The establishment of economic organizations in Vietnam by foreign investors is one of the most common forms of international investment. However, this process entails various legal issues related to conditions, procedures, and investment limitations.
1.Definition
– A foreign investor is an individual with foreign nationality or an organization established under foreign laws conducting investment and business activities in Vietnam.
– An economic organization is an entity established and operating in accordance with Vietnamese law, including enterprises, cooperatives, unions of cooperatives, and other organizations conducting investment and business activities.
– An economic organization with foreign investment capital is one that has foreign investors as members or shareholders.
2. Investment in the establishment of economic organizations
According to the Law on Investment 2020, foreign investors are allowed to invest in Vietnam through various forms, among which establishing an economic organization is a common direct investment method. This form of investment requires the investor to meet specific conditions on business lines, capital ownership ratio, and investment procedures. In the context of increasingly improving legal regulations, selecting and complying with the proper form of investment is not only a mandatory requirement but also a key to enabling foreign investors to access the Vietnamese market in a sustainable and efficient manner. Specific notes for foreign investors investing in the establishment of economic organizations are regulated as follows:
– Foreign investors establishing economic organizations must satisfy the market access conditions applicable to foreign investors under Article 9 of the Law on Investment 2020. Accordingly:
• Foreign investors shall be subject to the same market access conditions as domestic investors, except for industries and trades with restricted market access for foreign investors, including: trades not yet open to market access; trades with conditional market access.
• Market access conditions applicable to foreign investors specified in the List of sectors and trades with restricted market access may include: ownership ratio of charter capital by foreign investors in economic organizations; form of investment; scope of investment activities; investor capacity; participating partners in investment activities; and other conditions as prescribed by laws, resolutions of the National Assembly, ordinances, resolutions of the National Assembly Standing Committee, Government decrees, and international treaties to which the Socialist Republic of Vietnam is a member.
– Prior to the establishment of an economic organization, a foreign investor must have an investment project and carry out procedures for issuance or adjustment of the Investment Registration Certificate, except in cases of establishing a small and medium-sized enterprise (SME) engaged in innovative start-up activities or an innovative start-up investment fund in accordance with the law on support for SMEs.
– From the date of issuance of the Enterprise Registration Certificate or an equivalent legal document, the economic organization established by the foreign investor is considered an investor implementing the investment project as stipulated in the Investment Registration Certificate.
3. Investment activities by economic organizations with foreign investment capital
– An economic organization must meet the conditions and carry out investment procedures applicable to foreign investors when investing in the establishment of another economic organization; contributing capital, purchasing shares, or acquiring capital contributions of another economic organization; or investing in the form of a Business Cooperation Contract (BCC), if the economic organization falls into any of the following cases:
• A foreign investor holds more than 50% of charter capital, or a majority of general partners are foreign individuals in the case of a partnership;
• An economic organization specified at Point a, Clause 1, Article 23 of the Law on Investment 2020 holds more than 50% of charter capital;
• A foreign investor and the economic organization specified at Point a, Clause 1, Article 23 of the Law on Investment 2020 jointly hold more than 50% of charter capital.
– An economic organization not falling into the cases specified in Points a, b, and c, Clause 1, Article 23 of the Law on Investment 2020 shall carry out investment procedures applicable to domestic investors when investing in the establishment of another economic organization; contributing capital, purchasing shares, or acquiring capital contributions of another economic organization; or investing in the form of a BCC contract.
– An economic organization with foreign investment capital already established in Vietnam, if having a new investment project, shall carry out investment procedures for such project without necessarily establishing a new economic organization.
Through this article, TLA Law Firm has provided investors with an overview of the key legal considerations when pursuing this form of investment. If you have any related questions or concerns, please do not hesitate to contact TLA for timely and effective legal consultation and support.
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1. Lawyer Vu Thi Phuong Thanh, Manager of TLA Law LLC, Ha Noi Bar Association
Email: vtpthanh@tlalaw.vn
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Email: tmle@tlalaw.vn.
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