Vietnam continues to attract strong foreign direct investment (FDI) thanks to its rapid economic growth, stable political environment, and active participation in international trade agreements such as CPTPP, EVFTA, and RCEP. Alongside favorable economic conditions, the legal framework for foreign investment has been significantly updated with the Law on Investment 2020 (effective from January 1, 2021) and subsequent guiding decrees.
Foreign investors entering Vietnam must carefully assess which investment form best suits their business objectives, level of control, and risk appetite. Each form comes with distinct legal requirements, advantages, and restrictions. This article explores the main investment forms recognized under Vietnamese law and highlights essential legal notes for foreign investors.
Legal Framework Governing Investment
The principal laws regulating foreign investment in Vietnam include:
- Law on Investment 2020 (No. 61/2020/QH14)
- Decree 31/2021/ND-CP guiding the Law on Investment
- Law on Enterprises 2020 for corporate establishment and management
- Civil Code 2015 and Commercial Law 2005 for contract principles
- Specialized sectoral regulations in fields such as banking, energy, real estate, and telecommunications
These legal instruments provide the foundation for recognizing and administering the four main investment forms available to foreign investors.
Forms of Investment Recognized by Vietnamese Law
- Establishment of an Economic Organization
Foreign investors may directly establish enterprises in Vietnam, typically in the form of:
- Limited Liability Company (LLC) – either single-member or multi-member
- Joint-Stock Company (JSC)
- Partnership
- Private Enterprise (rarely chosen by foreigners due to unlimited liability)
This is the most common form of investment, offering full operational autonomy and long-term stability. However, it requires compliance with market access conditions, investment registration procedures, and ongoing corporate governance obligations.
Key Legal Notes:
- Certain sectors are subject to foreign ownership caps (e.g., banking, aviation, publishing, telecom services with infrastructure).
- Foreign investors must obtain an Investment Registration Certificate (IRC) and an Enterprise Registration Certificate (ERC) before commencing operations.
- Corporate governance is regulated under the Law on Enterprises, requiring compliance with rules on shareholders, members, management, and reporting.
- Investment through Capital Contribution, Share Purchase, or Purchase of Capital Contributions
Instead of setting up a new company, foreign investors may invest by acquiring equity in existing Vietnamese enterprises. This can take the form of:
- Contributing additional capital to increase charter capital
- Purchasing shares in a joint-stock company
- Purchasing capital contributions in a limited liability company
This form allows faster market entry, often used in mergers and acquisitions (M&A).
Key Legal Notes:
- If the acquisition results in foreign ownership exceeding 50% of charter capital, the investor must undergo a formal approval process at the Department of Planning and Investment.
- Sectors subject to conditional market access (such as education, logistics, real estate) require additional approvals.
- Compliance with competition law (e.g., merger control thresholds) may also apply for large transactions.
- Investment under Business Cooperation Contracts (BCC)
A BCC is a contractual arrangement between investors to jointly conduct business and share profits or products without creating a separate legal entity.
Key Legal Notes:
- BCCs are widely used in oil & gas, telecommunications, and infrastructure projects.
- For foreign investors, registration of the BCC and obtaining an IRC is mandatory.
- As the BCC does not create a separate entity, investors remain directly liable for obligations with their own assets.
This form offers flexibility but entails higher risks and requires very careful drafting of the contract.
- Investment under Public-Private Partnerships (PPP)
PPP contracts involve collaboration between the State and private investors to implement infrastructure or public service projects.
Key Legal Notes:
- Governed by the Law on PPP Investment 2020, separate from the Law on Investment.
- Applicable to sectors such as transport, power generation, water supply, waste treatment, healthcare, and education.
- Investors may recover capital through tariffs, availability payments, or other State support mechanisms.
PPP projects are complex but provide significant opportunities for large-scale foreign investment.
Key Legal Considerations for Foreign Investors
Market Access and Negative List
The Law on Investment 2020 introduces a “negative list” approach, whereby foreign investors are free to invest in all sectors not explicitly prohibited or restricted. However, 25 business lines remain off-limits (e.g., narcotics, human trafficking, certain chemicals) and many are conditional for foreign investors (e.g., logistics, finance, advertising).
Investment Approval Procedures
Depending on the investment form, foreign investors may need to obtain:
- Investment Registration Certificate (IRC)
- Enterprise Registration Certificate (ERC)
- Additional permits or licenses (e.g., business license for retail distribution, operation license for finance).
Land and Real Estate Restrictions
Foreign-invested enterprises cannot directly own land but may lease land from the State or enter into joint ventures with Vietnamese partners. Restrictions also apply to foreign ownership of residential property and land-use rights.
Capital Contribution and Foreign Exchange Control
Capital contributions must be made via a direct investment capital account (DICA) in foreign currency. Contributions must be completed within 90 days of enterprise registration. Repatriation of profits is allowed but subject to tax clearance.
Taxation
Foreign-invested enterprises are subject to Vietnamese tax law, including corporate income tax (CIT) at 20%, VAT, personal income tax (PIT) for employees, and other sector-specific taxes. Vietnam also offers tax incentives for priority sectors (e.g., high-tech, R&D, renewable energy).
Dispute Resolution
Investors should specify dispute resolution mechanisms in contracts. Vietnam recognizes both domestic arbitration (VIAC) and foreign arbitration awards under the New York Convention. However, practical enforcement may require careful structuring.
Practical Recommendations for Foreign Investors
To ensure compliance and mitigate risks, foreign investors should:
- Conduct thorough legal due diligence before entering into any investment arrangement
- Assess sector-specific conditions and restrictions carefully
- Draft investment agreements with clear dispute resolution clauses
- Ensure proper reporting and compliance with tax, labor, and foreign exchange regulations
- Engage local legal counsel with expertise in investment law and cross-border transactions
Role of La Défense in Supporting Foreign Investors
At La Défense, we provide comprehensive legal services to foreign investors entering the Vietnamese market, including:
- Advising on the most suitable investment form for each project
- Conducting due diligence and risk assessments
- Drafting and reviewing investment contracts, shareholder agreements, and BCCs
- Obtaining investment approvals, permits, and licenses
- Advising on compliance, tax planning, and dispute resolution
With our deep knowledge of Vietnamese law and experience in cross-border investment, we help investors establish and operate their projects in Vietnam securely and efficiently.
Vietnam’s legal framework now provides diverse and transparent investment forms for foreign investors, from setting up wholly-owned enterprises to acquiring shares, entering into BCCs, or joining PPP projects. However, the choice of form depends on regulatory conditions, sector-specific restrictions, and the investor’s strategic objectives.
Foreign investors must carefully evaluate legal requirements, conduct due diligence, and seek expert legal counsel to ensure that their entry into Vietnam’s market is both legally sound and commercially viable.
Read more other relevant articles:
- Implementation of Investment Projects under the Law on Investment 2020: Legal Provisions and Distinctions between Domestic and Foreign Investors
- Public–Private Partnership (PPP) Investment in Vietnam: Legal Framework, Procedures, and Key Considerations for Foreign Investors
- Investment in the form of Business Cooperation Contracts (BCC)