Optimizing Investments in Vietnam’s Conditional Sectors

For many companies, Vietnam’s greatest potential lies in its conditional investment sectors. These areas of the Vietnamese economy are still largely untapped by foreign capital and present prime opportunities for investors to enter a new market with little competition.

Opportunities within conditional sectors are, however, tempered by a number of restrictions on control, activities, and capital contributions. Each conditional industry is subject to a specific set of restrictions and all investors should be sure to evaluate their exposure. The Ministry of Planning and Investment (MPI) maintains a full list of conditional sectors and industry-specific requirements on the National Business Registration Portal.

Foreign ownership caps

For several industries where investment is conditional for foreign parties, the ownership percentage is limited to a specific ceiling. This not only limits the ability of a company to maintain full control over its investments but will also dictate that market entry be conducted through a JV rather than a 100 percent foreign-owned enterprise (FOE).

Minimum capital requirements

In addition to foreign ownership caps, Vietnam’s MPI also imposes capital requirements for several conditional industries. These require that a company must invest, at minimum, the amount specified to enter the market.

Limitations on business activities

Under many conditional sectors, the government may impose additional limitations on business activities, which companies with foreign ownership may be required to adhere to. These are similar to the licensing, approvals, and other requirements that are applied to all enterprises, however, these restrictions are specifically laid out for entities involving foreign enterprises.

The recently introduced Law on Investment 2020 (LOI) (Law No. 61/2020/QH14) for the first time introduces a ‘negative list’. Under the new law, certain sectors are completely off-limits and restricted while some sectors are conditional and therefore are subject to certain conditions that require formal approval.

This method is likely to save time for investors as well as authorities in determining investment approvals including for M&A activities.

Under the amended LOI, business lines that are banned from foreign investment activities include:

• Debt collection services (new);
• Trading in narcotics as per Appendix I of the LOI;
• Trading in chemicals and minerals as per Appendix II of the LOI;
• Trading in wild flora and fauna as specified in Appendix I of the LOI;
• Dealing in prostitution;
• Buying and selling humans, human tissues, bodies, organs;
• Business related to human cloning; and
• Trading in firecrackers (new).

The amended LOI has trimmed down the number of conditional business lines to approximately 227 from around 240. These business lines and industries are subject to certain conditions and approvals as per Appendix IV of the LOI. These include:

• Aviation transport business;
• Manufacture of seals
• Tobacco detoxification provision services;
• HIV/AIDS treatment;
• Elderly care;
• Employment service business;
• E-commerce;
• Multi-level marketing;
• Water sanitization;
• Architectural services;
• Import press distribution services;
• Electronic identification and authentication services;
• Real estate’
• Social networking business’
• Data center;
• Fishing vessel registration; and
• Fishing vessel crew training, among others.

Aside from these, the government is likely to release a Decree finalizing the full list of conditional business lines.

In addition, encouraged business lines with special investment incentives and support include:

• Preschool, college, or vocational education;
• Manufacture of medical equipment and all pharmaceutical products;
• Manufacture of products and provision of services that create or participate in the value chain or associated industries;
• Social housing projects;
• Innovative start-up projects;
• Research and development centers;
• Recycling;
• Small or medium-sized business incubators; and
• Co-working space for small or medium-sized businesses.

Additional investment incentives have also been given for areas with difficult socio-economic conditions and industrial zones. These incentives can include tax breaks, access to credit, research support, and others.

Investors should study the new LOI to understand how the new changes to restricted and conditional business lines will affect their business operations. The government is also likely to issue decrees implementing the new regulations associated with the LOI.

 

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