Issue 270825 – The principle of applying the list of market access conditions for foreign investors

Dear Valued Clients,

In the context of Vietnam’s increasing deep international integration, to ensure proper control and protect national interests, Vietnamese law clearly sets forth market access conditions for foreign investors. This is especially true for sensitive sectors or those not yet committed to opening up under international treaties. A clear understanding of the legal principles related to these conditions is a key factor for foreign investors to determine the scope of legal investment, select a suitable investment form, and ensure full compliance with current legal regulations.

This article will provide a comprehensive and systematic overview of the principles for applying the list of market access conditions for foreign investors. This includes principles for sectors that are not yet granted market access, sectors without international commitments, sectors with conditional market access, sectors with limited market access, and other supplementary principles. At the same time, we will analyze the legal provisions and practical considerations to help clients formulate effective investment strategies and comply fully with Vietnamese law.

1. Legal Basis and Regulations on Market Access Conditions

According to Clause 10, Article 3 of the Investment Law 2020 (“the Investment Law“), market access conditions for foreign investors are the conditions that foreign investors must satisfy when investing in sectors on the List of sectors with limited market access. This list is stipulated in Clause 2, Article 9 of the Investment Law and is published by the Government in Appendix I issued with Decree No. 31/2021/ND-CP (“Decree 31“). The List of sectors with limited market access consists of sectors where foreign investors are not freely permitted to participate or must satisfy certain conditions regarding capital ownership ratios and operating methods, in order to protect national security, economic interests, and the country’s sustainable development goals. The State establishes this list to control strategic sectors, natural resources, or those with profound social impacts, ensuring harmonious development and avoiding dependence on foreign investors in sensitive sectors or those where Vietnam lacks a competitive advantage.

The application of the market access conditions list is implemented according to specific legal principles, in order to ensure transparency, consistency, and compliance with Vietnam’s international commitments.

2. Applicable Principles

a. Principle of application for sectors not yet granted market access

According to Clause 2, Article 17 of Decree 31, foreign investors are not permitted to invest in sectors under Section A, Appendix I, which are the sectors not yet granted market access. This is a core principle of the “select-omit” (negative list) approach, demonstrating an absolute limitation on foreign investment activities in sensitive or not-yet-opened sectors.

In cases where a foreign investor proposes a project in a sector listed in Section A, Appendix I, the investment registration authority has the right to refuse to accept the application dossier or to not issue an Investment Registration Certificate if the project belongs to a sector on this list.

To be clear, if a foreign investor wants to build a factory for weapons and ammunition production or operate broadcasting and television services, the investment registration authority will immediately reject the application. This is because these are sectors directly related to national defense and security and mass media, which are only permitted for domestic organizations. Similarly, if a foreign investor wants to invest in funeral or cremation services or the production of gold bars, they will also be rejected because these sectors are considered culturally sensitive and are subject to state management policies.

b. Principle of application for sectors without international commitments

Sectors in which Vietnam has not made market access commitments are those where, under international investment treaties, Vietnam has not committed, is not yet committed, or reserves the right to issue measures inconsistent with market access obligations, national treatment obligations, or other non-discriminatory obligations between domestic and foreign investors stipulated in those international investment treaties[1].

For instance, in the basic telecommunication services sector, Vietnam may not be fully open. Instead of allowing foreign investors to freely establish 100% foreign-invested enterprises, the State might set a maximum capital contribution ratio of 49%. This ensures that domestic telecommunication companies can maintain control and develop while absorbing foreign technology and capital.

For sectors in which Vietnam has not made market-opening commitments in international investment treaties, the application of market access conditions shall be implemented according to Clause 4 and Clause 5, Article 17 of Decree 31 as follows:

(1) If laws, resolutions of the National Assembly, ordinances, resolutions of the National Assembly Standing Committee, or decrees of the Government do not have provisions restricting market access for a particular sector, foreign investors shall be granted market access as stipulated for domestic investors;

(2) If Vietnamese law has already stipulated market access restrictions for foreign investors in a particular sector, the provisions of Vietnamese law shall apply;

(3) If laws, resolutions of the National Assembly, ordinances, resolutions of the National Assembly Standing Committee, or decrees of the Government are issued with provisions on market access conditions for foreign investors in sectors that Vietnam has not yet committed to, according to points (1) and (2) above, the conditions shall be applied as follows[2]:

(i) If foreign investors have applied the conditions before a new legal instrument is issued, they shall continue to apply those conditions, except for the following cases: establishment of a new business organization; execution of a new investment project; receiving the transfer of an investment project; investment in the form of capital contribution, share purchase, or purchase of a capital contribution in another business organization; investment in the form of a contract; and adjustment or addition of business objectives or sectors. In these cases, the conditions of the newly issued legal instrument shall apply.

In this scenario, the competent state agency shall not re-evaluate the market access conditions for the sectors that the investor had previously been approved for.

(ii) If foreign investors carry out investment activities after the new legal instrument takes effect, they must satisfy the market access conditions for foreign investors as stipulated in that new legal instrument.

c. Principle of application for sectors with conditional market access

According to Clause 3, Article 17 of Decree 31, for sectors under Section B of Appendix I – which are sectors with conditional market access—foreign investors are permitted to invest but must fully satisfy specific conditions published in accordance with Article 18 of Decree 31.

These conditions include: Charter capital ownership ratio; Investment form; Scope of operations; Investors capacity; Partners participating in the investment activity; and other conditions as stipulated by Vietnamese law and international treaties (details are provided in section (d) below).

d. Principle of application for sectors with limited market access

Pursuant to Clause 3, Article 9 of the 2020 Investment Law, the market access conditions for foreign investors stipulated in the List of sectors with limited market access for foreign investors include:

(1) Charter capital ownership ratio of foreign investors in a business organization is specified as follows:

– The total ownership ratio of foreign investors shall not exceed the highest level stipulated in the applicable international treaty;

– For foreign investors from the same country, the ratio shall be applied according to the international treaty of that country;

– For public companies, securities companies, fund management companies, etc., sector-specific laws shall apply;

– In cases where a business organization operates in multiple sectors, the lowest ratio among the restricted sectors shall be applied.

(2) Investment forms include[3]: Investment to establish a business organization; Investment in the form of capital contribution, share purchase, or purchase of a capital contribution; Execution of an investment project; Investment in the form of a BCC contract; and other new investment forms and types of business organizations as stipulated in section (5) below.

(3) Scope of operations: May be limited by geographical area, scale, sector, or service subjects.

(4) Capacity of investors and partners participating in investment activities: Requirements for financial capacity, experience, or mandatory joint venture with a Vietnamese organization or individual.

(5) Other conditions are as follows[4]:

– Use of land, labor, natural resources, and minerals;

– Production and supply of public goods, public services, or state-monopolized goods and services;

– Ownership and trading of housing and real estate;

– Application of state support or subsidy forms for certain sectors, fields, or for developing regions and territories;

– Participation in the equitization programs or plans for state-owned enterprises;

– Other conditions as stipulated by specialized regulations.

e. Other Principles

In addition to the aforementioned principles, foreign investors should note the following supplementary principles:

(1) Investors from countries or territories that are not WTO members shall apply the same conditions as investors from WTO member countries, unless otherwise stipulated.

(2) If an international treaty contains more favorable provisions than Vietnamese law, foreign investors are permitted to apply that treaty.

(3) If multiple international treaties are applicable, foreign investors are permitted to choose a single treaty to apply to their entire investment activity. Once chosen, the investor must fully comply with all provisions of that treaty.

Kind regards,

ENT Law LLC.

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[1] Clause 13, Article 2 of Decree 31

[2] Clause 5, Article 17 of Decree 31

[3] Article 21 of the 2020 Investment Law.

[4] Clause 3, Article 15 of Decree 31.