1. Concept

According to Clause 21 Article 3 of the 2020 Investment Law, an economic organization is an organization established and operating in accordance with the provisions of Vietnamese law, including enterprises, cooperatives, cooperative unions and other organizations conducting business investment activities.

From the above provisions, it can be understood that economic organizations must be established in accordance with the provisions of law; carry out production and business activities; has its own name, has its own property, has a trading office; have an organizational and operational charter.

Pursuant to Article 21 of the 2020 Investment Law, there are 05 forms of investment in Vietnam including:

• Invest in the establishment of economic organizations.
• Investment in capital contribution, purchase of shares, purchase of contributed capital.
• Implementation of investment projects.
• Investment in the form of BCC contract.
• New forms of investment and types of economic organizations according to the Government’s regulations.

2. Conditions for establishment of economic organizations in Vietnam

Supplementing market access conditions of foreign investors

Point b, Clause 1, Article 22 of the 2020 Investment Law stipulates: Foreign investors establishing economic organizations must satisfy market access conditions for foreign investors.

Market access conditions for foreign investors will be detailed by the Government in order to improve transparency and feasibility in applying Vietnam’s commitments on market opening under new-generation free trade agreements. Basically, the conditions set for foreign investors will include:

• The percentage of ownership of charter capital of foreign investors in economic organizations.
• Form of investment.
• Scope of investment activities.
• Competence of investors; partners engaged in the implementation of investment activities;
• Other conditions are based on the characteristics of each specific industry or profession.

Encourage the establishment of innovative start-up small and medium-sized enterprises

The next condition for foreign investors to establish economic organizations in Vietnam pursuant to Point c, Clause 1, Article 22 of the 2020 Investment Law is to have investment projects, carry out procedures for issuance and adjustment of investment registration certificates, except for the case of establishing innovative start-up small and medium-sized enterprises and innovative start-up investment funds in accordance with the law on support for small and medium enterprises.

Thus, in the above two exceptions, foreign investors do not need to have investment projects or procedures for issuance and adjustment of the Investment Registration Certificate. That means foreign investors only need to note 02 things:

• Look up the list of industries and trades restricted from market access issued by the Government;
• Meet the basic conditions on: charter capital ratio; form of investment; scope of investment activities; The capacity of investors and partners participating in investment activities is to be able to invest in the form of establishing economic organizations.

Emphasizing the legal status of the newly established economic organization

Clause 2, Article 22 of the 2020 Investment Law stipulates: From the date of issuance of the Certificate of Business Registration or other papers of equivalent legal validity, economic organizations established by foreign investors are investors implementing investment projects as prescribed in the Investment Registration Certificate.

It is also important to note for investors that activities related to investment projects such as finance need to be separated between investors and newly established economic organizations to avoid losses during future operations.

The time of establishment of rights and obligations prescribed by law for investment projects of newly established economic organizations is the time of issuance of an enterprise registration certificate or other legal papers of equivalent validity. The time of issuance of the Certificate of Business Registration and the time of issuance of the Investment Registration Certificate may be two different times.

Therefore, when establishing a new economic organization, foreign investors need to clearly determine the time of issuance of the Certificate of Business Registration to carry out activities to implement investment projects in practice.

3. Conditions for establishment of economic organizations by foreign investors

Accordingly, before establishing an economic organization, foreign investors must have investment projects, carry out procedures for issuance of investment registration certificates and must satisfy the following conditions:

• Foreign investors must have investment projects;
• Carry out procedures for issuance and adjustment of investment registration certificates, except for the case of establishment of innovative start-up small and medium-sized enterprises and innovative start-up investment funds in accordance with the law on supporting small and medium-sized enterprises.
• The charter capital of an economic organization established by a foreign investor for the implementation of an investment project is not necessarily equal to the investment capital of the investment project.

Compared to the 2014 Investment Law, the current Investment Law has deregulated restrictions on charter capital, which has facilitated the increasing attraction of foreign investors into Vietnam.

According to the provisions of Article 63 of Decree 31/2021/ND-CP, except for the case specified in Article 67 of this Decree, foreign investors shall establish economic organizations and implement investment projects according to the following procedures:

1. Except for the case specified in Article 67 of this Decree, foreign investors shall establish economic organizations and implement investment projects according to the following procedures:
2. a)In case of implementation of a new investment project, the foreign investor shall carry out the procedures for approval of investment policies, grant the Investment Registration Certificate for the new investment project and carry out procedures for establishing an economic organization in accordance with the provisions of law corresponding to each type of economic organization;
3. b)In case of receiving the transfer of an investment project and establishing an economic organization, the foreign investor shall carry out the procedures for issuance of an Investment Registration Certificate (in case such project is not granted an Investment Registration Certificate) or amend the Investment Registration Certificate (in case such project has been granted an Investment Registration Certificate private) and carry out procedures for establishing economic organizations in accordance with the provisions of law corresponding to each type of economic organization.
4. Dossiers, order and procedures for establishment of economic organizations shall comply with the provisions of the law on enterprises or other laws corresponding to each type of economic organization.
5. The charter capital of an economic organization established by a foreign investor for the implementation of an investment project is not necessarily equal to the investment capital of the investment project. Economic organizations established by foreign investors shall contribute capital and mobilize other capital sources for the implementation of investment projects according to the schedule specified in the Investment Registration Certificate.

Above is the content of KALF’s advice on the establishment of new economic organizations of foreign investors. All of our above advice opinions are based on applicable legal provisions. If you have any questions or requests about legal issues, please contact us for timely answers.