1. Please briefly describe the current investment climate in the country and the average volume of foreign direct investments (by value in US dollars and by deal number) over the last three years.
Despite the global economic recession primarily stemming from the COVID-19 pandemic over the last three years, Vietnam has continued attracting foreign investments, which has contributed to the country's annual growth. Such investments span various national economic sectors, predominantly in the processing and manufacturing industries. Notably, Quang Ninh, Hai Phong, Bac Ninh, Binh Duong, and Ho Chi Minh City remain top destinations for foreign investment in Vietnam.
Vietnam saw an increase of 9.2% in registered foreign direct investment (FDI) at USD 31.15 billion postpandemic in 2021 (compared to the corresponding period in 2020). However, the end of 2022 witnessed a decline in foreign investments from developed countries into Vietnam amid a challenging global economy; total registered FDI capital in Vietnam dropped to 89% of 2021. However, realised capital in 2022 increased by 13.5% compared to 2021 (at approximately USD 22.4 billion), signaling economic recovery. As of 20 December 2022, Vietnam has 36,278 valid projects, having a total registered capital of USD 438.69 billion.
According to the latest official data from the Foreign Investment Department, the total registered FDI capital has reached USD 36.61 billion as of 20 December 2023. This reflects a notable increase of 32.1% compared to the corresponding period in 2022. Realised FDI capital reached USD 23.1 billion, the highest figure within the 2018-2023 timeframe.
2. What are the typical forms of Foreign Direct Investments (FDI) in the country: a) greenfield or brownfield projects to build new facilities by foreign companies, b) acquisition of businesses (in asset or stock transactions), c) acquisition of minority interests in existing companies, d) joint ventures, e) other?
A foreign investor can invest in one of the following ways:
Incorporation of an enterprise
Foreign investors may establish autonomous entities in Vietnam without a local partner. This alternative has the advantage of allowing foreign investors complete control over their operational frameworks and decision-making processes.
Establishing a company under the Vietnamese legislative framework is primarily governed by the Law on Investment and the Law on Enterprises. Foreign investors may establish a wholly foreign-owned entity or a joint venture with local partners. Also, note that sectorspecific regulations specify restrictions on foreign ownership in designated industries.
Capital Contribution or Acquisition (M&A)
The capital contribution or acquisition in an existing (foreign-owned or local) enterprise serves as a strategic conduit for expeditious market entry. Key M&A issues to be considered include obtaining explicit M&A approvals before executing the transaction, foreign ownership restrictions, land-use rights, Vietnamese competition law and other regulatory concerns.
Where the stocks being acquired are of a joint-stock company ("JSC") listed on a stock exchange, the Law on Securities applies as this is deemed a form of indirect investment activity, and thus not subject to M&A approval. The Law of Securities imposes disclosure requirements and monitoring of foreign ownership limits. Investors must also remain cognizant of sector-specific limitations and reporting obligations.
Public-Private Partnerships ("PPP")
A collaborative alliance between governmental entities and foreign investors, commonly known as PPPs, is useful for investments to develop essential infrastructure and provide public services. The 2020 PPP Law establishes a new form of local investment engagement.
The relevant governmental entity will issue a tender with their specific technical and commercial requirements for each PPP project. If selected, the foreign investor(s) – and their project enterprises – will sign a PPP contract with the relevant national state agency. This engagement is subject to the approval(s) of competent authorities.
Business Cooperation Contracts ("BCC")
BCCs are a flexible alternative to JVs, as they avoid the creation of a distinct legal entity. The BCC facilitates collaboration between partners on targeted business activities, where the shared outcomes may manifest as joint profits or the exchange of products. BCCs are typically detailed contractual agreements that align operational dynamics with applicable Vietnamese laws.
While BCCs are unincorporated entities, foreign investors who are parties to a BCC must still apply for an investment registration certificate ("IRC"). Foreign parties to a BCC may establish an operating office in Vietnam to implement the BCC by registering with the provincial Department of Planning and Development ("DPI"), which oversees its operation. In addition, the parties to a BCC shall establish a coordinating board to execute the BCC, with the functions, tasks, and powers to be agreed between the parties under the BCC.
Representative and Branch Offices
Representative offices are pivotal in facilitating market research and liaising between foreign investors and the Vietnamese market. However, these entities are expressly prohibited from partaking in profit-making activities. In contrast, branch offices are afforded the latitude to engage in commercial activities, underscoring a more expansive operational scope. The establishment and operation of both RO and BO are under the purview of the Commercial Law and its guiding regulations.
3. Are foreign investors allowed to own 100% of a domestic company or business? If not, what is the maximum percentage that a foreign investor can own?
Generally, foreign investors may own up to 100% of the charter capital in an economic entity, except where the business activity is subject to sectoral restrictions on foreign ownership (e.g., banking, civil aviation, certain telecommunication and logistics services).
4. Are foreign investors allowed to invest and hold the same class of stock or other equity securities as domestic shareholders? Is it true for both public and private companies?
Generally, foreign investors may invest in, and hold, the same class of stock or other equity securities as their domestic counterparts in both public and private companies. This includes ordinary shares, dividend preference shares, redeemable preference shares, voting preference shares, and other preferred shares. It is worth noting that the ownership of voting preference shares and the exercise of founding shareholders' rights to ordinary shares are subject to certain restrictions under the law.
5. Are domestic businesses organized and managed through domestic companies or primarily offshore companies?
Prevailing legal frameworks permit investors to structure and administer businesses through a combination of both domestic and offshore entities. The choice of structure depends on a variety of factors, including intrinsic characteristics of the business, overarching investment strategies, and tax and regulatory considerations.
6. What are the forms of domestic companies? Briefly describe the differences. Which form is preferred by domestic shareholders? Which form is preferred by foreign investors/shareholders? What are the reasons for foreign shareholders preferring one form over the other?
Under the Law on Enterprises, there are several forms of domestic companies:
Joint-Stock Company ("JSC")
This is a company where at least three shareholders hold the capital. There is no restriction on the maximum number of shareholders, who may be entities or individuals. JSC shareholders are liable for the entity's debts and other liabilities to the extent of their own contributed capital, making it suitable for medium and large-scale businesses. It can also be listed on the stock market.
Limited Liability Company (LLC) with Two or More Members:
This is an enterprise under the ownership of between two and fifty members who may be entities or individuals. The members of a multiple-member LLC are liable for the debts and other liabilities of the LLC to the extent of their own contributed capital, making it suitable for small to medium-sized enterprises (SMEs).
Single-Member LLC
This type of company is owned by a single member, who may be an entity or individual. The owner is liable for the debts and other liabilities of the LLC up to its charter capital. Like multiple-member LLCs, this form is also suitable for SMEs.
Partnership
A partnership is an enterprise with at least two individual general partners who are joint owners of the company and do business under the same name. They are liable for the obligations of the partnership to the extent of all their assets.
Limited partners (being individuals or entities) are liable for the debts of the partnership only to the extent of their contributed capital.
Which form is preferred by domestic shareholders?
Domestic shareholders typically prefer multiple-member and single-member LLCs as their responsibility for company liabilities and debts is limited to their contributed capital. LLCs are also appealing to SMEs due to their relatively straightforward governance structures and lower regulatory burden compared to JSCs.
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Originally published by The Legal 500.
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