Forms of investment in Vietnam according to the legal regulations

1. Forms of investment

Currently, according to Law on Investment 2020, there are 5 forms of investment in Vietnam as follows:

• Investment in establishment of a business entity.

• Investment in the form of capital contribution or purchase of shares or stakes.

• Execution of an investment project.

• Investment in the form of a business cooperation contract.

• New forms of investment and types of business entities prescribed by the regulations of the Government.

1.1. Investment in establishment of a business entity

The form of investment to establish an economic organization will lead to the birth of a new economic organization independent of the investor's legal status. According to regulations, investors, including both domestic and foreign investors, are entitled to carry out procedures to establish economic organizations in accordance with current laws. In which, domestic investors invest in establishing economic organizations in accordance with the provisions of the law on enterprises and the law corresponding to each type of economic organization.

- Advantages of this form:

• Establishing a new economic organization foreign investors will have legal status in Vietnam, making it easier for them to exercise their rights.

• No size limit. Profit and liability of the company will be divided according to the proportion of capital contributed by each party, so it is fair.

- Disadvantages of this form:

• The procedure is complicated and the time will be longer because in addition to complying with the investment law, it must also comply with the provisions of Law on enterprise.

• Along with that, it is necessary to comply with the business obligations prescribed by law.

This is the investment form chosen by many investors because it will ensure the best rights and interests of investors.

1.2. Investment in the form of capital contribution or purchase of shares or stakes

Law on Investment 2020 stipulates that investors have the right to contribute capital, buy shares and purchase capital contributions from economic organizations. Foreign investors making investment by contributing capital, purchasing shares and purchasing stakes of business entities must:

• Satisfy market access conditions applied to foreign investors of Law on Investment 2020.

• Ensure national defense and security in accordance with the Law on Investment 2020.

• Comply with regulations of the law on land and conditions for receipt of land use rights and conditions for use of land on islands or border or coastal communes.

In addition, regulations on cases where investors carry out procedures for registration of capital contribution, purchase of shares and capital contribution to economic organizations also change compared to the previous law.  Law on Investment 2020 has adjusted the criteria for determining foreign-invested economic organizations based on the holding of charter capital of 51% or more into the holding of charter capital of 50% or more to ensure consistent with and consistent with regulations on the level of controlling shares as prescribed in Article 26(2)(b) of the Law on Enterprises 2020.

The new law also adds the case "Foreign investors contribute capital, purchase shares, purchase capital contributions of economic organizations with land use right certificates in islands and border communes, wards and townships; coastal communes, wards and towns; other areas affecting national defense and security”.

Thus, the new Law on Investment has completed and supplemented necessary tools to improve the effectiveness and efficiency of state management of investment, ensuring national security and defense in the direction of considering security conditions, national defense in case foreign investors invest in the form of enterprise establishment, capital contribution, share purchase or capital contribution purchase in enterprises located on islands, communes, wards, border or coastal towns or security and defense sensitive areas.

1.3. Execution of an investment project

Article 23 of Law on Investment 2020 stipulates as follows:

When establishing a business entity, when making investment by contributing capital, purchasing shares or purchasing stakes of a business entity or when making investment under a business cooperation contract in one of the following cases, the foreign investor must satisfy the conditions and follow investment procedures applied to foreign investors:

(a) Over 50% of its charter capital or more is held by a foreign investor(s) or the majority of the general partners are foreigners if the business entity is a partnership.

(b) Over 50% of its charter capital or more is held by a business entity(ies) mentioned in Article 23(1)(a).

(c) Over 50% of its charter capital or more is held by a foreign investor(s) and a business entity(ies) mentioned in Article 23(1)(a).

Thus, the regulations on investment in this form almost remain the same and inherit the provisions of the Law on Investment 2014, only differing in the percentage of foreign investors holding charter capital of over 50%.

1.4. Investment in the form of BCC

This is a form of investment under a Business Cooperation Contract between investors for business cooperation and distribution of profits or products without establishment of a business entity. Parties to a business cooperation contract shall establish a coordinating board to execute the BCC. Functions, tasks and powers of the coordinating board shall be agreed upon by the parties.

Basically, the regulations on investment in the form of BCC contracts of Law on Investment 2020 remain the same as those in Law on Investment 2014: Business cooperation contracts signed between domestic investors shall be executed in accordance with the civil law. Besides, procedures for issuance of investment registration certificates in Article 38 of Law on Investment 2020  shall apply to business cooperation contracts signed between a domestic investor and a foreign investor, or between foreign investors.

1.5. New forms of investment and types of business entities prescribed by the regulations of the Government

Instead of only specifying 5 forms of investment as before, Law on Investment 2020 provides for more "New forms of investment, new types of economic organizations according to the regulations of the Government". Thus, in the face of the continuous development of the economy, the legal provisions are no longer stereotyped and narrow but always open. Since then, it shows that the Vietnamese government is ready to open up to new forms of investment and economic growth in the future. In general, the investment regulations of Vietnam are very open, with many incentives and increasingly perfected, which is a good opportunity for investors who want to invest and do business in Vietnam.

The Investment Law has removed the regulations on the form of investment under PPP contracts because there will be a separate Law regulating public-private partnership investment from 2020. Since then, this form of investment will be more specific.

2. Legal basis

• Law on Investment 2020.

• Decree 31/2021/ND-CP detailing and guiding the implementation of a number of articles of Law on Investment.