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Introduction to foreign investment in Vietnam
I.   Forms of foreign investment in Vietnam

There are two principal forms of foreign investment in Vietnam: (i) direct investment and indirect investment. Direct investment means investment whereby the investor invests its capital and participates in the management of the investment activity. In contrast, indirect  investment means  investment by way of the purchase  of shares, share certificates,  bonds, other valuable papers or  by way  of  intermediary  financial  institutions  such as a securities investment  fund,  where  the investor does  not participate  directly in the management  of the investment activities

1.    Direct foreign investment forms
A foreign investor can directly engage in the Vietnamese market in several ways. At the same time, investors must consider and choose the most appropriate form of investment, including whether to establish a new company, invest in an existing company with an active management role, or pursue an alternative form of investment presence, such as a branch, representative office or BCC. The choice of investment form will depend primarily on the investment aim. It may also be dictated by particular rules applying to particular sectors. For example, for investments in the services sector, the commitments made by Viet Nam when it joined the Word Trade Organization will be a key determinant in selecting the form of investment.   

Under Vietnamese laws, investment  certificates  are  issued in  one of  two  ways: (i) registration for issuance of  investment  certificate with  respect  to  invested  capital  less  than  VND300  billion (approximately  US$15,400,000)  and  not included in  the  list of sectors of  investment subject to  conditions. Accordingly, the  investor  must  carry  out  the  procedures  for  investment  registration  at a provincial State  administrative  body  for investment  in  order to  be  issued an  investment certificate. (ii) evaluation  for issuance of  investment  certificate with  respect  to invested capital  from  VnD300 billion  upward and/or projects  within  a sector  that  falls  on the  list  of sectors of  investment subject to  conditions. Accordingly the  investor  must  carry  out  the  evaluation  procedures  in  order  to  be  issued  with  an  Investment certificate  regardless  of  whether  they  are included  in the list  of  sectors  of  Investment  subject  to  conditions.

Foreign  investors investing  in  Vietnam  for the first  time  must  obtain  an Investment  certificate  (which  is  also the business registration  certificate)  by  proceeding  with  the  procedures  for  investment  registration  or  evaluation  of  investment.  Once a  foreign  invested enterprise  is  established,  only its  new  investment  projects (if  any)  need  to  be  registered.

a.   Establishing a new enterprise
A foreign-invested enterprise, whether wholly foreign-owned or in the form of a joint venture with Vietnamese partners, must be approved by the relevant authorities. In order to be approved a foreign invested enterprise must have an 'investment project', being 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, and establishment of the foreign invested enterprise, take the form of an 'Investment Certificate', the equivalent of a certificate of incorporation or business registration certificate.

In addition to the Investment Certificate, a Vietnamese-established entity also must have a 'Charter', the equivalent of by-laws, constitution or articles of association of a company in other jurisdictions. Joint ventures between foreign and Vietnamese investors also require a 'Joint Venture Contract', governing certain key elements of their relationship. This contract sits alongside the Charter as part of the enterprise's constituent documents. Having determined that a Vietnamese-established enterprise is the most appropriate form of investment, investors will also need to consider and choose from the various forms of enterprise such as Joint Stock Company, Limited Liability Company, single member limited liability Company, private enterprise, partnership.

b.   Investing in an existing enterprise
Investors may also choose to directly invest in Viet Nam by acquiring a stake in an existing Vietnamese enterprise. Often, extensive internal and external authority approvals will be required. The precise procedural requirements for effecting such an acquisition will differ depending on (i) whether the target entity already has foreign investors and an Investment Certificate for an approved project, (ii) whether the investor is acquiring existing equity by way of transfer, or newly issued equity (iii) the form of the target entity (whether a single or multiple-member limited liability company, or a shareholding company); and (iv) the sector in which the entity operates.
   
c.   Branches and representative offices
Under  the  Law  on  commerce,  foreign  business entities  are  entitled  to  establish  branches  and representative  offices  in  Vietnam.  The  Ministry  of Industrial and Trade  manages  the  licensing  of  branches  and representative  offices  of  foreign  businesses.  Businesses  are liable under  Vietnamese law  for all the  operations  of  their  branches  and  representative offices in  Vietnam

Branches
Unlike  the representative  office,  branches  of foreign businesses  are  allowed  to  conduct  activities including the  purchase  and  sale  of  goods  and  other commercial  activities  consistent  with  their  licenses  for establishment  in accordance  with the law of Vietnam and  any  international  treaty  of  which  Vietnam is a member. In addition,  these branches  have the following  rights and obligations in accordance  with Vietnamese  Law:
-    To rent  offices  and  to  lease or  purchase equipment  and  facilities  necessary for branch  operations;
-    To  recruit Vietnamese  and  foreign  employees to  work  for the branch;
-   To enter into contracts in Vietnam  in accordance  with  the activities  stated in the license  for establishment  of  such branch  and  in  accordance with  the  commercial  Law.
An investor  should  consider the following  points when  deciding whether to  set up  a  branch or  a  new  entity:
-    In order to  establish a branch in  Vietnam, the foreign company  has to  have been operating  for  at  least five years;
-    It  takes  almost  the  same  time  to  establish a branch  as  it  takes  for  a  new enterprise  but  a branch  license  will  only be  valid  for five  years;
-    If  the enterprise  is more active  in  operation  and organization,  establishing  a  new  entity  is  more appropriate;
-   With an enterprise,  it is relatively easy to enlarge the  business as  well  as  the  operation  of  the company  by  for  example  opening  representative offices,  branches  or  sub-companies.

Representative  offices
The representative  offices of  foreign  business entities  are  not  allowed  t
-   Directly  conduct  profit making  activities  in  Vietnam  except  for  carrying  out commercial  promotion activities  within  the scope permitted  by  license and  laws,
-   Enter into commercial  contracts of the foreign  entity or to amend  or supplement  such contracts  already signed  except where  the chief of the representative office  has a valid power  of attorney from the foreign business entity.
representative  offices  are  not  recommended ,  as  the  restriction s  on  it s  operation provided  by Vietnamese  law .

d.   Business Cooperation Contract (BCC)
The  new  investment  law  also recognizes  foreign  investment  in the form of a  business  co-operation  contract. An investor is  permitted  to sign a BCC  in  order to cooperate  in  production and share profits or  to share products and  other forms of  business cooperation. An  investor  is permitted  to sign a  build-operate-transfer,  build-transfer-operate  and  build-transfer  contract  with  a  competent  State  body  in  order  to  implement projects  for  new  construction, expansion, modernization  and operation  of infrastructure  projects in the sectors of traffic,  electricity  production and  business,  water  supply or drainage,  waste treatment and  other sectors  as stipulated  by the Prime  Minister.

2.   Indirect foreign investment
The primary form of indirect foreign investment into Viet Nam is via the country's stock exchanges. Indirect investment in this form requires comparatively less regulatory approval than direct investment, concentrating on administrative requirements such as the establishment and registration of trading codes and accounts, and periodic disclosures.

Under  Vietnamese laws,  “foreign  investor” is  defined  as  either: (i) organizations  established  and operating  pursuant  to foreign  law and their  branches  both  overseas  and in Vietnam; or organizations  established  and operating in Vietnam with a capital contribution ratio of foreign parties above  forty-nine (49) percent,  (ii) Investment funds and securities investment companies  with  a capital contribution ratio of foreign parties above  forty  nine  (49)  percent, (iii) foreign  individuals  without  Vietnamese nationality, residing  overseas  or  in  Vietnam.

II.   List of  Sectors in  which  investment is conditional in Vietnam

Sectors in which  investment is subject  to conditions  are those  listed in Decree  108 and international  treaties of which  the Socialist republic of  Vietnam is  a member. Those sectors are  listed in  Vietnams WTO commitments. In particular, sectors  in  which  investment  is subject  to  conditions include:
-   Sectors  that impact national  defense  and  security,  social order  and  safety;
-   Banking and  finance;
-   Sectors  that impact on  public health;
-   Culture,  information,  the  press  and  publishing;
-   Entertainment;
-   Real  estate;
-   Surveying,  prospecting, exploration and  mining of  natural  resources;  the ecological  environment; and
-   Development of education and training,

In addition  to the sectors mentioned  above,  sectors in which  investment  is subject to  conditions  include those in  accordance  with  the  schedule  for implementation  of international  requirements  as stipulated  in international treaties of which  Vietnam is a member.  Where an enterprise with foreign-owned  capital is in a sector in which  investment  was  unconditional,  but  during  the course  of investment  activity the list of sectors in which  investment is  conditional was amended to include  the relevant  sector, the investor shall  be permitted to  continue  investment  activity  in  that sector.

For further information, please to contact Mr. Pham Thanh Tuan managing partner of VIETIN LAWYER, e-mail tuan.pham@vietinlaw.com.vn Tel (+ 84) 4 66809023 Mobile (+84) 904966448


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