Search
Table of Contents
Vietnam has dynamically emerged as an attractive destination for foreign direct investment (FDI) – all thanks to its strategic location, robust economic growth, and continuous legal and economic reforms. However, the success of foreign direct investment in Vietnam requires a deep understanding of and strict compliance with local legal regulations. This article provides a comprehensive overview of the legal framework governing foreign direct investment in Vietnam, including investment forms, licensing procedures, sector-specific restrictions, and investment incentives.
Overview of Vietnam's Foreign Direct Investment Policy
Since the launch of the Doi Moi (Renovation) policy in 1986, Vietnam has transformed from a centrally planned economy into a socialist-oriented market economy. This shift opened the door to foreign capital flow, resulting in a significant contribution to economic growth and social development. Ever since then, the Vietnamese government has made every possible effort and continues to strive to nurture a favorable investment environment through regulatory reform and investor-friendly policies.
Vietnam’s foreign direct investment policy endeavors to attract high-quality investments, promote technology transfer, generate employment, and enhance global economic integration. The main objectives of this policy include:
- Attracting investment in high-tech and environmentally friendly sectors
- Developing infrastructure and industrial zones
- Encouraging investment in economically challenged areas
- Strengthening connection between domestic and foreign-invested enterprises
Legal Framework for Foreign Direct Investment in Vietnam
Legal framework for foreign direct investment in Vietnam is established on the foundation of pivotal laws and regulations as follows:
- The 2020 Law on Investment – governs business investment activities in Vietnam and outward investment from Vietnam.
- The 2020 Law on Enterprises – regulates the establishment, organization, and operation of enterprises in Vietnam.
- The 2019 Law on Securities – covers activities relative to the securities market and organizations engaging in the securities business.
These laws outline the procedures for obtaining investment approval, the rights and obligations of foreign investors, and the sectors where foreign investment is encouraged or restricted.
Vietnam is also a member of several free trade agreements (FTAs) and the World Trade Organization (WTO), which influences its foreign direct investment commitments and policies.
To stay up to date with new legal regulations issued by the regulatory authorities on investment, investors can follow updates on the official website of the Ministry of Finance.
Foreign Direct Investment - Types and Structures
Foreign investors may choose from a variety of foreign direct investment structures in Vietnam:
- Wholly Foreign-Owned Enterprise (WFOE) – Foreign investors fully own the charter capital of the enterprise.
- Joint Venture – a joint operation between a foreign and a domestic investor, in which, sharing of capital and profit are proportionate to the rate of capital contribution.
- Business Cooperation Contract (BCC) – a business cooperation that is made based on a contract, however, no new legal person is created as a result of such a cooperation
- Public-Private Partnership (PPP) – collaboration between private investors and the government for infrastructure or public service projects.
Each structure has its pros and cons, therefore, investors select the foreign direct investment structure they choose to follow based on their sector and investment goals.
Sector-Specific Regulations
Vietnam classifies business sectors into three categories:
- Prohibited – including activities that potentially put national defense in jeopardy, or cause harm to the health of the public and the environment.
- Conditional – including sectors requiring investors to fulfill certain conditions. Some notable examples include banking, insurance, telecommunications, education, and healthcare.
- Encouraged – including sectors such as high-tech, renewable energy, agricultural technology, supporting industries, and environmentally friendly industries.
Under Decree 31/2021/ND-CP, the government has published a list of 84 sectors with restricted market access for foreign investors. Therefore, prior to the foreign direct investment, it is well-advised that foreign investors peruse the regulations to ensure that appropriate preparations for the fulfillment of conditions is made, thus preventing unnecessary delays in the licensing process thereafter.
84 business lines restricted for foreign investors in Vietnam
Licensing Procedures for Foreign Direct Investment Projects
Typically, the licensing process for foreign direct investment in Vietnam include:
- Pre-Investment Approval:
Prior to beginning the company registration process, foreign investors must determine whether their investment requires pre-approval from Vietnamese authorities. This is especially necessary for projects in sensitive sectors such as construction, transportation, and energy.
If pre-approval is required, investors must prepare and submit the necessary documents— which may include a project proposal and financial statements— to the relevant authorities.
- Obtaining an Investment Registration Certificate (IRC)
This certificate is required for projects subject to investment policies or those in conditional sectors
An IRC application may be submitted to either the Department of Planning and Investment or the authorities of the economic zone in which the project is expected to be located (if applicable).
Processing time: 15–20 business days.
- Obtaining an Enterprise Registration Certificate (ERC)
This certificate is necessary for the legal establishment of the enterprise.
Upon obtaining the IRC, investors register their company at the Business Registration Office under the Department of Planning and Investment.
Processing time: 5-7 business days.
- Post-licensing procedures
The includes obtaining a company seal registration, a tax code issuance, setting up a bank account, and miscellaneous business-related formalities.
Processing times vary depending on the scale of the project, investment sector, and location.
For a step-by-step guide on setting up a foreign-funded company, visit: Establishment Of Foreign-Funded Companies In Vietnam In 2025
Foreign Ownership Limitations and Related Regulations
Foreign ownership in foreign direct investment projects is subject to international commitment and Vietnamese law. Notable restrictions include:
- Road transportation services – foreign ownership is capped at 51% in joint ventures.
- Entertainment services – capped at 49% foreign ownership.
- Real estate – foreign investors CAN NOT own land use rights but may lease land.
Investors must review the Law on Investment and relevant FTAs (e.g., EVFTA, CPTPP, WTO) to determine sectoral limitations.
Investment Incentives for Foreign Direct Investment
Vietnam offers various incentives in an effort to attract foreign direct investment in prioritized sectors and regions:
- Corporate Income Tax (CIT) Incentives
- Permanent or 15-year preferential tax rate of 10% (in comparison to the standard rate of 20%) for highly prioritized sectors such as high-tech, R&D, education, and healthcare.
- Full CIT exemption for 2–4 years from the first taxable income.
- Land Lease Incentives
- Land lease fee exemption or reduction for 7–15 years, or full exemption for projects in specially difficult socio-economic areas or highly prioritized sectors.
- High-tech parks, economic zones, and industrial zones often benefit from long-term land lease incentives.
- Import Duty Exemptions
Exemption on import duties for:
- Investment project related machinery, equipment, and specialized vehicles.
- Raw materials and components not yet produced domestically are duty-free for 5-years from the start of production.
Repatriation of Profits and Capital
Foreign investors are allowed to repatriate profits, provided they:
- Fulfill all tax obligations in Vietnam
- Present independently audited financial statements
- Make the repatriation via their registered investment capital accounts at licensed banks.
Capital contributions, dividends, and loan interest are repatriated post approval by the tax authority and compliance with foreign exchange regulations.
Challenges for Foreign Direct Investment in Vietnam
Despite its appeal, Vietnam’s foreign direct investment landscape presents several challenges:
- Complex administrative procedures with extended timelines.
- Policy fluctuations that affect long-term planning
- Inadequate enforcement of intellectual property rights
- Language and cultural barriers in dealing with local partners.
Engaging reputable legal, accounting, and consulting firms is highly recommended for investors to reduce risks and ensure compliance.
Outlook for Foreign Direct Investment in Vietnam
Engaging reputable legal, accounting, and consulting firms is highly recommended for investors to reduce risks and ensure compliance.
- Further loosening of foreign ownership caps in strategic sectors.
- Prioritization of investment in high, green, and sustainable technology
- Digitization of administrative procedures and greater transparency
- Enhanced cooperation through new-generation FTAs
Conclusion
Understanding the legal landscape of foreign direct investment in Vietnam is essential for international investors seeking long-term success. While challenges remain, ongoing reforms and a strong commitment to sustainable growth make Vietnam a highly promising destination for global capital.
Investors should stay updated on legal developments, select suitable investment methods, and collaborate with experienced local partners to fully leverage Vietnam’s investment potential.
Go to our service page: Starting a business in Vietnam if you need help launching a company in Vietnam. For additional legal assistance and guidance about foreign direct investment in Vietnam, please get in touch with us at Thele.blog.
Leave A Comment