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Making investment in Vietnam
The National Assembly of Vietnam passed the common Investment Law in November 2005.  The intent of the common Investment Law is to create a unified legal regime for investment activities and promote investments by allowing all participants in the Vietnamese economy to invest and conduct business on the basis of equality, fair competition, transparency and stability. 
The common Investment Law articulates the general principle regarding an investor's freedom in choosing investments.  Investors can invest in any sectors of the Vietnamese economy except certain prohibited sectors.  In sectors where investment is subject to specific entry conditions, such conditions must also be complied with.      

1.1. Prohibited Investment Sectors     
Foreign investors are prohibited from investment in the following four main categories:
·         Projects detrimental to national defense and security and the public interest;
·         Projects detrimental to historical relics, culture, and morals; 
·         Projects harmful to public health, natural resources and the environment; and
·         Projects for the treatment of toxic waste brought into Vietnam; projects for the manufacture of any type of toxic chemicals or for the use of chemical agents prohibited by provisions of international treaties

1.2. Conditional Investment Sectors
If foreign investors invest in the conditional investment sectors regulated by Vietnamese law, they shall comply with the specific investment conditions provided that such investment conditions must be consistent with the provisions of international treaties to which Vietnam is a member (i.e., Vietnam’s commitments to WTO).  The following conditional investment sectors are applicable to all foreign investors who invest in Vietnam:
·         Radio and television broadcasting.
·         Production, publishing and distribution.
·         Exploration and mining of mineral.
·         Establishment of infrastructure for telecommunications network, transmission and provision of internet and telecommunications services.
·         Establishment of public postal network and provision of postal services and express services.
·         Construction and operation of river ports, seaports, terminals and airports.
·         Transportation of goods and passengers by railway, airway, roadway and sea and inland waterways.
·         Catching of aquaculture.
·         Production of tobacco.
·         Real estate business.
·         Import, export and distribution business.
·         Education and training.
·         Hospital and clinics.
·         Other investment sectors in international treaties of which Vietnam is a member and which restrict the opening of the market to foreign investors (i.e., all Vietnam’s commitments to WTO regarding trade in services).

Vietnam's membership to the WTO became effective on January 11, 2007.  According to the Vietnam Commitments to the WTO, Vietnam makes commitments on goods, particularly tariffs and agricultural subsidies, commitments on services, identifying which services foreign service providers can provide and the conditions applicable to such activities including limits on foreign ownership.  Finally, Vietnam makes commitments regarding changes in the institutional and legal set-up for trade.  The investment options open to foreign investors in Vietnam will likely change even more following Vietnam's WTO accession, as Vietnam's WTO commitments become incorporated into the list of conditional sectors regulated by the law.

The common Investment Law distinguishes between direct and indirect investment.  Direct investments involve the investment of capital by an investor who participates in the management of the investment.  In indirect investments, the investor may be (A) purchasing shares, share certificates, bonds or other valuable papers, (B) investing in investment funds, or (C) investing in through an intermediary financial institutions; but in all instances the investor does not participate directly in the management of investee enterprises.

For your transparent view, the detailed guidelines on direct investment and indirect investment shall be respectively presented herein at Section 2.1 and Section 2.2 of Part A.

2.1. Direct Investment
Foreign investors are given significant flexibility in choosing one of the following appropriate economic structure for their investment strategy subject to compliance with applicable sector restrictions. 
·         Private enterprise means an enterprise owned by one individual who shall be liable for all activities of the enterprise to the extent of all of his or her assets.  The private enterprise may not issue any type of security.  Each individual may only establish one private enterprise.
·         Partnership means a business having at least two co-owners who jointly conduct business under one common name.  Such co-owners must be individuals who shall be liable for the obligations of the partnership to the extent of all their assets.  The partnership may not issue any type of security.  In addition to co-owners of the partnership, there are capital-contributing members in the partnership.  These capital-contributing members shall only be liable for the debts of the partnership to the extent of the amount of capital they have contributed to the partnership.
·         Limited liability company with one member means an enterprise owned by one organization or one individual.  The organization or individual shall be liable for all debts and other property obligations of the company within the charter capital amount of the company.  A limited liability company with one member may not issue shares.
·         Limited liability company with 2 or more members means an enterprise in which a member may be an organization or an individual.  The number of members shall not exceed 50.  The members of the company shall be liable for the debts and other property obligations of the enterprise within the amount of capital that they have undertaken to contribute to the company.  The share of capital contribution of each member may be transferred.  A limited liability company with 2 or more members may not issue shares.
·         Joint stock/shareholding company means an enterprise in which: the charter capital shall be divided into equal portions called shares; shareholders may be organizations or individuals; the minimum number of shareholders shall be three and there shall be no restriction on the maximum number; shareholders shall be liable for the debts and other financial obligations of the enterprise only within the amount of capital contributed to the enterprise; shareholders may transfer their shares to other persons.  A joint stock company may issue all types of securities to raise funds.
 
The foreign investor can set up a business establishment entirely owned by such investor in Vietnam (except certain sectors whether the foreign shareholding is regulated by law.  Please see Section 2.3).  Alternatively, the foreign investor may choose to joint venture with Vietnamese local partner(s) or foreign partner(s) to set up a multiple member limited liability company, shareholding company or a partnership. 
The foreign investor can select to sign a Business Cooperation Contract (“BCC”) with local partners in order to co-operate in production and share profits or to share products and other forms of business cooperation, without setting up a new legal entity in Vietnam.

A foreign investor can sign a Building – Operation – Transfer (“BOT”), Building – Transfer – Operation (“BTO”) and Building – Transfer (“BT”) contract with a competent State body in order to implement projects for new construction, expansion, modernization and operation of infrastructure projects in the sectors of traffic, electricity production and business, water supply or drainage, waste treatment and other sectors as stipulated by the Prime Minister of the Government.

2.2. Indirect investment
A foreign investor shall be permitted to carry out the following forms of indirect investment in Vietnam:
·         Purchase of shares, share certificates, bonds and other valuable papers;
·         By way of securities investment funds; and
·         By way of other intermediary financial institutions.
 
Any investment by way of purchase or sale of shares, share certificates, bonds and other valuable papers of individuals and organizations and procedures for conducting indirect investment activities shall be implemented in accordance with the Law on Securities and other provisions of relevant laws. 

2.3. Foreign Ownership Restrictions
Under the common Investment Law, foreign investors may purchase shares in or make capital contribution to, existing Vietnamese companies.  However, foreign ownership restriction must be in line with, among others,
(i) Vietnam’s international commitments on ownership ratio, investment form and market access schedule, and
(ii) regulatory requirements on investment in the conditional investment sectors provided that they must follow the provisions in international treaties of which Vietnam (i.e., Vietnam’s commitments to WTO) is a members. 
Generally, acquisition of shares in Vietnamese companies by foreign investors is currently limited to specified percentages, depending primarily on whether such companies are listed on a Vietnamese stock exchange and in what sector they operate.  At the moment, the limit on foreign ownership in a company listed on a Vietnamese stock exchange is set at 49%.  The limit on foreign ownership of unlisted companies is 30%. 

Particularly, under Vietnam’s commitments to WTO, foreign investors have the right to purchase shares in existing Vietnamese companies (i.e., unlisted company) with the percentages as follows:
·         From January 11, 2007 until January 11, 2008, up to 30% of the charter capital, unless otherwise provided by Vietnamese laws or authorized by Vietnam’s competent authority. 
·         From January 11, 2008 until December 31, 2008, less than 99% of the charter capital; and
·         No limitation as from January 1, 2009 except for capital contribution in the form of (A) buying shares of joint-stock commercial banks, and (B) the sectors not committed in Vietnam’s WTO Schedule of Specific Commitments in Services (“Services Schedules”), provided that the level of equity held by foreign investors in acquisition of Vietnamese enterprises shall be corresponding to the limitations on foreign capital participation set forth in the Service Schedule, including the limitations in the form of transitional periods, where applicable.
 
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