Foreign business expansion vietnam
In the context of Vietnam’s increasing integration into the global economy, establishing FDI enterprises in Vietnam is not only a trend but also a strategy for international investors to expand their markets, access quality human resources, and take advantage of tax incentives.
However, this is not a simple procedure. From applying for an Investment Registration Certificate (IRC), determining suitable business sectors, to complying with regulations on ownership ratios and foreign exchange – each step carries potential risks if legal regulations are not thoroughly understood.
In this article, S4B Vietnam will provide you with a comprehensive legal and strategic guide to help FDI enterprises both comply with the law and optimize their opportunities for sustainable development in Vietnam.
1. Market Access Conditions for FDI Enterprises
According to Article 17 of the 2020 Investment Law and detailed guidance in Appendix I of Decree 31/2021/ND-CP, foreign investors are only allowed to access the Vietnamese market under specific conditions. These conditions include:
- Capital ownership ratio: Some sectors require foreign investors to hold a percentage of shares not exceeding the legally permitted limit. For example: Commercial banks: a maximum of 30%; Television, press, and broadcasting sectors: require domestic partners to hold a controlling stake.
- Investment form: Some sectors only allow investment in the form of joint ventures, business cooperation contracts (BCC), or through share purchases, and do not permit the establishment of 100% FDI enterprises.
- Domestic Partner Requirements: Some sectors, such as logistics, education, and retail distribution, require FDI to cooperate with Vietnamese businesses that meet professional qualifications, are properly registered in their respective fields, and are not subject to restrictions.
- Specialized License Requirements: Sectors such as freight transport, finance, insurance, medical examination and treatment, and education require investors to obtain additional licenses or meet specific technical criteria.
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Therefore, one of the important legal aspects that foreign investors need to pay special attention to before establishing a business in Vietnam is the intended business sector. Not all sectors in Vietnam have equal access for domestic and foreign investors. Instead, market access restrictions are clearly defined by law and international treaties.
2. Conditional Investment Sectors
Some specific conditions must be met as follows:
– Capital ownership restrictions:
Retail distribution (maximum 49% – 51%);
Press, telecommunications with infrastructure (≤ 49%);
Air transport services (≤ 30%).
– Mandatory joint venture with a Vietnamese partner: Advertising services, education and training, multimodal transport.
– Requirements for international experience or registered capital: Insurance, banking, real estate.
– Specialized sub-licenses: Education, medical examination and treatment, securities.
FDI enterprises will only be granted investment licenses if they fully prepare documentation proving their financial capacity, expertise, joint venture partners (if any), and the conditions according to the sector.
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3. Sectors with Restricted Market Access
Besides sectors with favorable conditions, some sectors have restricted market access due to the following factors:
– Specialized legal regulations: Limits on ownership ratios, requirements for Vietnamese professional licenses, or mandatory joint ventures.
– International commitments not yet open: Some sectors have not committed to opening up under WTO, EVFTA, CPTPP agreements, or only allow investment in certain forms.
Examples:
– Telecommunications with infrastructure: Maximum 49% FDI capital;
– Education: Only allowed to invest in general education institutions through joint ventures, and not allowed to invest 100% capital in preschool or primary education;
– Banking, insurance, securities: Investors need to be licensed by competent state agencies such as the State Bank of Vietnam and the Ministry of Finance and are required to meet many strict conditions regarding registered capital, management personnel, and experience;
– Accounting, auditing, and legal consulting: Vietnamese professionals must be employed, and the percentage of foreign professionals allowed to practice in Vietnam is limited.
These are sectors with high barriers to entry; investors need to be cautious when making their choices.
4. Notes on WTO, CPTPP, and EVFTA commitments…
When considering investment, FDI enterprises need to compare Vietnam’s commitments in the WTO, EVFTA, CPTPP, RCEP, etc., because these agreements may:
– Expand investment rights for FDI (e.g., EVFTA opens up the logistics and distribution sector);
– Or limit investment forms and foreign ownership ratios.
If a sector is not yet committed to opening up or has specific limitations, the FDI enterprise must seek approval from the relevant agency and accept certain restrictions.
5. Choosing the Right Business Sector When Establishing an FDI Enterprise
Before registering an investment, FDI enterprises should:
– Step 1: Consult the list of prohibited and conditional business sectors according to the 2020 Investment Law and Decree 31/2021/ND-CP;
– Step 2: Compare WTO commitments and bilateral/multilateral agreements that Vietnam participates in (EVFTA, CPTPP, etc.);
– Step 3: Work with an FDI consulting lawyer to choose a suitable model: 100% FDI company, joint venture, or acquisition of shares in a Vietnamese company;
– Step 4: Prepare a complete application dossier for the Investment Registration Certificate (IRC) accurately according to the chosen business sector and prepare the accompanying legal requirements.
S4B Vietnam
- Address: Unit 701B – 701C, Tower A, Handi Resco Towers, 521 Kim Ma Street, Giang Vo Ward, Hanoi, Vietnam
- Tel: +84 24 3974 4181
- Email: service@s4b.com.vn
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