a party. The conditions that apply in most conditional business lines are in the nature of business requirements that an enterprise must meet after incorporation, rather than as conditions to receive a license. However, in the case of a foreign investor that applies for an IRC for a new project, the law requires that all of the business conditions must be satisfied before the IRC will be issued.

Typical investment conditions include:

1. Conditions regarding minimum capital: There is no general minimum legal capital requirement, calculated as a percentage of total invested capital. A minimum amount of charter capital to establish an enterprise is currently required in only a few sectors, such as commercial banking, financial services, finance leasing, securities and securities services. In some sectors, like banking, the foreign investor itself must have a certain minimum capital. The list of sectors that require minimum capital is attached as Appendix 5 to this Chapter. Even in cases in which there is no minimum capital requirement, the DPI would comment if it thought the charter capital was significantly less than the proposed or an appropriate investment capital for the project.
2. Conditions regarding experience/licensing of investors: Some sectors, such as education, tourism, commercial advertisement, or most telecommunications services, require the Vietnamese partner to be specifically qualified and licensed. A few sectors, such as insurance, banking, land securities services, generally require the foreign investor to be similarly experienced.
3. Conditions regarding sub-licenses, such as trading in medicine or in some types of tourism services, or ongoing satisfaction of specific business conditions, such as hygienic requirements for restaurant services. Investors must observe industry-specific legislation to obtain a sub-license or to fulfill conditions.

In addition to the above investment conditions, foreign investors are subject to additional conditions on market access which are discussed below.

1.13.2. Conditions on market access applicable to foreign investors

Market access conditions refer to the industries and sectors which are subject to limitation on access to the local market. Appendix 1 to Decree 31/ 2021/ND-CP provides two lists: one is the list of industries and sectors in which foreign investors are not yet permitted to invest, in, and the other is the list of industries and sectors in which market access is conditional to foreign investors. For other industries and sectors which are not listed on the foregoing lists, foreign investors are treated as local investors in terms of market access.

Market access conditions apply to the following investors:

1. Foreign individuals or organizations established in accordance with foreign laws investing in Vietnam ("Foreign Investors");
2. An enterprise which has been incorporated in Vietnam and which falls into one of the following cases when it invests in another enterprise or acquires shares issued by other enterprises or enters into a BCC with other parties:
   
   1. more than 50% of its charter capital is held by Foreign Investor(s), or a majority of partners are foreign individuals (if the enterprise or is a partnership);
   2. more than 50% of its charter capital is held by an enterprise(s) prescribed in paragraph (i) above; or
   3. more than 50% of its charter capital is held by foreign investors and enterprises prescribed in paragraph (ii) above.

In other words, under the IL, the "third-generation" subsidiary of a Foreign Investor incorporated in Vietnam is considered a local investor and is not subject to market access comditions applicable to Foreign Investors.

Market access conditions applicable to Foreign Investors include conditions on the following: (i) maximum ratio of foreign ownership; (ii) form of investment; (iii) scope of investment activities; (iv) capacity of investors; partners participating in investment activities; and (v) other conditions as stipulated in other laws/decrees/international treaties.

Market access conditions are determined based on the following principles:

1. The market access conditions must accord with Vietnam's commitments under WTO and other regional FTAs. This limitation varies from industry to industry. Most limitations on maximum foreign ownership and forms of investment, when they occur, are phased out after a few years. For example: for distribution services, the WTO limitation permitted foreign ownership of less than 100%, until the limitation was phased out completely on January 1, 2009; the limitation of 49% for foreign investment in securities services was lifted in 2012; the limitation for warehouse services and freight transport agency services was 51% until it was lifted in 2014; the limitation for maintenance and repair services of household equipment was raised from 40% to 51% in 2010, and was phased out completely in 2012; and limitation on the ownership of restaurants was phased out in 2015;
2. For industries or sectors that are not covered by any specific international commitments, the limitation on market access in some particular areas is subject to industry-specific legislation, such as the Law on Credit Institutions, Law on Civil Aviation, Law on Education, Law on Securities, Law on Insurance Business, Law on Petroleum, etc., if these laws specify limitations. In many cases, these laws generally refer to Vietnam's international undertakings.
3. Foreign Investors that are subject to the application of different international treaties on investment with different market access conditions may choose to apply market access conditions under one of the treaties.
4. Public companies that operate in industries or sectors which are subject to market access conditions applicable to foreign investors, but where there are no specific limitations on the level of foreign ownership, have a maximum foreign ownership rate of 50% of the charter capital. For public companies operating in industries or sectors that are not subject to market access conditions, there is no limitation on foreign owership. In case the public company wants to lower the maximum foreign ownership ratio (lower than the ratio provided for in one of Vietnam's international treaties, or as stipulated by industry-specific legislation or otherwise, such specific maximum foreign ownership ratio must be approved by the company's SGM and stipulated in the charter of the company.
5. In case the target enterprise has many lines of business and the international treaty on investment contains different provisions on the percentage of foreign ownership, a Foreign Investor's ownership ratio in such enterprise must not exceed the restriction on foreign ownership ratio for the industry or sector with the lowest foreign ownership rate.
6. In the case of an enterprise which is equitized or converted from a State-owned enterprise ("SOE"), the limitation on foreign ownership is determined based on the forgoing principles unless legislation on the equitization or conversion of SOEs otherwise provides (usually up to 49%).

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Footnotes

1. Under the EL, a creative start-up project is defined as an investment project that implements ideas on the basis of exploiting intellectual property, technologies and new business models and the project can grow quickly.

2. A Blueprint for Growth: ASEAN Economic Community 2015: Progress and Key Achievements, p.5. Available on http://www.asean.org/storage/images/2015/November/aec-page/AEC-2015-Progress-and-Key-Achievements.pdf.

3. Pursuant to Clause 2, Article 20 of the IL, following projects are qualified for special investment incentives:

4. Despite different opinions among licensing authorities, Vietnam places no geographical limit on the operation of a properly licensed enterprise.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.