Vietnam investment regulations – Direct investment v.s. indirect investment
Under the Investment Law, direct investment means a form of investment whereby the investor invests its invested capital and participates in the management of the investment activity. On the other hand, indirect investment means a form of investment through the purchase of shares, share certificates, other valuable papers or a securities investment fund and through other intermediary financial institutions and whereby the investor does not participate directly in the management of the investment activity.
The confusing point here is what “participating in the management” of investment activity. If having purchased shares of a listed company in Vietnam, a foreign investor attends the shareholders meeting of such company and exercises its voting rights then arguably the investor has “participated in the management” of the company in Vietnam. A more relevant example is a foreign investor purchases a minority stake in a domestic joint stock company and nominates its personnel to hold position in the Board of Directors of such company. In such case, it is not clear if the investor could be deemed to have “participated in the management” of the company in Vietnam.
The consequences of being treated as a direct investment and an indirect investment may be material. If an investment is an indirect investment then the parties may not need to obtain an Investment Certificate and must settle the transaction in Vietnamese Dong through a VND capital contribution account. If an investment is a direct investment then the parties may need to obtain an Investment Certificate and could settle the transaction in foreign currency.
It would have been clearer if the Investment Law replaces the concept of “participating in the management” with “control”. In such case, an investor will be deemed to make a direct investment if it has “control” of the investment activity. In other cases, the investor will be deemed to make an indirect investment.
In light of our earlier analysis of Decree 135/2024, we have further observations regarding the Decree's lack of clarity. This post is written by Le Thanh Nhat.
Firstly, the Decree lacks a clear definition of “self-generation and self-consumption rooftop solar power” (Self-Consumption RSP). This is crucial as only surplus power from Self-Consumption RSP systems may be sold to EVN, Vietnam's national electricity provider. Unfortunately, Decree 135/2024 only offers the rather ambiguous definitions for “self-generation and self-consumption power” and “rooftop solar power” (which are arguably the two ‘components’ of Self-Consumption RSP) separately, without clarifying their integration.
A new Data Law, passed in late November 2024 and set to take effect on 1 July 2025, focuses primarily on establishing a national general database and data centre for state use. However, it also introduces rules on digital data (data in the rest of this article) that concerns the private sector, such as, data products and services. The Government is also drafting three draft decrees detailing key issues under the Data Law, including Data-Related Products & Services Draft Decree, Core & Important Data Draft Decree and a Master Draft Decree.
This blog will discuss several key points under the Data Law and related draft decrees. This post is written by Ha Thanh Phuc and Trinh Phuong Thao.
1) The police will review and supervise your data activities
The Ministry of Public Security (MPS) again is authorized to regulate all activities relating to data except for data under the Ministry of Defence. Accordingly, it seems that Vietnam considers data as security issue and violation of data activities could result in significant liabilities. This could raise significant compliance costs for businesses and companies in Vietnam if they want to be fully comply with unclear rules (see discussion below).
1) Conditional Business Lines
Amendments to the Investment Law 2020 in late 2024 now require businesses involved in (i) data intermediary products and services, (ii) data analysis and synthesis, or (iii) data platform services to meet certain conditions. The Data Law suggests that:
a. data platform services may be restricted to state enterprises and public providers, potentially excluding private companies; and
b. only providers of data analysis and synthesis services that potentially harm national defence, national security, social order, safety, social ethics, or public health, which have been detailed under the Data-Related Products & Services Draft Decree, will be subject to these conditions.
Under the Data-Related Products & Services Draft Decree, businesses in these sectors are subject to strict requirements. Notably, all such businesses must maintain an escrow of at least 5 billion VND at a Vietnamese commercial bank to cover compensation and expenses in the event their licenses are revoked.
In a criminal case involving a business, from time to time, the courts will need to decide on the civil liability of the criminal and other persons including those who are not aware of the crime relating to the case. For example, if A commits a fraud against B and uses the monies obtained from B to repay a debt between A and C who is not aware of A’s crime. In addition to deciding on whether A is guilty or not, the court will need to decide whether (1) requesting A to compensate B for the loss that B suffers or (2) requesting C to return the monies C receives from A to B (assuming that A is convicted). However, it appears that the court does not have a consistent approach. In this post, we discuss the approaches that the courts took in some significant criminal cases for the last decade.
Huyen Nhu Case – 2014
Huynh Thu Huyen Nhu was the head of a transaction office of Vietinbank (a large State-owned bank). Huyen Nhu has offered high interest rate (exceeding the interest rate cap provided by law) to various companies to convince them to deposit their monies with a branch of Vietinbank. After those companies made the deposit under instructions of Huyen Nhu, Huyen Nhu used fake documents and payment instruction to cause Vietinbank to transfer the deposit to Huyen Nhu’s designated accounts. Huyen Nhu used most of the amount obtained through her fraud to repay her debts to several individuals. The damages caused by Huyen Nhu is reported to be around VND 4000 billion (about US$ 200 million at such time), being largest bank fraud at the time.
In addition to convicting Huyen Nhu of the crime of committing fraud to appropriate properties (lừa đảo chiếm đoạt tài sản), the court also requested Huyen Nhu to compensate all the relevant companies for the losses that such companies suffer. The relevant companies took the view that they are not victim of Huyen Nhu’s fraudulent acts but Vietinbank is. Therefore, the relevant companies requested Vietinbank to repay them the deposits they made with Vietinbank. However, the court rejected such view and considered those companies to be victims of Huyen Nhu’s fraudulent acts. The court confiscated the amount of interests that Huyen Nhu paid her lenders but did not require these lenders to return the entire amount they received from Huyen Nhu.
On 22 October 2024, the Government of Vietnam issued Decree 135/2024 on mechanisms and policies incentivising the development of “self-generation and self-consumption rooftop solar power” (Self-Consumption RSP). Unfortunately, there is still a great deal of ambiguity in the provisions of Decree 135/2024 that might create unnecessary confusion in applying and administering the implementation of Decree 135/2024. Please see our discussion of a few ambiguous provisions of Decree 135/2024 below.
1) Potential risk from Decree 135/2024’s scope of application – Decree 135/2024 is said to only govern Self-Consumption RSP [systems] that are installed on the roof of construction works that were invested and constructed in strict compliance with law, including regulations on investment, construction, land, environment, safety, firefighting and fire prevention. As such, any noncompliance of the underlying building may cause the rooftop solar system to not be recognised as a Self-Consumption RSP system and therefore cannot enjoy the incentives policies under Decree 135/2024. It is unclear (i) whether mitigated noncompliance in the past (before the Self-Consumption RSP system is installed) would cause the building to be considered not “invested and constructed in strict compliance with law” and therefore prevents the installation of Self-Consumption RSP system on said building, and (i) whether noncompliance that arises after the Self-Consumption RSP system is installed and operated would affect the applicability of Decree 135/2024 to such system and what the outcome would be.
The National Assembly of Vietnam adopted a new law (the Amended Investment Law) to amend and supplement several provisions in Investment Law 2020. Most provisions of the Amended Investment Law take effect from 1 January 2025, except certain cases will take effect from 1 July 2025. In this post, we discuss some notable points in this Amended Investment Law.
Special Investment Procedures
The key point in this Amended Investment Law is the introduction of a special investment procedure (Special Procedure) which allows the eligible investors in certain high-tech sectors to obtain the investment registration certificate (IRC) and implement its project in a shorter time and reduces procedures, including waiver of various approvals and procedures.
The project utilizing the Special Procedure are exempt from various standard approvals and procedures, including IPA, technology appraisal, environmental impact assessment report, detail planning, construction permit and other approvals and permits in construction, fire fighting and prevention. The issued IRC serves as document for land lease or conversion of land use purpose. However, before commencing construction, investors are obliged to submit a report on the project's economic-technical construction investment, along with the corresponding appraisal report, to the relevant Authority.
This Special Procedure prevails relevant regulations under other laws enacted before 15 January 2025 when there is any difference between the Special Procedure and such other laws. For projects having IPA or IRC before the effective date of Amended Investment Law and eligible for utilizing the Special Procedure, the investor of such project can choose to apply the Special Procedure. The Special Procedure is still subject to further guidance from the Government and Ministry of Planning and Investment.
Vietnam’s housing market has experienced rapid growth in recent years, driven by urbanization, economic development, and increasing demand. A shortage in housing supply in some big cities currently has prompted policymakers to enhance land policies to unlock resources for housing project development. As new Land Law 2024 seems to fall short in resolving the land supply constraints for residential development, on 30 November 2024, the National Assembly adopted Resolution 171 on piloting implementation of commercial housing projects through agreements on voluntary assignment of land use rights (LUR) or use of existing LUR (Resolution 171).
With its introduction of a more flexible mechanism for commercial housing development, Resolution 171 is anticipated to address the housing supply shortage. However, developers will need to wait for a detailed decree to ensure the feasibility and compliance of their proposed projects.
In the FLC and Van Thinh Phat cases, the authorities have accused the controlling shareholders of FLC and Van Thinh Phat of various crimes including crimes relating to public issuance of securities, stock manipulation or private issuance of bonds. In an apparent attempt to prevent these crimes to be recommitted, in December 2024, the National Assembly passes some important amendments to the Securities Law 2019 (2024 Amendment). The Amendment takes effect from 1 January 2025 and could impose significant risks to public companies and their shareholders in Vietnam.
Sweeping changes to the liability regime for public companies, their shareholders and advisors
Under the 2024 Amendment, organization or individuals participating in the process of preparing applicable files or reporting documents relating to securities activities and securities market (hoạt động chứng khoán và thị trường chứng khoán) will be responsible for ensuring that:
such application files and reporting documents are legal, accurate, true and complete; and
such application files and reporting documents have clear and not misleading information and contain all material content which affect decision of the authorities, organisations and investors.
Advisors, who provide advice on the application files and reporting documents relating to securities activities and securities market, must be honest and prudent and must ensure that all analysis is reasonable and prudent.
Before the 2024 Amendment, the Securities Law 2019 only imposes liabilities to issuers, underwriters, auditors and “certifying organisations” when they conduct a public offering of securities or register their securities for listing or trading. However, by referring to all securities activities and securities market, the 2024 Amendment appears to expand the liability regimes to apply to all activities in the market including those which are normally not subject to such liability such as (1) private offering of securities, (3) public disclosures by a public companies or their shareholders, (4) secondary trading of securities by investors, and (4) advisors who are involved in these activities.
In practice, it would be very difficult for public companies and their shareholders and advisors to ensure that all of the documents and information relating to their public disclosures and securities trading activities do not contain misleading information and contain all material information, which affect decision by not only investors but also the authorities and other organisations.