WHAT ARE FORMS OF INVESTMENT UNDER CURRENT VIETNAMESE LAW?
QUESTION
Dear TLK Law Firm, I would like to ask the following questions: Currently, how many forms of investment does the law of Vietnam stipulate? Specifically, what are types of investments? Looking forward to your answer. Thank you!
RELATED ARTICLE
Thank you for trusting and sending questions to TLK Law Firm, base on legal regulations and practice, we would like to send youthe following advice:
LEGAL BASIS
1. Investment Law No. 61/2020/QH14 passed by the National Assembly on June 17th, 2020;
2. Decree No. 31/2021/ND-CP issued by the Government on March 26, 2021 detailing and guiding the implementation of a number of articles of the Investment Law;
3. Other relevant guiding legal documents.
CONSULTING CONTENT
In the trend of global economic integration along with policies to attract investors, Vietnam is proving to be one of the promising lands of domestic and foreign investors because of its abundant natural resources; rich, young and abundant human resources. However, investors will often have difficulty in determining what types of investment are available under the laws of the host country and choosing the appropriate investment form. Understanding your concerns, in this article, we would like to provide you with the most basic regulations on investment forms in accordance with current Vietnamese laws.
Video: Forms of investment _ Hotline: (+84)97 211 8764
=> See more: Legal Consultancy Program about Investment - N0.2: Forms of Investment in Vietnam
I. SOME IMPORTANT LEGAL ISSUES RELATED TO FORMS OF INVESTMENT AS RESULTS OF CURRENT VIETNAM LAW
1. What is investment?
Investment in the broad sense is the sacrifice of resources in the present to carry out certain activities in order to get the investor certain results in the future that are greater than the resources spent to achieve those results. Resources can be money, property, natural resources, labor and intelligence. The desired outcomes can be an increase in financial assets, physical assets, intellectual property and resources.
Investment in the narrow sense includes activities that use available resources in the present to conduct business activities to bring about future results that are greater than the resources used.
Thus, investment is understood as the use of financial, human, material and intellectual resources for production and business in a certain period of time in order to earn profits and socio-economic benefits.
2. What is an investor?
Based on the provisions of Clause 18, Article 3 of the Investment Law 2020: “Investor is an organization or individual conducting business investment activities, including domestic investors, foreign investors and economics organizations with foreign investment.”
Thus, by definition, we determine, investors can be individuals or organizations, they invest capital to carry out business activities. Investors here can be domestic investors, foreign investors or economic organizations with foreign investment.
2.1. Domestic investors
Pursuant to the provisions of Clause 20, Article 3 of the Investment Law 2020, "Domestic investors are individuals with Vietnamese nationality or economic organizations that do not have foreign investors as members or shareholders".
2.2. Foreign investors
Pursuant to the provisions of Clause 19, Article 3 of the Investment Law 2020: “Foreign investor is an individual with foreign nationality or an organization established under foreign law conducting business investment activities in Vietnam".
2.3. Economic organizations with foreign investment
Pursuant to the provisions of Clause 19, Article 3 of the Investment Law 2020: “Economic organizations are organizations established and operating under the provisions of Vietnamese law, including enterprises, cooperatives, cooperative unions and other organizations conducting business investment activities”.
According to that: "Foreign-invested economic organization is an economic organization with a foreign investor as a member or shareholder".
3. Investment forms in accordance with current Vietnamese laws
Article 21 of the Investment Law 2020 stipulates the current investment forms in Vietnam, including:
- Investing in the establishment of economic organizations.
- Investment to contribute capital, buy shares, buy capital contribution.
- Implementation of investment projects.
- Investment in the form of BCC contract.
- New investment forms and economic organizations according to the Government's regulations.
Therein:
Investment in establishing economic organizations:
Investors can invest in the form of establishing economic organizations. For domestic investors and economic organizations specified in Clause 2, Article 23 of the Investment Law 2020, investors are not required to carry out the procedures for applying for an Investment Registration Certificate. However, for foreign investors and economic organizations specified in Clause 1, Article 23 of the Investment Law 2020, when they want to establish economic organizations in Vietnam, they must meet the market access conditions for foreign investors as prescribed by law, there must be an investment project, and it is necessary to carry out the procedures for applying for an Investment Certificate before investing in Vietnam (except in the case of setting up a small business, innovative start-ups and innovative start-up investment funds in accordance with the law on supporting small and medium enterprises).
=> See more: Investment registration
Implement the form of investment to contribute capital, buy shares, and contribute capital to economic organizations
Investors can invest in the form of capital contribution to an economic organization established to implement the project or can buy back the capital contribution of the members of that economic organization when they have demand for transfer capital contribution.
Investors can invest in economic organizations through the purchase of shares issued for the first time or additionally issued shares that the economic organization is a joint-stock company that sells or buys back shares from other shareholders wishing to transfer.
Implementation of investment projects
Investors can implement investment projects in the form of PPP project contracts (Public Private Partnership Contract). PPP project contract is a written agreement signed between an investor, PPP project enterprise and a competent state agency to implement a new construction investment project or to renovate, upgrade or open a PPP project. expand, manage and operate infrastructure works or provide public services.
Pursuant to Clause 3, Article 16 and Article 45 of the Investment Law in the form of public-private partnership in 2020, PPP project contracts include the following types of contracts:
- Build - Operate - Transfer contract (hereinafter referred to as BOT contract): is a contract in which the investor, PPP project enterprise is licensed to build, doing business, operate works and infrastructure systems within a certain period of time; At the end of the time limit, the investor or PPP project enterprise shall transfer such infrastructure works and systems to the State.
- Build - Transfer - Operate contract (hereinafter referred to as BTO contract): is a contract under which the investor, PPP project enterprise is licensed to build works, systems infrastructure system; After completion of construction, the investor and PPP project enterprise shall transfer the work and infrastructure system to the State and have the right to do business and operate that infrastructure project and system within a certain period of time.
- Build - Own - Operate contract (hereinafter referred to as BOO contract): is a contract in which the investor, PPP project enterprise is franchised to build, own, doing business, operating works and infrastructure systems within a certain period of time; At the end of the term, the investor or PPP project enterprise terminates the contract.
- Operate - Manage contract (Operate - Manage, hereinafter referred to as O&M contract): is a contract in which the investor or PPP project enterprise is franchised to do business and manage part or the whole of the company, existing infrastructure systems within a certain period of time; At the end of the term, the investor or PPP project enterprise terminates the contract.
- Build - Transfer - Lease (Build - Transfer - Lease contract, hereinafter referred to as BTL contract): is a contract in which the investor, PPP project enterprise is franchised to build works, infrastructure system and transfer to the State after completion; have the right to provide public products and services on the basis of operating, exploit such infrastructure works or systems within a certain period of time; agencies that sign service contracts and make payments to investors and PPP project enterprises.
- Build - Lease - Transfer contract (hereinafter referred to as BLT contract): is a contract in which the investor, PPP project enterprise is frachised to build the work, infrastructure system and providing public products and services on the basis of operating and exploiting such infrastructure works and systems within a certain period of time; agencies that sign service contracts and make payments to investors and PPP project enterprises; At the end of the time limit, the investor or PPP project enterprise shall transfer such infrastructure works and systems to the State.
- Mixed contract is a combination of the above types of contracts.
Making investment in the form of BCC
Investment in the form of a BCC contract is called a business cooperation contract, which is signed between investors to do business together to bring profits to each other, to share products and business results with each other without establishing an economic organization. Investors who cooperate with each other in the form of BCC contract can be domestic investors together or between domestic investors and foreign investors.
For investment under a BCC contract, the investor needs to establish a Coordination Committee and agree on the functions, powers and duties of the Coordinating Board.
Picture 1: Forms of investment _ Hotline: (+84)97 211 8764
However, in general, there are two main forms of investment: indirect investment and direct investment.
3.1. Direct investment
Direct investment is an investment form in which investors invest capital and directly hold the right to manage, control and use their capital contribution in business investment activities.
Thus, the forms of direct investment will include:
- Investing in the establishment of economic organizations;
- Implementation of investment projects;
- Investment in the form of BBC contract;
- Investment in capital contribution, purchase of shares or capital contribution in which the investor has rights in business investment activities.
3.2. Indirect investment
Indirect investment is a form of investment in which investors invest capital, but do not hold the right to manage, control and use their contributed capital, but through a third party to help them control and implement investment projects.
Forms of indirect investment include:
- Investment in capital contribution, purchase of shares, capital contribution (excluding the case of purchase of shares or contributed capital in which the investor has rights in business investment activities).
- To have the right to buy and sell bonds and other securities in Vietnam's stock market.
- Investment through intermediary financial institutions.
- In addition, foreign investors may conduct other forms of indirect investment in accordance with the provisions of law.
3.3. Distinguish Direct investment and Indirect investment
3.3.1. Alike
Direct investment and indirect investment are both forms of investors investing capital with the purpose of making profit.
3.3.2. Difference
- Regarding control:
Direct investment: Investors have the right to control, manage and use their own capital to carry out business activities proactively and directly without having to go through a 3rd party.
Indirect investment: Investors only invest capital without holding the right to control, manage and use their capital to carry out business activities directly and proactively. The control, management and use of this capital will belong to a third party.
- Regarding responsibilities:
Direct investment: direct investors will be more responsible than indirect investors because direct investors are the ones who control, manage and use the company's capital for investment and business so every investor's decision will affect the survival of the organization. Whether the profit of the organization is high or low will depend on the decisions and policies that investors make.
Indirect investment: indirect investors will have much less responsibility to the organization than direct investors because indirect investors only invest their money and assets in the organization without managing, controlling and administrating the organization. In case the business organization is not favorable, incurs debts or other property obligations, at this time, indirect investors are only liable for these debts and property obligations to the extent capital contributed to the organization (in case the investor contributes capital, buys shares, contributes capital but does not hold the right to control and manage the organization).
- Regarding the level of risk:
Direct investors will usually be more contributors to the organization's assets, spirit, and intellect than indirect investors. Therefore, the level of financial risk of direct investors will be higher than that of indirect investors.
=> See more: Investment incentives for foreign investors in Vietnam
II. HOW SHOULD YOU CHOOSE THE BEST LEGAL SERVICE PROVIDED ORGANIZATION?
First: Must be an official legal organization with a legal operating license;
Second: Having a Board of Directors must be lawyers, the more experienced and highly educated the better;
Third: Having a team of lawyers, a professional and well-trained human resource system;
Fourth: Friendly, dedicated and make every effort for the benefit of customers. Consider customer satisfaction, work quality as one's own honor;
Fifth: Professional, thoughtful, flexible and logical service delivery process to optimize work performance and maximize customer time savings;
Sixth: Reasonable and competitive service prices;
Seventh: Wide range of services in both the field of providing service packages in the same field for customers to choose the appropriate service package, as well as being able to provide comprehensive support to customers throughout the operation process;
Eighth: Capable of Connecting - Promote commercial relationships for customers if customers have needs,...
Finding a comprehensive, professional and reputable legal consulting organization is what any client wants. Because no one wants to take the risk of losing both finance and time while the results are not as expected. However, to find such an organization is not easy because the number of service providers in the Vietnamese market today is a lot with different quality.
One suggestion for you is that, although our TLK Law Firm does not dare to claim to be the best legal service provider in the market, we satisfy all of the above criteria and more, will definitely be a good choice for you.
Picture 2: What are forms of investment _ Hotline: (+84)97 211 8764
III. SOME QUESTIONS RELATED TO FORMS OF INVESTMENT UNDER CURRENT VIETNAMESE LAW
Question 1: What is FDI?
Answer:
FDI stands for "Foreign Direct Investment". FDI is a form of long-term investment by individuals or companies from one country to another by establishing production and business bases. That foreign individual or company will take over the management of this production and business establishment.
Question 2: What are the conditions for a foreign investor investing to establish an economic organization in Vietnam to be granted an Investment Registration Certificate?
Answer:
To be granted an Investment Registration Certificate, a foreign investor needs to meet the following conditions:
- Must have an investment project;
- Satisfying the conditions on the percentage of charter capital ownership in accordance with the provisions of the Investment Law, the conditions on the scope of operation and investment form in Vietnam, the Vietnamese partner participates in the implementation of the investment activities and other conditions in accordance with the provisions of international treaties to which the State of the Socialist Republic of Vietnam is a member.
- Carry out the procedures for applying for an Investment Registration Certificate at a competent investment registration agency in Vietnam with a valid set of documents.
Question 3: What are the procedures for an economic organization that is invested by foreign investors in the form of capital contribution, share purchase, or capital contribution?
Answer:
Pursuant to the provisions of Article 66 of Decree No. 31/2021/ND-CP, economic organizations invested in by foreign investors in the form of capital contribution, share purchase or purchase of contributed capital need to carry out the following procedures:
- Economic organizations that have foreign investors contribute capital, purchase shares or purchase capital contributions do not fall into the case specified in Clause 2, Article 26 of the Investment Law, economic organizations carry out the procedures for registration of change of members, and shareholders at the business registration agency in accordance with the law on enterprises and other laws corresponding to each type of economic organization.
- Economic organizations with foreign investors making capital contribution, purchase of shares or purchase of contributed capital in the cases specified in Clause 2, Article 26 of the Investment Law submit 01 application for registration of capital contribution, share purchase or purchase of contributed capital to the investment registration agency where the economic organization's head office is located. For the case specified at Points a and b, Clause 2, Article 26 of the Investment Law, after the foreign investor is approved for capital contribution, share purchase, or purchase of contributed capital, an economic organization having such investor carry out procedures for changing members or shareholders at the business registration office in accordance with the law on enterprises and other laws relevant to each type of investment. economic organizations. Rights and obligations of foreign investors as members and shareholders of economic organizations shall be established upon completion of procedures for changing members and shareholders.
=> See more: Investment conditions applicable to foreign investors investing in Vietnam
Picture 3: What are forms of investment _ Hotline: (+84)97 211 8764
Here is some general advice that we would like to offer to our customers. As a service provider, we always understand and are ready to accompany and solve the needs and difficulties that customers are facing. If you still have questions or need more in-depth advice, please contact Hotline: (+84) 97 211 8764 for direct advice from a lawyer (free consultation).
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Business and Investment Department – TLK . Law Firm
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