Investment is one of the indispensable business activities in the context of globalisation. In recent years, the attraction of foreign direct investment (FDI) has increased sharply, leading to the need to learn about feasible forms of investment in Vietnam. The Law on Investment 2020 has regulations on the main forms of investment, but in practice, the current forms of investment in Vietnam are being approached in diverse way which easily causes confusion for investors who are not familiar with the Vietnamese market. Through this article, Phuoc & Partners will list and analyse 10 popular forms of investment in Vietnam and the issues investors need to pay attention to when preparing to invest in Vietnam.
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Establishment of economic organisations
Establishment of economic organisations is a form of business investment, whereby investors invest capital to carry out business activities through the establishment of economic organisations. According to Article 3.21 of the Law on Investment 2020, economic organisations are organisations which are duly established and operating under the law of Vietnam, including enterprises (such as sole proprietorship, partnerships, limited liability companies, joint stock companies), cooperatives, cooperative unions and other organisations conducting business investment activities.
According to Article 22.1.b of the Law on Investment 2020, foreign investors establishing economic organisations must satisfy market access conditions for foreign investors specified in the List of industries and business lines restricted from market access for foreign investors which is announced by the Government. The list includes conditions on (i) the ratio of charter capital ownership; form of investment; (ii) scope of investment activities; (iii) capacity of investors or investment partners and other conditions as prescribed by law.
For the projects of establishing economic organisations in Vietnam of foreign investors, investors must carry out procedures for issuance of the Investment Registration Certificate, then the enterprise registration procedure in accordance with the Law on Enterprise, except for the case of establishing small and medium-sized enterprises, innovative start-up enterprises or innovative start-up investment funds, which are not required to be implemented investment registration procedures.
Unlike establishment of economic organisations, investment in the form of share purchase, capital contribution takes place when an economic organisation has been established or is in the process of operation and investors buy shares or contributed capital portion from existing members or shareholders. Foreign investors who purchase shares or contributed capital portion in the economic organisations must meet the conditions as stipulated in Article 24.2 of the Law on Investment 2020.
According to Article 25.2 of the Law on Investment 2020, investors are allowed to buy shares or contributed capital portion under the following forms: (i) Buying shares of a joint-stock company from the company or shareholder; (ii) Buying the contributed capital portion from member(s) of the limited liability company to become a member of the limited liability company; (iii) Buying contributed capital portion from capital contributors in the partnership to become capital contributing members of the partnership; and (iv) Buying contributed capital portion from members of economic organisations other than those mentioned above.
Investors who purchase shares or contributed capital portion in economic organisations must carry out procedures for changing members or notifying changes of foreign shareholders contributing capital in accordance with the provisions of law corresponding to each type of economic organisation. In some cases specified in Article 26.2 of the Law on Investment 2020, foreign investors must carry out procedures for registration of share purchase or purchase of contributed capital portion of economic organisations before carrying out procedures for changing members or notifying changes of foreign shareholders contributing capital.
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Investing through the Vietnamese stock market
According to the provisions of Article 51 of the Law on Securities 2019 and Article 138 of Decree 155/2020/ND-CP, foreign investors may invest directly or indirectly in the Vietnamese stock market through the investment fund trusteeship.
However, foreign investors are subject to limitation of the ownership ratio with respect to some restricted market access business lines. However, this limitation only applies to a small number of business lines. In general, foreign investors may view the stock market as an effective channel to acquire public or listed joint stock companies on the Vietnamese stock market.
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Capital contribution
Capital contribution is understood as the investor contributes its own assets into an economic organisation to become a joint owner and to participate in business activities of the organisation. Foreign investors demanding to invest by contributing capital to economic organisations in Vietnam must satisfy the conditions in Article 24.2 of the Law on Investment 2020, similar to investors buying shares or contributed capital portion.
According to Article 25.1 of the Law on Investment 2020, investors are allowed to contribute capital to economic organisations under the following forms: (i) purchase of initially issued shares or additional issued shares of joint-stock companies; (ii) capital contribution to limited liability companies or partnerships; and (iii) capital contribution to an economic organisation other than the above.
Types of assets which investors can contribute capital to limited liability companies, partnerships and other economic organisations are Vietnam Dong, freely convertible foreign currency, gold, land use rights, intellectual property rights, technology, technical know-how and other assets that can be valued in Vietnam Dong according to Article 34 of the Law on Enterprise 2020.
Procedures for investment in capital contribution shall be similar to those for investment in purchase of shares or contributed capital portion as mentioned in Section 2 above.
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Implementation of investment projects
An investment project as prescribed in the Law on Investment 2020 is understood as a set of proposals for medium-term or long-term capital expenditure to conduct business investment activities in a specific area, within a specified period of time.
The process of implementing an investment project goes through a number of notable procedures, including: procedures for selecting investors to implement investment projects through auction of land use rights, bidding or approval of the investor; procedures for approval of investment policies by corresponding competent state agencies for investment projects with large-scale or in key industries or having significant socio-economic impacts which are required the control of state agencies; procedures for issuance of investment registration certificates and deposit procedures to ensure the implementation of investment projects.
The operation term of investment projects in economic zones must not exceed 70 years, and the investment projects outside economic zones must not exceed 50 years, except for some projects implemented in difficult socio-economic areas or projects with large investment capital but a slow capital recovery rate.
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Investment under the form of BCC contract performance
A business cooperation contract (BCC) is defined in Article 3.14 of the Law on Investment 2020 as a contract signed between investors for business cooperation, profit sharing, product division in accordance with law without establishing an economic organisation.
BCC contract includes the main contents as prescribed in Article 28 of the Law on Investment 2020
Foreign investors who sign BCC contracts with domestic investors or with other foreign investors for investing into Vietnam must carry out procedures of obtaining the Investment Registration Certificate at the provincial Department of Planning and Investment or the Management Board of industrial parks or economic zones as prescribed in Article 38 of the Law on Investment 2020. After that, the parties to the BCC contract must establish a coordinating committee to perform the contents of the BCC contract with functions, tasks and powers agreed upon by the parties.
To fulfill contractual obligations, Article 49 of the Law on Investment 2020 allows foreign investors to set up project management offices in Vietnam. The investor must prepare a dossier of registration for the establishment of the project management office and submit it to the investment registration authority where this office is expected to be located.
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Public-Private Partnership Investment
According to Article 3.10 of the Law on Public-Private Partnership Investment 2020, investment under the form of public-private partnership (PPP) is an investment method made on the basis of a definite-term cooperation between the State and private investors through the signing and implementation of PPP project contracts to attract private investors to participate in PPP projects.
PPP project is understood as a set of proposals related to investment in the provision of public products, services. According to Article 4.1 of the Law on Public-Private Partnership Investment 2020, there are currently only 05 sectors allowed to be invested under the PPP method: (i) transportation, (ii) power grid, power plants, (iii) irrigation and water supply, treatment facilities, (iv) healthcare, education and training and (v) information technology infrastructure.
Public-private partnership investment will be made through the signing of PPP project contracts. Currently, the law stipulates 7 types of PPP project contracts, including: (i) Build – Operate – Transfer (BOT) contracts; (ii) Build-Transfer-Operate (BTO) Contracts; (iii) Build-Own-Operate (BOO) Contracts; (iv) Operate-Manage (O&M) contracts; (v) Build – Transfer – Lease (BTL) Contract, (vi) Build – Lease – Transfer (BLT) Contract and (vii) Mixed Contract.
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Acquisition of the enterprise
According to Article 29.4 of the Competition Law 2018, enterprise acquisition is the purchase by an enterprise directly or indirectly of all or a part of the contributed capital and assets of another enterprise for controlling and dominating the enterprise or a business line of the acquired enterprise.
For carrying out the acquisition of an entire enterprise in Vietnam, investors need to carry out the procedures for controlling economic concentration stipulated in the Competition Law 2018, including submitting the dossier for notification of the acquisition transaction to the National Competition Committee when the acquisition transaction reaches the threshold required for notification of economic concentration under Article 33.2 of the Competition Law 2018. Depending on the circumstances, the dossier will have to undergo preliminary inspection and official inspection before the National Competition Commission makes a decision to allow or prohibit the implementation of the transaction, in some cases the impact of restricting competition of the transaction is large but can be minimized to an appropriate level, the acquisition transaction may still be allowed to proceed but certain additional conditions must be applied, such as division, separation or sale of a part of contributed capital or assets of the enterprise.
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Setting up branches and representative offices
According to Article 44 of the Law on Enterprise 2020, branches and representative offices are both dependent units of the enterprise. However, while the branch is allowed to perform all or part of the functions of the enterprise, including the function of authorised representative, the representative office is only responsible for representing as authorised for the interests of the enterprise and protecting those interests without a business function.
Article 3 of Decree 07/2016/ND-CP regulates on the establishment of branches and representative offices in Vietnam of foreign enterprises being traders. Foreign enterprises must operate for at least 01 year from the date of establishment or registration if they want to open a representative office in Vietnam and at least 05 years if they want to establish a branch. In addition, the operation contents of branches and representative offices must be consistent with Vietnam’s market opening commitments and business lines of foreign enterprises.
To open a branch or a representative office in Vietnam, the foreign enterprise needs to submit an application for obtaining the branch establishment license or the representative office establishment license to the Department of Industry and Trade of provinces or centrally-run cities or the Management Board of industrial parks, export processing zones, economic zones or high-tech parks.
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Becoming a subcontractor
According to Article 4.27 of the Law on Bidding 2023, a subcontractor is an organisation or individual that signs a contract with a contractor to participate in the implementation of construction and installation work; counsel; non-consulting; related services of the tender package for the supply of goods; the work falls under the mixed tender package. In addition, the Law on Bidding also recognises the position of a special subcontractor, which is understood as a subcontractor performing important works of the bidding package proposed by the contractor in the bid dossier, the proposal dossier on the basis of the requirements of capacity and experience stated in the bidding dossier, required documents.
Only subcontractors named in the list of subcontractors mentioned in the bid dossier and proposal dossier and approved by the investor to participate in the performance of the work may sign a contract for the implementation of the bidding package. The use of a subcontractor will not alter the obligations of the main contractor, and the volume, quality, schedule and other responsibilities for the work performed by the subcontractor are all the responsibility of the main contractor.
For foreign contractors, foreign contractors must carry out procedures of obtaining construction activities license in Vietnam in accordance with the Law on Construction. After that, the foreign contractor can set up a project management office for convenience when performing contracting works in the project and recruiting employeess in Vietnam.
Above is an overview content related to 10 popular forms of investment in Vietnam today that Phuoc and Partners shared with readers. If you encounter any difficulties related to the legal field, please contact us. Phuoc and Partners is a law firm established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Da Nang. Phuoc and Partnersis also considered as one of the leading law firms with specialised legal staff in Vietnam practice areas are rated top in the legal market such as Labour and Employment, Taxation, Mergers and Acquisitions, Litigation. We are confident to be one of the Law Firms providing the best legal services to our clients.
