Vietnam’s new Law on Investment in effect from 1 January 2021

29 October 2020

On 17 June 2020, the National Assembly of Vietnam adopted the Law on Investment 2020 (“LOI 2020”), which will come into effect on 1 January 2021, repealing the Law on Investment 2014 (“LOI 2014”). The LOI 2020 seeks to further attract foreign investment, a move in keeping with the signing of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the EU-Vietnam Free Trade Agreement.

Some of the key highlights of the LOI 2020 are as follows:

• Amendments to restrictions on foreign investment: The LOI 2020 has removed 22 sectors from the conditional list, which sets out sectors subject to conditions prior to investment by both foreign and Vietnamese investors, including franchising, commercial arbitration, debt trading services, and shipping agency services. The LOI 2020 also adds some business activities to the conditional list, such as insurance auxiliary activities, data centre services and the provision of payment services without using customers’ payment accounts. The full list of conditional business lines is set out in Appendix IV of the LOI 2020. 
• Government to clarify sectors restricted to foreign investment: A full list of sectors not open for foreign investment will be issued by the Vietnam Government, to improve transparency. The list is to include business lines in which foreign investment has not been allowed and those in which foreign investment is conditional (“List of Restricted Sectors”). The conditions may not be new to foreign investors but a Government guidance issued under the LOI 2020 may provide greater details. The Government recently released a draft decree providing the List of Restricted Sectors and rules for applying the list to foreign investments. 
• Clarification on M&A approval: The LOI 2020 has clarified the circumstances where a foreign investor must obtain M&A approval for its investment in a Vietnamese company, including (i) an increase on foreign ownership in the target company engaging in business lines included in the Market Entry List, (ii) an increase in foreign ownership in the target company to more than 50% of the charter capital, and (iii) an increase in foreign ownership in the target company where foreign ownership is already more than 50%. The LOI 2020 also requires M&A approval for foreign investment in target companies that utilise land located within areas having an effect on national security (e.g. sea-islands, borderlands and coastal areas).
• Investment support and incentives to be more widespread: The LOI 2020 supplements LOI 2014’s existing provisions on special investment incentives and support. Investment projects in certain specified fields with specified investment capital and returns will be granted an Investment Registration Certificate or Investment Policy Approval. 
• Guarantee for certain investment projects not required: The LOI 2014 currently requires investors to place an amount in escrow to guarantee the implementation of any project which involves land allocation or lease or which requires change of land use purpose by the State. However, under LOI 2020, this requirement may be waived in certain cases as set out in the new law.