New investment landscape in Vietnam

Vietnam investment law

The National Assembly of Vietnam adopted several important laws during its summer meeting, including the Investment Law and the public-private partnership (PPP) Investment Law. Together with the Enterprise Law and the Securities Law, these developments constitute an improved investment landscape for Vietnam to continue attracting investment capital into the country.

The government has made a priority of upgrading its legal capability from its entry into the World Trade Organisation (WTO) in 2007, and commitment to its treaties. The country has since concluded a dozen other regional and bilateral international treaties, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the EU-Vietnam Free Trade Agreement, and most recently the Regional Comprehensive Economic Partnership.

New Investment Law

On 17 June 2020, the National Assembly adopted the New Investment Law. The government also released a draft decree guiding the implementation of the New Investment Law (Draft Decree). This new law and draft decree are expected to be effective from 1 January 2021.

Market access for foreign investors. The most notable change in the New Investment Law is the introduction of a “negative list” approach, under which foreign investors will be treated as domestic investors for any sectors, provided that such sectors are not specifically included in a list of market restrictions and their corresponding market access restrictions (list of restricted sectors). The government will issue this list, which must specify the sectors where market access is not yet allowed and the sectors where market access is conditional.

The draft decree guiding the implementation of the New Investment Law has provided the list of restricted sectors, detailing 11 sectors where market access is not yet allowed and 38 where market access is conditional. The conditional sector list also includes any sectors that do not yet exist at the time of the adoption of the New Investment Law. This last note appears to contradict with the negative list approach under the New Investment Law and needs a careful examination if the government wishes to attract innovation.

New definition of foreign-invested economic organizations. The New Investment Law has amended the nature of foreign-invested economic organizations when they make investments in other economic organizations. In particular, an economic organization must be subject to investment procedures applicable to foreign investors if it has:

  • More than 50% of its charter capital held by foreign investors (foreign majority company);
  • More than 50% of its charter capital held by the foreign majority companies; or
  • More than 50% of its charter capital held by both foreign investors and foreign majority companies.

Compared to the current law, the New Investment Law has decreased the threshold for being considered a foreign majority company (i.e., from 51% or more charter capital to more than 50% charter capital), which means there will be more foreign-invested economic organizations captured by this amendment.

Clarification on M&A approval procedures. The New Investment Law has clarified the instances where the M&A approval procedure is required, specifically:

  • An increase of foreign ownership ratio in a target company engaging in business lines included in the list of restricted sectors;
  • An increase of foreign ownership ratio in a target company from 50% or less to more than 50% of the charter capital;
  • An increase of the foreign ownership ratio in a target company where foreign ownership of the charter capital is already more than 50%; or
  • A capital contribution or capital acquisition of a target company, which has already obtained land use right certificates for the lands located within areas having an effect on national security, such as sea islands, borderlands and coastal areas, etc.

The PPP Law

On 18 June 2020, the National Assembly officially passed the PPP Law, in effect from 1 January 2021 and replacing the old PPP regulations. Two draft decrees were also recently released in connection with the PPP Law. They provide details on the processes and procedures for implementing PPP projects, and for managing the financial aspects of PPP projects. The PPP Law has set as an overall objective of the promotion of PPP investments and creation of a stable and long-term legal framework for PPP projects. However, issues on flexibility and certainty from a private sector perspective remain a significant concern.

PPP investment sectors. Investment sectors for PPP project structures are now limited solely to transportation, power grids and plants (other than hydropower), irrigation, water supply, drainage and wastewater treatment, waste treatment, healthcare, education and training infrastructure and information technology infrastructure.

Capitalization for PPP projects. Investors and PPP project companies are responsible for contributing equity capital, as well as mobilizing loan capital and other lawful sources of capital, to implement the PPP project.

Under the PPP Law, within 12 months from the signing date of the PPP project contract, investors and PPP project companies are required to complete the financing arrangements relating to the project. For projects with investment policy decisions under the approval authority of the National Assembly or the prime minister, the completion period must not exceed 18 months.

The investors must contribute equity capital of at least 15% of the total project investment capital (excluding any state capital portion).

The PPP Law introduces a new limit that the state’s capital contribution may not exceed half of the total investment amount into a PPP project in the form of supporting construction, infrastructure, and land clearance and compensation. For a project consisting of multiple component projects of which there is a component project in PPP form, the state’s portion threshold shall be 50% of the total investment of the PPP component project.

Project step-in rights of lenders. The PPP Law removes the specific provision regarding the lender’s step-in rights, as stipulated in the old PPP regulations. It provides for general provision on lender’s rights in the relevant contracts. Specifically, during the PPP contract’s implementation, lender’s rights, including step-in rights, are subject to PPP project contracts and financing contracts, and relevant laws.

In addition, the PPP Law provides for a new guidance on replacement of investors in case of a PPP project contract is terminated early, in which case the lender may co-ordinate with the relevant state agency in charge of signing the PPP project contract to select a replacement investor.

As such, these scenarios should be effectively negotiated and clarified in the relevant project contracts, from a sponsor’s or a lender’s perspective, to ensure that an appropriate risk and responsibility allocation will be reflected in the relevant contracts.

Other noteworthy points of the PPP Law are:

  • New risk-sharing mechanisms for PPP projects are introduced, under which the public sector does not always bear an equal level of risk;
  • Foreign currency convertibility limitations remain, and are limited to no more than 30% of the project revenue, in Vietnamese dong, after subtracting expenditures to all PPP projects, with associated uncertainty on foreign exchange indexation to tariffs; and
  • The law specifically anticipates a termination or buy-out payments regime in the event of early termination of PPP project contracts for government default, developer default or force majeure. However, specific determination of the amount and components of compensation payments will need to be negotiated on a project-by-project basis.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact the author by emailing Lan Phuong Nguyen at