Vietnam: Changes Of The Foreign Investment Law In Vietnam

Last Updated: 19 March 2001
Article by Dang The Duc

Despite the impact of the regional economic crisis and declining foreign investment, Vietnam has attached positive achievements during the year 2000. The country has posted a GDP growth rate of 7.6% against the target of 5.5-6% for the last year. It also recorded a rise of 15.5% in industrial production from the goal of between 10.5-11%. In the foreign direct investment (FDI) field, as released by the Ministry of Planning and Investment (MPI), there have been 344 new foreign invested projects licensed in 2000 with total registered capital of US$1.973 billion, an increase of 26% against the figure of 1999. In addition, US$475 million is the increased capital of 153 current projects. It is noted that, FDI in the industrial sector accounts for 91% of the registered capital with US$1.795 billion.

The positive achievements are attributed to a series of policies and measures conducted by the Government to push up the economy and improve the investment environment. Among others, the most noted one to foreign investors is the amendments to the Law on Foreign Investment (LFI) issued under the Law on the Amendments of and Additions to a number of articles of the 1996 LFI adopted by the National Assembly on 16 May 2000, which comes into force as of 1 July 2000. With 23 articles, the amended LFI contain supplements of or additions to the existing provisions. They also codify some provisions existing under the Government regulations such as the Decree No. 12/ND-CP guiding the 1996 LFI and Decree No. 10/1998/ND-CP of the Government or Decision 53/1999/QD-TTg of the Prime Minister providing measures for guarantee and encouragement of FDI in Vietnam. To guide the amended LFI, the Government issued Decree No. 24/2000/ND-CP on 31 July 2000 and then the MPI issued Circular No. 12/2000/TT-BKH dated 15 September 2000.

This article examines the major changes under the amended LFI and their impact on foreign invested projects in Vietnam. In general, though the amendments approved are fewer than those proposed by the Government, they help improve the investment environment in Vietnam and clarify those issues unclear under the previous regulations.

Investment Protection

Under the new Article 21a, if a change in laws adversely affects the interests of foreign invested enterprises ("FIEs") and parties to business co-operation contracts ("BCC"), they will be entitled to continue to apply the incentives or favorable conditions stipulated in their investment licences and the LFI or may be entitled to: (i) change the objectives of the project, (ii) exemption and reduction of taxes according to laws, (iii) deduction of damages from taxable income, and (iv) proper compensation in cases of necessity.

On the other hand, more favourable new regulations issued after the investment licences are granted shall be applied to foreign invested projects. In addition, the amended LFI also provides that all foreign investors (and not only BOT projects) may seek to obtain specific guarantees and/or commitments from the Government of Vietnam in relation to their projects.

Conversion Of Investment Forms

Article 19a provides that FIEs or parties to business cooperation contracts ("BCC") may change their investment forms or divide, separate, consolidate and merge with other enterprises. That means a 100% foreign invested enterprise can convert into a joint venture and vice-versa. This is to respond to the business restructuring requirement which may occur during operation. In practice, during the past few years, there has been a trend that more and more joint ventures have turned into 100% foreign owned enterprises. Unfortunately, the amendment does not allow for the establishment of foreign invested shareholding companies, as previously proposed by during the drafting process.

Principle Of Unanimous Consent In Joint Ventures

The amended Article 14.1 reduces the number of issues that require unanimous decision of the board of management of a joint venture. Unanimous decisions of the board of management of a joint venture shall only be required for (i) appointment/removal of the general director and first deputy general director; and (ii) amendments of the joint venture charter. It is open to the parties to set out in the charter other issues which need to be decided by unanimous consent.

Reserve Funds

Under the amendment to Article 41, during their operations, FIEs are no longer required to maintain mandatory reserve funds of up to 10% of their legal capital as formerly stipulated, and shall now be free to decide on the part of their profits they intend to keep under reserves. This amendment allows for greater flexibility for establishing reserve funds of FIEs.

Foreign Currency And Bank Accounts

Previous regulations require that most FIEs and parties to BCC must balance their own foreign currency needs. Now the amended Article 33 removes this requirement by providing that FIEs and parties to BCC are entitled to purchase foreign currencies from commercial banks to meet the requirements for their current transactions and other permitted transactions in accordance with foreign exchange control rules. This Article also provides that the Government of Vietnam will provide guarantees of access to foreign currencies for investment projects of special importance under Governmental programs and provide assistance in balancing their foreign currency requirements to infrastructure development projects and other important projects. These amendments are significant for FIEs since the unavailability of foreign currency is the most critical issue to them.

The amended Article 35.2 states that FIEs may open accounts abroad subject to the approval of the State Bank of Vietnam. The old rule allowed FIEs to open offshore bank accounts for the purpose of foreign loans only, i.e. loan account. The amendment to Article 35.2 has broadened the purposes of offshore bank accounts, such as for receipt of foreign revenue.

Investment Approval And Licensing

Along with the process of streamlining the investment approval process and decentralization of the authority to approve investment projects, the amended Article 60 has reduced the length of time for issuing investment licences for those projects subject to approval to 45 days from 60 days as previously regulated. This article also introduces the process of "investment registration" in place of approval for certain projects, and the period of time for registration is 30 days.

Land-Use Rights And Mortgage Of Land Use Rights

With a view to assisting foreign investors in leasing land in Vietnam, the new Article 46.2 makes it clear that the Vietnamese party (where it contributes capital in the form of land use rights) or the State (where FIEs lease land from the State) shall be responsible for land compensation, site clearance and fulfillment of necessary procedures for the issuance of the land use right certificate. Furthermore, in the event of an early liquidation of a joint venture where the Vietnamese party used the land-use right as capital contribution, the residual value of the land use right will be included in the joint venture’s assets to be liquidated (which was not previously the case). This amendment would facilitate the land compensation and clearance which always take a very long time and be the major concern to foreign investors.

The new Article 46.3 now allows that a FIE may mortgage land use rights and assets associated with the land at a financial institution permitted to operate in Vietnam. Though the Government will provide further regulations for this, this change opens the way for foreign bank branches in Vietnam to take mortgages over land use rights and the buildings attached to the land. Under the present banking regulations, only Vietnamese banks can take mortgages.

Tax Reductions And Import Duty

The amended FIL offers more favourable profit remittance tax rates, namely 3%, 5% and 7% subject to the amount of the contributed capital (previous rates were 5%, 7% and 10% respectively).

Furthermore, under the amended Article 44, overseas Vietnamese investors will be entitled to the lowest rate of remittance tax of 3%, and a 20% reduction in the applicable corporate income tax (except cases where the applicable tax rate is 10%).

Regarding the import duty, exemptions provided under the amended LFI are substantially the same as regulated by the former Government regulations, i.e. the goods exempted from import duties are those related to (i) the capital construction of a foreign invested business, and (ii) the expansion of the project or the replacement or renovation of the technology. The amended FIL provides further that the especially encouraged investment projects and projects implemented in areas which are considered as especially difficult socio-economic conditions will be exempt from import duties on raw materials, materials and components imported for production purposes for a period of five years after the commencement of production.

Assignment Of Capital

According to the amendment to Article 34, the assignment of capital no longer needs the approval from the licensing authority. This will save much time and effort for the relevant parties. However, the assignment shall be subject to registration with the licensing authority. In addition, a 100% FIE is not required to offer pre-emption rights to Vietnamese entities when transferring its capital to another foreign investor. That means foreign investors may restructure their investment in Vietnam while remaining 100% foreign owned.

Termination, Liquidation And Bankruptcy

The amended Article 52 now allows the parties to an FIE to agree the reasons for termination and eliminates the right of a party to seek approval from the licensing authority to unilaterally terminate the FIE. The reasons provided under the amendment for termination include: (i) upon expiry of the investment licence; (ii) as per the terms and conditions of the joint venture contract and/or FIE charter or as agreed by the parties; (iii) subject to decision of the competent authority due to a serious breach of the laws; and (iv) bankruptcy declared by the court.

The amendment to Article 53 expressly states that the Law on Bankruptcy shall be applicable when liquidating FIEs. It goes on to state that in case of liquidation or bankruptcy of a joint venture, if the Vietnamese party contributed land use rights as its legal capital contribution, the remaining value of the land shall be considered as part of the assets to be liquidated.

Application Of Foreign Laws

Though stressing the priority of application of Vietnamese laws, the amended Article 62

recognizes that foreign laws may be referred to under contracts between the parties for those issues not covered by the Vietnamese laws, provided such reference is not contrary to the basic principles of the Vietnamese laws of Vietnam. This amendment is mainly to address the concern of foreign investors in BOT infrastructure projects of application of foreign laws.

State Inspection

To avoid arbitrary inspections by various State authorities of FIEs and reduce corruption associated with the inspections, the amended LFI clarifies that regular State inspection of FIEs’ financial matters shall be limited once a year for each FIE. Extraordinary inspections may be only taken in case of evidence of breach of laws. However, it would take to see whether this amendment is implemented in practice.


Though the amendments to the LFI do not go far as expected by foreign investors, they have been welcomed and viewed positively by foreign investors, especially those currently operating in Vietnam. The amendments show the efforts of the Government of Vietnam create a more favorable condition to foreign investment and to make the legal system more transparent and more predictable for doing business in Vietnam.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions