September 30, 2020

Vietnam new Investment Law 2020 – summary of remarkable issues

By bizconsult Law Firm


New Adoption

New Law on Investment (#61/2020/QH14) was passed by the National Assembly of Vietnam on 17 June 2020, which will become effective on 01 January 2021 (“Law 2020”) and shall replace the current Law on Investment (“Law 2014”). Hereunder is our summary of the remarkable issues in Law 2020.

Application of Laws

Activities of investment and business in the territory of Vietnam are governed by Law 2020 and other related laws. If there is any discrepancy between Law 2020 and other laws issued prior to the effectiveness of Law 2020 on the prohibited and conditional investment and business lines, the relevant stipulations in Law 2020 shall prevail. Names of the prohibited and conditional investment and business lines in other laws must be inconsistent with those set out in Article 6 and Annexes of Law 2020.

If there is any discrepancy between Law 2020 and other laws issued prior to the effectiveness of Law 2020 on the processes, procedures for investment and business, guarantee of investment, the relevant stipulations in Law 2020 shall prevail, except the followings:

  • Investment, management and use of investment capital of the state at enterprise shall be in accordance with the Law on Management and Use of State’s Capital invested on production, business of enterprises;
  • Investment, processes, procedures for public investment, management and use of public investment capital shall be in accordance with the Law on Public Investment;
  • Investment, processes, procedures for public-private partnership investment, guarantee of investment, management and use of the State capital in such projects shall be in accordance with the Law on Public Private Partnership Investment;
  • Implementation of construction projects, residence projects, urban projects shall be in accordance with the Law on Construction, Law on Houses and Law on Real Estate Business after the investment policy of those projects have been accepted, approved in accordance with Law 2020;
  • Investment, processes and procedures, conditions for investment and business in banking and finance, insurance, securities, and oils and gas industries shall be in accordance with the Law on Credit Institutions, Law on Insurance Business, Law on Securities and Law on Petroleum.

Policy on Investment and Business

Investors are entitled to carry out activities of investment and business in the business lines which are not prohibited by Law 2020. As to doing investment, business in the conditional investment and business lines, investors must satisfy with such conditions. Investors are entitled to decide and take their own responsibilities for investment and business activities in Vietnam in accordance with Law 2020 and other laws; and are entitled to access and use credit capital sources, support funds, land use right and other natural resources for such their activities.

              It should be noted that investors shall be suspended, stopped or terminated their investment and business activities in Vietnam if such activities cause damages or threaten to cause damages to the national security and defense of Vietnam.

The State of Vietnam respects and comply with international treaties on investment to which Vietnam is a signatory.

Investment Assurance

              Assurance for investment under Law 2020 is similar to the one in Law 2014.

Investors’ assets, investment capital, income and other legitimate interest are recognized by the State of Vietnam, protected by laws and shall not be nationalized or confiscated by administration measures.

              Foreign investors are entitled to make outward remittance of their investment capital, liquidated investment capital, legitimate income and profits from the investment and business activities in Vietnam, money and other assets after fulfilment of their tax and other financial obligations to the state of Vietnam.

Settlement of Disputes over Investment and Business

Mechanism for settlement of disputes over business investment under Law 2020 is similar to the one in Law 2014.

Disputes over business investments in Vietnam shall be settled through negotiation and conciliation. If the dispute settlement cannot be reached through negotiation and conciliation, the dispute shall be resolved by arbitration or by the court as follows:

·       Every dispute between a Vietnamese investor and a foreign-invested business organization, or between a Vietnamese investor, a foreign-invested business organization and a regulatory body over business investments within Vietnam’s territory shall be settled by arbitration body or court of Vietnam, except for the hereunder cases.

·       Every dispute between investors, one of which is a foreign investor or a business organization defined in Item (a), (b) and (c) Clause 1 Article 23 of Law 2002 shall be settled by one of the following agencies/organizations:

-       Vietnam’s court;

-       Vietnam’s arbitration;

-       Foreign arbitration;

-       International arbitration;

-       An arbitral tribunal established by the parties in dispute.

·       Every dispute between a foreign investor and a regulatory body over business investments within Vietnam’s territory shall be settled by arbitration body or court of Vietnam, unless otherwise agreed or prescribed by contract or international treaties to which Vietnam is a signatory.

Investment and business conditions [1]

Similar to those in Law 2014, Law 2020 sets out conditions applicable to some investment and business lines which are listed in Annex IV of Law 2020, which shall not be added, revised, removed or adjusted in any way by any Ministries, Ministry-equivalent authorities, People’s Committee of provinces and People’s Council at all levels. Such investment and business conditions shall be in form of license, certificate, credential, written approval or acceptance issued by the competent authorities.

Prohibited and conditional business lines

Under Law 2020, new prohibited investment and business lines are provided in Annex I of the Law. The “debt collection services” has been moved from the conditional business lines under Law 2014 to prohibited business lines under Law 2020.

Furthermore, 22 conditional business lines under Law 2014 are released from conditional requirements under Law 2020. Those are deemed to have no direct impact on national defense and security, social morality and public health, or which are already controlled by technical regulations and standards. The notable business lines are commercial arbitration, franchising, and logistics services.

Conditions for Market Access by Foreign Investors [2]

This stipulation is new under Law 2020, to which based on the laws, resolutions of the National Assembly, ordinaries, resolutions of the Standing Committee of the National Assembly, decrees of the Government and the international treaties to which Vietnam is signatory, the Government of Vietnam shall publish list of business lines which are limited for market access by foreign investors. The limitation to market access shall include the followings:

  • List of business lines which are not opened to foreign investors
  • List of business lines which are opened with conditions to be satisfied by foreign investors.

Apart from limitation to the business lines, the conditions for market access by foreign investors shall include the followings:

  •  Foreign ownership in economic organization in Vietnam;
  • Forms of investment,
  • Scope of investment activities;
  • Capacity of foreign investors; business partners participating in the investment activities;
  • Other regulatory conditions.

Conditions for market access by foreign investors shall be guided for implementation by the Government of Vietnam.

Encouraged Business Lines and Sectors

Law 2020 has supplemented new projects and sectors to the list of projects and business sectors where investment incentives would be applied, including: [3]

  • Social housing projects;
  • Projects using disabled individuals in accordance with law on disability;
  • Additional details regarding projects and sectors related to advance technology;
  • Innovative start-up project, research and development centers;
  • Small and medium business incubators; and co-working space for small and medium businesses;
  • University education;
  • Manufacture of medical equipment;
  • Manufacturing products goods, providing services which create or participate in the value chain, associated industry.

Investment Incentives

·       Forms and entities eligible for investment incentives [4]

Forms of incentives:

(a)   Corporate income tax incentives, including application of a lower rate of corporate income tax for a certain period of time or throughout the investment project execution; exemption from and reduction of tax and other incentives prescribed by the Law on Corporate Income Tax.

(b)   Exemption from import tax on goods imported to form fixed assets; raw materials, supplies and components for manufacturing purposes in accordance with regulations of law on import and export tax;

(c)   Exemption from and reduction of land levy and land rents;

(d)   Accelerated depreciation, increasing the deductible expenses upon calculation of taxable income.

Entities eligible for investment incentives:

(a)   Investment projects in business lines eligible for investment incentives specified in Clause 1 Article 16 of this Law;

(b)   Investment projects located in the areas eligible for investment incentives specified in Clause 2 Article 16 of this Law;

(c)   Any investment project whose capital is at least VND 6,000 billions of which at least VND 6,000 billions of is disbursed within 03 years from the issuance date of the investment registration certificate or the approval for investment guidelines and which satisfies any of the following criteria: the total revenue is at least VND 10,000 billion per year within 03 years from the year in which the revenue is earned or the project has more than 3,000 employees;

(d)   Social housing construction projects; investment projects located in rural areas and employing at least 500 employees; investment projects that employ persons with disabilities in accordance with regulations of law on persons with disabilities.

(e)   Hi-technology enterprises, science and technology enterprises and science and technology organizations; projects involving transfer of technologies on the List of technologies the transfer of which is encouraged in accordance with regulations of the Law on Technology Transfer, science and technology enterprise incubators prescribed by the Law on High Technologies and Law on Science and Technology; enterprises manufacturing and providing technologies, equipment, products and services with a view to satisfaction of environment protection requirements prescribed by the Law on Environment Protection;

(f)    Start-up projects, national innovation centres and research and development centres;

(g)   Business investment in small and medium-sized enterprises’ product distribution chain; business investment in technical establishments supporting small and medium-sized enterprises, small and medium-sized enterprise incubators; business investment in coworking spaces serving small and medium-sized enterprises and start-ups prescribed by the Law on Small and Medium-Sized Enterprises.

Investment incentives shall be given to new investment projects and expansion projects. The level of each type of incentives shall be specified by regulations of the Law on Taxation, the Law on Accounting and the Law on Land.

Investment incentive in Item (b), (c) and (d) of the entities do not apply to the following projects:

-       Mineral mining projects;

-       Projects on manufacturing/sale of goods/services subject to special excise tax according to the Law on Special Excise Tax, except for projects on manufacturing of automobiles, aircrafts and yachts.

-       Commercial housing construction projects prescribed by the Law on Housing.

Investment incentives applied for a fixed term and on the basis of results of project execution. Every investor must satisfy conditions for investment incentives in accordance with regulations of law during the period of enjoying investment incentives.

An investment project that is eligible for various levels of investment incentive, including investment incentive specified in Article 20 of Law 2020 may apply the highest level.

For detailed information on investment incentives, foreign investors need to way for guidance from the Government.

·       Business lines and areas eligible for investment incentives [5]

Business lines eligible for investment incentives:

(a)   Hi-tech activities, hi-tech ancillary products, research, manufacturing and development of from science and technology products in accordance with regulations of law on science and technology;

(b)   Manufacturing of new materials, new energy, clean energy, renewable energy; manufacturing of products with an added value of 30% or more; energy-saving products;

(c)   Manufacturing of key electronics, mechanical products, agricultural machinery, automobiles, automobile parts; shipbuilding;

(d)   Manufacturing of products on the List of prioritized supporting products;

(e)   dd) Manufacturing of IT products, software products, digital contents;

(f)    Breeding, growing and processing of agriculture products, forestry products, aquaculture products; afforestation and forest protection; salt production; fishing and fishing logistics services; production of plant varieties, animal breeds and biotechnology products;

(g)   Collection, treatment, recycling or re-use of waste;

(h)   Investment in development, operation, management of infrastructural works; development of public transportation in urban areas;

(i)     Pre-school education, general education, vocational education, higher education;

(j)     Medical examination and treatment; manufacturing of medicinal products and medicinal materials, storage of medicinal products; scientific research into preparation technology and biotechnology serving creation of new medicinal products; manufacturing of medical equipment;

(k)   Investment in sports facilities for the disabled or professional athletes; protection and promotion of value of cultural heritage;

(l)     Investment in geriatric centres, mental health centres, treatment for agent orange patients; care centres for the elderly, the disabled, orphans, street children;

(m) People's credit funds, microfinance institutions;

(n)   Manufacturing of goods and provision of services for the purposes of creating or participating in value chains and industrial clusters.

Geographical areas eligible for investment incentives:

(a)   Disadvantaged areas and extremely disadvantaged areas;

(b)   Industrial parks, export-processing zones, hi-tech zones and economic zones.

Based on regulations of the business lines and geographical areas for investment incentives, the Government of Vietnam shall compile and amend the list of business lines eligible for investment incentives and the list of geographical areas eligible for investment incentives; determine business lines eligible for special investment incentives to be included in the list of business lines eligible for investment incentives.

Investment Activities in Vietnam

  • Investment form

Forms of investment available to foreign investors under Law 2020 are the same as those stipulated in law 2014, particularly:

 -       Establishing economic organizations (i.e. companies);

-       Contributing capital, purchasing shares, purchasing shares of contributed capital;

-       Establishment and implementation of investment projects;

-       Business Corporation Contract (BCC); or

-       New forms of investment, types of new economic organizations as stipulated by the Government of Vietnam.

The investment under the form of Public Private Partnership Contract is not mentioned in Law 2020, as it is regulated in the newly adopted Law on Public Private Partnership.

  •  Foreign ownership threshold for economic organizations subject to regulations on foreign investors.

In Law 2020, foreign ownership threshold is lowered from “at least 51%” to “more than 50%” to decide whether an economic organization with foreign-owned capital must apply investment conditions and procedures as foreign investor or not. These conditions shall be applicable to establishing economic organizations, capital contribution, M&A, or investing under the form of BCC. Law 2020 deceases this threshold to 50% to comply with controlling ratio under the newly adopted Law on Enterprises.

  • M&A condition and approval requirement

In Law 2020, the supplemented conditions for foreign investors regarding M&A is, inter alia, to conform to national security and defense.[6]  Furthermore, cases where foreign investors must obtain M&A approval before acquiring an ownership interest in the target company are specifically stipulated, including:

-       an increase of foreign ownership in the target company engaging in restricted market access business lines to foreign investors;

-       an increase of foreign ownership in the target company from under 50% to exceeding 50% of the charter capital;

-       an increase of foreign ownership in the target company which already exceeds 50% of the charter capital; or (iv) the target company is using land located at sea-islands, borderlands and coastal areas and other areas having an effect on national security and defense.[7]

Similar to Law 2014, foreign investors, who are not subject to compulsory M&A approval, may apply for M&A approval at their sole decision.

Investment Policy Decision and Selection of Investors

For the purpose of guaranteeing the consistency of the legal system, Law 2020 clarifies principles, respective conditions applied for each method of selection of investors including:

-       auction for land use rights in accordance with the land law;

-       bidding for selection of investor in accordance with the law on bidding;

-       approval of investor without being subject to these above cases.

Documents and procedures for obtaining Investment Policy Decision from People’s Committee of province, Prime Minister, National Assembly are stipulated in Law 2020.

Law 2020 supplements the categories of investment projects which are subject to Prime Minister’s approval authority, including:

-   new construction investment project of airports and ports;

-   housing (for sale, lease, lease and purchase), urban area projects; and

-   investment project concurrently subject to approval authority from 02 provincial People’s Committee or more.

Also, provincial People’s Committee approval authority is extended by supplementing the following projects of constructing and operating golf courses, housing investment projects and urban area projects.

Investment Registration Certificate

Under Law 2020, the conditions for issuance of Investment Registration Certificate for investment projects not applicable for in-principle investment approval are further clarified. Specifically, the investment projects must now, among others, in conformity with planning national planning, regional planning, provincial planning, urban planning and special economic - administrative unit planning (if any). Furthermore, foreign investors who set up medium and small-sized innovative start-ups are not required to submit investment project nor obtain an Investment Registration Certificate for the purpose of setting up such enterprises.[8]

Law 2020 introduces many clarifications with respect to adjustment of the investment projects. Specifically, the investors are entitled to adjust the investment project’s objectives, scale and content of investment project; merger, separation of investment project; change of investor; partly or wholly transfer of investment project; use the land use rights or assets on land which is part of the investment project to contribute capital to establish an enterprise, carry out business cooperation or carry out other activities. Such aforementioned activities shall comply with regulations of law. [9]  Law 2020 also specifies cases with respect to amending the Investment Registration Certificate, as well as in-principle investment approval (previously known as in-principle investment decision).

Upon expiry of the term of the investment project, investor may apply for extension of the project’s duration (except for projects using outdated or potentially dangerous technologies causing environmental pollution, etc.). The Government shall further regulate this issue. [10]

Other Issues

Other issues related to the investment projects, such as amendment, assignment and termination thereof are also mentioned in Law 2020, which are basically similar to those set out in Law 2014 but clearer.

[1] Art. 7.
[2] Art. 9.
[3] Art. 15.2; Art. 16.1.
[4] Art. 15.
[5] Art. 16.
[6] Art. 24.2(b).
[7] Art. 26.2.
[8] Art. 22.1(c)
[9] Art. 41.
[10] Art. 44.

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