Law on Investment 2020 – Clearer but Stricter Conditions For Foreign Investors

Law on Investment 2020 – Clearer but Stricter Conditions For Foreign Investors

On 17 June 2020, the National Assembly of Vietnam passed the Law on Investment (LOI 2020), five years after the current Law on Investment 2014 (LOI 2014) came into effect.

The LOI 2020 takes effect from 1 January 2021, but many provisions of this new law reflect policy movements introduced more than a year ago in Politburo Resolution 50/NQ-TW, dated 20 August 2019 (Resolution 50). With a focus on foreign investment policy through 2030, Resolution 50 was a special effort to help make Vietnam more selective in attracting foreign investments.

Vietnam Ally Law

LOI 2020 provides significant changes in terms of investment conditions, especially those applicable to foreign investors. For such investors, the following is a short summary of the most notable changes introduced by the law:

  1. Market entry conditions for foreign investors clearer, but potentially subject to quicker changes.

The LOI 2020 adds new provisions on market entry conditions for foreign investors, including the foreign ownership ratio in a company based on the company’s charter capital, investment method, scope of investment/ operation, and the investor’s capacity and business partners.

  1. Lowered foreign ownership threshold for local investor status.

The LOI 2020 decreases the threshold of foreign ownership from 51% (as in the LOI 2014) to 50%. This makes it more difficult for foreign investors to take management control in a joint-venture company while also taking advantage of investment conditions applicable to local investors.

  1. Foreign investments face more restrictions due to national defense and security.

Following Resolution 50, the LOI 2020 has tightened the requirements for all investors to ensure national defense and security prior to their investment and to meet specific conditions throughout the entire investment term.

  1. Nominee arrangements face their highest risk ever.

Resolution 50 calls for improvement of the domestic legal system to help tackle shadow investment (i.e., using nominee arrangements in areas where foreign investments are restricted). Vietnamese authorities are now vested with the right to terminate an investment project if the investors are deemed to have conducted their activities via sham transactions as defined under the Civil Code 2015 of Vietnam.

  1. Grounds for termination of investment projects made clearer and adjusted.

The LOI 2020 clearly differentiates two groups of circumstances for termination of an investment project: those induced by the investors and those decided by the licensing authorities.

Click here to read the full blogpost on Vietnam Law Insight by Mr. Bui Ngoc Hong of Ally Law member firm LNT & Partners.

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