Focus on rules of foreign investment in Vietnam

By Wang Jihong and Sun Lifeng, Zhong Lun Law Firm

Vietnam is the easternmost country on the Indochina Peninsula, which is bordered by China, Laos and Cambodia. It has advantageous natural conditions and rich mineral resources. Vietnam is a socialist state that officially espouses communism and is currently enjoying political stability. Since 1986, Vietnam has initiated a series of economic and political reforms and opening-up policies, and has embraced an economic development-centred policy that pushes it towards integration with the world economy.

Wang JihongPartnerZhong Lun Law Firm
Wang Jihong
Zhong Lun Law Firm

In November, 2006, Vietnam joined the World Trade Organization (WTO), and after that the Vietnamese economy has kept a high growth rate, with the annual GDP growth in 2015 and 2016 running at 6.7% and 6.2%, respectively, and economic forecasts for 2017 to achieve 6.3%.

Attracting foreign investment

With the rapid development of the economy, Vietnam is becoming more and more attractive for foreign investors. Besides the political stability and economic growth, there are other factors that make the country attractive, such as: (1) Relatively low wages. The population of Vietnam is relatively young, with 64.33 million people at working age out of a population of 91.9 million; (2) Advantageous geographic location. As a coastal country with 3,260km of coastline, Vietnam has major sea ports that provide transportation convenience for traders; (3) Relatively friendly investment legal framework. The laws in Vietnam provide comprehensive basic legal protection and preferential policies for foreign investors; (4) High degree of openness. Investors can take advantage of the ASEAN Economic Community, Trans-Pacific Partnership and other free-trade platforms to access the international market; and (5) Strong demand for infrastructure. With rapid economic development, the demand for infrastructure is increasing.

Legal framework

After joining the WTO in November 2006, Vietnam vigorously cleaned up domestic laws and regulations, and increased the attraction for foreign investment. The Law on Investment (LOI) 2014 and the Law on Enterprises (LOE) 2014 came into effect on 1 July 2015. These laws allow foreign investors to participate in economic investment activities in Vietnam, noting that investment in certain sectors, such as banking and insurance, must be subject to specialized laws and regulations.

Sun LifengSenior associateZhong Lun Law Firm
Sun Lifeng
Senior associate
Zhong Lun Law Firm

Local commercial presence

Under Vietnamese law, foreign investors may establish a commercial presence either wholly or partly owned by foreign investors. The commercial presence may be established in the form of a limited liability company, joint-stock company, partnership or representative office.

Under Vietnamese law, foreign investors may participate in BOT, BCC, BT and PPP projects. Under government decree 15/2015/ND-CP, dated 14 February 2015 (decree 15), the government expressly encourages investment in infrastructure facilities including roads, railways, air and sea ports, water supply and treatment, drainage, garbage and sewage treatment, power plants and transmission plants.

The LOI of 2014 provides for a new type of investment form: the public-private partnership (PPP). The PPP contract is not a legal entity, but a contractual agreement between investors and the competent state agency for implementation of an investment project for new construction, renovation, upgrade, expansion, management and operation of infrastructure facilities, or provision of public services.

There is no separate law on protection for foreign investments in Vietnam. However, foreign investment protection can be found in international investment agreements to which Vietnam is a signatory. In addition, the LOI 2014 includes various provisions that provide guarantees relating to foreign investors’ assets in Vietnam.

Pursuant to the provisions of the LOI 2014, lawful assets and invested capital of investors may not be nationalized or confiscated. The state may only nationalize or confiscate assets of a foreign investor in an actual necessity for the purpose of national defence and security, or the national interest. In such cases, the investor should be compensated at prevailing market prices. Compensation should be made on a non-discriminative basis and in a freely convertible currency that can be remitted abroad.

Foreign investors are also protected with respect to their intellectual property, market access, and the right to remit their capital and assets out of Vietnam. The LOI 2014, however, states that remittance of profit and other gains by foreign investors may only be done after satisfaction of financial obligations (including payment of taxes).

Chinese investors can also benefit from certain protections and guarantees under the bilateral investment protection treaty between Vietnam and China, which came into force on 1 September 1993.

Wang Jihong is a partner and Sun Lifeng is a senior associate at Zhong Lun Law Firm

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