Foreign investment: what you need to know

Workers at a production line of a foreign pharmaceutical firm in Viet Nam.- Photo baodauthau.vn

Foreign direct investment prohibition

In December 2014, Vietnam passed Investment Law No 67/2014/QH13 dated November 26, 2014, (Investment Law 2014) with various changes aiming to boost the investment environment. Inter alia, a highlight is that Vietnam has been implementing a “negative list” to replace the “positive list,” as previously approached, which means that foreign businesses are allowed to operate in all areas except for six prohibited sectors:

- Dealing with certain types of drugs

+ Dealing with certain types of chemicals or minerals

+ Dealing with a range of specimens of wild fauna or flora included in Schedule 1 of the Convention on International Trade in Endangered Species and specimens of species of endangered and rare wild fauna or flora in the natural origin Category 1

+ Business in prostitution

+ Purchase or sale of humans, tissues or parts of the human body

+ Activities relating to asexual reproduction

+ Firecracker business

The barriers are also provided in Vietnam’s WTO Commitments. Sectors closed to foreign direct investment according to Vietnam’s WTO commitments include:

+ Refuse collection directly from households

+ Sales and marketing of air product services, computer reservation services (airlines may provide these services through their ticketing offices or agents)

+ Veterinary services (natural persons engaging in private professional practice under the authorisation of veterinary authorities)

+ Outbound services of travel agents and tour operators

Conditional foreign direct investment

In addition to these, Investment Law 2014 promulgates a list of 267 sectors that are opened to foreign investment, provided the investors satisfy certain conditions, such as the amount of capital, ownership percentage and investment form, among others, as prescribed by the domestic laws. Accordingly, foreign investors and foreign-owned companies may be subject to different licensing procedures and formalities.

Recently, the Foreign Investment Agency of the Ministry of Planning and Investment published the list of foreign investment conditions on its website https://dautunuocngoai.gov.vn/fdi/nganhnghedautu.

The website centralises the investment conditions that foreign investors need to comply with, including details on the conditions applicable to 18 services and business sectors in which foreign investment is deemed to be “conditional”. The English version of the portal can be found at dautunuocngoai.gov.vn/Home/en.

Foreign direct investment limitation

Foreign investment ownership permitted in a project depends on a number of factors, including Vietnam’s international commitments and the sectors in question. Details of the limitation are mainly provided in Vietnam’s WTO Commitments and some local laws which govern a number of business sectors. The following sectors are those where foreigner investment ownership is limited according to Vietnam’s WTO Commitments:

+ Advertising services with no minimum Vietnamese shareholding threshold in the joint venture

+ Services incidental to agriculture, hunting and forestry with minimum Vietnamese shareholding threshold of 49 per cent

+ Telecommunication services (including basic services and value-added services) with minimum Vietnamese shareholding threshold ranging from 30 per cent to 51 per cent, and depending on the relevant services

+ Motion picture production, distribution and projection service with minimum Vietnamese shareholding threshold of 49 per cent

+ Banking services (foreign investor acquiring shares of a Vietnamese commercial joint stock bank is only allowed to hold 30 per cent of the charter capital of the target bank, unless the government has granted special approval for bigger foreign ownership)

+ Travel agencies and tour operator services with no minimum Vietnamese shareholding threshold in a joint venture

+ Entertainment services (theatre, live bands and circus services) with minimum Vietnamese shareholding threshold of 51 per cent

+ Electronic games business with minimum Vietnamese shareholding threshold of 51 per cent

+ Operating a fleet under the national flag of Viet Nam with minimum Vietnamese shareholding threshold of 51 per cent

Container handling services with minimum Vietnamese shareholding threshold of 50 per cent

+ Customs clearance services with no minimum Vietnamese shareholding threshold in the joint venture

+ Internal waterways transport with minimum Vietnamese shareholding threshold of 51 per cent

+ Rail transport services with minimum Vietnamese shareholding threshold of 51 per cent

+ Freight transportation services by road with minimum Vietnamese shareholding threshold of 49 per cent

+ Other services auxiliary for all modes of transport (part of CPC 749) with no minimum Vietnamese shareholding threshold in the joint venture.

In addition to the list, foreign investment is also subject to a broad range of conditions and limitations set forth by the local regulations, especially those that are not specified or provided in detail in Vietnam’s WTO Commitments. An in-depth research into local laws is highly recommended to avoid any unexpected situation during the execution of any investment plan.