Outline the forms of foreign investment into Vietnam

On November 26, 2014, the amended Investment Law was passed by the National Assembly replaced Law on Investment2005, effective from July 1, 2015. With the aim of creating new changes in administrative procedure reform in implementing business investment activities, contributing to solving the difficulties, create conditions for investors to carry out investment activities with simple procedures, the Investment Law 2014 has many new features of foreign investment in Vietnam. The article below summarizes some of the highlights of the various forms of foreign investment in Vietnam.

The Investment Law of 2014 has clearly defined the forms of investment in Vietnam. Accordingly, there are four forms of investment:

a) Investment in establishment of a business organization

b) Investment in the form of capital contribution, share purchase, capital contribution to economic organizations

c) Investment in the form of PPP contract

d) Investment in the form of BCC contract

1. Investment in establishment of a business organization

The form of investment to establish an economic organization is regulated in Article 22 of Investment Law 2014 and guided in detail in Article 44 of Decree No. 118/2015 / ND-CP dated 12/11/2015 of the Government detailing and guiding the implementation of some articles of the Investment Law. Accordingly, before the establishment of an economic organization, a foreign investor must have an investment project, carry out procedures for issuance of an investment registration certificate and must satisfy the following conditions:

a) Regarding the ownership of charter capital

Foreign investors may own an indefinite amount of charter capital invested in business organizations, except for the following cases:

– The holdings of the foreign investors at listed companies, public companies, securities-trading organizations, and securities investment funds are conformable with regulations of law on securities;

– The holdings of the foreign investors at state-owned companies that have been equitized or converted are conformable with regulations of law on equitization and conversion of state-owned companies;

– With regard to holdings of the foreign investors in other cases than those mentioned in Point a and Point b of this Clause, relevant regulations of law and the international agreements to which the Socialist Republic of Vietnam is a signatory shall apply.

b) Form of investment, operating scope, Vietnamese partners, and other aspects are conformable with the international agreements to which the Socialist Republic of Vietnam is a signatory.

2. Investment in the form of capital contribution, share purchase, capital contribution to economic organizations

This is the form of investor contributing capital, purchasing shares, capital contributions to economic organizations to carry out investment activities. The investment in capital contribution, share purchase, capital contribution to economic organizations is stipulated in Article 24, 25 and 26 of the Investment Law 2014 and detailed in Article 46 of Decree No.118/2015/ND-CP. Accordingly, foreign investors may contribute capital to economic organizations in the following forms:

a) Buy shares of joint-stock companies through IPOs or additional issuance;

b) Contribute capitals to limited liability companies and partnerships;

c) Contribute capital to other business organizations not mentioned in Point a and Point b of this Clause.

Foreign investors may purchase shares or capital contributions of economic organizations in the following forms:

a) Buy shares of joint-stock companies from the companies or their shareholders;

b) Buy capital contributions to limited liability companies by their members and become members of limited liability companies;

c) Buy capital contributions to partnerships by partners and become partners;

d) Buy capital contributions to business organizations other than those mentioned in Points a, b, and c of this Clause from their members.

The contribution of capital, purchase of shares or capital contributions of foreign investors in the above-mentioned forms must satisfy the investment conditions applicable to foreign investors as for cases of investment in the establishment of economic organizations.

3. Investment in the form of PPP contract (Public Private Partnerships)

Forms of investment under PPP contracts are stipulated in Article 27 of Investment Law 2014 and are guided in detail in Decree No.15/2015/ND-CP dated 14/02/2015 of the Government on investment in the form of Public Private Partnership. Accordingly, investment in the form of public-private partnerships (PPPs) means any form of investment on the basis of a contract between a regulatory agency and an investor, a project enterprise to carry out, manage and operate an infrastructure and public service project.

According to Decree 15/2015 / ND-CP, there are seven types of PPP contracts, including:

a) “Build – Operate – Transfer contract” (BOT contract) means a type of contract to build an infrastructure project between a regulatory agency and an investor; after completing the construction, the investor shall be entitled to operate it for a specified period of time; eventually, the investor shall transfer it to the regulatory agency.

b) “Build – Transfer – Operate contract” (BTO contract) means a type of contract to build an infrastructure project between a regulatory agency and an investor; after completing the construction, the investor shall transfer it to the regulatory agency, and shall be entitled to operate it for an agreed period of time.

c) “Build – Transfer contract” (BT contract) means a type of contract to build an infrastructure project between a regulatory agency and an investor; after completing the construction, the investor shall transfer it to the regulatory agency, and then the investor will be allotted a land parcel used for carrying out another project under the provisions of Clause 3 Article 14 and Clause 3 Article 43 of this Decree.

d) “Build – Own – Operate contract” (BOO contract) is a type of contract to build an infrastructure project between a regulatory agency and an investor; after completing the construction, the investor shall take ownership of this project and have the right to operate it for a specified period of time.

e) “Build – Transfer – Lease” contract (BTL contract) means a type of contract to build an infrastructure project between a regulatory agency and an investor; after completing the construction, the investor shall transfer it to the regulatory agency and shall be entitled to provide services on the basis of operation of such project for a specified period of time; the regulatory agency shall have the authority to lease and make payment for the investor’s services according to the regulation in Clause 2 Article 14 of this Decree.

f) “Build – Lease – Transfer contract” (BLT contract) means a type of contract to build an infrastructure project between a regulatory agency and an investor; after completing the construction, the investor shall have the right to provide services on the basis of operation of such projector a specified period of time; the regulatory agency shall have the authority to lease and make payment for the investor’s services according to the regulation in Clause 2 Article 14 of this Decree; when the lease term expires, such project shall be transferred to the regulatory agency.

g) “Operation & Management contract” (O&M contract) means a type of contract to operate the project between a regulatory agency and an investor for a specified period of time.

The conditions and procedures for implementation of investment projects in the form of PPP contracts are detailed in Government Decree 15/2015 / ND-CP.

4. Investment in the form in BCC contract (Business Cooperation Contract)

According to the Investment Law 2014, a Business cooperation contract (BCC) means a contract between investors for business cooperation and distribution of profits, products without establishment of a new business organization. Parties to a business cooperation contract shall establish a steering board to execute BBC. Functions, tasks, powers of the steering board shall be agreed by the parties.

Thus, investment in the form of BCC contract is an investment form established on the basis of a contract signed between investors but not established new legal entity. In that, the rights and obligations of the parties have no organizational binding as in the form of investment to establish a new legal entity that is only bound together by contract.

The BCC contract includes the following main contents:

a) Names, addresses, authorized representatives of parties to the contract; business address or project address;

b) Objectives and scope of business;

c) Contributions by parties to the contract and distribution of profits;

d) Schedule and duration of the contract;

d) Rights and obligations of parties to the contract;

e) Adjustment, transfer, termination of contracts;

g) Responsibilities for breaches of contract; method of dispute settlement. During the execution of a business cooperation contract, parties may reach an agreement on using assets derived from the business cooperation to establish a company in accordance with regulations of law on companies.

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