A foreign investor shall be permitted to carry out several forms of direct investment in Vietnam. Foreign investors shall determine whether they wish to invest alone or with other foreign-investors, or collaborate with one or more Vietnamese investors. At the same time, investors shall consider and choose the most appropriate form of investment, including whether to establish a new company, invest in an existing company with an active management role, or pursue an alternative form of investment presence, such as a branch, representative office or business cooperation contract.
The choice of investment form will depend primarily on the investment aim. It may also be dictated by particular rules applying to particular sectors.
For example, for investments in the services sector, the commitments made by Vietnam when it joined the WTO will be a key determinant in selecting the form of investment. Authorities generally apply these commitments as de-facto limitations on foreign ownership, approving foreign investment only up to the level agreed in the schedule of commitments. Some of these commitments specify that investment in certain service sectors may only be made in the form of a joint venture with a Vietnamese partner.
Establishing a new enterprise
A foreign-invested enterprise, whether wholly foreign-owned or in the form of a joint venture with Vietnamese partners, must be approved by the relevant authorities.
In order to be approved, a foreign-invested enterprise must have an 'investment project', being a set of proposals for the expenditure of medium and long-term capital in order to carry out investment activities in a specific geographical area and for a specified duration.
Approval of the investment project, and establishment of the foreign-invested enterprise, take the form of an 'Investment Certificate', the equivalent of a certificate of incorporation or business registration certificate. The investment certificate sets out key details, including:
- the approved project of the enterprise and the business lines in which the enterprise may operate;
- the approved duration of the project; and
- the 'charter capital' (or equity) of the enterprise.
In addition to the investment certificate, a Vietnamese-established entity must have a 'Charter', the equivalent of by-laws, constitution or articles of association of a company in other jurisdictions.
Newly established joint ventures between foreign and Vietnamese investors also require a 'Joint Venture Contract', governing certain key elements of their relationship. This contract sits alongside the charter as part of the enterprise's constituent documents.
Having determined that a Vietnamese- established enterprise is the most appropriate form of investment, investors will also need to consider and choose from the various forms of enterprise. There are three main company forms, including:
- a single member limited liability company (SLLC);
- a multiple-member limited liability company (MLLC); and
- a shareholding company (SC), also referred to as a joint stock company.
Investing in an existing enterprise
Investors may also choose to invest directly in Vietnam, by acquiring a stake in an existing Vietnamese enterprise. Often, extensive internal and external authority approvals will be required. The precise procedural requirements for effecting such an acquisition will differ, depending on:
- whether the target entity already has foreign investors and an investment certificate for an approved project;
- whether the investor is acquiring existing equity by way of transfer, or newly issued equity;
- the form of the target entity (whether a single or multiple-member limited liability company, or a shareholding company); and
- the sector in which the entity operates.
Branches and representative offices
As an alternative to establishing, or investing in, a Vietnamese-established enterprise, Vietnam's Commercial Law allows certain foreign business entities to establish two other forms of presence in Vietnam: a branch or representative office. Both must be licensed by the relevant authorities.
A branch may be established by a foreign business entity only in certain sectors, including banking, insurance, securities, law and some trading.
A representative office, on the other hand, may be established by any foreign business entity to seek and expedite opportunities for the commercial activities of that foreign business entity: eg through market research, marketing, liaising with authorities regarding investment in Vietnam and overseeing the implementation of the foreign entity's contracts in Vietnam.
A representative office:
- is not an independent legal entity and the foreign entity does not own equity in the representative office; and
- must not directly conduct profit-making activities.
Business Cooperation Contract
A Business Cooperation Contract (BCC) is a written agreement between a foreign investor and a Vietnamese partner in which the parties agree to cooperate to undertake certain business activities in Vietnam and to share the revenue or profits arising from such activities.
No separate legal entity or company is established and there is no limitation on liability for participants.