Entering Vietnam the Smart Way: How to Select the Optimal Investment Structure

Introduction: 

Vietnam remains a comparatively attractive investment destination for foreign investors despite global economic challenges, offering Southeast Asia's fastest-growing consumer market and a strategic position in regional supply chains. However, successful market entry requires careful navigation of Vietnam's regulatory framework, particularly the Law on Investment 2020 (Law No. 61/2020/QH14), which took effect on January 1, 2021.

Understanding the available investment forms is not merely a procedural necessity — it is a strategic decision that will determine your operational flexibility, tax efficiency, compliance obligations, and ultimately, your competitive advantage in the Vietnamese market.

The Four Primary Investment Pathways for Foreign Investors

The Law on Investment 2020 provides foreign investors with four principal structures for conducting business activities in Vietnam, each designed to accommodate different business objectives, capital requirements, and risk profiles.

1. Investment through Establishment of a Business Organization

When to Choose This Route:

This is the most common and versatile investment form, appropriate for foreign investors seeking full operational control and long-term market presence in Vietnam. Foreign investors shall execute investment projects via a business organization established in accordance with Vietnamese law, except for cases involving capital contribution, share purchases, or business cooperation contracts.

Key Requirements and Procedures:

• Investment Registration Certificate (IRC) Requirement: Foreign investors must obtain an IRC before establishing a business organization, demonstrating commitment to an investment project with defined objectives, scale, and timeline.

• The "50% Threshold" Rule: The foreign investor threshold has been lowered from 51% equity to 50%, meaning that business organizations with more than 50% foreign ownership are classified as Foreign-Invested Business Organizations (FIBOs) and subject to additional investment procedures.

• Market Access Compliance: Except for business lines on the List of Restricted Sectors, Foreign Investors are entitled to market access with the same treatment as domestic investors. This represents a significant shift from the previous "positive list" approach to a more permissive "negative list" system.

Available Entity Forms:

Foreign investors may establish:

• Limited liability companies (single-member or multi-member)

• Joint-stock companies

• Partnerships

• Private enterprises (subject to specific conditions)

Each structure offers distinct governance features, capital requirements, and operational characteristics that should align with your business model and expansion strategy.

2. Investment through Capital Contribution or Purchase of Shares/Stakes (M&A Route)

When to Choose This Route:

This pathway is ideal for foreign investors seeking to:

• Enter the market quickly without establishing new operations

• Access existing distribution networks, licenses, and market relationships

• Participate in Vietnamese enterprises with established market position

• Gradually increase market presence through strategic acquisitions

Notably, IRC Not Required:

Unlike greenfield investments, capital contribution or share purchase transactions generally do not require an IRC, significantly streamlining the entry process. However, this advantage comes with specific registration requirements.

Mandatory Pre-Transaction Registration:

The 2020 Law on Investment requires foreign investment in the form of capital contribution or purchase of shares to satisfy conditions regarding market access, national defense and security, and land use rights. Foreign investors must register their capital contribution or share purchase prior to the change of members or shareholders in three critical scenarios:

1. Restricted Business Lines: When the transaction increases foreign ownership in an enterprise operating in sectors with conditional market access for foreign investors.

2. Crossing the 50% Threshold: When the transaction results in foreign investors or FIBOs holding more than 50% of charter capital—including increases from ≤50% to >50%, or any increase while already above 50%.

3. Sensitive Geographic Locations: When investing in enterprises holding land use rights on islands, border areas, or coastal communes, or in areas affecting national defense and security.

National Defense and Security Review:

An approval from the Ministry of National Defence and Ministry of Public Security must be obtained for foreign investors to implement investment projects located in National Security Sensitive Areas or acquire shares in enterprises with land use rights in such areas. The Law on Investment does not define "national defense and security", granting authorities broad discretion in review processes.

Ownership Limitations:

Foreign investors may own an indefinite amount of charter capital in business organizations, subject to exceptions for:

• Listed companies, public companies, and securities organizations (governed by securities law)

• State-owned enterprises undergoing equitization (subject to equitization regulations)

• Enterprises operating in restricted sectors with specific foreign ownership caps

3. Investment through Execution of an Investment Project

When to Choose This Route:

This structure suits foreign investors undertaking specific, time-bound projects rather than establishing permanent business entities. Common applications include:

• Infrastructure development projects

• Real estate development ventures

• Industrial or manufacturing facilities

• Build-operate-transfer (BOT) arrangements

Project-Based IRC:

Unlike entity-focused investments, project-based investments require an IRC specifically for the investment project. The IRC defines project parameters including:

• Project objectives and scope

• Total investment capital and disbursement schedule

• Project location and land requirements

• Project duration and milestones

• Investment incentives (if applicable)

Investment Guideline Approval (IGA): 

Large-scale or sensitive projects require pre-approval from competent authorities before IRC issuance:

• National Assembly Approval: Nuclear power plants, large-scale forest land repurposing (50-1,000 hectares), wet rice land conversion (≥500 hectares), projects relocating 20,000-50,000 people, or projects requiring special mechanisms.

• Prime Minister Approval: Airport/port construction, new passenger air transport, petroleum processing, casino/betting services, large residential developments, and telecommunications infrastructure projects by foreign investors.

• Provincial People's Committee Approval: Projects requiring state land allocation without auction, golf course construction, and foreign investment projects on islands, border areas, coastal communes, or areas affecting national defense and security.

Strategic Considerations:

Project-based investments offer focused objectives and defined timelines but provide less operational flexibility than entity-based structures. They are particularly suitable when your investment thesis centers on a specific development opportunity rather than ongoing market operations.

4. Investment through Business Cooperation Contracts (BCCs)

When to Choose This Route:

BCCs provide a contractual framework for collaboration between parties without creating a separate legal entity. This structure is particularly valuable for:

• Joint ventures between foreign and Vietnamese partners

• Technology transfer arrangements

• Production-sharing agreements

• Time-limited collaborative projects

Key Characteristics:

• No Separate Legal Entity: The BCC operates based on contractual obligations rather than corporate governance structures, avoiding entity establishment complexities.

• Flexible Profit Distribution: Parties may negotiate profit-sharing arrangements based on contributions, risk allocation, and commercial objectives rather than equity ownership.

• Limited Regulatory Disclosure: While BCCs must be registered, they typically face fewer ongoing compliance requirements than established business organizations.

Contractual Requirements:

A BCC must specify:

• Party identification and authorized representatives

• Cooperation objectives and scope

• Capital contributions and resource allocation

• Management structure and decision-making authority

• Profit and loss distribution mechanisms

• Dispute resolution procedures

• Contract duration and termination conditions

Strategic Limitations:

While BCCs offer flexibility and limited liability exposure, they also present challenges:

• Complex dispute resolution in absence of corporate governance framework

• Limited ability to hold assets or licenses in contract name

• Potentially unfavorable treatment for investment incentives

• Partnership dependency and coordination costs

Critical Compliance Considerations: The Negative List System

The Law on Investment 2020 follows a more permissive "negative list" approach than previous iterations, which blocked market access except in listed sectors. Understanding this system is essential for investment structuring.

Prohibited Business Lines for Foreign Investors

Foreign investors are completely barred from 18 specific sectors, including:

• Press activities and news collection

• Marine life catching and harvesting

• Investigation and security services

• Public postal services

• Import and dismantlement of used seagoing ships

• Direct garbage collection from households

• Military weapons and equipment manufacturing

• Natural forest survey, assessment, and harvesting

Under the Law on Investment 2020, debt collection is newly added to the list of restricted sectors, effective from January 1, 2021.

Restricted Business Lines (Conditional Market Access)

Foreign investors may access restricted sectors only by satisfying published conditions. Key restricted sectors include:

• Media production and distribution

• Broadcasting services

• Banking, insurance, and securities

• Telecommunications

• Education services

• Transportation (rail, air, maritime, road)

• Healthcare services

• Legal and accounting services

• Mining and natural resource extraction

Conditions may include:

• Maximum foreign ownership percentages

• Requirements for Vietnamese partners

• Minimum capital requirements

• Technical capability demonstrations

• Specific licensing requirements

Anti-Circumvention Provisions

The Law on Investment 2020 tightens rules regarding the use of Vietnamese nominees, and investments undertaken "on the basis of a counterfeit civil transaction" can be terminated by the government. Structured arrangements designed to circumvent foreign ownership restrictions face significant regulatory and commercial risks.

Strategic Decision Framework: Choosing Your Investment Structure

Selecting the optimal investment form requires careful analysis of multiple factors:

Business Objective Alignment

Question: What is your primary investment objective?

• Long-term market presence: Establishment of business organization

• Strategic acquisition: Capital contribution/share purchase

• Specific project development: Project-based investment

• Collaborative arrangement: Business cooperation contract

Operational Control Requirements

Question: What level of management control do you require?

• Full control: 100% foreign-owned enterprise (where permitted)

• Shared governance: Joint venture or partnership structure

• Contractual coordination: Business cooperation contract

Capital and Timeline Considerations

Question: What are your capital deployment capabilities and entry timeline?

• Significant upfront capital, patient timeline: Greenfield establishment

• Accelerated market entry: M&A transaction

• Staged capital deployment: Project-based or BCC structure

Regulatory Pathway Complexity

Question: How does your business activity interact with regulatory restrictions?

• Unrestricted sector: Maximum structural flexibility

• Restricted sector: Compliance-driven structure selection

• Prohibited sector: Alternative market entry strategy required

Tax and Incentive Optimization

Question: Does your investment qualify for preferential treatment?

Investment incentives (corporate income tax reductions, import duty exemptions, land rent reductions) are available based on:

• Business sector (high-tech, R&D, renewable energy, digital technology)

• Geographic location (disadvantaged areas, industrial parks, economic zones)

• Project scale (large-scale projects with minimum VND 6,000 billion capital)

• Social impact (employment generation, disability inclusion)

Structure selection significantly impacts incentive eligibility and optimization.

Practical Implementation Roadmap

Phase 1: Strategic Assessment (Weeks 1-4)

1. Conduct market opportunity analysis

2. Evaluate business activity against regulatory restrictions

3. Assess partnership opportunities and requirements

4. Determine optimal investment structure

5. Develop preliminary investment budget and timeline

Phase 2: Legal and Regulatory Preparation (Weeks 5-12)

1. Retain qualified Vietnamese legal counsel

2. Conduct comprehensive regulatory due diligence

3. Prepare investment project documentation

4. Identify and engage with competent authorities

5. Obtain necessary preliminary approvals (if required)

Phase 3: Formal Registration (Weeks 13-25)

1. Submit IRC application or registration of capital contribution

2. Respond to authority inquiries and supplement documentation

3. Obtain IRC or registration confirmation

4. Register enterprise (Enterprise Registration Certificate)

5. Complete post-licensing requirements (tax registration, seal carving, etc.)

Phase 4: Operational Commencement (Weeks 26+)

1. Establish banking relationships and capital transfers

2. Secure business premises and operational infrastructure

3. Obtain sector-specific licenses (if required)

4. Recruit management team and local workforce

5. Initiate commercial operations

Timeline Variables:

Actual implementation timelines vary significantly based on:

• Investment structure complexity

• Sector-specific requirements

• Local authority efficiency and interpretation

• Documentation completeness and quality

• Need for Investment Guideline Approval

Conclusion: Strategic Structure Selection as Competitive Advantage

The investment structure you select is not merely an administrative formality—it establishes the foundation for your entire Vietnamese operation. The right structure enables:

• Operational Efficiency: Alignment between legal structure and business model

• Regulatory Compliance: Sustainable operations within Vietnamese legal framework

• Tax Optimization: Maximum utilization of available incentives

• Commercial Flexibility: Ability to adapt to market evolution

• Strategic Positioning: Competitive advantage through structural efficiency

Vietnam's Law on Investment 2020 represents a more permissive regulatory environment than previous frameworks, creating expanded opportunities for foreign investors. However, successful market entry requires a sophisticated understanding of available structures, regulatory requirements, and strategic implications.

At Van Pham LLC, we bring deep expertise in Vietnamese investment law, having successfully structured and implemented foreign investment across all major sectors and investment forms. We provide comprehensive advisory services from initial market assessment through operational commencement, ensuring your investment structure optimally serves your business objectives while maintaining full regulatory compliance.

Please do not hesitate to direct your concerns for strategic consultation on structuring your Vietnam investment to our email at info@vanphamllc.com or book a free consulting call through this link.

Disclaimer: This article provides general information and does not constitute legal advice. Specific investment decisions should be made in consultation with qualified legal counsel in the context of your particular circumstances and objectives.