Forms of foreign direct investment in Vietnam

Currently, foreign investors investing directly in Vietnam are becoming more and more exciting. To be able to access the Vietnamese market, investors first need to choose one of the forms of investment in accordance with Vietnamese law. Facing this situation, Viet An Law summarizes forms of foreign direct investment in Vietnam through the following article.

Legal bases

Investment Law 2020

What is a Foreign Direct Investment?

The essence of foreign direct investment is the long-term investment of one individual or company in another country by carrying out commercial business for the purpose of profit-making business and the foreign individual or company carrying out investment activities is entitled to manage its business activities in the country in which it performs current investment activities.

Forms of foreign direct investment in Vietnam

Investment in the establishment of economic organizations (establishment of FDI capital company in Vietnam)

Investment in economic organizations means that investors spend capital to establish new business establishments or contribute capital to charter capital to take over the management of an operating business unit According to the provisions of the Investment Law 2020, investment in the establishment of economic organizations shall be carried out in the following forms:

Firstly, invest in the establishment of an economic organization with 100% capital of the investor (establish a company with 100% foreign capital)

Foreign investors are entitled to establish economic organizations with 100% of their capital in accordance with law. Investors are allowed to establish economic organizations in accordance with the law on investment. Before establishing an economic organization, foreign investors having investment projects in prescribed cases must apply for an Investment Registration Certificate, investors shall carry out procedures for issuance of an Investment Registration Certificate, except for the case of establishing innovative start-up small and medium-sized enterprises and innovative start-up investment funds in accordance with law and must meet market access conditions for foreign investors specified in Article 9 of the Law on Investment 2020.

The form of investment to establish an economic organization with 100% capital of investors, helping investors take advantage of experience, be completely proactive in their business activities without being dominated by anyone, only comply with legal provisions in the process of business activities.

Second, invest in the establishment of economic organizations with capital contribution from investors

Investors have the right to carry out investment activities by establishing economic organizations with cooperation and capital contribution among many investors. In this group of investment forms, investors can establish or contribute capital to partnerships, limited liability company with two or more members, joint stock company. With this form of investment, investors participate in management, jointly decide common issues in business activities.

Investment in this form helps economic organizations more favorable in the process of raising capital of many people (especially joint-stock company). However, if you want to decide something quickly, this form of investment will face difficulties and take longer than the form of investing 100% of the investor’s capital. Because before making a decision, investors must meet, discuss and agree with each other, leading to prolonging the decision-making time, sometimes missing opportunities.

Investment in the form of capital contribution, share purchase, capital contribution to economic organizations

According to the provisions of the Investment Law 2020, investors have the right to contribute capital, purchase shares and contributed capital to established and operating economic organizations. With this form, investors will become members and shareholders of that economic organization. Thus, foreign investors who want to access the Vietnamese market but do not want to establish economic organizations will do so in the form of capital contribution, share purchase and capital contribution to economic organizations operating in Vietnam.

Article 25 of the 2020 Investment Law stipulates the forms in which foreign investors may contribute capital to economic organizations, specifically:

• Purchase of first-time issued shares or additional issued shares of a joint-stock company;
• Capital contribution to limited liability company, partnerships;
• Capital contribution to other economic organizations does not fall into the cases specified above.

Foreign investors purchase shares and capital contributions of economic organizations in the following forms:

• Purchase of shares of a joint-stock company from the company or shareholder;
• Purchase capital contributions of capital contributors in a partnership to become members of a limited liability company;
• Purchase capital contribution of capital contributors in a partnership to become a capital contributing member of a partnership;
• Purchase capital contributions of members of other economic organizations other than those specified above.

In addition, the Law on Investment 2020 additionally stipulates the conditions that foreign investors must meet when contributing capital, buying shares or buying contributed capital of economic organizations in Article 24 of the Law on Investment 2020 as follows:

• Market access conditions for foreign investors are specified in Article 9 of the 2020 Investment Law;
• Ensure national defense and security in accordance with this Law;
• Provisions of the land law on conditions for receiving land use rights, conditions for land use in islands, communes, border township wards, coastal communes and townships.

Investment in the form of capital contribution, share purchase, capital contribution to economic organizations has become a popular form of investment, favored by many investors. Because compared to the type of investment in establishing a new economic organization, the procedures for this type are simple, saving time, taking advantage of the conditions of factories, business premises and labor that domestic economic organizations have built.

Investment under business cooperation contracts (BCC contracts)

According to the 2014 Investment Law, investors are entitled to carry out investment activities under contracts in 02 forms: investment in the form of public-private partnership contracts (PPP contracts) and investment in the form of business cooperation contracts (BCC contracts) but until the Investment Law 2020,  The Law has removed investment in the form of PPP contracts from the subject of the Law only stipulating investment in the form of BCC contracts.

Accordingly, a business cooperation contract (BCC contract) is a form of investment signed between investors in order to cooperate in business to divide profits and products without establishing an economic organization.

Due to the nature of investment cooperation on the basis of contracts and the absence of the establishment of economic organizations, the Contract and its integral parts (such as the Appendix to the Contract) are an important legal basis recognizing the rights and obligations of the parties. Depending on the content of the business cooperation as well as the content of negotiation agreements of investors, the specific rights and obligations of investors are also stipulated. On the other hand, this is a form of investment where investors only sign contracts with each other to implement investment projects, after the implementation is completed, investors will proceed to liquidate the contract ending the binding rights and obligations.

If you have any questions related to the forms of foreign direct investment in Vietnam, set up a foreign company, please contact Viet An Law Firm for the most specific and detailed advice!