Vietnam is recognized as a country with immense investment opportunities attracting foreign capital flows.  Moreover, the Vietnamese government has implemented various favorable policies to entice foreign investments into the country.  However, it is important to acknowledge that not all sectors are open to foreign investors.  Alongside with its open-door policy, the Vietnamese government imposes stringent regulations, which can sometimes be perplexing for foreign investors. In cases where investments are made in sectors not listed as restricted for foreign market access, foreign investors possess the same rights as domestic investors. However, when investing in sectors listed as restricted for foreign investors, there are numerous obstacles and limitations to consider.  This legal insight aims to provide a general overview addressing the question:  What are these barriers and limitations?

Limit on capital ownership ratio of foreign investors

For starters, when foreign investors wish to invest in Vietnam by contributing capital to establish a new company or acquiring shares or capital in an existing company, they are required to adhere to Vietnamese laws governing the capital ownership ratio applicable to foreign investors. Essentially, for industries that are not restricted in terms of market access, foreign investors are granted the same conditions as domestic investors, as stated in Article 9 of the 2020 Investment Law. Consequently, foreign investors are not subjected to limitations on the percentage of capital ownership in enterprises operating in unrestricted industries.

Regarding industries listed as restricted in terms of market access, the capital ownership ratio of foreign investors must conform to the provisions of international investment agreements that Vietnam has signed, as well as relevant Vietnamese legal regulations in cases where no specific commitments have been made under international agreements.

With regards to public companies, according to Article 139 of Decree 155/2020/ND-CP, the foreign ownership ratio in the securities market of Vietnam is specified as follows:

  • If the business lines of the public company are governed by a treaty to which Vietnam is a signatory, the treaty shall apply.
  • If the business lines of the public company are governed by regulations of the law which specify a foreign ownership ratio, these regulations shall apply.
  • If the business lines of the public company are on the restricted list of market access, regulations on the foreign ownership ratio of each category shall apply. If foreign ownership ratio limits are not specified, the maximum foreign ownership ratio in the company shall be 50% of the charter capital.
  • If the public company does not fall into any of the above cases, there is no maximum limit for the foreign ownership ratio;

Restrictions on investment sectors for foreign investors as per regulatory provisions

Foreign investors face restrictions in investing in all sectors of the Vietnamese economy.  The specific industries and trades with prohibited and restricted market access are outlined in Article 15 and 18 of Decree No. 31/2021/ND-CP. These restrictions are defined in various laws, resolutions, ordinances, decrees, and international treaties related to investment.  The Negative List for Market Access, provided in the appendix, encompasses 25 fields, including activities such as trading goods and services under state monopoly, press activities and information gathering, fishing or resource exploitation in the sea, security, and investigation services, among others.  The complete list of currently prohibited sectors for foreign investment is provided below.

Furthermore, the market access conditions for foreign investors are implemented according to the forms specified in Clause 3, Article 9 of the Law on Investment.  Detailed guidance on these conditions is provided in Article 18 of Decree No. 31/2021/ND-CP.  The Decree states that market access conditions are applicable to foreign investors and foreign-invested business organizations when engaging in investment activities in Vietnam that involve the use of land, labor, natural resources, or minerals; manufacturing and supplying public goods or services, or goods and services exclusively owned by the state; owning and trading houses or real estate; seeking assistance and aid from the state in specific industries, sectors, or geographical areas; participating in state-owned equitization programs or plans, and other conditions specified in laws, resolutions, ordinances, decrees, and investment-related international treaties that prohibit or restrict market access for foreign-invested business organizations.

Decree 31/2021/ND-CP’s Appendix I provides a list of 25 sectors where foreign investors are not permitted to invest:

  • Trade in goods and services on the list of goods and services under state monopoly.
  • Press activities and collection of news in any shape or form.
  • Catching or harvesting marine life.
  • Investigation and security services.
  • Administrative and judicial services, including judicial assessment services, poste restante services, property auction services, notary services, official receiver’s services.
  • Overseas contracted employment agency services.
  • Investment in construction of cemeteries for transfer of land use right and infrastructure thereon.
  • Direct collection of garbage from households.
  • Public opinion polling services.
  • Blasting services.
  • Manufacture and sale of weapons, explosive materials and combat gear.
  • Import and dismantlement of used seagoing ships.
  • Public postal services.
  • Merchandise transfer business.
  • Temporary import for re-export of goods.
  • Exercise of rights to export, import and distribute goods on the list of goods to which foreign investors and foreign-invested business organizations do not have the right to export, import or distribute.
  • Collection, purchase, and handling of public property in units of the armed forces.
  • The production of military equipment or supplies for the armed forces, military weapons, technical equipment, ammunition, and specialized vehicles utilized by the army and police, along with the manufacturing of components, accessories, spare parts, supplies, and specialized equipment and technology required for their production.
  • Industrial property representative services and intellectual property assessment services.
  • Services that involve the establishment, operation, sustainment and maintenance of maritime signals, water zones, water areas, public navigable channels, and maritime routes; survey of water zones, water areas, public navigable channels and maritime routes serving maritime announcements; survey, development and publishing nautical charts for water bodies, seaports, navigable channels, and maritime routes; development and publishing of marine safety publications.
  • Navigation services to ensure safety in water zones, water areas and public navigable channels, electronic maritime information services.
  • Services that involve inspection (inspection and testing) and issuance of certificates to vehicles (including systems, assembled parts, devices and parts of vehicles); inspection and issuance of certificates of technical safety and environmental safety to vehicles, specialized equipment, containers, equipment for packaging dangerous goods used in transport; inspection and issuance of certificates of technical safety and environmental safety to vehicles and equipment used for exploration, extraction and transport of petroleum at sea; occupational safety inspection of equipment subject to strict occupational safety requirements on vehicles and equipment used for exploration, extraction and transport of petroleum at sea; fishing vessel inspection and registration services.
  • Services that involve survey, assessment, and exploitation of natural forests (including logging, hunting, trapping wild and rare animals, management of gene pools of plants, domestic animals and microorganisms used in agriculture).
  • Research or use of genetic resources of new livestock breeds before evaluation by the Ministry of Agriculture and Rural Development.
  • Travel services, except international travel services for inbound tourists to Vietnam.

Apart from the industries mentioned above, which are off-limits for foreign investment, there are an additional 59 sectors and industries that impose limitations on foreign investment, as outlined in Decree No. 31/2021 ND-CP. Our company will provide ongoing updates on investment regulations through future posts to assist individuals seeking to invest in Vietnam. For more valuable information, please visit our website.  To obtain further details, please reach out to us at letran@corporatecounsels.vn.