Establishment of and capital contribution to enterprises of foreign invertors in accorsdance with vietnamese regulaions

MINISTRY OF EDUCATION AND TRAINING
HO CHI MINH CITY UNIVERSITY OF LAW
-----------***-----------

MANAGEMENT COMMITTEE OF
SPECIAL PROGRAMS

LÊ TRUNG

ESTABLISHMENT OF AND CAPITAL CONTRIBUTION TO
ENTERPRISES OF FOREIGN INVESTORS IN ACCORDANCE WITH
VIETNAMESE REGULATIONS

BACHELOR OF LAW – GRADUATION THESIS
FACULTY: COMMERCIAL LAW
ACADEMIC YEAR: 2013 – 2017

HO CHI MINH CITY
2017


MINISTRY OF EDUCATION AND TRAINING
HO CHI MINH CITY UNIVERSITY OF LAW
-----------***-----------

MANAGEMENT COMMITTEE OF
SPECIAL PROGRAMS

LÊ TRUNG

ESTABLISHMENT OF AND CAPITAL CONTRIBUTION TO

ENTERPRISES OF FOREIGN INVESTORS IN ACCORDANCE WITH
VIETNAMESE REGULATIONS

BACHELOR OF LAW – GRADUATION THESIS
FACULTY: COMMERCIAL LAW
ACADEMIC YEAR: 2013 – 2017

SUPERVISOR: DR. TRẦN HOÀNG NGA
AUTHOR: LÊ TRUNG
STUDENT ID NUMBER: 1353801011260
CLASS: CLC38B

HO CHI MINH CITY
2017


DECLARATION
I hereby declare that this thesis is my own research under the supervisory
guidance of Dr. Tran Hoang Nga. All of the information other than my opinions to
be used or quoted has been acknowledged by means of complete references. I
would take full accountability for my protest.
Author

Lê Trung


LIST OF ABBREVIATIONS
ABBREVIATION
BRA
BRC

DPI
ERC
FDI
FTAs
IC
IRA
IRC
LOI 2005
LOE 2005
LOI 2014
LOE 2014
TPP
WTO

CONTENT IS ABBREVIATED
Business Registration Authority
Business Registration Certificate
Department of Planning and Investment
Enterprise Registration Certificate
Foreign direct investment
Free Trade Agreements
Investment Certificate
Investment Registration Authority
Investment Registration Certificate
Law on Investment (Law No. 59/2005/QH11) dated
November 29, 2005
Law on Investment (Law No. 60/2005/QH11) dated
November 29, 2005
Law on Investment (Law No. 67/2014/QH13) dated
November 26, 2014

Law on Enterprises (Law No. 68/2014/QH13) dated
November 26, 2014
Trans-Pacific Partnership Agreement
World Trade Organization


TABLE OF CONTENTS

INTRODUCTION .....................................................................................................1
1.1

Concept of foreign investor .........................................................................6

1.2 Forms of investment and practical role of investment into enterprises
in relation to foreign investors ..............................................................................8
1.2.1

Forms of investment .............................................................................8

1.2.2 Practical role of investment into enterprises in relation to foreign
investors .............................................................................................................12
1.3 Conditions for investment by establishment of and capital contribution
to enterprises operating in conditional business lines ......................................13
CHAPTER 2. ESTABLISHMENT OF ENTERPRISES OF FOREIGN
INVESTORS ...........................................................................................................18
2.1

Regulations .................................................................................................18

2.1.1

Overview ..............................................................................................18

2.1.2

Procedures for issuance of IRC .........................................................20

2.1.3

Procedures for issuance of ERC ........................................................22

2.1.4 Mechanism for cooperating in resolving procedures for issuance of
IRC and ERC ....................................................................................................25
2.2

Shortcomings ..............................................................................................26

2.2.1
ERC

Lack of respectfulness to time limitation for issuance of IRC and
...............................................................................................................27

2.2.2

Some rampant procedures .................................................................28

2.2.3

The overlaps in regulations ................................................................28

2.3

Remarks ......................................................................................................31

2.3.1 Promulgating guiding documents to solve the lack of respectfulness
to time limitation for issuance of IRC and ERC ...........................................31
2.3.2

Promulgating guiding documents to solve overlaps of regulations 32

2.3.3

Improving, simplifying and clarifying administrative procedures 33

CONCLUSION OF CHAPTER 2 .........................................................................35


CHAPTER 3. CAPITAL

CONTRIBUTION

TO

ENTERPRISES

OF

FOREIGN INVESTORS ........................................................................................36
3.1

Regulations .................................................................................................36

3.1.1

Overview ..............................................................................................36

3.1.2

Initial steps relating to capital contribution procedures .................38

3.1.3

Procedures for registration of capital contribution .........................39

3.1.4 Procedures for changing members/shareholders of enterprises
receiving capital contribution..........................................................................40
3.1.5 Cooperation mechanism of procedures relating to capital
contribution registration ..................................................................................42
3.2

Shortcomings ..............................................................................................43

3.2.1

Lack of uniformed regulations on investment capital accounts .....43

3.2.2 Lack of uniformed regulations on adjusting ERC and IRC of
enterprises receiving capital contribution......................................................45
3.3

Remarks ......................................................................................................45

3.3.1

Reforming regulations on investment capital accounts ..................46

3.3.2 Reforming regulations on adjusting ERC and IRC of enterprises
receiving capital contribution..........................................................................47
CONCLUSION OF CHAPTER 3 .........................................................................48
CONCLUSION ........................................................................................................49
BIBLIOGRAPHY
APPENDIX


INTRODUCTION
1.

Reason for conducting this thesis
In the event of increasing growth in global integration, an objective

requirement set for each country to survive is the implementation of international
cooperation, which is also one of the key measures for the development of socioeconomic in the five years 2016 – 2020 in the Twelfth National Congress of the
Communist Party of Vietnam.1 Although Vietnam’s economy slowed down in 2016,
FDI sectors still reached nearly US $16 billion (7.7% of GDP). 2 When conducting
the investment in Vietnam, foreign investors may select any appropriate forms of
investment in accordance with Vietnamese regulations.3
In the year 2016 (up to December 26, 2016), Vietnam had 2,556
projects newly issued the Certificates of Investment with a total registered
capital of US $15.18 billion, increasing by 27% in the number of projects of

the year 2015. Besides that, there were 1,225 projects registering to adjust to
increase the investment capital with the total registered capital of US $5.76
billion, increasing by 50.5% in the number of projects of the year 2015. Also
in the year 2016, there were 2,547 enterprises, economic organizations
having foreign investors contributing capital, buying shares with a holding
capital of more than 50% of charter capital or pertaining to the conditional
investment sectors with the total investment amount of US $3.425 billion.4
These data above clearly show that the level of trust of foreign investors in
Vietnam’s business environment is positively increasing and strongly affirm that
Vietnam is one of the attractive locations for them. In order to achieve this success,
with our desire to create favourable conditions for foreign investors, the deepthinking reform of the LOI 2014 and the LOE 2014 is one of the key factors that
have spread a new spirit for Vietnam’s business environment.5
Luu Ngoc Khai, Dang Cong Thanh, “The Party’s foreign policy in the spirit of the Twelfth Congress
Resolution – A new height” (“Đường lối đối ngoại của Đảng theo tinh thần Nghị quyết Đại hội XII – Một
tầm cao mới”) last access on May 11, 2017
2
See more: “World Bank: Optimistic about development of Vietnam’s economy” (“Ngân hàng Thế giới: Lạc
quan về phát triển kinh tế Việt Nam”), last access on May 12, 2017
3
Investors may invest capital to do business by establishing a business organization; making capital
contribution, buying shares or capital contributions to a business organization; making investments in the
form of contracts or execution of investment projects.
4
Department of Foreign Investment (MPI), “Report on Foreign Direct Investment in 2016” (“Báo cáo tình
hình
đầu
tư
trực
tiếp
nước

ngồi
năm
2016”)
last access on May 12, 2017
5
Dinh Khanh Le, “Attracting Foreign Direct Investment: New challenges” (“Thu hút vốn đầu tư trực tiếp
nước ngoài: Những thách thức mới”), last access on May 12, 2017
1

1


However, as well as seeing the positive aspects foreign investors bringing to
our country, it is foreseeable that there are still some obstacles existing in Vietnam’s
legal system. After more than one year of implementation of such regulations, there
have been inappropriate shortcomings arising, which cause a lot of complexity, cost
time and expense of foreign investors. Especially, this can seriously lead to the loss
of attraction to FDI to Vietnam’s economy. When it comes to integration with the
development of the whole world, it is necessary to study, find out and assess such
regulations in order to be able to come up with solutions to solve those difficulties
in order to attract and receive more FDI, which is very necessary for the
development of the economy in particular and Vietnam in general.
It is from the above reasons, with the wish to contribute to the study and
perfect such regulations, the author has decided to choose “Establishment of and
capital contribution to enterprises of foreign investors in accordance with
Vietnamese regulations” as a topic for the graduation thesis.
2.

Literature review
Firstly, as of this moment, regarding theses and scientific researches within

the scope of Ho Chi Minh University of Law, there were some theses mentioning
about this topic, but they were conducted separately between the “establishment of
enterprises of foreign investors” and “capital contribution to enterprises of foreign
investors”. In regard to “establishment of foreign investors”, the thesis that may be
referred is “Thực trạng đầu tư thành lập doanh nghiệp theo Luật Doanh nghiệp của
nhà đầu tư nước ngoài” – Bachelor of Law’s thesis of the year 2007 of Pham Thi
Kim Phuong. Besides, there are also two theses similarly mentioning about the
establishment of enterprises of foreign investors. Namely, "Quyền thành lập doanh
nghiệp có vốn đầu tư nước ngồi tại Việt Nam" – Master of Law’s thesis of the year
2009 of Bui Thi Thuy Trieu; and “Thủ tục thành lập doanh nghiệp có vốn đầu tư
nước ngồi” – Bachelor of Law’s thesis of the year 2014 of Nguyen Thi Thu Thuy.
Nonetheless, those theses presented about the establishment of foreign invested
enterprises, so the scopes of these theses are a little bit different from the scope of
this thesis due to the fact that the legal status of foreign invested enterprises is now
different in comparison with the LOI 2005, which will be mentioned in Section 1.1.
However, these above theses were researched while the LOI 2005 and the LOE
2005 were legally valid. When the LOI 2014 and the LOE 2014 took effect,
regulations on conditions and procedures for establishment of enterprises of foreign
investors have been changed and require them more steps as well as documents to
submit to competent authorities in order to perform the investment in the form of
2


establishment of enterprises. Especially, IC do not exist anymore and are replaced
by two separate Certificates, which are IRC and ERC obtained by different
conditions, and procedures, as well as issued by different competent authorities. As
regards “capital contribution to enterprises of foreign investors”, though there has
been only one thesis, “Quyền góp vốn, mua cổ phần của nhà đầu tư nước ngoài” –
Bachelor of Law’s thesis of the year 2012 of Tran Thi Mai Quynh, mentioning

about this issue, this thesis was also conducted under the regime of invalid
regulations, which is inconsistent with current laws. In addition, under the current
regulations, the concept of foreign investors is regulated differently in comparison
with the former. In particular, the legal status of foreign invested enterprises has
been regulated clearly and no longer considered as foreign investors in some cases
as previous. As a result, conditions and procedures to perform investment of foreign
investors in the form of establishment of and capital contribution to enterprises of
foreign investors under the current Vietnamese regulations are different from the
former regulations. Nonetheless, there has not been any detailed and specific
research addressing “Establishment of or capital contribution to enterprises of
foreign investors under Vietnamese regulations”.
Secondly, issues of “establishment of and capital contribution to enterprises
of foreign investors” have been mentioned a lot in legal scientific articles. Some
articles may be listed such as the article “Thủ tục thành lập doanh nghiệp theo Luật
Doanh nghiệp năm 2014 và việc cải thiện thứ hạng môi trường kinh doanh của Việt
Nam” of Tran Huynh Thanh Nghi published in the Jurisprudence Journal, Volume
4(179)/2015; or “Tổng thuật hội thảo khoa học Luật Doanh nghiệp và Luật Đầu tư
năm 2014 – những đổi mới nhằm thực hiện quyền tự do kinh doanh” of Tu Thanh
Thao and Bui Thi Thanh Thao published in the Legal Sciences Journal, Volume
01(95)/2016; or “Đánh giá một số quy định mới trong Luật Doanh nghiệp năm 2014”
of Nguyen Nhu Chinh published in the Jurisprudence Journal, Volume 01/2016; or
“Một số vấn đề về pháp luật điều chỉnh hoạt động đầu tư, thương mại của doanh
nghiệp có vốn đầu tư nước ngồi tại Việt Nam” of Tran Thi Thu Phuong published
in the State and Law Review, Volume 9(341)/2016; or “Đổi mới tư duy để Luật
Doanh nghiệp 2014 đi vào cuộc sống” of Nguyen Dinh Cung published in the
Economy and Forecast Review, Volume 15 August 2015 (599); etc. However, such
issues are only mentioned as a part of such articles or put these issues in relation to
other issues. Moreover, the scope of those articles only refers to certain aspects of
“establishment of or capital contribution to enterprises of foreign investors” such as
studying provisions of regulations, pointing out shortcomings and giving

3


recommendations on such regulations in a short and general way which have not
been dug profoundly enough.
Therefore, on the whole, “establishment of and capital contribution of
foreign investors in accordance with Vietnamese regulations” have not been studied
deeply and separately as an independent research.
3.

Research objectives
The purpose of this thesis is to present and analyse regulations on
establishment of and capital contribution to enterprises of foreign investors in
accordance with the LOI 2014, the LOE 2014 and legal documents detailing and
guiding the implementation. Base on that research, the author is able to give out
highlights, figure out shortcomings, as well as give remarks on them to perfect the
current regulations. Through those, we can help foreign investors to avoid
psychological fears about some of the ambiguous regulations that are harm to their
interests, and to have favourable business conditions.
4.

Object and Scope of the research
Object of the research

Concerning the object of the research, this thesis takes on the task of research
on problems of establishment of and capital contribution to enterprises of foreign
investors in accordance with Vietnamese regulations. In particular, some basic legal
issues such as the concept of foreign investors, forms of investment in general and
practical role of investment into enterprises in relation to foreign investors shall be
taken into account. In addition, conditions and procedures for foreign investors to

conduct the investment in Vietnam in the forms of establishment of and capital
contribution to enterprises in accordance with Vietnamese regulations shall be
mainly addressed.
Scope of the research
Concerning the scope of the research, this thesis mainly concentrates on
research of problems of establishment of and capital contribution to enterprises of
foreign investors in accordance with the LOI 2014, the LOE 2014 and legal
documents detailing and guiding the implementation which are legally valid,
especially not including the establishment of and capital contribution to
cooperatives, cooperative associations, and other organizations other than
enterprises. Additionally, due to the limit of thesis’s pages but there are existing two
forms of capital contribution to enterprises including contribution of capital to
establish a new enterprise or contribution of additional capital to an existing
enterprise, the author only mentions about the issue of contribution of additional
4


capital to an existing enterprise. Moreover, the term of “capital contribution” is
always discussed together with the term of “purchase of shares, capital
contributions” because of some similar regulations. Nonetheless, these two terms
still have a few differences and within the scope of the research with limited
numbers of pages, the author is not able to mention issues relating purchase of
shares, capital contributions but capital contribution.
Besides that, matters relating establishment of and capital contribution to
enterprises are not only stated in the above regulations but also other specialized
laws such as regulations on securities, or regulations on credit institution, etc.
However, within the scope of this thesis, the establishment of and capital
contribution to enterprises relating to these regulations shall not be taken into
account. Furthermore, the LOI 2005 and the LOE 2005, which are invalid
regulations, are sometimes mentioned in the thesis to only support for the study,

help readers easily, and deeply understand the current regulations.
5.

Research methodologies
On the basis of the research objectives, multiple methods are applied in the

research process. The most common methods used to gather and analyse
information are traditional methods which are analysis and induction. Besides that,
in order to obtain the general background, precisely assess the improvements, as
well as point out shortcomings of the current regulations, comparison method is
concurrently used to digest the information in hand. Specifically, the LOI 2005, the
LOE 2005 and some of the foreign regulations shall be taken into account this thesis
to be compared with current regulations.
6.

Research structure
In addition to the introduction and the conclusion, the content of this legal
research is presented into three chapters as follows:
Chapter I: Basic legal issues
Chapter II: Establishment of enterprises of foreign investors
Chapter III: Capital contribution to enterprises of foreign investors

5


CHAPTER 1.

BASIC LEGAL ISSUES

1.1

Concept of foreign investor
From 1986 until now, the path of more than 30 years of renovation and
international integration of Vietnam is a process with a lot of challenges and
difficulties, like a journey from a river to an ocean. In the event of integration,
Vietnam does affirm that the development of the legal system to promote
international integration plays an important role and we will continue to improve
the legislative process to meet higher requirements of innovation as well as
integration. After many changes and amendments since its predecessors until now, 6
the official Law to regulate the investment in our country is the LOI 2014.
In the world, each country shall have its own regulation on foreign
investment. Accordingly, they shall have different regulations on the concept of
foreign investor. For instance, in China, a foreign investor means a foreign
enterprise, other foreign economic organizations, and individuals setting up foreignfunded enterprises in China. 7 In France, the key criterion to define whether an
investor is domestic or foreign is based on the country of origin of the investor,
particularly that is a citizen of country other France; or a company whose registered
office is located outside of France; or a French citizen residing outside of France. 8
In Laos People’s Democratic Republic, “foreign investor” means a foreign citizen
or a foreign individual or legal entity that comes to undertake the business
operations in the Lao PDR. 9 In Singapore, foreign company means a company,
corporation, society, association or other body incorporated outside Singapore. 10
Overall, the concept of foreign investor in many countries is mainly based on the
principle of nationality, where the original country of the investor is.
In Vietnam, this concept, similarly, is also stated in the LOI 2014. According
to the LOI 2014, the concept of foreign investor is very clear, which is only based
on the principle of nationality to define the legal status of investors when
conducting the investment in Vietnam. Particularly, foreign investor means an
individual holding a foreign nationality or an organization established under foreign
6

The Law on Foreign Investment 1987, the Law on Foreign Investment 1996, the Law on Investment 2005
Article 1 of the Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises passed by
the Standing Committee of the National People’s Congress on September 3, 2016
8
Eric Cafritz, “French Decree Extends List of Foreign Investments Requiring Government Approval in
Strategic Business Sectors”,
/>nt%20Approval%20in%20Strategic%20Business%20Sectors.pdf, last access on May 19, 2017
9
Clause 4 Article 3 of the Law on Investment Promotion of Lao People’s Democratic Republic dated July 8,
2009
10
Section 4 of the Companies Act of Singapore dated December 29, 1967 (revised on October 31, 2006)
7

6


laws conducting business investment in Vietnam.11 The LOI 2014, furthermore, has
clarified the concept of "domestic investors", "foreign investors" and "foreign
invested economic organizations" and made a distinction between the projects of
purely foreign investors based on the principle of nationality and foreign invested
enterprises by removing the concept of “foreign invested enterprises”, introducing
the concept of “foreign invested economic organizations”, which include any
businesses whose members or shareholders are foreign investors. 12 Therefore, in
comparison with the LOI 2005, the concept of foreign investor is approached more
clearly and transparently, which can help not only foreign investors but also
competent authorities to easily define the exact concept of foreign investor in
relation to investment in Vietnam.13 Accordingly, the amendment of the LOI 2014
has done a great job which can solve the problems of the former law. As mentioned
above, it is a clear distinction between foreign investors and foreign invested

economic organizations and within the scope of this thesis, the author shall not
mention investment cases of foreign invested economic organizations but foreign
investors. Moreover, the subject of foreign investors is defined more broadly by
changing the term “using capital in order to carry out an investment activity” to
“conducting business investment in Vietnam”, which means that the vague term of
the LOI 2005 has also been solve because such subject also includes the
establishment of juridical persons of foreign investors to perform the investment in
Vietnam.14
Furthermore, it should be noticed that in case individuals have two
nationalities, including both Vietnamese and foreign nationality, they are able to
select the appropriate nationality for them to decide whether they are domestic or
foreign investors when conducting the investment in Vietnam,15 which can also deal
with the problem of the unclear distinction about the legal status of Vietnamese

11

Clause 14 Article 3 Law on Investment 2014
Clause 17 Article 3 Law on Investment 2014
13
Specifically, under the regime of the Law on Investment 2005, besides the nationality principle was
applied to define the legal status of foreign investors, the holding rates of foreign investors in enterprises is
regarded as one of the criteria to define the legal status of foreign investors. See more: Nguyen Thi Thu Thuy
(2014), Procedures for establishment of foreign-invested enterprises (Thủ tục thành lập doanh nghiệp có vốn
đầu tư nước ngồi), Bachelor of Law’s thesis, Ho Chi Minh Unversity of Law, p. 15-16; point b clause 1
Article 1 Circular No. 131/2010/TT-BTC
14
Under the Law on Investment 2005, investment activities mean activities of investors throughout the
investment process, comprising stages of investment preparation, performance and management of the
investment project, which includes not only activity of using capital to conduct the investment but also
establishment of a new juridical person to conduct the investment project. Thus, such regulation has a

limitation on the subject conducting the business investment, which means that those establishing new
juridical persons to conduct the investment are not subject to this concept.
15
Clause 1 Article 11 Decree No. 118/2015/ND-CP
12

7


residing overseas in the former law.16 Nonetheless, in case Vietnamese nationality is
chosen, the ID card or Vietnamese passport of such Vietnamese residing overseas
should be unexpired. Otherwise, they shall be deemed foreign investors. 17 As
mentioned above, the crucial criterion to define the legal status of investors under
the LOI 2014 is the nationality. Nevertheless, the LOI 2014 does not have any
regulation on stateless people, who have neither Vietnamese nationality nor foreign
nationality.18 Thus, it could be deduced that the LOI 2014 has impliedly eliminated
stateless people out of the scope of investors due to not pertaining to any subject
being able to conduct the investment. Furthermore, guiding legal documents of the
LOI 2014 also do not have any regulation on this subject. As a result, it should be
borne in mind that, stateless people are not entitled to conduct the investment in
Vietnam. This way of thinking, in fact, is reasonable since once a legal entity
conducts the investment, there would be many arisen issues. For instance, when the
dispute arises, it is impossible to have a mechanism to deal satisfactorily in the case
of investment of stateless people being at risk and the State might not be able to
control the assets of these subjects.
1.2

Forms of investment and practical role of investment into enterprises in
relation to foreign investors
1.2.1

Forms of investment
Business investment is one of the important economic management activities
of each country as this field expresses in detail the economic and political
orientation of its country in all aspects including economy, technology, culture and
society. It is also a basic production and business activity of any investors when
conducting the investment. In order to make the highest profit in the simplest way
as well as avoid risks and complexities when conducting business investment,
appropriate form of investment is always one of the foreign investors’ concerns.
1.2.1.1 Establishment of an economic organization
Investment by establishing an economic organization means the investor
investing capital in the establishment of enterprises, cooperatives, cooperative
associations or other organizations that make business investments in accordance
with Vietnam’s laws.19 Generally speaking, it can be understood as the first process
to legally conduct its business under the protection of the laws and helps the
16

See more: Tran Thi Mai Quynh (2012), Right of capital contribution, purchasing shares of foreign
investors (Quyền góp vốn, mua cổ phần của nhà đầu tư nước ngoài), Bachelor of Law’s thesis, Ho Chi Minh
University of Law, p. 9-11
17
Article 10 Decree No. 78/2015/ND-CP
18
Clause 2 Article 3 Law on Vietnamese nationality 2008 (amended and supplemented in 2014)
19
Clause 5 and Clause 16 Article 3 Law on Investment 2014

8


management of business activities of investors is likely to become more uniform

and easier. Foreign investors who want to completely operate their own business
normally decide to choose the form of establishment of economic organizations. In
fact, only foreign investors with a strong capital, well-known prestige in the market
and experience in expanding their business networks in many countries have the
intention to choose to form economic organizations in foreign countries. The issue
of establishing an economic organization of foreign investors, however, is a
complicated issue, which is subject to not only the provisions of the LOI 2014, but
also the provisions of the LOE 2014 when it comes to such establishment, or other
laws relating to establishment of cooperatives, cooperative associations or other
organizations. The LOI 2014 determines the conditions for establishment of an
economic organization based on the origin of investment capital is domestic or
foreign. Regarding foreign investors, in order to establish an economic organization,
more stringent requirements shall be applied. Besides, they shall comply with the
holding rates, form of investment, operating scope, Vietnamese partners, and other
aspects which are conformable with the international agreements to which the
Socialist Republic of Vietnam is a signatory.20
1.2.1.2

Capital contribution to, purchase of shares, capital
contributions of an economic organization
One of the popular forms of investment chosen by investors is contributing
capital, buying shares, or capital contributions of economic organizations.
Particularly, foreign investors, by this way, contribute assets to invest in economic
organizations to form the charter capital of economic organizations 21 in order to be
given the right to manage, entitled to distribute their profits and as a result, they
become owners or joint owners of economic organizations. On the contrary to
foreign investors with the intention to establish economic organizations, those with
small capital normally need time to probe into the market of their products to limit
risks prior to conducting the investment, so they often choose to invest in the form
of contributing capital, buying shares or capital contributions of economic

organizations. Besides that, if foreign investors only want to invest in the short term,
they will not choose the form of establishing economic organizations due to the fact
that investment in establishment of economic organizations requires foreign
investors complex not only dossiers but also procedures to perform the investment
and shall take a long period of time. Thus, in comparison with the form of
20
21

Article 22 Law on Investment 2014
Clause 13 Article 4 Law on Enterprises 2014

9


establishment of economic organizations, investment by contributing capital,
buying shares, capital contributions can help investors to save time to conduct their
business as well as make use of things already available belonging to economic
organizations such as land, buildings, technologies, labours, markets, etc. In
similarity with investment in establishment of economic organizations, this form of
investment also determines the conditions for investors based on the origin of
investment capital whether domestic or foreign.
1.2.1.3 Public-Private Partnership contracts
Governments in developing countries, nowadays, are facing the need to build,
to urbanize or to rehabilitate infrastructural works or public services in order to
support the continuously growing population and the development of living
standards such as construction and operation of the traffic system, power supply,
water supply, etc. In the situation of demand for a huge capital investment in
technical infrastructure of Vietnam in general and each locality in particular but
with limitation of the State’s budget and the narrow capital of the donors, the
Public-Private Partnership is likely to be a lever to mobilize both domestic and

foreign private resources for infrastructure investment these days.22
The main content of Public-Private Partnership is the sharing of risk and
responsibility between the State and the private sectors, with primary responsibility
for the risks belonging to private sector. The State, however, is also responsible for
providing financial support to the private sector to ensure feasibility of the project
and mitigate problems for the private sector. Part or all of the work, accordingly,
will be assigned to the private sector with the assistance of the State. In addition, the
Public-Private Partnerships model creates a dynamic mechanism for the proper
allocation of responsibilities between parties in the Public-Private Partnership
contract (public sector and private sector). In other words, it is a careful
consideration of the factors that affect the life of the project, and the optimal
allocation of risk among the parties to achieve the highest efficiency. In a PublicPrivate Partnership project, private investors are privileged to build and operate
infrastructure that is usually administered by the Government and at the end, the
investors will transfer the project to the State.
Hence, a Public-Private Partnership is understood as a legal agreement to
implement an investment to mobilize private sector funding to finance and operate
infrastructural works belonging to the responsibility of the State, which can help to
22

Public-Private Partnership contract means a contract between a competent authority and an investor or
project management enterprise to execute an investment project to build new infrastructural works, to
improve, upgrade, expand, manage and operate infrastructure works, or to provide public services.

10


reduce the burden of overspending in the State budget and concurrently create an
effective mechanism for private investment in public interest.23
1.2.1.4 Business cooperation contracts
Business cooperation contract means a contract between investors for

business cooperation and distribution of profits, products without establishment of a
new economic organization.24 Accordingly, investors are able to save on the time
and cost of establishing and operating a new legal entity and do not need to worry
about dissolution when a project is completed. The fact that a business cooperation
contract does not require a legal entity is considered as an outstanding advantage for
all investors, both domestic and foreign because investors and their partners may
agree upon their rights and obligations under a contract as independent parties
without being bound by a joint legal entity. It, furthermore, can also help investors
to quickly carry out their business, overcome their weaknesses, and utilize most of
the advantages of doing business. Accordingly, investors with their knowledge of
familiar markets are able to help their partners in occupying the markets that they
do not know clearly. In addition, it is possible to transfer technology, concurrently
give guidelines on organization and management to achieve the benefits they desire.
However, due to the fact that this investment form only consists of a contract
without establishment of a legal entity, it is the least formal and most flexible form
of investment for foreign investors, which causes a constraint to this form of
investment. In particular, the implementation of other contracts; transactions to
serve the business cooperation contract with other third parties shall lead confusion
to them when there is no representative - a joint venture company between investors.
The legal base for this investment form, moreover, is not detailed and of course, a
significant number of major issues are rather unclear. Indeed, this form of
investment is only selected to perform some specific investment projects that
quickly and easily return capital with profits. Long-term projects implemented in
stages, which require complex management and business, otherwise, are not really
appropriate to this form.25
On the whole, there are two main forms of investment, which are investment
in economic organizations, mostly in enterprises and investment under contracts.
Department of Foreign Investment (MPI), “Overview of Public-Private Partnership contracts” (“Tổng quan
về hợp đồng hợp tác công tư PPP”), last access on May 22, 2017
24

Clause 9 Article 3 Law on Investment 2014
25
“Investment in the form of business cooperation contract” (“Đầu tư theo hình thức hợp đồng hợp tác kinh
doanh BCC”), last
access on May 22, 2017
23

11


Nevertheless, as mentioned earlier in the Introduction, foreign investors nowadays
largely have the intention to invest in enterprises, 26 which are considered as the
most common forms of investment to be chosen by foreign investors. Furthermore,
along with the investment of foreign investors in enterprises, not only such
enterprises but also other subjects such as people or even the economy of Vietnam
will be able to achieve certain benefits, which will be mentioned in the next section.
Thus, it is because of the importance as well as benefits of attracting foreign
investment to Vietnam, the author has decided to choose this topic for the
graduation thesis with the wish to contribute to the improvement of regulations on
investment of foreign investors to build the trust of foreign investors in Vietnamese
regulations, particularly regulations on establishment of and capital contribution to
enterprises of foreign investors.
1.2.2

Practical role of investment into enterprises in relation to foreign
investors
The attraction of foreign capital nowadays is one of the hot issues in Vietnam
due to the need of huge investment capital to build and also complete the socialeconomic infrastructure to successfully execute the industrialization and
modernization of the country. In addition, Vietnamese enterprises are in the process
of innovation and equitization with the aim of increasing competitive capability

when acceding to the global commerce. In the event of integration, due to the fact
that foreign investors are highly interested in investing in enterprises, Vietnamese
enterprises are facing potential opportunities to raise their capital for development
of their business investment. Along with it, Vietnamese enterprises would also have
a chance to approach modern technologies, which lead to the ability to innovate in
technologies and make great influences on the productivity, quality and also the
price. For an overview, the fact of using hi-tech would bring a great rise in term of
productivity, quality, better price which finally comes up with the effective
competition in the world.
Besides, the act of receiving foreign investment would help Vietnamese
enterprises to remodel their methods of management. In the context of globalization,
the business environment has constantly altered because of numerous aspects
including methods of management. Choosing good methods would not only
contribute to the increase of productivity and effectiveness, but also take full
advantage of the enterprises’ capabilities, particularly human resources. With that in
mind, Vietnamese enterprises would have the opportunity to learn as well as to
26

See more: Section 1 of the Introduction of this thesis

12


exploit the advantages of innovative methods stemming from developed countries.
Furthermore, the attraction of foreign investors would enable both the expansion of
market and the boost in competitiveness. Thanks to the competitive capability, such
enterprises are capable of improving efficiency and quality at a greater level than
their competitors possessing remarkable market shares, simultaneously obtaining
higher income and sustainably developing. When having sufficient investment
capital, enterprises would easily access to advanced technology, allocate an

appropriate amount of budget for disseminating products to as many customers as
possible, introduce customers to product trials, and conduct market researches to
improve the quality and the designs of the products; consequently, such enterprises
would be able to distribute their products to not only domestic but also international
markets, which indirectly enhances their own competitiveness.
Especially, we have to admit that through the activity of attracting
investment from foreign investors, the problem of labour would consequently be
solved smoothly. Many of Vietnamese enterprises in the scale of medium and small
would take a huge benefit after receiving the favour of investment from foreign
investors in term of expanding investment scale, production sector and technologies
as well. As a result, such enterprises shall comply with the requirement of labours to
do such jobs, which directly brings more opportunities to employees.
Finally, thanks to such benefits, it would help to enhance Vietnam’s
economy as well as the state budget. Particularly, the act of investing brings higher
capital to enterprises, and then enhances the ability to maintain constant, to develop
easily and positively, which leads to the bigger contribution to national GDP from
such sources as taxes and concurrently boost Vietnam’s economy to a higher
position.
1.3

Conditions for investment by establishment of and capital contribution
to enterprises operating in conditional business lines
Under the provisions of Vietnamese regulations, freedom of business of
individuals, organizations are stipulated in the LOE 201427 which allows them the
right to choose to do business in all business lines that are not prohibited by law.
However, there are some business lines having specific characteristics that
specialized laws shall require investors to comply with certain conditions before
they can carry out such business activities and they, in addition, shall maintain such
conditions throughout the duration of the investment. Basically, business lines can
be divided into three groups: banned business lines; conditional business lines; and

27

Clause 1 Article 7 Law on Enterprises 2014

13


other business lines not belonging to two groups mentioned above.
Group 1: Banned business lines
It can be understood that banned business lines are business lines having bad
impacts or detrimental to national defence, security protection or adversely affect
the tradition and culture of Vietnam such as investment in the activities relating to
trade in narcotic substances, chemicals, minerals, specimens of wild flora and fauna
as prescribed by law, or prostitution, human trafficking, trade in human tissues and
body parts. 28 Therefore, it is necessary to have the above prohibitions to protect
social security and safety and economic order.
Group 2: Conditional business lines
Regarding conditional business lines, the LOI 2014 has done an
unprecedented job in regulating the conditional business lines in Vietnam, which
lists all conditional business lines in one legal document, particularly Appendix 4 of
the LOI 2014.29 Indeed, the fact that all conditional business lines are listed in one
legal document is highly codified due to the fact that on the one hand, it facilitates
the protection of the freedom of doing business, and on the other hand, it makes it
easier to examine and supervise the observance of conditions relating to doing
business. 30 Besides, the LOI 2014 also clearly states that Ministries, ministerial
agencies, the People’s Council, People’s Committees, and other entities must not
issue regulations on conditions for making business investments. 31 As a result, the
LOI 2014 has restricted the right to define business conditions for the highest
legislature and the highest executive body to limit the widespread adoption of
regulations of State agencies at all levels which directly or indirectly restricts the

freedom of business of business entities. Accordingly, investment conditions
include:32 license, or certificate of eligibility, or practicing certificate, or certificate
of professional liability insurance, or written certification, or documents other than
those specified above, or conditions that must be fulfilled to make investment
without the written certification or approval specified above.
Group 3: Other business lines not belonging to two groups mentioned above
In principle, business entities are free to conduct other business lines rather
than banned business lines or conditional business lines without any other license
28

See more: Article 6 Law on Investment 2014, Article 8 Decree No. 118/2015/ND-CP
Amended and supplemented by the Law on Amendment and supplement to Article 6 and Appendix 4 on
the list of conditional business lines stipulated in the Law on Investment
30
Ho Chi Minh University of Law (2016), Textbook on Legislation on Business entities (First reprinted,
amended and supplemented) (Giáo trình Pháp luật về chủ thể kinh doanh (Tái bản lần 1, có sửa đổi và bổ
sung)), Hong Duc Publishing House, p. 46
31
Clause 3 Article 7 Law on Investment 2014
32
Clause 2 Article 9 Decree No. 118/2015/ND-CP
29

14


required as described in the corresponding items above.
Furthermore, regarding investment of foreign investors in Vietnam, there are
some more stringent conditions applied to them prior to conducting the investment.
Particularly, the Decree No. 118/2015/ND-CP introduces a definition of

“investment conditions for foreign investors”, which helps to distinguish general
investment conditions applicable to all investment projects from investment
conditions for foreign invested projects. Giving such conditions, the State wants to
restrict foreign investors from participating in particular areas which may affect
national defence and security, social order and security, social ethics, or public
health in order to limit the acquisition and control of foreign investors in sensitive
sectors. Specifically, such conditions include: 33 Ratio of the foreign investor’s
charter capital in a business organization, investment method, scope of investment,
Vietnamese partners participating in the investment, and other conditions specified
in Laws, Ordinances, Decree, and international agreements on investment.
In the event of opening up and integrating into the world, Vietnam has issued
legal documents regulating the limitation of charter capital of foreign investors in
business investment relating to the establishment of enterprises as well as capital
contribution to enterprises. When establishing enterprises or contributing capital,
buying shares, capital contributions of enterprises, foreign investors shall comply
with the ratio of foreign investor’s charter capital in such enterprises as prescribed
by law. Under the LOI 2014, foreign investors are entitled to hold the ratio of
charter capital in enterprises without limitation, except for the following cases:34
The ratio of foreign investors’ charter capital at listed companies,
public companies, securities-trading organizations, and securities investment funds
are conformable with regulations of law on securities;
The ratio of foreign investors’ charter capital at state-owned
enterprises that have been equitized or converted are conformable with regulations
of law on equitization and conversion of state-owned companies;
The ratio of the foreign investors’ charter capital in other cases than
those mentioned above, relevant regulations of law and the international agreements
to which the Socialist Republic of Vietnam is a signatory shall be applied.
Moreover, prior to conducting the investment in Vietnam, in addition to the
issue relating to the ratio of foreign investors’ charter capital, foreign investors shall
also consider whether their intended business investments are consistent with

33

Clause 1 Article 10 Decree 118/2015/ND-CP
Point a Clause 1 and Clause 3 Article 22 Law on Investment 2014; Clause 3 Article 25 Law on Investment
2014
34

15


regulations on other conditions prior to conducting the investment such as 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.35
Noticeably, with regard to sectors and sub-sectors excluded from
commitments or not specified in Vietnam’s WTO Schedule of commitments and
other international agreements on investment, if investment conditions applied to
foreign investors are already provided for in Vietnam’s law, such Vietnam’s law
shall be applied;36 otherwise, the IRA shall consult with the Ministry of Planning
and Investment and relevant Ministries to promulgate the conditions applied to such
foreign investors. 37 On the other hand, the Decree No. 118/2015/ND-CP also
stipulates the principles of application of such investment conditions to foreign
investors; accordingly, such conditions shall ensure transparency, objectivity, not
wasting time or money of investors.38

35

Point b Clause 2 Article 22 Law on Investment 2014
Point c Clause 2 Article 10 Decree No. 118/2015/ND-CP
37

Point đ Clause 2 Article 10 Decree No. 118/2015/ND-CP
38
Clause 4 Article 7 Law on Investment 2014
36

16


CONCLUSION OF CHAPTER 1
After presenting the basic legal issues relating to establishment of and capital
contribution to enterprises of foreign investors in accordance with Vietnamese
regulations, the author has been able to draw some conclusions:
Firstly, the concept of foreign investor in the current law has been made
clearer in comparison with the former. Accordingly, the principle of nationality is
the only criterion to define the legal status of foreign investors. It is the fact that
when precisely define whether investors are domestic or foreign, we are then able to
choose the appropriate conditions as well as procedures relating to investment,
particularly establishment of and capital contribution to enterprises of foreign
investors, applied to them.
Secondly, although there are four forms of investment in relation to foreign
investors, establishment of and capital contribution to, purchase of shares, capital
contributions of economic organizations, particularly of enterprises, are the most
chosen forms by foreign investors. In addition, along with the investment in
enterprises of foreign investors, the integration problem of Vietnam shall be
enhanced, and then a lot of socio-economic matters shall be solved, which are able
to boost Vietnam to step towards new heights. Therefore, Vietnamese regulations
relating to investment of foreign investors, specifically regulations on establishment
of and capital contribution to enterprises, hold a crucial role in attracting foreign
investment.
Thirdly, establishment of and capital contribution to enterprises are the initial

steps of foreign investors prior to conducting their investment in order to achieve
their purposes. Nonetheless, along with the international integration, the protection
of Vietnam’s socio-economy as well as domestic investors shall also be taken into
account. Thus, before conducting their investment in the form of establishment of
and capital contribution to enterprises, foreign investors shall comply with
conditions as provided by any international agreements to which the Socialist
Republic of Vietnam is a signatory or Vietnamese regulations.
Due to the limitation of time as well as pages, the author has been only able
to research and present some main matters relating to basic legal issues of
establishment of and capital contribution to enterprises of foreign investors.
However, such issues are considered as a basis, foundation for the author to
continue to research, analyse and assess the other two chapters.

17


CHAPTER 2.

ESTABLISHMENT OF ENTERPRISES OF FOREIGN

INVESTORS
2.1

Regulations
2.1.1
Overview
Under the regime of the LOI 2005, foreign investors investing in Vietnam for

the first time and wishing to establish enterprises must have an investment project
and perform the procedures for investment registration or evaluation of investment

at the State administrative body for investment in order to be issued with an IC,
which shall be concurrently a BRC.39 At that time, such regulation was expected to
be one of the progressives of the LOI 2005, which would help investors to reduce
administrative procedures. However, there have been many shortcomings in
implementing this regulation. Actually, the LOI 2005 has "pinched" the LOE 2005;
for example, an enterprise with an IC cannot go through the procedure of changing
its registration at a BRA due to the fact that these enterprises have not been granted
BRC based on the provisions of the LOE 2005.40 The LOI 2014 and the LOE 2014,
nonetheless, did officially repeal such regulation. Accordingly, foreign investors
wishing to establish an enterprise in Vietnam must be issued an IRC in accordance
with the LOI 2014, followed by the establishment of an enterprise via the ERC in
accordance with the LOE 2014. Many foreign investors recently complain that new
regulations on investment are more cumbersome and complicated due to the fact
instead of having to go to one place to register; now they have to go to two places
with two different types of procedures and forms,41 which could be more obnoxious
for foreign investors in terms of time and cost. This disadvantage, however, must be
balanced, since the procedure to amend an IRC is heavier and takes longer than the
procedure to amend the ERC. Accordingly, the need for foreign investors to get
both IRC and ERC could actually be more beneficial to them because when need to
change an information about the enterprises, they will not have to follow the
procedure to amend the IRC, which is usually cumbersome and subject to more
discretion by the investment licensing authority.42
According to the LOE 2014, the most basic law regulating the types of

39

Clause 1 Article 50 Law on Investment 2005
Nguyen Nhu Chinh (2016), “Assessing some new provisions of the 2014 Law on Enterprises” (“Đánh giá
một số quy định mới trong Luật Doanh nghiệp 2014”), Jurisprudence Journal, Volume 01/2016, p. 5
41

Nguyen Thanh Ha, “New regulations on Investment Certificate: Reform or make it difficult for investors?”
(“Quy định mới về Giấy chứng nhận đầu tư: Cải cách hay làm khó nhà đầu tư?”),
last access on June 6, 2017
42
“Investment Law 2014 – A new life for the Investment Certificate”, o/blog/2014/12/10/investment-law-2014-a-new-life-for-the-investment-certificate, last access on June
7, 2016
40

18


enterprises in Vietnam, enterprises exist in following forms: limited liability
companies, joint stock companies, partnerships and sole proprietorships.
Nonetheless, it should be noticed that sole proprietorships are the type of enterprises
having unlimited liability regime. 43 If such enterprises are established, foreign
investors shall be liable for the debts and obligations of such enterprises with all of
their assets. The LOE 2014 does not expressly prohibit foreign investors from
establishing sole proprietorships; however in fact, the State cannot control and
manage all the assets of foreign investors. Hence, it is very difficult to have a
mechanism to deal satisfactorily in the case of sole proprietorships established by a
foreign investors are at risk. Besides, the LOI 2014 has defined a foreign invested
economic organization as a business whose members or shareholders are foreign
investors. Nevertheless, in the sole proprietorship, there is no definition of a
member or a shareholder but the owner of a sole proprietorship. Thus, the LOI 2014
and the LOE 2014 has implicitly excluded the case that foreign investors are
allowed to invest in the establishment of sole proprietorships. As a result, there is no
regulation and guidance on cases of foreign investors establishing sole
proprietorships and these cases actually do not happen in practice.
Furthermore, it should be noticed that organizations subject to non-juridical
persons are not entitled to establish and manage enterprises in Vietnam, 44 such as

some foreign investment funds. 45 Accordingly, the legal status of such foreign
organization is determined on the basis of the law of the country where
established.46 Such regulation derives from the protection of the rights and interests
of other parties in the business because an organization subject to juridical person
shall have property independent from other natural and juridical persons and bears
liability by recourse to its property.47 With regard to the entity being an organization,
only the entity having the legal status will be able to meet the elements in order to
be held liable for the liabilities arising in business. Therefore, from a human rights
perspective in business, restricting the right of establishment of enterprises without
a legal status is justified.48
43

Clause 1 Article 183 Law on Enterprises 2014
Point đ Clause 2 Article 18 Law on Enterprises 2014
45
Truong Nhat Quang (2016), Regulations on Enterprises – Basic legal issues (Pháp luật về Doanh nghiệp –
Các vấn đề pháp lý cơ bản), Dan Tri Publishing House, p. 97
46
Clause 2 Article 676 Civil Code 2015
47
Point c Clause 1 Article 74 Civil Code 2015
48
Nguyen Van Hung (2015), “Right to establish and contribute capital to enterprises under the Law on
Enterprises 2014 – From the perspective of human rights” (“Quyền thành lập và góp vốn vào doanh nghiệp
theo Luật Doanh nghiệp năm 2014 – Nhìn từ góc độ quyền con người”), Workshop Materials: Law on
Enterprises 2014 and Law on Investment 2014: Innovations for the realization of business freedom of Ho Chi
Minh University of Law, p. 100
44

19