Skip to main content

Significant updates lift foreign investment restrictions in Vietnam under CPTPP from 14 January 2024.

Written on .
Significant updates lift foreign investment restrictions in vietnam under cptpp from 14 january 2024

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) is a multilateral trade agreement designed to foster economic integration among its signatory nations. This Free Trade Agreement involves twelve countries: United States, Canada, Mexico, Peru, Chile, New Zealand, Australia, Japan, Singapore, Brunei, Malaysia, and Vietnam, where Vietnam officially joined the CPTPP on 14 January 2019.

As of 14 January 2024, the CPTPP has been in effect for five years, during which time it has brought about significant changes and impacts across various sectors within member countries. Notably, 14 January 2024 also marked the initiation of Vietnam’s commitment to lifting foreign restrictions in selected sectors for fellow CPTPP member countries, a key milestone with a significant impact on Vietnam’s foreign investment landscape. In this article, we delineate some of the major regulatory changes and statutory updates relevant to foreign investment in Vietnam, reflecting activities, sectors and market segments.

Significant updates lift foreign investment restrictions in Vietnam under CPTPP

We have selected in the table below some of the key changes for selected sectors of investment, with the relevant statutory updates for market entry for Telecom, Electronic games, Retail and Financial Services:

Selected sectorsInvestment conditions under CPTPP
Before 14 January 2024From 14 January 2024
Telecom, non-facilities-based servicesForeign investment was capped at 65-70%, depending on specific activitiesRemoved foreign ownership limitation, i.e., allow up to 100% foreign ownership
Telecom, facilities-based valued added servicesForeign ownership was capped at 51%Increased the foreign equity limit to 65%
Electronic games servicesForeign investment must be in the form of business cooperation contracts, joint ventures, or share purchases in Vietnamese enterprises, with a foreign equity limit of 49%Removed foreign ownership limitation, i.e., allow up to 100% foreign ownership
RetailThe Economic Needs Test (ENT) is required for a second or subsequent retail outletRemoved the ENT requirements
Financial servicesForeign ownership of more than 49% to less than 100% or fund management companies needs to obtain approval by the Vietnamese government, which involves specific conditions.Removed the conditions in the approval process
Technical testing and analysis servicesForeign investment was not allowedAllowed unrestricted foreign ownership

Telecommunications services

For non-facilities-based services (applicable for basic services and value-added services), foreign investment is allowed through joint ventures or share purchases in Vietnamese enterprises, with foreign equity capped at 65% for most services and 70% for virtual private networks before 14 January 2024. Under the CPTPP agreement, starting 14 January 2024, foreign equity limitations will be removed. This means that foreign investors will no longer face restrictions on the amount of ownership they can have in enterprises located in Vietnam which provide the mentioned services.

Additionally, according to the draft Telecommunication Law in Vietnam, which is expected to be formally released in the immediate period and effective from 1 July 2024, data centers and cloud computing services will not be subject to any foreign equity restrictions. This means that foreign investors will have the freedom to fully own and operate data centers and cloud computing services in Vietnam without limitations on their ownership.

These changes aim to attract more foreign investment, promote competition, and foster the growth of the telecommunications sector in Vietnam.

For facilities-based services (applicable for value added services), before 14 January 2024, foreign investment in Vietnam was typically only allowed through joint ventures or the purchase of shares in licensed Vietnamese enterprises, with foreign equity limited to 51%. However, starting 14 January 2024, Vietnam increases the permissible foreign equity to up to 65%.

Electronic games businesses

Before 14 January 2024, foreign investment in electronic games services was allowed through business cooperation contracts, joint ventures, or share purchases in Vietnamese enterprises, and the foreign equity limit was set at 49%. However, from 14 January 2024, Vietnam will remove this limitation on foreign equity. However, compliance with Vietnam’s laws and regulations, including registration and licensing requirements, still remains mandatory.

Distribution services, retail outlets

Before 14 January 2024, foreign owned companies that wished to establish a second or subsequent retail outlet in Vietnam were subject to the Economic Needs Test (ENT), which evaluates various factors including the number of existing suppliers, market stability, and geographic scope. The ENT does not apply to retail outlets with an area of less than 500 m2 in a shopping center and are not convenience stores or mini supermarkets.

From 14 January 2024, the ENT requirements were eliminated for retail outlets for investors part of CPTPP operating in Vietnam. These changes aim to streamline the process of establishing retail outlets and promote market efficiency in Vietnam’s distribution services sector.

State Capital Investment Corporation (SCIC) and its subsidiaries

The State Capital Investment Corporation (SCIC) is a government-owned organisation in Vietnam that manages state-owned businesses. Its goal is to make these businesses more transparent, efficient, and competitive. SCIC aims to increase the value of these companies, attract investment, and contribute to the country’s economic growth.

Under CPTPP, member countries must ensure that their state-owned enterprises adhere to specific principles during commercial activities. These principles include acting in accordance with commercial considerations when purchasing or selling goods and services, except when fulfilling public service mandates. Additionally, member countries commit to providing equitable treatment in transactions compared to enterprises from other CPTPP nations. They also pledge not to adversely affect fellow member countries by providing non-commercial assistance to their state-owned enterprises.

Before 14 January 2024, the CPTPP exempts Vietnam from these obligations (as specified in Article 17.4 and Article 17.6) regarding asset management, investment, and related activities of SCIC involving its financial assets. However, from 14 January 2024, this exemption no longer applies.

Financial services

Prior to January 2024, Foreign investors seeking to own more than 49% but less than 100% of a securities company or a fund management company in Vietnam were required to obtain approval from the Vietnamese government, where the approval process reflected specific conditions and restrictions. However, from 14 January 2024, these conditions were removed under CPTPP.

Online consumer/information protection

The CPTPP agreement acknowledges that each country may have its own rules for transferring information online, however, it permits the cross-border transfer of information, including personal data, when it is necessary for business purposes. Vietnam and other member countries are allowed to have measures that are not completely in line with information transfers, as long as these measures are not discriminatory and do not impose unnecessary restrictions.

Similarly, countries may have their own regulations regarding the use of computing facilities to ensure secure communication. However, they cannot require businesses to use or locate their computing facilities in a specific country as a condition for doing business, except for legitimate public policy reasons that are not discriminatory or overly restrictive.

Technical testing and analysis services

Commencing on 14 January 2024, Vietnam will allow private suppliers of technical testing and analysis services unrestricted foreign ownership. This change opens up a previously closed sector, limited to governmental authorities. The move promotes competition, attracts foreign investment, and encourages innovation in the sector, benefiting both domestic and international service providers.

Conclusion

January 2024 brought significant changes for the benefit of foreign investors operating in selected sectors in CPTPP member countries. These regulatory updates aim to facilitate trade and investment among member countries while providing a framework for fair competition and market access.

However, to enjoy these improvements, foreign investors investing in Vietnam must follow domestic regulations and the official guidelines of relevant authorities to implement and legalise these statutory updates in the CPTPP. For instance, in the retail distribution industry, although the ENT requirements have been removed under the CPTPP, there is still no internalization regulation and application framework, resulting in the ENT process still being applied even after 14 January 2024.

Therefore, it is crucial for businesses to consult with relevant authorities and experts to understand the specific requirements and implications of these regulations in their respective sectors and countries.

If you need any assistance with these or any other matters with respect to market entry and licensing provisions in Vietnam, to ensure you are compliant and protected in the market, our experts are ready to support you.

Thao Nguyen, Head of Licensing, Market Entry and Secretarial Services – thao.nguyen@acclime.com

Duyen Nguyen, Senior Associate – Licensing, Market Entry and Corporate Services – duyen.nguyen@acclime.com

Hong Luong, Junior Associate – Licensing, Market Entry and Corporate Services – hong.luong@acclime.com

Rizwan Khan, Managing Partner – r.khan@acclime.com

Updated on March 29, 2024

Get exclusive content and expert advice to your inbox.

Subscribe to our newsletter and stay up to date with the latest information regarding advancing your business in Vietnam.

Newsletter subscription