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 Assembly 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.
To view the full article please click here.
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.
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.