Vietnam: A New Decree on Market Entry Conditions

The new Law on Investment entered into force in January 2021 and after only three months it’s been followed by the new decree on its guidance & implementation. On March 26th, 2021, the Government issued Decree 31/2021/ND-CP (“The Decree”), which is effective from the date of signature, specifying and clarifying the regulations on conditions for business investment, business lines and for market access applicable to foreign investors. The Decree provides a Negative List of 25 business lines prohibited to foreign investors and a list of Conditional business lines which foreign investors must satisfy market entry conditions in order to invest in.

There are 58 Conditional Business Lines, however, investment conditions such as foreign ownership limitations, investment form, etc. are not specified. According to The Decree, if a company has various business lines, which are subject to different foreign ownership limitations under international treaties, the valid limitation will be capped at the lowest threshold. In cases in which investors are from different countries and are bound by different international treaties, the total foreign ownership of the entirety of the foreign investors in respect of a specific business line will be capped at the highest threshold amongst the thresholds provided for in such international treaties.

The Ministry of Planning and Investment (MPI) will publish such conditions on the National Portal on Investment as the currently published list of conditions applicable to foreign investors in Vietnam is quite confusing and doesn’t provide much certainty. Foreign investors would need to compare their business scope according to the description of business lines included in the Vietnam Standard Industrial Classification and Provisional Central Product Classification. Although these sectors are open to foreigners, under the declared conditions, thus far very few investments have come from abroad. Foreign investors have been discouraged due to the uncertain and time-consuming outcome of licensing processes.

Decree 31/2021 replicates the negative list approach of the Investment Law 2020 where foreign investors are subject to the same treatment as domestic investors, when investing in non-Conditional business lines. In particular, if there are no market entry restrictions provided by laws, resolutions of the National Assembly, ordinances, resolutions of the Standing Committee of the National Assembly, decrees of the Government (Domestic Laws), foreign investors shall be treated as domestic investors in terms of market entry (e.g., no foreign ownership limitation).

Foreign investors shouldn’t be discouraged by these recently published lists as Vietnam has proved to be moving in the right direction by facilitating and favoring FDI. What has discouraged potential investors in the past is the uncertainty and the loss of time and resources due to a less than welcoming legal and business environment. As Investors are now required to clear a list of business lines and conditions, although strict, can be seen as a more well-defined procedure.

We at D’ Andrea and Partners Legal Counsel, have a team of experts to help you with investment in Vietnam. Do get in touch with us at info@dandreapartners.com for any questions or assistance.