1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Vietnam continues to welcome FDI and foreign companies play an important role in the economy. According to the Government Statistics Office (GSO), FDI exports of USD 175 billion accounted for 72 percent of total exports in 2018 (compared to 47 percent in 2000).
Despite improvements in the business environment, including economic reforms intended to enhance competitiveness and productivity, Vietnam has benefited from global investors’ efforts to diversify their supply chains. Vietnam’s rankings fell in the most recent World Economic Forum Competitiveness Index (from 74/135 in 2017 to 77/140 in 2018) and World Bank Doing Business Index (from 68 in 2018 to 69 in 2019), but its raw scores improved compared to prior years. According to the 2018 Organization for Economic Cooperation and Development (OECD) Investment Policy Review, Vietnam has an “average” level of openness compared to other OECD countries, though it is second to only Singapore within ASEAN. The OECD ranked Vietnam’s openness to FDI as higher than that of South Korea, Australia, and Mexico.
Vietnam seeks to move up the global value chain by attracting FDI in sectors that will facilitate technology transfer, increase skill sets in the labor market, and improve labor productivity, specifically targeting high-tech, high value-added industries with good environmental safeguards. Assisted by the World Bank, the government is drafting a new FDI Attraction Strategy for 2030. This new strategy is intended to facilitate technology transfer and environmental protection, and will supposedly move away from tax reductions to other incentives, such as using accelerated depreciation and more flexible loss carry-forward provisions and focusing on value-added qualities instead of on sectoral categories.
Since the Prime Minister included the Provincial Competitiveness Index (PCI) as a target for improving national business competitiveness in Resolution 19 in 2014, PCI has become a major measurement for provincial economic governance policy reform. In January 2019, a new Resolution 02 also included PCI targets as a means to improve the business and investment environment in Vietnam.
Although there are foreign ownership limits (FOL), the government does not have investment laws discriminating against foreign investors; however, the government continues to favor domestic companies through various incentives. According to the OECD 2018 Investment Policy Review, SOEs account for one third of Vietnam’s gross domestic product and receive preferential treatment, including favorable access to credit and land. Regulations are often written to avoid overt conflicts and violations of bilateral or international agreements, but in reality, U.S. investors feel there is not always a level playing field in all sectors. In the 2018 Perceptions of the Business Environment Report, the American Chamber of Commerce (AmCham) stated: “Foreign investors need a level playing field, not only to attract more investment in the future, but also to maintain the investment that is already here. Frequent and retroactive changes of laws and regulations – including tax rates and policies – are significant risks for foreign investors in Vietnam.”
The Ministry of Planning and Investment (MPI) oversees an Investment Promotion Department to facilitate all foreign investments, and most of provinces and cities have investment promotion agencies. The agencies provide information, explain regulations, and offer support to investors when requested.
The semiannual Vietnam Business Forum allows for a direct dialogue between the foreign business community and government officials. The U.S.-ASEAN Business Council (USABC) also hosts multiple missions for its U.S. company members enabling direct engagement with senior government officials through frequent dialogues to try to resolve issues. In addition, the 2018 PCI noted 68.5 percent of surveyed companies stated that dialogues and business meetings with provincial authorities helped address obstacles and that they were satisfied with the way provincial regulators dealt with their concerns.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic private entities can establish and own businesses in Vietnam, except in six prohibited areas (illicit drugs, wildlife trading, prostitution, human trafficking, human cloning, and chemical trading). If a domestic or foreign company wants to operate in 243 provisional sectors, it must satisfy conditions in accordance with the 2014 Investment Law. Future amendments to the law are likely to narrow this list further, allowing firms to engage in more business areas. Foreign investors must negotiate on a case-by-case basis for market access in sectors that are not explicitly open under existing signed trade agreements. The government occasionally issues investment licenses on a pilot basis with time limits, or to specifically targeted investors.
Vietnam allows foreign investors to acquire full ownership of local companies, except when mentioned otherwise in international and bilateral commitments, including equity caps, mandatory domestic joint-venture partner, and investment prohibitions. For example, as specified in the Vietnam’s World Trade Organization (WTO) commitments, highly specialized and sensitive sectors (such as banking, telecommunication, and transportation) still maintain FOL, but the Prime Minister can waive these restrictions on a case-by-case basis. Vietnam also limits foreign ownership of SOEs and prohibits importation of old equipment and technologies more than 10 years old. No mechanisms disadvantage or single out U.S. investors.
Merger and acquisition (M&A) activities can be complicated if the target domestic company is operating in a restricted or prohibited sector. For example, when a foreign investor buys into a local company through an M&A transaction, it is difficult to determine which business lines the acquiring foreign company is allowed to maintain and, in many cases, the targeted company may be forced to reduce its business lines.
The 2017 Law on Technology Transfer came into effect in July 2018, along with its implementing documents Decree 76/2018/ND-CP and Circular 02/2018/TT-BKHCN. These require mandatory registration of technology transfers from a foreign country to Vietnam. This registration is separate from registration of intellectual property rights and licenses.
Vietnam allows for five years of regulatory data protection (RDP) as part of its U.S.-Vietnam bilateral trade agreement obligations. However, Vietnamese law requires companies to apply separately for RDP within the 12 months following receipt of market authorization for any country in the world. Specifically, decree No. 169/2018/ND-CP, effective from February 2018, tightened the regulatory process for the registration of medical devices and no longer accepted foreign classification results in Vietnam, lengthening procedural time and increasing expenses for foreign manufacturers.
Vietnamese authorities screen investment-license applications using a number of criteria, including: 1) the investor’s legal status and financial capabilities; 2) the project’s compatibility with the government’s “Master Plan” for economic and social development and projected revenue; 3) technology and expertise; 4) environmental protection; 5) plans for land-use and land-clearance compensation; 6) project incentives including tax rates, and 7) land, water, and sea surface rental fees. The decentralization of licensing authority to provincial authorities has, in some cases, streamlined the licensing process and reduced processing times. However, it has also caused considerable regional differences in procedures and interpretations of investment laws and regulations. Insufficient guidelines and unclear regulations can prompt local authorities to consult national authorities, resulting in additional delays. Furthermore, the approval process is often much longer than the timeframe mandated by laws. Many U.S. firms have successfully navigated the investment process, though a lack of transparency in the procedure for obtaining a business license can make investing riskier.
Provincial People’s Committees approve all investment projects, except the following:
- The National Assembly must approve investment projects that:
- have a significant environmental impact;
- change land usage in national parks;
- are located in protected forests larger than 50 hectares; or
- require relocating 20,000 people or more in remote areas such as mountainous regions.
- The Prime Minister must approve the following types of investment project proposals:
- building airports, seaports, or casinos;
- exploring, producing and processing oil and gas;
- producing tobacco;
- possessing investment capital of more than VND 5,000 billion (USD 233 million);
- including foreign investors in sea transportation, telecommunication or network infrastructure, forest plantation, publishing, or press; and
- involving fully foreign-owned scientific and technology companies or organizations.
Other Investment Policy Reviews
Vietnam’s business environment continues to improve due to new laws that have streamlined the business registration processes.
The 2018 PCI report found that 75 percent of companies rated paperwork and procedures as simple, compared to 51 percent in 2015. Vietnam decreased duplicate and overlapping inspections with only 10 percent of companies reporting such cases in 2018, compared to 25 percent in 2015. However, many firms still felt the entry costs remain too high and 16 percent reported waiting over one month to complete all required paperwork (aside from getting a business license) to become fully legal. In addition, a 2018 AmCham position paper cited very frequent and largely unnecessary post-import audits as creating burdens for companies. Multiple U.S. companies report facing recurring and unpredictable tax audits based on assumptions or calculations not in alignment with international standards.
Vietnam’s nationwide business registration site is . In addition, as a member of the UNCTAD international network of transparent investment procedures, information on Vietnam’s investment regulations can be found online ( ). The website provides information for foreign and national investors on administrative procedures applicable to investment and income generating operations, including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal and regulatory citations for seven major provinces. The 2019 World Bank’s Doing Business Report stated it took on average 17 days to start a business compared to 22 days in 2018. Vietnam is one of the few countries to receive a 10-star rating from UNCTAD in business registration procedures.
The government does not have a clear mechanism to promote or incentivize outward investments. The majority of companies engaged in overseas investments are large SOEs, which have strong government-backed financial resources. The government does not implicitly restrict domestic investors from investing abroad. Vietnamese companies have increased investments in the oil, gas, and telecommunication sectors in various developing countries and countries with which Vietnam has close political relationships. According to a government’s most recent report, between 2011-2016, SOE PetroVietnam made USD 7 billion in outbound investments out of a total of USD 12.6 billion from all SOEs.
Transparency International’s 2017 Corruption Perception Index (CPI) determined Vietnam had taken positive steps to improve some areas of its anti-corruption legal framework and policies. However, Vietnam’s 2018 rank of 117 out of 180 in the CPI global index reflects the country’s continuing challenges. Also according to the 2018 PCI report, corruption declined, with 55 percent of enterprises reporting paying informal charges (bribes), which equaled up to 10 percent of their revenue. The CPI report recommends more sustained effort by government agencies and cooperation from businesses. Firms need to improve management controls, strengthen legal understanding and compliance, and strive to operate with integrity.
Corruption is due, in large part, to low levels of transparency, accountability, and media freedom, as well as poor remuneration for government officials and inadequate systems for holding officials accountable. Competition among agencies for control over business and investments has created overlapping jurisdictions and bureaucratic procedures that, in turn, create opportunities for corruption.
In November 2018, Vietnam’s legislature revised its 2005 anti-corruption law to strengthen asset-reporting requirements for government officials and set strict penalties for corrupt practices. However, many officials lamented the law does not provide sufficient oversight authorities to Vietnam’s legislature or government agencies to ensure its full implementation. Furthermore, the law does not recognize the role of civil society or an independent mechanism to promote government accountability and transparency.
The Government has tasked various agencies to deal with corruption, including the Central Steering Committee for Anti-Corruption (chaired by the Communist Party of Vietnam (CPV) General Secretary Nguyen), the Government Inspectorate, and line ministries and agencies. Formed in 2007, the Central Steering Committee for Anti-Corruption, since February 2013, has been under the CPV Central Commission of Internal Affairs. The National Assembly provides oversight to the operations of government ministries. Civil Society Organizations (CSOs) have encouraged the government to establish a single independent agency with oversight and enforcement authority, and to ensure enforcement.
A new Penal Code came into effect in January 2018, which introduced a number of provisions relating to corporate criminal liability and corruption, increased the risks for businesses in the country. While the previous Vietnamese criminal code only provided for criminal liability for individuals, now corporate entities can face criminal sanctions too. The new Penal Code also criminalizes private-sector corruption—something that was absent from Vietnam’s previous anti-corruption regime.
Vietnam signed the UN Anticorruption Convention in December 2003 and ratified it in August 2009. The law does not cover family members of officials, but does cover ranking members of the Communist Party.
The government increased its scrutiny of conflict-of-interest concerns in public procurement since late 2016. To signal the government’s seriousness about reforming government procurement, the Prime Minister approved in July 2016 a 10-year master plan for procurement, including developing the national e-Government Procurement Application to promote online tendering and increase transparency and reduce corruption opportunities. In January 2019, with help from the ADB and the World Bank, the government implemented an e-bidding public procurement site, which will supplement its existing e-procurement portal.
There are laws prohibiting companies from bribing public officials. While some private companies have internal controls, ethics, and compliance programs to detect and prevent bribery of government officials, the government does not require companies to establish such internal codes of conduct.
Since 2016, the government has embarked on a large anti-corruption initiative. As a result, perceptions of corruption, and the burden of administrative procedures, are both declining. While high-profile arrests have grabbed the focus of the news media, there has been less attention paid to institutional changes meant to prevent corrupt activities, including greater transparency and civil-service reforms to encourage accountability.
According to the 2018 PCI, there were statistically significant declines in three core indicators of corruption: 1) the share of firms believing informal charges are common; 2) the estimated bribe payments by firms as a share of revenue; and 3) whether commissions are necessary to win government procurement contracts. Although the 2018 PCI results indicate signs of declining corruption, surveyed companies reported that it took more than a month to complete necessary paperwork to start their business and obtain certificates for technical regulatory conformity and certificates of qualification for doing conditional business lines. The report concluded that government authorities were more cautious to approve big projects due to fear of being swept up and implicated in the ongoing, widespread anti-corruption campaign.
The 2018 PCI findings are consistent with the results of UN Development Program’s 2018 annual Provincial Administrative Performance Index (PAPI) survey.
Resources to Report Corruption
Contact at government agency responsible for combating corruption:
Mr. Phan Dinh Trac
Chairman, Communist Party Central Committee Internal Affairs
4 Nguyen Canh Chan
Contact at NGO:
Ms. Nguyen Thi Kieu Vien
Executive Director, Towards Transparency
Transparency International National Contact in Vietnam
Floor 4, No 37 Lane 35, Cat Linh street, Dong Da, Hanoi, Vietnam
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Table 3: Sources and Destination of FDI
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment*||Outward Direct Investment**|
|Total Inward||Amount||100%||Total Outward||Amount||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
*No IMF Data Available; Vietnam’s Foreign Investment Agency under the Ministry of Planning and Investment (fia.mpi.gov.vn)
**No local data available
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars)|
|Total*||Equity Securities**||Total Debt Securities**|
|All Countries||Amount||100%||All Countries||Amount||100%||All Countries||Amount||100%|
|British Virgin Islands||$1,331||13%|
*No IMF Data Available; Vietnam’s Foreign Investment Agency under the Ministry of Planning and Investment (fia.mpi.gov.vn)
**No local data available