Law and policy
Policies and procedures
In general, what are your government’s policies and procedures regarding the supervision and review of foreign investments?
In general, there are certain factors that the government will consider before approving foreign investment in Vietnam. In particular, foreign investment restrictions are provided in Vietnam’s WTO commitments and its other international or bilateral agreements and domestic laws, including those related to national security, antitrust and business authorization.
The management of foreign investment funds is managed in a similar way through the cash account system. When making indirect investment in Vietnam, foreign investors only need to open indirect investment accounts in credit institutions to make money transfers related to indirect investment activities.
Companies with foreign direct investment (FDI) in Vietnam are required to open direct investment accounts in credit institutions to carry out money transfer activities related to direct investment activities.
Monitoring is done through information and reporting methods. Credit institutions where foreign indirect investors and FDI companies open accounts must comply with the monthly reporting schedule determined by the State Bank of Vietnam (SBV). That way, the SBV can capture timely information on cash flows from investment activities to assess the impact of cash flows on the stability of the foreign exchange market in particular and the economy as a whole.
What are the main laws that directly or indirectly regulate acquisitions and investments by foreigners and investors on the basis of national interest?
There is no single law that regulates the acquisition and investment of foreigners and investors on the basis of national interest in Vietnam. Foreign investors wishing to invest in Vietnam should pay attention to certain key laws and regulations related to acquisition and investment, including:
- WTO obligations (System of Certain Obligations in Services) and other international or bilateral agreements signed by Vietnam, which define the services that Vietnam allows foreign service providers to access and additional conditions, including restrictions on foreign ownership of a Vietnamese company;
- Business Law No. 59/2020/QH14 adopted by the National Assembly of Vietnam on 17 June 2020, effective from 1 January 2021, which regulates the establishment, organization, reorganization, dissolution and relevant activities of companies in Vietnam;
- Investment Law No. 61/2020/QH14 adopted by the National Assembly of Vietnam on 17 June 2020, from 1 January 2021, which generally governs investment activities by companies or companies;
- Security Law No. 54/2019/QH14 adopted by the National Assembly of Vietnam on 26 November 2019, effective 1 January 2021;
- Competition Law No. 23/2018/QH14 adopted by the National Assembly of Vietnam on 12 June 2018 and its implementing and guiding regulations;
- Ordinance on Foreign Exchange Control No. 28/2005/PL-UBTVQH11 adopted by the Standing Committee of the National Parliament on 13 December 2005, as amended by Ordinance No. 06/2013/UBTVQH13 of March 18, 2013; again
- another specific law applies to foreign investment in Vietnam-based companies involved in certain regulated areas, for example, banking, financial services and insurance.
Scope of application
Explain the scope of application of these rules, including what types of investments or transactions are covered. Are small interests held? Are there certain sectors in which the authorities have the power to monitor and prevent foreign investment or sectors in which special inspections are discussed?
In order to enter the WTO, Vietnam committed to open the market to foreign investment in certain service sectors under WTO obligations. To date, there are still some restrictions on the maximum percentage of foreign ownership or types of investment in relation to certain service sectors. For example, advertising services require a foreign investor to establish a joint venture with an existing Vietnamese advertising company, while some transportation and banking services have limited foreign ownership.
The Investment Law is the main domestic law for foreign investment activities in Vietnam. Its guiding law (Government Decision No. 31/2021/ND-CP, dated March 26, 2021) provides a consolidated list of business lines where foreign investors are subject to market access restrictions. The list is divided into two categories: (1) business lines that Vietnam has not yet opened the foreign investment market to; and (2) those foreign investors must satisfy the market entry conditions. These conditions usually include restrictions on the percentage of foreign ownership, the type of investment, the scope of investment activities, and the power of the foreign investor and domestic partners involved in the investment project. Among the service sectors on this list, the most targeted are banking services, education, telecommunications through network infrastructure, publishing and health care services.
The Companies Law provides the legal framework for business establishment, corporate governance and business operations in Vietnam.
How is a foreign investor or foreign investment defined in the applicable law?
Under the Investment Law, ‘foreign investor’ means a foreign national or organization established under foreign laws that makes business investments in Vietnam. However, the term ‘foreign investment’ is not defined in the Investment Law. Instead, Vietnamese lawmakers introduced the term ‘business investment’, which is often defined as money invested by investment to do business. This term is broadly defined as investment activities carried out by investors, including foreign investors, Vietnamese investors, or foreign-invested business organizations in Vietnam.
Special rules for SOEs and SWFs
Are there special rules for investments by foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs)? How is SOE or SWF defined?
Vietnamese law does not provide any specific definitions or any special rules applicable to foreign SOEs and SWFs. Foreign SOEs and SWFs are duly obliged to comply with investment regulations under Vietnamese law, which all foreign investors must comply with while investing in Vietnam.
What officials or authorities have the power to review mergers or acquisitions on grounds of national interest?
Under the Investment Law, if a foreign investor would like to acquire shares or capital contributed by a Vietnamese company, he must obtain written approval for this acquisition from the Ministry of Planning and Investment or the management of the industrial zone if:
- the investment project is located in an industrial area;
- the target company is involved in any business line that is conditional on foreign investors and the acquisition of shares or capital contribution made by the foreign investor results in an increase in the foreign ownership ratio of this company;
- a foreign investor acquires more than 50 percent of the shares of the target company; or
- a foreign investor acquires shares in a target company that has the right to use land plots in islands, border or coastal areas, or other areas that affect the defense and security of the country.
Apart from the laws and policies mentioned above, how much discretion do the authorities have to approve or reject transactions for reasons of national interest?
If foreign investors satisfy all the legal requirements applicable to their investment in Vietnam, the authorities are theoretically not allowed to reject the work done by foreign investors on the grounds of national interest. In particular, foreign investors will be allowed to invest in all sectors and industrial areas that are not prohibited under the Investment Law. However, in practice, the authorities have the discretion to approve or reject any transaction made by foreign investors if they decide that these foreign investors have not met their requirements based on their opinion. The Investment Law clearly sets out investment policies related to the protection and security of the country in order to review and approve the transactions made by foreign investors.