Foreign investors are highly appreciative of Vietnam for revising its Constitution in 2013, as the revision recognised their right to do business and equal treatment between state-owned, private and foreign-invested enterprises. The introduction of these fundamental principles also shed light on the need for significant legislative reforms, including to the Law on Enterprise, the Law on Investment, the Housing Law, the Law on Real Estate Business, the Civil Code and the Criminal Code. Vietnam has never undergone such extensive legal reforms. While foreign investors have celebrated these reforms, they also hope that they will not be distorted or undermined by arbitrary administrative actions and red tape. This update clarifies certain issues with regard to conditional projects, as set out under the draft decree implementing the Law on Investment.

Conditional projects

The Law on Investment contains 267 lines of business considered to be conditional projects (eg, distribution, logistics, healthcare, education, tobacco production and printing). Compared with equivalent concepts in other countries – particularly Indonesia and China, which have only 30 to 40 areas where foreign investment is restricted – Vietnam's list is considerably longer. Moreover, the procedures for obtaining approval for entry into restricted investment areas is more straightforward in these countries compared with those under the Law on Investment. In China, a new draft foreign investment law has been released in which investment in restricted areas requires only Ministry of Commerce approval, instead of various ministries' approval, as is the case in the Law on Investment Decree. The Chinese law also makes it relatively easy for foreign investors to hold a minority, non-controlling interest in a restricted industry. The draft decree does not change the existing Vietnamese provisions: any investment falling under the restrictive list – however small – must be approved by the relevant ministry.

China has also allowed for the establishment of local holding companies in order to provide protection for these investments. Under the Law on Investment, local holding companies can be established if the total foreign equity of the holding company is lower than 51% – a policy which should also be included under the new decree.

Proposed amendments to Law on Investment Decree

In order to maintain Vietnam's attractiveness to foreign investors, legal scholars have proposed the following changes to the draft Law on Investment Decree.

  • Article 8(3) – the list of investment conditions should not be open-ended. Phrases such as "other approvals from relevant authorities" and "other requirements that may be requested from time to time by relevant authorities" should be deleted.
  • Article 9(2)(b) – the restrictive list should apply to greenfield investment, not to mergers and acquisitions, as long as foreign investors are minority shareholders and the target is a local company. Therefore, the phrase "investment by share or equity acquisition" should be removed from the restrictive list.
  • Article 10 – in order to make the decree the only legislative document governing the restrictive list, other ministries and the people's committee should be prohibited from issuing guidance contrary to the decree or interpreting the laws. Only the Ministry of Justice should be allowed to interpret the laws in order to avoid deviation from the principles of the Law on Investment.
  • Articles 11(3) and 11(4) – deviation from the decree should be restricted. Therefore, Paragraphs 3 and 4 should be deleted. Any proposal to amend the conditions for investment must be approved by the Ministry of Planning and Investment in order to guarantee consistent application and enhance legitimacy.
  • Article 13(1)(f) – any proposal to amend investment conditions from authorities must be counter-argued or receive feedback from the Vietnam Chamber of Commerce and Industry, the American Chambers of Commerce in Vietnam, the Japanese Business Association or the European Chamber of Commerce in Vietnam. Without feedback, the Ministry of Planning and Investment may not approve an application.
  • Article 14(3) – the mechanism which allows for consultation with the Ministry of Planning and Investment should be replaced with "approval from the ministry", based on the ministry's proposal and feedback from investors' representatives. Investors that disagree with a proposal on investment conditions may lodge a complaint with the ministry.
  • Article 33A (supplement) – the draft decree should clarify the principle under Article 28 of the Law on Investment which states that M&A projects need not obtain an investment certificate to be completed. Moreover, if a local department of investment can approve the investment conditions, it is unnecessary to obtain ministry approval.
  • Article 37(1)(b)(2) (supplement) – the draft decree should allow foreign direct investment enterprises to acquire and subscribe shares or equity in local companies. These principles are already allowed under Articles 23 and 28 of the Law on Investment.

Appendix III provides details of the conditions that must be complied with in order to invest in Vietnam and lists the authorities in charge. Unfortunately, the list of authorities in charge is expansive. For example, when an economic needs test must be applied, the local people's committee – not the Ministry of Industry and Trade – is the relevant authority. For conditions that are easy to review and apply (eg, the foreign shareholding ratio or the scope of services (ie, logistics, real estate and agriculture)), arguably, the local department of investment or industrial zones authority should make the decision. There is no need to refer an issue to a ministry if only an interpretation of law is required. If there is a dispute about the interpretation of a law, the matter should be brought before a court or the Ministry of Justice, or advice should be sought from lawyers. For the sake of objectivity and fairness, the authorities that draft the regulations should not be the authorities that interpret the regulations.


Vietnam is reaching a pivotal point. China and Indonesia have already focused their foreign investment laws. With the introduction of the Association of Southeast Asian Nations Economic Community (AEC) and the Trans-Pacific Partnership (TPP) Agreement, Vietnam must decide whether it will open and liberalise its market and encourage its private sectors to engage worldwide and cooperate with foreign investors in order to benefit from a globalised economy, or chose not to cooperate with foreign investors or provide them access to the foreign technology, capital or expertise needed to create a challenging and competitive AEC and TPP environment. The decision is in the government's hands.

For further information on this topic please contact Net Le at LNT & Partners by telephone (+84 8 3821 2357) or email ( The LNT & Partners website can be accessed at

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