Conditional business sectors with market access in accordance with the new provisions of the law on investment 2020

“In the context of the recent big change in important legal documents in the field of business investment in Vietnam (The Investment Law 2020 took effect from January 1, 2021, Decree No. 31/2021/ND-CP detailing and guiding the enforcement of a number of provisions of the Investment Law effective from March 26, 2021), these changes greatly affect the business activities of foreign investors in Vietnam.”Notably, the change in market access conditions of some business sectors also raised questions about what conditions foreign investors must satisfy in order to be able to do business in Vietnam. The following article will give investors an overview for considering the expected activities, which will be operated in Vietnam.

1. In case of application of market access conditions

Unlike the Law on Investment 2014 and its guiding documents, cases which require application of market access conditions are summed up in a specific provision – ‘Article 2.6 of Decree 118/2015’. The Investment Law 2020 and its guiding documents do not have this provision, but cases where foreign investors must meet the conditions of market access are specified in individual terms. Specifically, the Law on Investment 2020 and guiding documents only stipulate that foreign investors must meet the conditions for market access in the following cases:

  • Establishment of economic organizations (Article 22.1.b of Law);
  • Investment in the form of capital contribution, purchase of shares or purchase of contributed capital(Article 24.2.a of Law);
  • Investment in investment projects in case of having to apply for approval of investment policies (Article 33.4.a of Law);
  • Supplementing business sectors with conditional market access (Article 64.2 of Decree No. 31/2021);
  • Investment in the form of contracts (Article 17.5 of Decree No. 31/2021);
  • Receiving transfer of investment projects or other cases of receiving investment projects (Article 17.5 of Decree No. 31/2021).
2. Forms of market access conditions

Regarding the form of conditions, the new Investment Law retains some basic forms previously specified, namely: (i) the ratio of ownership in the charter capital of foreign investors in economic organizations, (ii) investment form, and (iii) scope of investment activities. In addition, the Law on Investment 2020 has a few changes in the last 02 forms. Accordingly, instead of laying down just provisions on “conditions for Vietnamese partners participating in investment activities” as in the ‘Investment Law 2014’, the ‘Law on Investment 2020’ expands to specify conditions on “Capacity of investors; partners participating in investment activities“. We can see that the scope of this regulation is wider than the older regulations. Investors must not only explain the eligibility of Vietnamese partners participating in investment activities, but also prove that investors meet the conditions of capacity to carry out investment activities in Vietnam.

3. Conditions for market access in some special cases:
  • Business sectors which have not been opened to foreign investors by Vietnam.
  • Right to choose market access conditions of foreign investors.

The more the society grows, the more new types of business activities that Vietnam has not opened to foreign investors through international investment treaties arrive. To solve this problem, ‘Article 17.4 of Decree No. 31/2021/ND-CP’ regulates that: “if the market access conditions for business sectors are stipulated in legal documents such as laws, decrees, resolutions, ordinances, etc. , the investment registration agency shall, on the basis of the above conditions, consider whether to allow foreign investors to carry out such activities or not. In case there is no Vietnamese legal document on conditions for new business sectors, the foreign investor must meet the conditions corresponding to the Vietnamese investor. If Vietnamese legal documents stipulating on market access conditions are issued after an investor is licensed to conduct new investment activities, pursuant to ‘Article 17.5 of Decree 31’, such foreign investor may continue to conduct business investment activities within the scope of licensed investment.If the country of which the investor is a national, has signed treaty(s) with Vietnam on investment, and there is a difference in market access conditions between the provisions of Vietnamese law and those treaty(s), foreign investors have the right to choose which market access conditions apply, specified in a written source in the most favorable way (Article 17.8 and 17.9 of Decree No. 31/2021/ND-CP). However, it should be noted that in case foreign investors choose to apply market access conditions specified in a specific investment treaty, the foreign investor must perform his/her rights and obligations in accordance with the whole provisions of that treaty.

4. Some examples of business sectors with conditional market access for foreign investor.
No.Business sectors which have conditional market access for foreign investorsConditionLegal basis
1.Advertising services.Joint venture between a foreign investor and a Vietnamese enterprise with registration of advertising activity (No regulations on capital contribution ratio)WTO Commitment Schedule
2.Educational servicesRegulations on minimum investment capital for each investment rateWTO Commitment Schedule Decree 86/2018
3.Technical testing and analysis services.Foreign investors must be a legal entity from a WTO member stateWTO Commitment Schedule
4.E-commerceNo specific conditions have been specified in any legal documents. Investment agencies may consult relevant ministries to obtain directions for processing dossiersLaw on Investment 2020

Src: PLF Law Firm