Restrictions and Conditional Provisions for Foreign Investors in Vietnam

As globalisation advances, Vietnam is increasingly recognised as an attractive and feasible destination for foreign investors to expand or establish operations. Although Vietnam is generally open and welcoming for foreign investment, investors are often unaware of restrictions and licensing requirements that can exist within Vietnam’s legal framework.

In this article, we delve into and explore conditions, restrictions and provisions regarding licenses and business lines attributed to foreign invested entities in Vietnam.

In order to issue approval for the investment activities of foreign investors, Vietnamese authorities rely on the legal principals and levels of legal framework as detailed below:

Level 1: Bilateral or multilateral official commitments/agreements where Vietnam adheres to as a member

1. The international commitments which the Vietnam authorities usually refer to for consideration of market access allowance is the Schedule of Specific Commitments in Services resulting from the negotiations between the Socialist Republic of Viet Nam and Word Trade Organization Members (“WTO Commitment”). This document came into effect when Vietnam became a member of the World Trade Organization (“WTO”) in 2007 and based on its provisions, any foreign investor from a country which is a WTO member can refer to the WTO Commitment to check their capability of investment in Vietnam.
2. Apart from the WTO Commitment, Vietnam has negotiated and executed multiple bilateral/multilateral commitments with other countries/ group of countries/ geographical or economical regions. For instance, the Free Trade Agreements between Vietnam and Japan (JVEPA), Vietnam and Eurasian Economic Union (“EVFTA”) or ASEAN (an organization of which Vietnam is a member) with China (“ACFTC”) and with Australia (AANZFTA). Where the foreign investor believes they may have a more favourable endow pursuant to a specific commitment between their country and Vietnam, in comparison with the WTO Commitment, the investor can refer to such commitment in seeking for Vietnam investment permission.

Level 2: National Laws

In addition to the conditions recorded at Level 1, investors seeking to undertake business activities in Vietnam are at times required to meet additional conditions stated in the national laws, in order to legally operate the business. These conditions may vary based on specific legal or licensing prerequisites, such as sublicense requirements, human resource conditions, enterprise type requirement, location stipulation or requirements for collaboration with local partners who are engaged in the same business lines in Vietnam.

In general, the national laws focus on two types of provisions directly correlated to business sectors: banned sectors and conditional sectors. As such, depending on each sector of investment, the foreign investor will be required to satisfy the above-mentioned conditions concurrently with the Level 1 process or to satisfy these prerequisites subsequent to setting up the legal entity in Vietnam.

Therefore, based on the two levels of legal framework, from an investment perspective, foreign investors seeking to operate in Vietnam can be more aware and understand the potential limitations they may encounter.

A. Limitations on Market Access Under the WTO Commitment

Under the WTO Commitment, a wide range of the sectors and business lines which investors most often pursue when entering Vietnam allow 100% foreign ownership, and others have specific requirements on limitation for foreign investors. Based on practical experience as well as the legal provisions, a general guideline is provided below regarding certain key investment sectors in Vietnam:

In the context of the WTO Agreement to which Vietnam is part of, licensed activities can be broken down into four different categories for foreign investors seeking to enter Vietnam:

• Committed: Foreign investors can own 100% of an enterprise according to the WTO Agreement
• Restricted: Ownership limits exist for foreign investment and other specific restrictions may apply
• Unspecified: The sector is not mentioned in the WTO Commitment detailing whether it is “committed for foreign investors” or “uncommitted for foreign investors”, therefore it will require Ministerial Approval and potentially additional licensing procedures and conditions
• Uncommitted: The sector is mentioned in the WTO Agreement as “uncommitted for foreign investors”, requiring Ministerial Approval and potentially additional licensing procedures and conditions

Examples of common investment sectors and status: