Issue 010124 – Forms of foreign investment in Vietnam

Dear Valued Clients,

In recent years, thanks to a favorable business environment, Vietnam is strongly attracting foreign investment capital in many different fields. And with that trend, focusing on and understanding forms of investment is a topic of interest to many international investors.

This article will delve into the analysis of investment forms in Vietnam by foreign investors according to Vietnamese law and provide you with a clear overview and necessary notes for your future investment.

Below is our article on this issue. We hope the information provided will give you a comprehensive overview of this issue and will help your future business activities.

1. Forms of foreign investment in Vietnam

According to Article 21 of the Law on Investment 2020, foreign investors can make investments in the following forms:

• Investment in establishment of a business organization;
• Investment in the form of capital contribution or purchase of shares or stakes;
• Execution of an investment project;
• Investment in the form of a business cooperation contract;
• New forms of investment and types of business organizations prescribed by the Government’s regulations.

Note:

When establishing a new business organization, making investment by contributing capital, purchasing shares or stakes of a business organization, or making investment under a BCC contract, a business organization must satisfy the same conditions and follow the same investment procedures as foreign investors if:[1]

• Over 50% of its charter capital is held by a foreign investor(s) or, in case of a partnership, the majority of its general partners are foreigners;
• Over 50% of its charter capital is held by a business organization(s) mentioned in Point a of this Clause;
• Over 50% of its charter capital is held by a foreign investor(s) and a business organization(s) mentioned in Point a of this Clause.

Business organizations other than those mentioned above shall satisfy conditions and follow investment procedures applied to domestic investors when establishing a business organization, when making investment by contributing capital, purchasing shares or purchasing stakes of a business organization or when making investment under a business cooperation contract.

If a foreign-invested business organization that is established in Vietnam has a new investment project, procedures for executing such investment project shall be followed without having to establish a new business organization.

The following part of the article will discuss the most common and typical forms of foreign investment in Vietnam, which are: investment in establishing economic organizations; capital contribution or purchase of shares or stakes; and investment in the form of Business Cooperation Contracts (“BBC”).

2. Investment in establishment of a business organization

According to Article 22.1 of Law on Investment 2020, investors establish economic organizations as follows:

(i) A foreign investor that establishes a business organization shall satisfy market access conditions applied to foreign investors specified in Article 9 of Law on Investment;

(ii) Before establishing a business organization, the foreign investor must have an investment project and follow the procedures for issuance or adjustment of an investment registration certificate, except for establishment of a small and medium-sized start-up enterprise and a startup investment fund in accordance with regulations of the Law on Small and Medium-sized Enterprises.

Note: From the date on which the enterprise registration certificate or an equivalent document is issued, the business organization established by a foreign investor shall be the investor that executes the investment project set out in the investment registration certificate.

3. Investment in form of capital contribution or purchase of shares or stakes

3.1. Forms of capital contribution

Article 25.1 of the Law on Investment 2020 regulating on forms of capital contribution by foreign investors include:

(i) Purchase of shares of joint-stock companies through the initial public or additional issuance;

(ii) Contribution of capital to limited liability companies and partnerships;

(iii) Contribution of capital to other business organizations not mentioned above.

3.2. Forms of shares or stakes purchase

Article 25.2 of the Law on 2020 stipulates forms of purchasing shares and stakes from foreign investors including:

(i) Purchase of shares in a joint-stock company from such company or its shareholders;

(ii) Purchase of stakes of members of a limited liability company to become a member of such limited liability company;

(iii) Purchase of stakes of a capital contributing member of a partnership to become a capital contributing member of such partnership;

(iv) Purchase of stakes of members of other economic entities not mentioned above.

4. Investment under business cooperation contracts

A BCC is a contract signed between investors for business cooperation, profit sharing, product division without establishing an economic organization… Depending on the subject of the contract, the law governing the contract will be different. According to Articles 27.1 and 27.2 of the Law on Investment 2020, the law regulating the form of investment under BCC contracts is as follows:

• Business cooperation contracts signed between domestic investors shall be executed in accordance with the civil law.
• Procedures for issuance of investment registration certificates in Article 38 Law on Investment 2020 shall apply to business cooperation contracts signed between a domestic investor and a foreign investor, or between foreign investors.

Parties to a business cooperation contract shall establish a coordinating board to execute the BCC. Functions, tasks and powers of the coordinating board shall be agreed upon by the parties.

As always, we hope you find this Legal Article useful and look forward to working with you in the future.

Kind regards,

ENT LAW LLC

The full version of this Legal Article can be found here.

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[1] Article 23, Law on Investment 2020.