Issue 010424 – Sectors, trades and market access conditions applicable to foreign investors

Dear Valued Clients,

In recent years, Vietnam has become an attractive destination for foreign investors. However, as a way to protect domestic investors, to some investment and business sectors that can have a major impact on society if they are open for investment activities, Vietnam is still setting regulations on technical barriers for foreign investors to access the market, not only to narrow the competitive advantage for domestic businesses, but also to ensure issues related to national security and defense. These limits are regulated by both domestic law as well as international treaties to which Vietnam is a member.

This article will delve into our regulations and our notes on business lines with prohibited and restricted market access and market access conditions applied to foreign investors.

1. Sectors and trades to foreign investors

1.1. Sectors and trades to foreign investors

First, according to Clause 19 Article 3 of the Investment Law 2020, foreign investor means a foreign national or an organization established under a foreign law that carries out business investment activities in Vietnam.

According to Article 5 of the Investment Law 2020, investors have the right to conduct business investment activities in industries and occupations that are not banned by law. In addition, in order to institutionalize viewpoints, policies and solutions to attract foreign investment, the Investment Law 2020 has built a new group of regulations related to market access conditions for foreign investors in the direction of opt-in approach (Article 9 of the Investment Law 2020).

It can be understood that foreign investors are permitted to invest and engage in businesses in sectors not prohibited by law. They will be subject to market access conditions similar to those applicable to domestic investors, except for investment sectors in: (1) the list of sectors and trades in which market access is not yet permitted for foreign investors; or (2) the list of sectors and trade in which foreign investors are subject to conditional market access.

In accordance with the laws, resolutions of the National Assembly, ordinances, resolutions of the Standing Committee of the National Assembly, decrees of the Government, and international agreements to which the Socialist Republic of Vietnam is a member, as stipulated in Government Decree No. 31/2021/NĐ-CP, which publicly announces the List of Sectors and Trades restricting market access for foreign investors, it is expressly specified:

• For sectors and trades in which market access is not yet permitted for foreign investors according to Section A of Appendix I of the Decree (listed in Section 1.2 below): Foreign investors are not allowed to invest;
• For sectors and trade in which foreign investors are subject to conditional market access according to Section B of Appendix I of the Decree (listed in Section 1.3 below): Foreign investors must meet the market access conditions posted on the National Investment Portal [1];
• For sectors and trades that Vietnam has not yet made commitments on market access: Foreign investors are entitled to market access as prescribed for domestic investors.

1.2. Sectors and trades in which market access is not yet permitted for foreign investors

Sectors and trades in which market access is not yet permitted for foreign investors are specified in Section A Appendix I of Decree No. 31/2021/ND-CP including 25 sectors and trades as follows:

1. Trading in goods and services on the list of goods and services subject to state monopoly in the field of commerce.
2. Press activities and collection of news in all forms.
3. Fishing or marine resource exploitation.
4. Investigation and security services.
5. Judicial administrative services, including judicial expertise services, bailiff services, property auction services, notarization services, and asset administrator services.
6. Service of sending guest workers abroad.
7. Investment in building infrastructure of cemeteries and graveyards for the purpose of transferring land use rights combined with infrastructure.
8. Direct collection of garbage from households.
9. Public survey service (opinion poll).
10. Blasting service.
11. Production of and trading in weapons, explosive materials and supporting tools.
12. Import and demolition of used seagoing vessels.
13. Public-utility postal services.
14. Border-gate transfer of goods.
15. Temporary import for re-export.
16. Exercise of the rights to import, export and distribute goods on the list of goods which foreign investors and foreign-invested economic organizations may not exercise the rights to export, import and distribute.
17. Collection, purchase and handling of public assets at armed forces units.
18. Production of military materials or equipment; trading in military equipment and supplies for the armed forces, military weapons, equipment, techniques, ammunitions, specialized military and police vehicles, components, spare parts, supplies and special equipment, and specialized technologies for manufacturing thereof;
19. Provision of industrial property representation and intellectual property examination services.
20. Services of establishment, operation, sustainment and maintenance of navigational signals, water zones, waters, public navigational channels and navigational routes; services of surveying water zones, waters, public navigational channels and navigational routes serving the publication of marine notices; services of surveying, drawing up and publishing charts of waters, seaports, navigational channels and routes; compilation and distribution of maritime safety documents and publications.
21. Regulatory services to ensure maritime safety in water zones, waters and public navigational channels; maritime electronic information services.
22. Services of inspection (examination and testing) and grant of certificates for means of transport (including systems, assemblies, equipment and components of means of transport); inspection and grant of technical safety and environmental protection certificates for special-use vehicles and equipment, containers, dangerous goods packaging equipment used in transportation; inspection and grant of technical safety and environmental protection certificates for means and equipment for oil and gas exploration, exploitation and transportation at sea; technical inspection of occupational safety for machinery and equipment that are subject to strict requirements on occupational safety and installed on means of transport and means and equipment for oil and gas exploration, exploitation and transportation at sea; and fishing vessel registration.
23. Services of investigation, assessment and exploitation of natural forests (including logging, hunting, trapping of rare and precious wild animals, management of genetic resources of plants, domestic animals and microorganisms used in agriculture).
24. Research or use of genetic resources of new livestock breeds before they are appraised and evaluated by the Ministry of Agriculture and Rural Development.
25. Provision of travel services, except for international travel services serving inbound international tourists.

1.3. Sectors and trade in which foreign investors are subject to conditional market access

Sectors and trades in which market access is not yet permitted for foreign investors are specified in Section B Appendix I of Decree No. 31/2021/ND-CP, including 59 sectors and trades as follows:

1. Production and distribution of cultural products, including video recordings.
2. Production, distribution and broadcasting of TV programs, music and dance works, stage performances and cinematographic works.
3. Provision of radio and television broadcasting services.
4. Insurance; banking, securities trading and services related thereto.
5. Post and telecommunications services.
6. Advertising services.
7. Printing and publication distribution services.
8. Geodetic and cartographic services.
9. Aerial photography services.
10. Education services.
11. Survey, exploitation and processing of natural resources, minerals and oil and gas.
12. Hydropower, offshore wind power and nuclear power.
13. Transportation of goods and passengers by rail, air, road, river, sea and pipeline.
14. Aquaculture.
15. Forestry and hunting.
16. Betting and casino business.
17. Security services.
18. Construction, operation and management of river ports, seaports and airports.
19. Real estate business.
20. Legal services.
21. Animal health services.
22. Trade in goods and activities directly related to trade in goods of foreign service providers in Vietnam.
23. Technical inspection and analysis services.
24. Tourism services.
25. Health and social services.
26. Sports and entertainment services.
27. Paper production.
28. Manufacture of vehicles with more than 29 seats.
29. Development and operation of traditional marketplaces.
30. Operation of goods exchanges.
31. Inland less-than container load (LCL) services.
32. Audit, accounting, book-keeping and tax services.
33. Valuation services; enterprise valuation consultation for equitization.
34. Services related to agriculture, forestry and fishery.
35. Production and manufacture of aircraft.
36. Production and manufacture of locomotives and railway carriages.
37. Production of and trading in cigarettes, tobacco materials, machinery and equipment of the tobacco industry.
38. Operations of publishing houses.
39. Building and repair of seagoing vessels.
40. Waste collection and environmental monitoring services.
41. Commercial arbitration and arbitration mediation services.
42. Logistics services.
43. Coastal transport services.
44. Cultivation, manufacture or processing of precious and rare plants, rearing and breeding of precious and rare wild animals and processing and disposal thereof, including also live animals and products made thereof;
45. Production of building materials.
46. Construction and relevant technical services.
47. Motorcycle assembly.
48. Services related to sports, fine arts, performing arts, fashion shows, beauty and model contests, and other entertainment activities.
49. Auxiliary services for air transport; ground technical services at airports and airfields; inflight catering services; communication, navigation and surveillance services and aviation meteorological services.
50. Shipping agency services; ship towage services
51. Services related to cultural heritages, copyright and related rights, photography, video recording, audio recording, art exhibitions, festivals, libraries, and museums;
52. Tourism promotion and advertising services.
53. Representation, recruitment agency, and booking and management services for artists and athletes.
54. Family-related services.
55. E-commerce activities.
56. Cemetery business, cemetery services and funeral services.
57. Aerial seeding and chemical spraying services.
58. Maritime pilotage services.
59. Investment sectors and trades under pilot mechanisms applied by the National Assembly, National Assembly Standing Committee, Government and Prime Minister.

1.4. Sectors and trades for which Vietnam has not yet made commitments on market access for foreign investors

Sectors and trades for which Vietnam has not yet made market access commitments means sectors and trades for which, under investment treaties, Vietnam has no commitment, has not yet made commitments, or retains the right to issue measures unconformable with market access obligations, national treatment obligations or other obligations concerning non-discrimination between domestic investors and foreign investors provided in such treaties.[2]

2. Market access conditions for foreign investors

2.1. Concept of market access conditions applicable to foreign investors

According to Clause 10 Article 3 of the Investment Law 2020, market access conditions applicable to foreign investors means conditions which foreign investors must satisfy in order to invest in sectors and trades on the List of sectors and trades in which foreign investors are subject to market access restrictions specified in Clause 2, Article 9 of the Investment Law 2020.

2.2. Market access conditions applicable to foreign investors

2.2.1. For sectors and trades that Vietnam has not yet made commitments on market access

According to Clause 1, Article 9 of the Investment Law 2020, specified in Clause 1, Article 17 of Decree 31/2021/ND-CP as follows: Except the sectors and trades on the List of sectors and trades in which foreign investors are subject to market access restrictions provided in Appendix I to this Decree, foreign investors may access the market like domestic investors.

Principles of application of market access restrictions for foreign investors are as follows:

(1)     In case laws or resolutions of the National Assembly, ordinances or resolutions of the National Assembly Standing Committee or decrees of the Government (below collectively referred to as Vietnam’s law) have no provisions on market access restrictions for such sectors and trades, foreign investors may access the market like domestic investors;

(2)     In case Vietnam’s law has provisions on market access restrictions for foreign investors in such sectors and trades, such provisions shall apply;[3]

(3)     In case laws or resolutions of the National Assembly, ordinances or resolutions of the National Assembly Standing Committee or decrees of the Government that have been recently promulgated (below collectively referred to as newly promulgated documents) have provisions on market access conditions for foreign investors in sectors and trades for which Vietnam has not yet made commitments on market access for foreign investors, such conditions shall be applied as follows:[4]

(i)     Foreign investors to whom market access conditions are applied before the effective date of newly promulgated documents may continue to carry out investment activities under such conditions, except for the following cases, the conditions of the newly promulgated legal documents apply:

• Establishing new economic organizations;
• Implementing new investment projects;
• Acquiring investment projects;
• Contributing capital to or purchasing shares or contributed capital amounts of other economic organizations;
• Making investment in the form of contracts;
• Adjusting or adding objectives, sectors or trades.

In this case, a competent state agency shall not re-consider market access conditions for sectors and trades for which investors have obtained approval.

(ii)    Foreign investors that carry out investment activities after the effective date of newly promulgated documents must satisfy market access conditions applicable to foreign investors specified in such documents.

2.2.2. For sectors and trades in which foreign investors are subject to market access restrictions

For sectors and trades in which foreign investors are subject to market access restrictions according to Clause 10 Article 3 and Clause 2 Article 9 of the Investment Law 2020, market access conditions for foreign investors specified in the List of sectors and trades in which foreign investors are subject to market access restrictions include:

(1)     Charter capital holding rate of foreign investors in economic organizations. Restrictions on holding rate of foreign investors under investment treaties shall be applied according to the following provisions:

• In case more than one foreign investor contribute capital to or purchase shares or contributed capital amounts of an economic organization and are the subjects of application of one or more investment treaty(ies), the total holding rate of all foreign investors in such economic organization must not exceed the highest rate specified by the treaty providing the holding rate of foreign investors for a specific sector or trade;
• In case more than one foreign investor in the same country or territory contribute capital to or purchase shares or contributed capital amounts of an economic organization, the total holding rate of all of these investors must not exceed the holding rate specified by the investment treaty applicable to such investors;
• For public companies, securities companies, securities investment fund management companies, securities investment funds, or securities investment companies defined by the law on securities, in case the law on securities contains other provisions on the holding rate of foreign investors, such provisions shall apply;
• In case an economic organization conducts more than one sector or trade while investment treaties contain different provisions on the holding rate of foreign investors, the holding rate of foreign investors in such economic organization must not exceed the restriction on foreign holding rate for sectors and trades subject to the floor foreign holding rate.[5]

(2)     Form of investment:

• Investment to establish economic organizations.
• Investment to contribute capital or purchase shares or capital contributions.
• Implementation of investment projects.
• Investment in the form of BCC.
• New forms of investment and new types of economic organizations according to regulations of the Government.[6]

(3)     Scope of investment activities;

(4)     Capacity of investors; partners participating in investment activities;

(5)     Other conditions specified in laws or resolutions of the National Assembly, ordinances or resolutions of the Standing Committee of the National Assembly, decrees of the Government, and treaties to which the Socialist Republic of Vietnam is a contracting party. Such as:

• Using land, employees, natural resources and minerals;
• Producing goods or providing public services or goods or services for which the State holds monopoly;
• Owning or trading in houses or real estate;
• Applying the State’s supports or subsidies for certain sectors or trades or developing regions or territorial areas;
• Participating in programs or plans on equitization of state enterprises;
• Other conditions as specified in laws or resolutions of the National Assembly, ordinances or resolutions of the National Assembly Standing Committee, or decrees of the Government, and investment treaties which contain provisions on market access ban or restrictions for foreign-invested economic organizations.[7]

In addition, regarding the right to choose to apply market access conditions and investment procedures, Clause 2 Article 16 of Decree 31/2021/ND-CP stipulates as follows:

(1)     For business investment activities carried out in Vietnam, investors who are Vietnamese citizens and concurrently have a foreign citizenship may apply market access conditions and investment procedures either like those for domestic investors or like those for foreign investors.

If making the former choice, they may not exercise the rights and perform the obligations of foreign investors.[8]

(2)     Foreign investors regulated by investment treaties that provide market access conditions applicable to such investors more favorable than those provided by Vietnam’s law may apply market access conditions provided in such treaties [9];

(3)     Foreign investors regulated by investment treaties that contain different provisions on market access conditions may apply market access conditions for all sectors and trades provided by one of such treaties. If having decided to apply market access conditions under an investment treaty (which is a new treaty or is revised after its effective date and applies to such investors), foreign investors shall exercise their rights and perform their obligations in accordance with all provisions of such treaty.[10]

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] According to Clause 3, Article 2 of Decree 31/2021/ND-CP, the national investment information portal is a part of the National Investment Information System, used to carry out procedures for granting and adjusting Investment Registration Certificate and Overseas Investment Registration Certificate; Posting and updating legal documents, policies, and market access conditions for foreign investors; Update and exploit information on investment promotion activities, foreign investment in Vietnam, investment abroad, development of industrial parks, economic zones and state management of investment activities.

Source: https://vietnaminvest.gov.vn/SitePages/home.aspx

[2] Clause 13 Article 2 Decree 31/2021/ND-CP.

[3] Clause 4 Article 17 Decree 31/2021/ND-CP

[4] Clause 5 Article 17 Decree 31/2021/ND-CP

[5] Clause 10 Article 17 Decree 31/2021/NĐ-CP

[6] Article 21 the Investment Law 2020

[7] Clause 3 Article 15 Decree 31/2021/ND-CP

[8] Clause 2 Article 16 Decree 31/2021/NĐ-CP

[9] Clause 8 Article 17 Decree 31/2021/NĐ-CP

[10] Clause 9 Article 17 Decree 31/2021/NĐ-CP