Vietnam: Forms of Direct Foreign Investment in Vietnam

Last Updated: 8 February 2012
Article by Michael Lorenz
  1. Introduction

Vietnam's combination of a growing economy, political stability and vibrant culture has made it one of the most attractive investment environments in the AsiaPacific region. In light of this fact this newsletter has been drafted to provide a basic introduction to the key investment formats which are open to those wishing to do business in Vietnam.

There are three main forms of foreign direct investment in Vietnam:

  • Joint venture companies;
  • 100% foreign owned enterprises; and
  • Business cooperation contracts.
  1. Joint Venture
  1. General

A joint venture company is a form of investment whereby a foreign party and local party cooperate to create a new legal entity. The purpose of such companies (mostly) is to circumvent the ban on 100% foreign owned companies in certain economic sectors e.g. logistics.

In the past, joint ventures were not a particularly popular format of doing business as most potential local partners were State owned and thus their objectives were often tied to the fiscal interests of the country rather than the commercial interests of the joint venture. However, nowadays the local partner is much more likely to be a private entity.

  1. Legal Status and Capitalisation

A joint venture can be either a limited liability company or a joint stock company. The main difference between these two possibilities is that only a joint stock company can issues shares, securities or be listed on a Stock Exchange.

The exact percentage which will be held by each joint venture partner will depend on the specific business line(s) which the company intends to carry out. For example a foreign partner can only hold up to 51% of a logistics joint venture company.

Capital contributions can be made in cash, gold or in assets. As of 2011 the term "assets" is deemed to include industrial property rights. In many cases the Vietnamese party, especially ones which are State owned, will contribute land to fulfil their capital obligation. The value of theses assets is determined by the parties. However, the Ministry of Planning and Investment has the power to review this evaluation in order to ensure that they have not been under or over valued. Unless agreed otherwise, the joint venture's profits are shared between the parties in the same proportion as their capital contributions.

  1. Corporate Structure
  1. Limited Liability Company

    The highest decision making body is the Member's Council which consists of a representative of each investor.

    In addition to the Council a limited liability company also has a Director and may have a Board of Controllers. The Director is responsible for the day to day business of the company. A Board of Controllers monitors the actions of the Member's Council. A Board is compulsory for all companies with 11 or more investors. They are voluntary for all other companies.

  2. Joint Stock Company
  3. The General Shareholder's Meeting is the highest decisionmaking body of a joint stock company. However, the daytoday business is carried out by a Board of Directors. The members of the Board are appointed by the investors, usually in proportion to their respective capital contributions. The Board is overseen by a Chairman who is usually appointed jointly by the investors The Chairman is responsible for convening Board meetings and monitoring the implementation of Board resolutions etc.

    Further, a Board of Controllers may also be appointed to monitor the actions of the Directors. A Board of Controllers is compulsory, if there are more than 11 individual investors or if any entity investor holds 50% or more of the total shares. They are voluntary for all other companies.

  1. 100% Foreign Owned Enterprise

Under Vietnamese law 100% foreign owned enterprises are only permitted in specific sectors. The number of these sectors is continuously developing and by 2014 almost all business lines will be open to 100% foreign investment.

The corporate structure of a 100% foreign owned enterprise is the same as that for a joint venture, i.e. Board of Members/Directors etc.

  1. Business Cooperation Contract

Unlike a joint venture or a 100% foreignowned enterprise, a business cooperation contract does not create a legal entity. Instead it is simply a contractual arrangement between at least one foreign party and at least one Vietnamese party.

The law on business cooperation contracts is quite short with no specific regulations for matters such as management and operational structures or the role of key personnel. Therefore these issues should be covered in detail within the contract.

  1. Other Investment Vehicles

Foreign investment can also be effected through the following vehicles.

  1. Representative Office

    Opening a representative office is the simplest way for a foreign entity to establish a presence in Vietnam. Representative offices are permitted to initiate, accelerate and supervise economic, technical and scientific cooperation projects with Vietnamese parties. However, they cannot directly enter into commercial contracts or conduct profit making activities. To be eligible to open a representative office the foreign company must be a business which has been legally registered abroad for at least one year.

  2. Branch Office

    In contrast to representative offices a branch office of a foreign enterprise may conduct all activities which are consistent with its establishment license, the law and any international treaty to which Vietnam is a member. To be eligible to open a branch, the foreign enterprise must have been registered and operating in their home country for at least five years.

  1. Conclusion

The preceding pages contain a basic outline of the investment options for foreign entities wishing to enter the Vietnamese market. However, please note that the law in this area changes regularly in line with Vietnam's economic and social needs. Therefore it is advisable to obtain up to date and detailed legal advice before undertaking any sort of investment in Vietnam.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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