Vietnam is considered a land of boundless opportunity for investment capital flows from abroad. In addition, the Vietnamese government has enacted several preferential policies to attract foreign investment to Vietnam. However, it should be noted that not all fields are available for foreign investors and, coupled with its open-door policy, the Vietnamese government also has very strict regulations that are sometimes confusing to foreign investors. If investing in business lines that are not on the list of industries with restricted market access, foreign investors have the same investment rights as domestic investors. Nevertheless, when investing in business lines on the list of industries with restricted market access for foreign investors there are many hurdles and restrictions to consider. This Legal Insight provides a general overview for the purpose of answering the question:  What are these barriers and limitations?

Limit on capital ownership ratio of foreign investors

First, when foreign investors intend to contribute capital to establish a new company or buy the shares or contributed capital of an established company in Vietnam, they must comply with the provisions of Vietnamese law concerning the capital ownership ratio for foreign investors. In principle, for industries that are not on the list of restricted market access, foreign investors are entitled to the same market access conditions as domestic investors according to Article 9 of the Investment Law of 2020. This means that foreign investors will not be limited to the percentage of capital ownership in enterprises in industries that are not on the list of restricted market access.

For industries on the list of restricted access to the capital market, the capital ownership ratio of foreign investors must comply with the provisions of international agreements on investment, to which Vietnam is a signatory, and relevant Vietnamese legal regulations, if there are no commitments under international agreements.

For 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;

Limitation of investment lines for foreign investors according to regulations

Foreign investors are not allowed to invest in all sectors of the Vietnamese economy. Article 15 and 18 of Decree No. 31/2021/ND-CP stipulates industries and trades with prohibited and restricted market access with the restrictions specified in the Laws and Resolutions of the National Assembly, Ordinances and Resolutions of Standing committee of the National Assembly, Decrees of the Government and investment-related international treaties. These industries where market access is prohibited for foreign investors are listed in the appendix (Negative List for Market Access) and comprise 25 fields, including: Trading goods and services on the list of goods and services in which monopoly is held by the state; Press activities and information gathering in any form; Fishing or exploiting resources of the sea; Security and investigation services; and several others (A complete list of current prohibited sectors for foreign investment is provided below).

In addition, market access conditions for foreign investors are applied in the forms specified in Clause 3, Article 9 of the Law on Investment, which are guided in detail in accordance with Article 18 of Decree No. 31/2021/ND-CP. According to the Decree, market access conditions for the industries specified in this Decree will be applied to foreign investors and foreign-invested business organizations when conducting business investment activities in Vietnam that: Use land, labor, natural resources, or minerals; Manufacture and supply public goods or services or goods and services that are exclusively state-owned; Own and trade in houses or real estate; Apply for assistance and aid of the State in certain industries, sectors or geographical areas; participate in state-owned equitization programs or plans and; Other conditions as prescribed in the Laws and Resolutions of the National Assembly, Ordinances and Resolutions of the Standing committee of the National Assembly, Decrees of the Government and investment-related international treaties that prohibit or restrict market access by foreign-invested business organizations.

In Appendix I of Decree 31/2021/ND-CP, the Government provides that foreign investors are not allowed to invest in the following 25 sectors:

  • 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.
  • Manufacture of military equipment or supplies for the people’s armed forces, military weapons, technical equipment, ammunition and specialized vehicles used for the army and police; components, accessories, spare parts, supplies and specialized equipment and technology used for production thereof;
  • 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.

In addition to the above industries where foreign investment is prohibited, there are also 59 sectors and industries that have restrictions on investment by foreigners, which were also introduced by Decree No. 31/2021 ND-CP. Our firm will continue to update developments in investment rules in future posts for the benefit of those who are looking to invest in Vietnam. Additional useful information may be found on our website. Please contact us for more details: letran@corporatecounsels.vn