VIETNAM – NEW LAW ON INVESTMENT PROVES THE GOVERNMENT’S EFFORT TO ATTRACT FOREIGN DIRECT INVESTMENT

1. VIETNAM – NEW LAW ON INVESTMENT PROVES THE GOVERNMENT’S
EFFORT TO ATTRACT FOREIGN DIRECT INVESTMENT
The new Law on Investment will take effect on 1 January 2021 (“the Law”) and replace the
current Law on Investment 2014. The Law is praised to play an important role in attracting the
foreign capital quickly flowing out of China due to increased political instability and the
country’s poor response to the novel corona virus. The Law is also seen as another respectable
effort of the Vietnamese Government to increase FDI alongside the ratification of the
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), EU-
Vietnam Free Trade Agreement (EVFTA) and Law on Investment in the form of Public-Private
Partnership (PPP Law).
Under the new Law on Investment, a business organization is deemed as a foreign investor if
foreign investors hold 50% or more charter capital (the current law stipulates 51%). In case the
business organization is a partnership, then the majority of the general partners/members must
be foreigners.
Before foreign investors can establish a business organization, they must have identified an
investment project and obtain Investment Registration Certificate for that project. The latter is
not required for investors engaging in the establishment of a small and medium-sized creative
start up or fund for such start up.
How the new Law on Investment encourages Foreign Direct Investment?
1. Market access conditions for foreign investors are the same for domestic
investors, except for industries and trades that don’t allow for such market access or those that
come with conditions on foreign investors. The Government, before 1 January 2021
expectedly, will announce a list of the abovementioned industries and trades. The list will cover
topics such as ownership of charter capital, investment form, scope of investment activities,
evaluation of investors’ capacity and partners participating in the investment activity.
2. Foreign investors can reap the benefits of various business guarantees, including
guarantee on investment in case of change in laws, guarantee of property ownership,
guarantee on investment activities and guarantee on the right to transfer assets abroad.
For example, under the guarantee on investment activities, investors are not required to
prioritize the purchase and usage of goods or services produced by a domestic manufacturers
or service provider; investors are not compelled to self-balance foreign currency from export
sources to meet import demand; it is also not an obligation to achieve a certain localization rate
for domestically-produced goods.

2. Additionally, after fulfilling all financial obligations under Vietnamese laws, foreign investors
can transfer abroad investment capital/liquidation, income from investment activities, money
and other assets legally owned by investors.
3. Dispute between foreign investors and the State can be taken to international
arbitration given that the contract between the parties includes such clause or international
treaties in which Vietnam is a signatory allows for international arbitration. Dispute between
investors, of which at least one party is a foreign investor as defined by the Law, can be
taken to foreign or international arbitration with no attached conditions.
4. The Government has added more types of investment incentives, such as: Exemption
from import tax on goods imported to create fixed assets; Exemption or reduction of land use
levy, land rent, land use tax; Quick depreciation, increase deductible expenses when calculating
taxable income.
5. The Government has added more business lines eligible for investment incentives,
covering preservation of drugs, manufacture of medical equipment, university education , and
manufacture of products on the list of industries prioritized for development such as new
materials, new energy, clean energy, renewable energy, products with 30% or more added
value, energy-saving products, waste collection, waste treatment, waste recycling and waste
reuse.
Some other notable provisions of the new Law on Investment:
- Organizations and individuals are banned from providing debt collection service.
- In case of overlapping between the new Law and other laws, this Law does not apply
when the project involves public investment capital, business investment and operation on
the securities market, the project is carried out in public-private partnership mode. The legal
framework prescribing PPP projects will be set out in the PPP Law, rather than in the Law
on Investment as previously.
- 26 business lines are removed from the list of conditional business activities, including
services of commercial arbitration organizations, debt trading services, franchising and
logistics services to name a few. Conditional business activities must satisfy all conditions
related to national defense and security, social order and safety, social ethics and
community health. The removal of 26 conditional business lines under the new Law will
increase market access for foreign investors.
- The Provincial People's Committee now has the authority to approve Decision
on Investment Policy related to (i) Projects request for permission to convert land use
purpose (ii) Specific projects for construction of residential housing and urban zones (iii)
Projects for construction and commercial operation of golf course (iv) Projects in areas
affecting national defense and security. Under the current law, investors would have to
request for the above-mentioned project approval from the Prime Minister and the process
for that is very time-consuming.

3. Compared to the current Law on Investment 2014, the new Law taking effect on 1 January
2021 enhances legal certainty with regards to the rights and obligations of investors, reduces
administrative burden and sets forth more investment benefits for foreign investors, showing
the State’s effort to boost capital inflow from abroad. The ratification of the new Law on
Investment is another inherent proof that the Government undertakes to recover the national
economy post Covid-19 outbreak, promote citizens’ living standards while observing its
international commitments.
For more information on the above, please do not hesitate to contact the author Dr. Oliver
Massmann under omassmann@duanemorris.com. Dr. Oliver Massmann is the General
Director of Duane Morris Vietnam LLC, Member to the Supervisory Board of PetroVietnam
Insurance JSC and the only foreign lawyer presenting in Vietnamese language to members of
the NATIONAL ASSEMBLY OF VIETNAM.