Investment Conditions Applicable To Foreign-Controlled Companies And National Treatment Principle

Under Article 23 of the Investment Law 2014, economic organisation with foreign investment capital (including 51% top-level Foreign EOs and 51% Low-level Foreign EO/ Domestic) (collectively, “Foreign-Controlled Companies”), except for  investment in securities, credit institutions, insurance business and oil and gas will be subject to the investment procedures and conditions applicable to foreign investors when(i) setting up a new enterprise; (ii) acquiring shares in existing private enterprises and (iii) entering into a Business Operation Contract.

The requirements under Article 23 of the Investment law 2014 may be inconsistent with national treatment principles that Vietnam has undertaken in various international agreements if (1) the Foreign-Controlled Company operates in a service sector in which under the WTO Commitments, foreign investors are given “national treatment”, and (2) the foreign investors of the Foreign-Controlled Company are from a country, which enjoys a national treatment principle under a bilateral treaty with Vietnam. In particular,

  • A Foreign-Controlled Company wanted to set up a company in Vietnam is required to obtain an Investment Registration Certificate (Investment Certificate) regarding the foreign investor while domestic investors is not required;

  • A Foreign-Controlled Company is required to register with the local Department of Planning and Investment (Local DPI) (Acquisition Registration) when acquiring shares in local private companies operating certain sectors or acquiring controlling shares in any local private company. Since the Local DPI has the right to reject a registration, this procedure is, in nature, a licensing procedure. This procedure, however, does not apply to domestic investors; and

  • Vietnam undertakes to apply “national treatment” principles to foreign invested companies set up in Vietnam by foreign investors including Foreign-Controlled Companies in various sectors listed in the schedule of service commitments under the WTO Commitments. Under the national treatment principle, a foreign investor from a contracting country should be treated as no less favourable than a domestic investor. In this light, if a domestic investor is not subject to from procedures for obtaining an Investment Certificate and Acquisition Registration, then a Foreign-Controlled Company should also enjoy such incentives.

This blog post is contributed by Mai Chi, a trainee lawyer at VILAF.