Vietnam is one of the leading investment destinations in Southeast Asia. With the advantages of geography, natural resources, and an affordable labor force, Vietnam attracts a large amount of capital each year. Foreign investors when setting up a business in Vietnam need to take forms of investment into account.
Foreign investors may carry out the following forms of investment in Vietnam:
1. Establishing a new enterprise
Foreign investors who want a direct presence in Vietnam an who do not want to inherit an existing business can establish a new enterprise in accordance with Vietnamese law. To do this, the investor must register an ‘investment project’ which is defined as ‘a set of proposals for the expenditure of medium and long-term capital in order to carry out investment activities in a specific geographical area and for a specified duration’. Approval of the investment project is in the form of an Investment Registration Certificate.
After the investment project is approved, the investor must then apply for Business Registration Certificate to establish the new enterprise which will implement the project.
2. Branches and representative offices
Vietnam’s law on commerce allows certain foreign business entities to establish two form of presence in Vietnam: a branch or a representative office. Both of them must be licenced by the relevant authorities.
A branch may be established by foreign business entities only in certain sectors which is committed in WTO by Vietnam, including banking, insurance, securities and legal services.
On the other hand, a representative office can be established by any foreign business entities who want to seek, and expedite, opportunities for the commercial activities of that foreign business entity in Vietnam provided that the mentioned foreign entity has come in to operation at least one year in the country where it is established.
3. Acquisition of, and investment in, an existing enterprise
Foreign investors may choose to acquire all or part of an existing enterprise through purchasing shares of joint-stock companies, or contributing capital to, or purchasing contributed capital of limited liability and partnerships and other business entities provided by the law.
Such investments often requires external regulatory approval (in the form of Investment Registration Certificate) depending on the following factors:
- The sector in which the target enterprise operates;
- The form of the target enterprise (whether it is a single-member limited liability company, or a multiple-member limited liability company, or a joint stock company, or whether it is a private company, or a public-owned company);
- The foreign ownership ratio in the target company after acquisition.
4. Investment under Public Private Partnership contracts
Investors can invest in public sector projects under public private partnership (PPP) contracts. The law describes PPP as applicable to construction, improving, upgrading, expansion, management, and operation of infrastructure facilities, and providing public services.
Investors may receive certain incentives from the Government when investing in such sectors, such as fixed input prices and output comsumption guarantees, a flexible foreign exchange regime and tax breaks.
5. Investment under business cooperation contracts (BBC)
BBC is a written contract signed between investors agreeing to cooperate to undertake certain business activities and to share the profits or products arising from such activities. There is no separate legal entity established in BBC either limitation on liability for contractual parties. This form of investment helps investors conduct investment activities quickly without losing time and money to set up and manage a new legal entity.
In practice, this form of investment is relatively uncommon. It has been used mainly in the petroleum and telecommunication sectors.
Investment Registration Certificates must be obtained for BBCs which involve foreign investors.