Under the Investment Law and Enterprise Law

Under the Enterprise Law, a company in Vietnam including foreign invested enterprise (FIEs) is entitled to take initiative in applying modern technology and science in order to improve business efficiency and competitiveness. Therefore, it should be possible for an FIE to conduct research and development (R&D) for its own operation. If an FIE provides its R&D results to other companies free of charge then subject to the discussion regarding Law on Science below, this is not considered as a business activity and additional licence is not required.

If an FIE provides its R&D results to other companies for a fee then subject to the discussion regarding Law on Science below, this could be considered as a business activity and an FIE will need to apply for this activity in its Investment Certificate. Under WTO Commitments (CPC 851), a foreign investor may invest in R&D activities relating to natural science without any restriction. In addition, pursuant to Appendix 1 of Decree 108, if an FIE invests in Research and Development accounting for 25% or more of its revenue, an FIE will even be entitled to special investment incentives. Therefore, an FIE should be able to apply for R&D activities as a business line in its Investment Certificate.

Under the Law on Science

Under Decree 108/2006, Prime Minister’s approval will be required for “independent scientific research entity” (cơ sở nghiên cứu khoa học độc lập). It is not clear what (e.g. a R&D department in an FIE) will constitute independent scientific research entity. Under the Law on Science, an independent scientific research entity could be, among other things:

• a “science and technology enterprise” (doanh nghiệp khoa học và công nghệ), which is an enterprise whose main activity is to produce goods developed from R&D activities of such enterprise. There is no definition or classification of “main activity” of an enterprise under the Law on Science. Under Circular 6, a science and technology enterprise must operate in the following sectors: information technology, telecommunication, biotechnology, new material technology, environment protection technology, alternative energy, and space technology; or

• a “research and development organisation”  (tổ chức nghiên cứu và phát triển) which may be organised in the form of research and development institutes, centers, laboratories, research station, monitoring stations, experiment stations and other research and development basis.

It is more likely than not that the proposed R&D activities by an FIE will not make an FIE be subject to the Law on Science for the following reasons:

• if an FIE’s main activity is not producing products developed from an FIE’s R&D activities or the R&D activities conducted by an FIE do not fall on the list provided by Circular 6; and 
• while the law is not clear, it appears that a research and development organisation which is not an enterprise may not perform business activities like an FIE.