INVESTMENT FORMS FOR FOREIGN INVESTORS TO INVEST IN VIETNAM

INVESTMENT FORMS FOR FOREIGN INVESTORS TO INVEST IN VIETNAM

In recent years, the foreign investment capital inflows poured into Vietnam is very large, in almost all fields and implemented in many different methods, showing Vietnam’s attraction to foreign businessmen. So what investment methods can foreigners invest in Vietnam? HTC Vietnam Law Firm will accompany you to find out through the article below.

I. Legal basis

LAW ON INVESTMENT 2020

II. Consulting content

1. What is the investment?

According to the investment law of Vietnam, business investment means an investor investing capital to do business through the establishment of business organizations; Capital contribution or purchase of shares or stakes of economic organizations; Investment in the form of a business cooperation contract or execution of an investment project. Foreign investor means an individual holding a foreign nationality or an organization established under foreign laws and carrying out business investment activities in Vietnam.

The investment of foreign investors is for the purpose of profit.

2. Investment Forms for Foreign Investor To Invest In Vietnam

Pursuant to Article 21 Law on Investment 2020, there are 5 forms of investments:

- 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.

Compared to the Law on Investment 2014, the Law on Investment 2020 has added an additional regulation on investment forms as "New forms of investment and types of business organizations prescribed by the Government's regulations" which is an open regulation, demonstrating the flexible and skillful adjustment of the State to the diverse developments of Vietnam’s economy in the period of global integration. The Law on Investment 2020, on the other hand, does not list and detail investment in the form of PPP contract (investment in the form of public-private partnership) like the previous Law on Investment 2014 but separate it into the Law on Investment in the form of public-private partnership, ensuring the specificity of PPP investment and creating a more consistent regulatory environment for businesses.

Investment in establishment of a business organization

As stipulated in point b, Clause 1, Article 22 of the Law on Investment 2020, a foreign investor that establishes a business organization shall satisfy market access conditions applied to foreign investors specified in Article 9 of this Law, specifically:

- Holding of charter capital by the foreign investor in a business organization;

- Investment method;

- Scope of investment;

- Capacity of the investor; partners participating in the investment activities;

- Other conditions specified in the Laws and Resolutions of the National Assembly, Ordinances and Resolutions of the Standing Committee of the National Assembly, Decrees of the Government and international treaties to which the Socialist Republic of Vietnam is a signatory.

In addition, 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 the 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. The new Law on Investment had added two exceptions that do not require a project and an Investment Registration Certificate: the case of setting up 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 to create favorable conditions for investment in innovative start-ups (Point b, Clause 1, Article 22 of the Law on Investment 2020).

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.

Investment in the form of capital contribution or purchase of shares or stakes

Foreign investors making investment by contributing capital, purchasing shares and purchasing stakes of business organizations must satisfy the conditions precribed at Clause 2 Article 24 of the Law on Investment 2020:

- Satisfy market access conditions applied to foreign investors as prescribed in Article 9 of this Law;

- Ensure national defense and security in accordance with this Law;

- Comply with regulations of the law on land and conditions for receipt of land use rights and conditions for use of land on islands or border or coastal communes.

The new law has added cases where The foreign investor contributes capital, purchases shares or stakes of a business organization that holds a certificate of rights to use land on an island or in a border or coastal commune, or in another area that affects national defense and security. It illustrates the importance of ensuring national defense security in the direction of considering security and defense conditions in case foreign investors invest in the form of a setting up enterprises, capital contribution, purchase of shares or stakes of a business organization locating in island or in a border or coastal commune, or in another area that affects national defense and security, help to improv efficiency State management results on investment.

A foreign investor may contribute capital to a business organization in the following forms: Purchase of shares of joint-stock companies through the initial public or additional issuance; Contribution of capital to limited liability companies and partnerships; Contribution of capital to other business organizations not mentioned in Point a and Point b of this Clause (Clause 1, Article 25 of the Investment Law 2020).

A foreign investor may purchase shares or stakes of a business organization in the following forms: Purchase of shares in a joint-stock company from such company or its shareholders; Purchase of stakes of members of a limited liability company to become a member of such limited liability company; Purchase of stakes of a capital contributing member of a partnership to become a capital contributing member of such partnership; Purchase of stakes of members of other economic entities (Clause 2, Article 25 of the Investment Law 2020).

Execution of an investment project

Conduct of investment activities by foreign-invested business organizations are prescribed at Article 23 Law on Investment 2020

Pursuant to Claude 1 Article 23, 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:

- 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.

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. (Claude 3 Article 23 of Law on Investment 2020).

Investment in the form of a business cooperation contract (BBC)

Investment under business cooperation contracts is prescribed at Article 27 of Law on Invesment 2020, specifically:

- 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 of this Law 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.

The aforementioned are the consulting about investment forms in accordance with Vietnamese law. HTC Law Firm is pleased to accompany clients in all legal problems. For the best consultancy service, please get in touch with us.

Writer: Trần Thị Mỹ Anh

Translator: Nguyễn Thị Liên.