The LOI provides for the following basic forms of direct investment: joint ventures, 100% FOEs and contract-based investment (BCC or BOT/BT/BTO).
Fundamentally, the foreign investor and its Vietnamese partner jointly apply to establish a company. The investor has two ways to create a joint venture: (i) create a new enterprise (including merger & acquisition); or (ii) participate in an existing enterprise via the purchase of a proportion of the company’s shares.
A joint venture may be established as a limited liability company with more than one member, as a joint stock company or as a partnership and is a legal entity with limited liability established on the basis of a joint venture contract between:
i) A Vietnamese party and a foreign party
ii) A Vietnamese party and a 100% FOE
iii) A joint venture enterprise and a foreign party
iv) A joint venture enterprise and a 100% FOE; or
v) Two joint venture enterprises.
100% FOEs/wholly foreign-owned
A 100% FOE is a legal entity set up by one or more foreign investors under a form of enterprise as set out above. The common form of 100% FOE is an LLC or a JSC, except in cases where a partnership is a compulsory form.
Foreign investors are not subject to minimum investment capital restrictions.
Business cooperation contract (BCC)
A BCC is an agreement between one or more foreign investors and one or more Vietnamese partners with the objective of cooperating to operate one or more specific business activities. This form of investment does not constitute a new legal entity and the investors have unlimited liability for the debts of the BCC. Within the framework of Vietnamese law, the parties involved are free to decide on the subject, content, interests, obligations and responsibilities of and relations among the parties, and to specify these in the contract.
Build – Operate – Transfer, Build – Transfer, Build – Transfer – Operate or Build – Operate arrangements
Build Operate Transfer (BOT), Build Transfer Operate (BTO), Build Transfer (BT) and Build Operate (BO) investments are recognized under the Law on Investment, and further governed by a separate regulation of the government. Foreign investors may sign a BOT, BT and BTO contract with a competent state body to implement infrastructure construction projects in Vietnam. These are often in the areas of traffic, electricity production and trade, water supply or drainage, and waste treatment. The rights and obligations of foreign investors will be regulated by the signed BOT, BT and BTO contracts.
Under BOT, the investor is fully in charge of construction and management of a project for a specific duration, after which the project is to be transferred to the state without any compensation.
Under BTO, the title has to be transferred to the state immediately upon completion of construction; however, the state will allow the investor to operate the project over the period of time agreed by both parties in the contract so that the investor can recover capital and reasonable profits.
Under BT, the project is transferred to the state on completion of construction and the State pays the investor by either granting the right to implement another project or making payment as agreed in the BT contract.
Other facilities for business and investment in Vietnam
A branch office is a dependent unit of a foreign entity and may conduct commercial activities for direct profit-making purposes in line with international treaties to which Vietnam is a signatory.
Banks, tobacco companies, airlines, law firms, and foreign companies operating in the fields of culture, education and tourism allowed to establish branches in Vietnam. Foreign companies may also establish branches in Vietnam to conduct trading activities and activities directly related to trading of goods.
In addition to obtaining investment licenses for establishment of a legal entity in Vietnam, foreign companies which have business relations with Vietnam, or investment projects in Vietnam, can apply to open representative offices in Vietnam. A Representative Office (RO) is not an independent legal entity and is not permitted to conduct direct commercial activities (such as execution of contracts, direct payment or receipt of monies, sale or purchase of goods, or provision of services). However, a RO can:
i) Act as a liaison office to study the business environment
ii) Search for trade and/or investment opportunities and partners
iii) Act on behalf of its head office to negotiate and sign contracts for the supply or purchase of goods and services at the authorization of the parent company (care needs to be taken for tax purposes)
iv) Supervise and accelerate the implementation of contracts
v) Act on behalf of the parent company to supervise and direct the implementation of investment projects in Vietnam; and
vi) Publicize and promote its company’s goods and/or services
A RO is allowed to hire local Vietnamese and expatriate staff and conduct various administrative functions on behalf of its company. A RO may, however, not engage in any profit generating activities.