Restrictions and conditional provisions for foreign investors in Vietnam In 2021.

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Restrictions and conditional provisions for foreign investors in Vietnam In 2021

As globalisation advances, Vietnam is increasingly recognised as an attractive and feasible destination for foreign investors to expand or establish operations. Although Vietnam is generally open and welcoming for foreign investment, investors are often unaware of restrictions and licensing requirements that can exist within Vietnam’s legal framework.

In this article, we delve into and explore conditions, restrictions and provisions regarding licenses and business lines attributed to foreign invested entities in Vietnam.

In order to issue approval for the investment activities of foreign investors, Vietnamese authorities rely on the legal principals and levels of legal framework as detailed below:

Level 1: Bilateral or multilateral official commitments/agreements where Vietnam adheres to as a member

  1. The international commitments which the Vietnam authorities usually refer to for consideration of market access allowance is the Schedule of Specific Commitments in Services resulting from the negotiations between the Socialist Republic of Viet Nam and Word Trade Organization Members (“WTO Commitment”). This document came into effect when Vietnam became a member of the World Trade Organization (“WTO”) in 2007 and based on its provisions, any foreign investor from a country which is a WTO member can refer to the WTO Commitment to check their capability of investment in Vietnam.
  2. Apart from the WTO Commitment, Vietnam has negotiated and executed multiple bilateral/multilateral commitments with other countries/ group of countries/ geographical or economical regions. For instance, the Free Trade Agreements between Vietnam and Japan (JVEPA), Vietnam and Eurasian Economic Union (“EVFTA”) or ASEAN (an organization of which Vietnam is a member) with China (“ACFTC”) and with Australia (AANZFTA). Where the foreign investor believes they may have a more favourable endow pursuant to a specific commitment between their country and Vietnam, in comparison with the WTO Commitment, the investor can refer to such commitment in seeking for Vietnam investment permission.

Level 2: National Laws

In addition to the conditions recorded at Level 1, investors seeking to undertake business activities in Vietnam are at times required to meet additional conditions stated in the national laws, in order to legally operate the business. These conditions may vary based on specific legal or licensing prerequisites, such as sublicense requirements, human resource conditions, enterprise type requirement, location stipulation or requirements for collaboration with local partners who are engaged in the same business lines in Vietnam.

In general, the national laws focus on two types of provisions directly correlated to business sectors: banned sectors and conditional sectors. As such, depending on each sector of investment, the foreign investor will be required to satisfy the above-mentioned conditions concurrently with the Level 1 process or to satisfy these prerequisites subsequent to setting up the legal entity in Vietnam.

Therefore, based on the two levels of legal framework, from an investment perspective, foreign investors seeking to operate in Vietnam can be more aware and understand the potential limitations they may encounter.

A. Limitations on Market Access Under the WTO Commitment

Under the WTO Commitment, a wide range of the sectors and business lines which investors most often pursue when entering Vietnam allow 100% foreign ownership, and others have specific requirements on limitation for foreign investors. Based on practical experience as well as the legal provisions, a general guideline is provided below regarding certain key investment sectors in Vietnam:

In the context of the WTO Agreement to which Vietnam is part of, licensed activities can be broken down into four different categories for foreign investors seeking to enter Vietnam:

  • Committed: Foreign investors can own 100% of an enterprise according to the WTO Agreement
  • Restricted: Ownership limits exist for foreign investment and other specific restrictions may apply
  • Unspecified: The sector is not mentioned in the WTO Commitment detailing whether it is “committed for foreign investors” or “uncommitted for foreign investors”, therefore it will require Ministerial Approval and potentially additional licensing procedures and conditions
  • Uncommitted: The sector is mentioned in the WTO Agreement as “uncommitted for foreign investors”, requiring Ministerial Approval and potentially additional licensing procedures and conditions

Examples of common investment sectors and status:

ItemInvestment SectorsUnder the WTO Commitment
Status on market access for commercial presenceAdditional requirements and in practice
1.Management consultancy servicesCommitted
2.General construction work for buildingsCommitted
3.Building completion and finishing workCommitted
4.Research and development services for natural sciencesCommitted
5.Food and Beverage (Restaurant)CommittedThere may be a location evaluation, with the opinion of the local People’s Committee going with before the hotel/motel can be approved or opened.
6.Hospitality (Hotels, Motels, etc)CommittedThere may be location evaluation and the local People’s Committee’s opinions before the hotel/motel being opened.
7.TourismRestricted· Foreign investment: <100%.

· Investment in form of Joint Venture (“JV”) with a Vietnamese partner

8.Distribution services, including import and export (except goods on the list of import prohibition and distribution in accordance to the provisions of Vietnamese laws or not restricted in international commitments under Treaties which Vietnam is a member)CommittedCigarettes and cigars, books, newspapers and magazines, video records on whatever medium, precious metals and stones, pharmaceutical products and drugs, explosives, processed oil and crude oil, rice, cane and beet sugar are excluded from the commitments
9.Advertising activitiesRestricted· Foreign investment: <100%.

· Investment form: JV with the Vietnamese partner who is licensed of advertising enterprise.

10.Passenger Transportation: (except inland transportation)Maritime Passenger

Transportation

Restricted· Foreign investment: ≤ 49%.

· Form of investment: JV for the purpose of operating a fleet under the national flag of Viet Nam JV.

Internal waterway Passenger Transportation· Foreign investment: ≤49%.

· Investment form: JV with Vietnamese partner

Road Passenger Transportation· Foreign investment: ≤49%.

· Investment form: Business Cooperation Contract (“BCC”) or JV with Vietnamese partner

· 100% drivers in the company are Vietnamese

11.Manufacturing servicesUnspecifiedPer common practice from authorities, this service is permitted for 100% foreign investment.

There may be location evaluation before the factory can be operated.

12.Employment Services Activity (Counselling; Supply and Recruitment)Unspecified
13.Human Resources Outsourcing ActivitiesUnspecified
14.Leasing or rental services concerning other machinery and equipment without operatorsUncommitted
15.Recording activitiesUncommitted
16.Secondary education servicesUncommitted
17.Freight transportationMaritime freight transportation less cabotageRestrictedIn case of establishment of registered company for the purpose of operating a fleet under the national flag of Viet Nam:

· Foreign investment: ≤49%.

· Investment form: JV with Vietnamese partner.

· Foreign seafarers may be permitted to work in ships under the national flag of Viet Nam owned by JV in Viet Nam but not exceeding 1/3 of total employees of the ships. The Master or first chief executive must be Vietnamese citizen

CommittedTo apply for foreign shipping companies only:

· Foreign investment: 100%

· Type of service: international maritime transportation

Internal waterways freight transportationRestricted· Foreign investment: ≤49%.

· Investment form: JV with Vietnamese partner

Road freight transportationRestricted· Foreign investment: ≤ 51% (Subject to the needs of the market)

· Investment form: JV or BCC with Vietnamese partner

· 100% drivers in the company have to be Vietnamese.

18.Container handling services, except services provided at airportsRestricted· Foreign investment: ≤ 50%

· Investment form: JV with Vietnamese partner

19.Storage and warehouse services (services auxiliary to all modes of transport)Committed
20.Freight transport agency servicesCommitted
21.E- commerce servicesUnspecified
22.Computer and related services (e.g. System analysis services; Data processing services; Maintenance and repair services of office machinery and equipment including computers, etc.)Committed
23.Real Estate activities (including buying, selling, renting, operating and managing residential/non-residential buildings)Unspecified
24.Real Estate Services activity (Real estate brokerage; Real estate trading floors; Real estate counselling; Real Estate management)Unspecified
25.Architectural services (Advisory and pre-design architectural services; Architectural design services; Contract administration services …)Committed
26.Architectural design and Graphic Design (excluding activities related to advertising services)Committed

*This list is by no means complete, but shows common restrictions that exist

B. Limitations on Market Access Under National Laws

In the context of the Vietnam national laws, licensed activities within business sectors can be broken categories for foreign and local investors seeking to operate in Vietnam:

Prohibited Sectors: According to Article 6 of Law on Investment 2020, the following activities in Vietnam are banned and the provision applies to both foreign and local companies. In particular, no company in Vietnam is permitted to perform:

  • Trading of narcotic substance
  • Trading of hazardous chemicals and minerals
  • Trading of specimens of wild flora and fauna
  • Prostitution
  • Human trafficking; trade in human tissues, corpses, human organs and human fetuses
  • Human cloning
  • Trading of firecrackers
  • Provision of debt collection services

Conditional Sectors: Apart from the licensing requirements from Level 1 according to the WTO Agreement, foreign investors sometimes need to meet additional, specific conditions related to certain sectors and activities. Therefore, foreign investors need to pass Level 2 approval under the Limitations of Market Access under the national laws, in order to be able to fully undertake the company operation according to Vietnam investment laws.

Consequently, before they can undertake the approved business activities, companies may be required to apply for specific sub-licenses or other types of licensing provisions as required by law for conditional sectors

Last updated on March 24, 2021

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