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Vietnam has become an attractive destination for foreign investors due to its dynamic economy and favorable investment climate. The legal framework for foreign investment is detailed in the Investment Law 2020 and various related circulars and decrees. This article provides a comprehensive overview of the forms of indirect investment available to foreign investors in Vietnam, along with the necessary conditions and procedures.
Forms of Investment Under the Investment Law 2020
According to Article 21 of the Investment Law 2020, foreign investors can engage in several forms of investment in Vietnam:
- Establishing Economic Organizations: Foreign investors can set up wholly foreign-owned enterprises or joint ventures with Vietnamese partners.
- Capital Contributions and Share Purchases: This includes investing by purchasing shares or capital contributions in Vietnamese enterprises.
- Executing Investment Projects: Implementing projects within various sectors as approved by the authorities.
- Business Cooperation Contracts (BCC): Partnering with Vietnamese entities through contractual arrangements.
- Other Forms and New Types of Economic Organizations: As regulated by the Government, allowing flexibility for future developments and innovations.
Conditions for Foreign-Invested Economic Organizations
Article 23 of the Investment Law 2020 outlines the conditions under which foreign-invested economic organizations must operate:
- Ownership and Control:
- If foreign investors hold more than 50% of the charter capital or if a majority of the general partners in a partnership company are foreign individuals.
- If another economic organization, in which foreign investors hold more than 50% of the capital, is involved.
- If a combination of foreign investors and the specified economic organizations holds more than 50% of the capital.
- Investment Procedures:
- Economic organizations not falling under the above categories follow the same investment conditions and procedures as domestic investors.
- New investment projects by already established foreign-invested organizations do not require the establishment of a new entity but must follow project-specific procedures.
- Government Regulations: Detailed regulations and procedures for establishing and operating foreign-invested economic organizations are provided by the Government to ensure compliance and facilitate investment activities.
Indirect Foreign Investment: Circular 05/2014/TT-NHNN and Circular 06/2019/TT-NHNN
Indirect foreign investment in Vietnam is governed by Circular 05/2014/TT-NHNN, amended by Circular 06/2019/TT-NHNN. Article 5 of these circulars lists the permissible forms of indirect investment:
- Capital Contributions and Share Purchases:
- Contributions, purchases, sales of shares, or capital contributions by foreign investors into enterprises that do not fall under the cases regulated in Clause 2, Article 3 of Circular 06/2019/TT-NHNN dated June 26, 2019, by the Governor of the State Bank, which provides guidance on foreign exchange management for foreign direct investment activities in Vietnam, and any amending or supplementary documents (if any) that are not yet listed or registered for trading on the Stock Exchange.
- Securities and Bonds:
- Buying and selling bonds and other securities on the Vietnamese stock market.
- Buying and selling valuable papers in VND issued by resident organizations in Vietnam.
- Entrusted Investments:
- Through fund management companies, securities companies, credit institutions, and foreign bank branches authorized to conduct entrusted investment operations.
- Investment in Funds and Fund Management Companies:
- Contributing capital and transferring capital contributions in securities investment funds and fund management companies as per securities laws.
- Other Forms:
- Any other forms of indirect investment as prescribed by Vietnamese law.
Conditions for Capital Contribution and Share Purchase
According to clause 2 of Article 24 of the Investment Law 2020, foreign investors must meet specific conditions when contributing capital, purchasing shares, or purchasing capital contributions in economic organizations:
- Market Access: Compliance with market access conditions outlined in the Investment Law 2020.
- National Defense and Security: Ensuring investments do not compromise national defense and security.
- Land Use Regulations: Adhering to land use regulations, particularly regarding land use rights, and usage in sensitive areas such as islands, border regions, and coastal areas.
Methods of Capital Contribution
Clause 1 of Article 25 of the Investment Law 2020 specifies the methods by which investors can contribute capital to economic organizations:
- Initial Share Purchases: Buying initial shares or additional shares issued by joint-stock companies.
- Capital Contributions to Limited Liability Companies or Partnerships: Contributing capital to these types of entities.
- Other Economic Organizations: Contributing capital to other types of economic organizations not specified above.
The legal framework for indirect foreign investment in Vietnam provides a structured yet flexible approach to encourage foreign participation in the country’s economic development. By understanding and complying with these regulations, foreign investors can effectively navigate the Vietnamese investment landscape, contributing to mutual growth and prosperity.
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