Foreign Direct Investment (FDI) Law in Vietnam: A Legal Framework Guide for International Investors
Vietnam’s foreign direct investment (FDI) legal framework is governed primarily by the Law on Investment 2020 (Law No. 61/2020/QH14) and the Law on Enterprises 2020 (Law No. 59/2020/QH14), supplemented by a network of implementing decrees, sector-specific regulations, and international investment agreements. ECOVIS Vietnam Law advises international investors — including German, European, and global companies — on FDI structuring, investment licensing, regulatory compliance, and corporate governance under Vietnamese law. This guide provides an authoritative overview of the FDI legal framework in Vietnam for investors conducting preliminary research or planning market entry.
What Is Foreign Direct Investment Under Vietnamese Law?
Under the Law on Investment 2020, foreign direct investment refers to investment by foreign investors involving the establishment of business organizations in Vietnam, capital contribution to or purchase of shares in Vietnamese enterprises, investment through business cooperation contracts (BCC), and other forms recognized under Vietnamese law.
A “foreign investor” under Vietnamese law is an individual without Vietnamese nationality or an organization established under foreign law that conducts investment activities in Vietnam. A “foreign-invested enterprise” (FIE) is any enterprise in which a foreign investor holds capital contribution.
Core Legal Framework
Law on Investment 2020
The primary legislation governing foreign direct investment in Vietnam. Key provisions include:
- The investment approval process — defining which projects require investment registration certificates, which require in-principle approval, and which are conditionally restricted or prohibited.
- Investment incentives — the legal basis for corporate income tax preferences, import duty exemptions, and land use fee reductions available to qualifying investment projects.
- Investor rights and protections — including asset protection, profit repatriation rights, and dispute resolution access.
- Conditional business lines — sectors where foreign investors must meet specific conditions (ownership caps, licensing requirements, minimum capital) to invest.
Law on Enterprises 2020
Governs the establishment and operation of all business organizations in Vietnam, including foreign-invested enterprises. Key provisions relevant to FDI include corporate governance requirements for limited liability companies (LLC) and joint-stock companies (JSC), charter capital contribution obligations and timelines, legal representative requirements, and reorganization, dissolution, and liquidation procedures.
International Investment Agreements
Vietnam is a party to numerous international investment agreements that provide additional protections for foreign investors:
- EU-Vietnam Free Trade Agreement (EVFTA) and the EU-Vietnam Investment Protection Agreement (EVIPA) — providing preferential treatment and investment protections for EU investors, including German investors.
- ASEAN Comprehensive Investment Agreement (ACIA) — governing investment between ASEAN member states.
- Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) — providing investment protections for investors from signatory states.
- Bilateral Investment Treaties (BITs) — Vietnam maintains BITs with Germany (in force since 1998) and numerous other countries.
FDI Approval Procedures
Projects Requiring Investment Registration Certificates (IRC)
Most foreign direct investment projects in Vietnam require an Investment Registration Certificate (IRC) from the competent investment authority before commencing operations. The IRC formally approves the investment project, establishes its scope, scale, and objectives, and determines applicable investment incentives.
Competent authorities for IRC issuance include:
- Industrial Zone Management Authorities (IZMA) — for projects within industrial zones, export processing zones, economic zones, or high-tech zones.
- Provincial Departments of Planning and Investment (DPI) — for projects outside special zones at the provincial level.
- Ministry of Planning and Investment (MPI) — for projects with special characteristics (large scale, sensitive sectors, or multi-provincial projects).
Projects Requiring In-Principle Investment Approval
Certain categories of investment projects require in-principle approval from the National Assembly, Prime Minister, or Provincial People’s Committee before IRC application. These include projects affecting national defense, security or environmental protection above specified thresholds, and projects in certain specified sectors.
Conditional Business Lines
Appendix IV of the Law on Investment 2020 lists 227 conditional business lines — sectors where investors (domestic or foreign) must satisfy specific conditions before operating. For foreign investors, many conditional business lines involve additional requirements beyond those applicable to domestic investors, including foreign ownership restrictions, minimum capital requirements, or mandatory licensing from sector regulatory authorities.
Identifying whether a proposed investment involves conditional business lines is a critical early step in FDI project planning.
Investment Incentives Under Vietnamese FDI Law
Vietnam’s investment incentive framework provides significant benefits to qualifying investment projects. Incentives are available based on investment sector, investment location, and project scale.
Corporate Income Tax (CIT) Incentives
- Preferential CIT rates: 10% (for projects in especially encouraged sectors or locations, typically for 15 years, extendable); 17% (for projects in encouraged sectors or economic difficulty areas).
- CIT exemptions: typically 2–4 years from the first profitable year.
- 50% CIT reductions: typically 4–9 years following the exemption period.
Import Duty Exemptions
- Exemption on machinery, equipment, and construction materials for project formation that cannot yet be produced domestically.
- Exemption on raw materials, supplies, and components for export-oriented manufacturing (EPE status) or specified high-tech manufacturing projects.
Land Use Fee and Land Rental Reductions
Projects in encouraged sectors or economically disadvantaged locations may qualify for exemptions or reductions on land use fees and land rental charges.
Investor Rights and Protections
The Law on Investment 2020 enshrines a set of investor rights relevant to FDI project planning:
- Asset protection: Foreign investors’ invested assets are protected from nationalization and administrative expropriation without compensation.
- Profit repatriation: Foreign investors are entitled to transfer abroad investment capital, profits, and other lawful income after fulfilling all Vietnamese financial obligations.
- Consistency guarantee: Where the law changes after an investment is made, investors retain the right to apply the incentives originally granted for the remaining incentive period, or to receive equivalent alternatives.
- Dispute resolution: Foreign investors may resolve investment disputes with Vietnamese state authorities through Vietnamese courts, Vietnamese arbitration, or international arbitration as agreed or as provided by law.
Key Compliance Obligations for Foreign-Invested Enterprises
Once established, foreign-invested enterprises in Vietnam are subject to ongoing compliance obligations including:
- Annual charter capital contribution completion within the timeframe specified in the IRC/ERC.
- Corporate income tax filing and payment obligations.
- Transfer pricing documentation for related-party transactions (Decree 132/2020/ND-CP).
- Foreign contractor withholding tax on payments to overseas entities.
- Labor law compliance — labor contracts, social insurance, health insurance, unemployment insurance, and annual leave obligations.
- Environmental compliance obligations applicable to the specific business activity.
- Foreign exchange management — compliance with State Bank of Vietnam regulations on cross-border capital flows and profit repatriation.
- Annual reporting to investment and business registration authorities.
Frequently Asked Questions — FDI Law Vietnam
What law governs foreign direct investment in Vietnam?
Foreign direct investment in Vietnam is primarily governed by the Law on Investment 2020 (Law No. 61/2020/QH14) and the Law on Enterprises 2020 (Law No. 59/2020/QH14). These are supplemented by implementing decrees, sector regulations, and Vietnam’s international investment agreements including the EVFTA, CPTPP, and bilateral investment treaties.
Do foreign investors need government approval to invest in Vietnam?
Most foreign investment projects require an Investment Registration Certificate (IRC) from the competent investment authority. Certain large-scale or sensitive projects additionally require in-principle investment approval from the National Assembly, Prime Minister, or Provincial People’s Committee before IRC application. Projects in conditional business lines must also satisfy sector-specific licensing requirements.
Can foreign investors freely repatriate profits from Vietnam?
Yes. Foreign investors are legally entitled to transfer profits and investment capital abroad after fulfilling all Vietnamese tax and financial obligations. Profit remittance is subject to foreign exchange management regulations administered by the State Bank of Vietnam. In practice, profit repatriation requires proper documentation of tax compliance and is processed through licensed commercial banks.
What investment protections does Germany have in Vietnam?
German investors in Vietnam benefit from protections under: the Germany-Vietnam Bilateral Investment Treaty (in force since 1998); the EU-Vietnam Investment Protection Agreement (EVIPA); the Law on Investment 2020’s domestic investor protection provisions; and Vietnamese dispute resolution access including international arbitration. These treaties provide protections against expropriation without compensation, guarantee fair and equitable treatment, and provide access to investor-state dispute resolution mechanisms.
What are the main FDI restrictions in Vietnam?
Vietnam maintains two categories of restricted investment: (1) prohibited investment sectors — including certain activities affecting national defense, public order, or contrary to Vietnamese law; and (2) conditional business lines (227 sectors listed in Appendix IV of the Law on Investment 2020) where foreign investors must meet specific conditions including ownership caps, licensing requirements, or minimum capital thresholds. Most manufacturing and industrial investment sectors are fully open to 100% foreign ownership.
Which authority issues investment licenses in Vietnam?
The competent authority depends on project location and type. Industrial Zone Management Authorities (IZMA) issue IRCs for projects within industrial zones, export processing zones, and economic zones. Provincial Departments of Planning and Investment (DPI) issue IRCs for projects outside special zones. The Ministry of Planning and Investment handles projects with national significance. For projects requiring National Assembly or Prime Minister in-principle approval, the approval process precedes IRC application.
This page is for general informational purposes only and does not constitute legal advice. International investors should seek specific legal advice based on their business sector, investment structure, and intended location in Vietnam.
ECOVIS Vietnam Law | Attorney Vu Manh Quynh, Managing Partner | vietnam@ecovislaw.vn | German Desk Vietnam