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Publishing date:
February 15, 2022


On 17 June 2020, the National Assembly of Vietnam promulgated the Law on Investment 2020 (“LOI 2020"), replacing the previous Law on Investment 2014 ("LOI 2014”). On 26 March 2021, the Vietnamese government issued Decree 31/2021/ND-CP ("Decree 31") guiding the LOI 2020. Decree 31 came into effect on the same date of promulgation, replacing instruments regulating similar matters – ie, Decree No 118/2015/ND-CP on onshore investment (“Decree 118”) and Decree No 83/2015/ND-CP on offshore investment.

LOI 2020 and Decree 31 have several new amendments to fix inadequacies in LOI 2014, as we will analyse below.

Market Entry Conditions for Foreign Investors Now More Transparent and Attractive

LOI 2020 issued the lists regarding business lines, investment sectors with limited access to foreign investors, namely: (i) business lines prohibited from investment (Article 6); and (ii) business lines subject to conditional business investment (Appendix II);

In comparison to LOI 2014, LOI 2020 has added debt collector services as a prohibited business and decreased from 243 to 227 conditional business lines, among which are many attractive business lines for foreign investors, such as logistics,

Following the issuance of LOI 2020, Decree 31 has promulgated two lists that are solely applicable to foreign investors, namely: (i) business lines with prohibited market access (Section A of Appendix I); and (ii) business lines with restricted market access (Section B of Appendix I).

Pursuant to this, foreign investors are prohibited from investment in 25 business industries and trades specified in Section A of Appendix I, and required to satisfy market entry conditions prior to investing in 59 industries and trades specified in Section B of Appendix I.

Under LOI 2014 and Decree 118, applicable to service sectors and sub-sectors for which Vietnam has not yet made any commitments or which are not prescribed in the Schedule of Specific Commitments of Vietnam to the WTO or international treaties on investment and for which the law of Vietnam does not yet have provisions on investment conditions applicable to foreign investors, the Department of Planning and Investment (DPI) shall obtain an opinion from the Ministry of Planning and Investment and branch managing ministries for its consideration and decision.

However, under Decree 31, if the foreign investor invests in a business sector to which Vietnam has not yet made any commitment under international treaties on investment and to which there are no provisions on market access restrictions applicable to foreign investors, it may apply the market access condition in the same way as the domestic investor. This is the significant change in LOI 2020 and Decree 31 in particular.

According to Decree 31, the principles applicable to the list of business lines with restricted market access above are:

  • if all foreign investors have different nationalities, the sum of their ownership ratio shall not exceed the highest ratio prescribed in a specific international treaty in regard to a specific business line;
  • if all foreign investors have the same nationality, the sum of their ownership ratio shall not exceed the highest ratio prescribed in an applicable specific international treaty for them;
  • if the company is active in many business lines with several conditions of ownership ratio, foreign investors’ ownership ratio shall not exceed the ratio in the business line with the lowest requirement;
  • if the company is the listed company, it shall have complied with the Law on Security.

Despite the improvement described above, some DPIs are still hesitant to grant the permit for foreign investors, in case they invest in a field which has not been committed to by Vietnam in any international agreements or which has no applicable condition for them, and continue to send the official letter to consult with the Ministry of Planning and Investment. However, it is undeniable that as it shifts from the principle of positive listing to the principle of negative listing, this provision of Decree 31 still contributes significantly to transparency and efficiency in foreign investor market access.

Investment Incentives and Supporting Policies Are More Intensive

The beneficiary eligible for investment incentives under Decree 31 is noticeably more extensive than the list under Decree 118. Notable additions include:

  • production of network security products and provision of network security services under cybersecurity laws, production of products derived from technological advances in accordance with science and technology laws;
  • development, operation and management of technical infrastructure in industrial complexes;
  • treatment and use of wastes from thermal power plants, chemical fertiliser plants and metallurgical plants to make building materials;
  • manufacture and sale of products obtained from findings of science and technology companies; and
  • innovative start-ups.

Furthermore, subject to the satisfaction of conditions for incentives, those investment projects are eligible for investment incentives. However, such incentives will merely be applied in the specific period under the laws.

Clarification of Applicable Principles and Conditions for Selection of Investor in the Case of Implementation of Projects Using Land

LOI 2020 has clearly regulated principles concerning conditions of investor selection for projects using land, especially:

  • auction of land-use rights in accordance with the Law on Land;
  • bidding for the selection of investors in accordance with the Law on Bidding;
  • approval of investors as prescribed in Article 29.3 and 29.4 of LOI 2020.

In fact, such regulation is the summary of the current regulations under the Law on Land, Law on Bidding and Law on Investment. However, comprehending LOI 2020 provides the single applicable principle for all cases, helping the foreign investor access Vietnamese investment law more efficiently.

Applicable Single In-Principal Approval of Investment for Housing and Urban Projects

Before 1 January 2021, according to the guidance of Resolution No 164/NQ-CP dated 5 November 2020, subject to the project’s capacity, including land area, capital sources, the investor was obligated to obtain either the approval of investment under Decree No 11/2013/ND-CP and Decree No 99/2015/ND-CP or the investment policy approval under investment law. The existence of two licensing mechanisms that existed simultaneously applied for the same type of projects with the exact same nature caused several obstacles for the investor.

From the enactment of LOI 2020, all housing and urban projects shall be applied uniformly to procedures of approval of the in-principal of investment according to LOI 2020. This amendment has remedied the previous duplication of authority and procedures for such projects.

Additional Cases to Apply for M&A Approval

Under LOI 2014 and Decree 118, the foreign investor is required to obtain the Merger & Acquisition Approval (“M&A Approval”) if it falls into one of the following cases:

  • a foreign investor makes a capital contribution to or purchases shares or a capital contribution portion in an economic organisation conducting business in a conditional industry or trade in respect of foreign investors;
  • the capital contribution or purchase of shares or a capital contribution portion results in a foreign investor or economic organisation prescribed in sub-clauses (a), (b) and (c) of Article 23.1 of LOI 2014 holding 51% or more of the charter capital of the economic organisation in the cases of increase of such charter capital ownership ratio by foreign investors from below 51% to 51% or more, or increase of such charter capital ownership ratio by foreign investors from their current 51% to higher than 51%.

LOI 2020 has now tightened the requirements for all investors to ensure national defence and security prior to their investment and maintained throughout the whole investment term, demonstrated by adding one more cases required to obtain M&A Approval. Accordingly, if the foreign investor acquires shares or contribution capital of a target company, which has already obtained land use-right certificates for the lands located within areas having an effect on national security – such as islands, borderlands and coastal areas – M&A Approval is compulsory prior to carry out the transaction.

In furtherance of clarifying conditions on areas affecting national defence and security, Decree 31 introduced the concept of “Other areas affecting national defence and security, except for implementing investment projects in industrial parks, export processing zones, high-tech zones and economic zones established under the Government's regulations”. The current interpretation of “Other areas affecting national defence and security” specified in Decree 31 is ambiguous, causing many hindrances for the foreign investor, target companies and also competent authorities to determine whether the target companies’ land falls in the security areas.

Additionally, determining whether a specific location is subject to "Other areas affecting national defence and security” is a complicated task due to the fact that there are many relevant legal documents, even internal documents of state agencies, which are not publicised.

Adjustment of the In-Principal Amended and Clarified

LOI 2020 has amended and supplemented the regulation in regard to adjustment of the in-principal if falling under the following cases:

  • the objectives set out in the written investment policy approval are changed, or objectives requiring investment policy approval are added;
  • the land-use area is changed by more than 10% or more than 30 hectares, or there is a change of investment location;
  • the total investment capital is changed by 20% or more, which changes the scale of the investment project;
  • the implementation schedule of the investment project is extended, and the total duration of investment in the project is more than 12 months beyond the implementation schedule of the investment project set out in the initial written investment policy approval;
  • the operational duration of the investment project is amended;
  • the technology which was appraised and on which opinions were collected during the process of investment policy approval is changed;
  • there is a change of the investor of the investment project as set out in the initial written investment policy approval provided at the same time as the investor was approved prior to exploitation or operation of the project, or there is a change of conditions (if any) applicable to the investor/s.

Stricter Foreign Ownership Threshold for Local Investor Status

Under LOI 2014, a foreign-invested enterprise (FIE) incorporated in Vietnam must satisfy the statutory conditions and follow the investment procedures applicable to foreign investors, namely: (i) an individual holding foreign nationality, or (ii) an organisation incorporated under foreign jurisdiction – if 51% or more of the FIE’s charter capital is held by:

(a) foreign investor(s); or

(b) an entity 51% or more of its charter capital is held by foreign investor(s); or

(c) both foreign investor(s) and entities described in item (b).

LOI 2020 decreases the threshold from 51% to 50%.

This is a strategic move of Vietnamese lawmakers, which makes it more difficult for foreign investors to take management control in a joint venture company for the purpose of enjoying investment conditions applicable to local investors.

More specifically, under LOI 2014, and in line with the Law on Enterprises 2014, a company with controlling foreign ownership of more than 50% but less than 51% charter capital is still treated as a local investor. However, with the change in the threshold, foreign investors can no longer hold a controlling majority of more than 50% of charter capital in the investing company (while enjoying the local investor status). The maximum charter capital ratio foreign investors may hold in the investing company is 50%, a threshold that strategically enables the local partners holding the remaining 50% to gain more decision-making power in the investing company.

Given this change, more sophisticated structures are needed so that the investors holding not more than 50% of charter capital in a Vietnam-based company may take control of decision-making power in the company while enjoying the local investor status.

Such strict regulations as prescribed above show the aim of the Vietnamese government toward quality foreign investment. Instead of receiving mass investment as before, the Vietnam government is focusing on attracting foreign investors with sufficient capacity of financing and experience to invest in Vietnam.

Regulations on Guarantee of the Execution of an Investment Project Now Amended and Clarified

In comparison to LOI 2014, regulations on the guarantee of the execution of the investment project have been made clearer. Accordingly, except for the following cases, the investor is required to provide a deposit or bank guarantee for deposit as the security for performance of the investment project:

  • the investor wins an auction of the land-use right in order to implement an investment project for which the state allocates land with collection of land-use fees, or leases land with collection of a one-off (lump sum) payment of rent for the whole term of the lease;
  • the investor wins tendering for implementation of an investment project using land;
  • the state allocates or leases land to the investor on the basis of receipt of assignment of an investment project for which an escrow deposit has already been provided, or for which the capital contribution or raising of capital has been completed in accordance with the schedule set out in the written IRC or investment policy approval;
  • The state allocates or leases land to the investor for implementation of an investment project on the basis of receipt of assignment of the land-use right and assets attached to land from another land user.

Furthermore, LOI 2020 also supplemented the investor’s obligations on adjustment of its deposit for guarantee as the security for performance of the investment project when the investment capital of the project is increased.

Ground for Termination of Investment Projects Clarified and Adjusted

LOI 2020 clearly differentiates two groups of circumstances for termination of an investment project: those induced by the investors and those decided by the licensing authorities.

For the latter, LOI 2020 supplements two new circumstances for the licensing authorities to terminate the whole or a part of investment projects. This includes, firstly, projects implemented on the basis of sham transactions. Secondly, investment projects whose investors failed to deposit money or be guaranteed for the deposit can also be terminated if the projects are subject to compulsory deposit before implementation.

Additionally, LOI 2020 provides for termination of an investment project if the land on which it is based is revoked due to the investor’s failure to utilise, or delay in utilising, such land in accordance with the land laws. Previously, these reasons were not clearly specified, leading to the termination of projects involving any type of land revocation. The change under LOI 2020 may accordingly protect the investors who voluntarily return the land to the authorities (as part of other investment activities), among other reasons for land revocation, from getting their projects terminated

Several Decrees Adjusted in Accordance with Decree 31

Following the amendment of LOI 2020 and Decree 31, several decrees have been adjusted under Decree 31, such as the following

Decree 46/2014/ND-CP regarding collection of land rent and water surface rent: for investment projects specified in Article 20.2 of LOI 2020, the Prime Minister shall decide that the land rent and water surface rent exemption period shall not exceed 1.5 times the applicable duration of exemption of land rent, water surface rent specified at Article 19.3.d of Decree 46/2014/ND-CP and not exceed the duration of the investment project.

Decree 52/2020/ND-CP regarding golf course investment and business: procedures for approving investment policies, granting investment registration certificates, approving investors, adjusting golf course projects have been amended.

Decree 25/2020/ND-CP regarding the elaboration of some articles of the law on bidding on investor selection: regulations on scopes, conditions for determining investment projects using land; regulations on the creation of the list of investment projects using land which are subject to or not subject to the in-principal investment have been adjusted.

Decree 11/2013/ND-CP regarding investment management of urban development: regulations on collecting opinions on the appraisal of urban area projects, abolishing investment approval procedures has been adjusted according to LOI 2020.

Decree 99/2003/ND-CP promulgating the regulation on high-tech parks: regulations on export-processing companies, powers and obligations of the management board of a high-tech zone.


As the above analysis shows, LOI 2020 and Decree 31 (with several amendments) are specially designed to help make Vietnam more selective in attracting foreign investments. Although being deeply affected by the COVID-19 pandemic, Vietnam is still a market attracting much attention from international investors.

According to statistics of the Ministry of Planning and Investment, as from 1 January 2021 to 20 November 2021, the total newly registered and adjusted capital and paid-in capital for share purchase by foreign investors has reached USD26.46 billion, 0.1% higher than the same period in 2020. The newly registered and adjusted capital continued to increase while paid-in capital for share purchase continued to decrease.

Regarding business sectors, foreign investors had invested in 18 of the 21 sectors in the national economic classification system, among which processing and manufacturing led, with total investment capital of over USD14 billion, accounting for 53% of total registered investment capital. Although electricity production and distribution attracted a small number of new and adjusted projects and paid-in capital for the share purchase, with large-scale projects, it ranked second with investment capital of over USD5.7 billion, accounting for 21.6% of total registered investment capital. It was followed by the real estate business, wholesale and retail, with a total registered capital of USD2.41 billion and USD1.27 billion, respectively. Regarding new projects, processing and manufacturing accounted for 30.5% of the total, wholesale and retail was 28.2%, with professional activities, science and technology accounting for 16.5%.

In terms of counterparties, 100 countries and territories were investing in Vietnam in the first 11 months of 2021. Singapore led the list with a total investment capital of USD7.6 billion, accounting for 28.7% of total investment capital in Vietnam, which was down by 5.9% compared to the same period in 2020. The Republic of Korea ranked second with USD4.36 billion, accounting for 16.5% of the total investment capital, up by 17.6% compared to the same period last year. Japan ranked third with registered investment capital of USD3.7 billion, accounting for 14% of the total investment capital, and increased 54% over the same period last year. The next largest investors were China, Hong Kong and Taiwan.

With the Vietnamese government’s ongoing efforts to contain the spread of COVID-19, together with some significant amendments of LOI 2020 and Decree 31 – as described above – we believe that Vietnam is still an attractive market for foreign investors in the 2022.

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