I will explain the basic knowledge of “Vietnam’s foreign capital regulation”. In January 2021, the “Revised Investment Law (61/2020 / QH14)” came into effect in Vietnam. The new investment law, which came into force in 2021, stipulates a negative list that was not clarified by the previous investment law.
As explained in detail in the main text, the negative list in overseas business is a list of prohibited / restricted targets in trade and investment with other countries.
In this text, we call it “Basic knowledge of Vietnam foreign capital regulation”, foreign capital regulation in Vietnamese business, impact of “Revised Investment Law” enforced in January 2021 on Japanese companies, what is the negative list in the first place? I will explain the basics of Vietnam’s foreign capital regulation such as … in an easy-to-understand manner.
Vietnam’s GDP growth rate will reach 2.9% year-on-year in 2020, and Vietnam will continue to grow steadily. In 2020, the United States excluded Vietnam from the list of developing countries, and it is developing so much that it can no longer be called a developing country.
Free trade has been promoted in the world economy because it is thought that countries around the world should cooperate economically. The movement of Vietnam is also increasing, and Vietnam is no exception.
However, from a different point of view, in Vietnam business, it is possible to see that there are opportunities for industries and investments that are not on the negative list mentioned above.
Let’s take this opportunity to deepen our knowledge of foreign capital regulation in Vietnam, a country that is expected to achieve remarkable economic growth in the future.
1. What is foreign capital regulation?
Foreign capital regulation means “regulation of domestic companies’ investment by foreign companies”
Foreign capital regulation is, in a nutshell, “regulation on investment made by foreign companies in domestic companies”.
Foreign capital regulation that regulates investment in domestic companies by foreign capital. Japan’s foreign capital regulations are stipulated in the “Foreign Exchange and Foreign Trade Law (commonly known as the Foreign Exchange Law)”.
Since it is an important regulation for security and economic policy, it is regulated in each country in the world, but the content varies from country to country. It is very important to have a solid understanding of the foreign capital regulations of the countries in which you do business, as you will not be disappointed if you do not know about the suspension of business.
2. Why is foreign capital regulation necessary?
Why is foreign capital regulation necessary?
The reason why foreign capital regulation is necessary is, in a nutshell, “to prevent other countries from robbing our own resources and assets.”
In modern times, free trade is being promoted, and developed countries are free to do foreign transactions in principle, but if foreign trade is completely freed, they will be able to buy important resources and assets of other countries if they have money. As a result, malicious companies and people in other countries may rob resources and assets.
Now called the Fourth Industrial Revolution era, the industrial structure is about to change drastically due to the development of various technologies. With the rise of China in the world economy, the battle for hegemony with the United States has intensified. Countries around the world are reviewing foreign capital regulations to protect their own security and economy. For example, India has tightened foreign capital restrictions aimed at China.
Foreign capital regulations are necessary to protect one’s own country, but if they are tightened more than necessary, they will lag behind international competition. The reason why the world economy has developed so far is that free trade has been promoted, and it is required that each country in the world implements “foreign capital regulation” in an appropriate balance.
3. Why should we focus on foreign capital regulation and deregulation in Vietnam business?
If you read this far, I hope you understand the regulation of foreign capital.
From here, I will explain Vietnam’s foreign capital restrictions, which is the main theme of this textbook.
Negative list enacted in the new investment law that came into effect in 2021
Vietnam is the 150th member of the WTO (World Trade Organization). Since joining the WTO in January 2007, the legal system has been improved and the Common Investment Law and Uni-President Enterprises Law have been enforced. Vietnam, which maintains a high economic growth rate, is also very attractive as a market, and with the dramatic increase in investment freedom, barriers to entry into the Vietnamese market have been removed, and Vietnam’s economic growth will continue to grow in the future. It is thought that it will become a thing.
In Vietnam, where the measures against the new coronavirus are effective, the direct investment of foreign-affiliated companies in Vietnam has remained at the same scale as the previous year even in the case of coronavirus, and we will continue to keep an eye on the Vietnamese market.
The new investment law came into effect on January 1, 2021. Foreign capital regulations change depending on the world situation, so it is very important to keep up-to-date with the latest information on foreign capital regulations and deregulation in Vietnam business.
The new investment law, which just came into force in 2021, provides a negative list. The new investment law will be explained in detail in the next section, but this section will explain the negative list that you should know in order to understand Vietnam’s foreign investment regulations.
What is a negative list?
What is a negative list in the first place? Generally, the “negative list” in overseas business is a list of prohibited / restricted objects in trade and investment with other countries. The antonym of the negative list is the positive list, but this is a list of what is allowed.
As will be described later, in Vietnam, Decree No. 31/2021 / ND-CP, which stipulates the details of the new investment law that came into effect in January 2021, was promulgated in March of the same year and was not enacted under the old investment law. Foreign investment prohibited industries (negative list) have been established.
Negative list can be regarded as “OK if it is an industry / investment other than those listed”
Although it is such a negative list, here I will describe the way of thinking about the negative list in overseas business.
In Japan, there is a strong tendency to take the word negative as negative, and there are many cases in which a positive list such as “this is OK” is emphasized in policies and systems.
This can be seen not only in Japan, but also in European countries and Japan that apply the so-called “civil law”.
On the other hand, countries that apply the so-called “British-American law”, such as the United States, the United Kingdom, and Australia, tend to emphasize the negative list of “this is NG.”
It may be impossible to apply this to trade as it is, but there are various prohibitions on the negative list in trade, but when I saw it, I said, “Is this also something that should not be done …” If you take it negatively, you will miss the chance.
Based on these, why not consider that in Vietnam business, there are opportunities for industries and investments that are not on the negative list?
Not surprisingly, many things are two sides of the same coin. The recognition that investment opportunities are hidden in the negative list is very important in overseas business.
4. What is the impact of Vietnam’s “Revised Investment Law” (enforced in January 2021) on Japanese companies?
Now that you understand the importance of the negative list in Vietnam business, I will explain the “Revised Investment Law (61/2020 / QH14)” that came into effect in January 2021.
“Negative list” enacted in “New Investment Law”
In March, two months after the enforcement of the new investment law, Decree No. 31/2021 / ND-CP, which stipulates the details of the new investment law, was promulgated. Negative list) has been established.
The negative list stipulates 25 businesses that are prohibited from investing by foreign capital, such as press activities, polls, fishing of marine products, judicial administration services, and overseas labor placement.
In addition, 59 businesses such as video production and distribution, insurance, banking, and securities are stipulated as industries that are conditionally permitted to invest by foreign capital.
Prior to this, regarding Vietnam’s foreign capital restrictions, not only the 2014 Investment Law and WTO Commitment, but also other domestic laws and regulations stipulated conditions and restrictions regarding foreign capital investment. As a result, it took time to check all of the multiple laws and regulations, but the fact that the negative list clearly stipulates prohibited / restricted businesses has greatly simplified the preliminary survey.
5. Vietnam’s foreign capital regulation (negative list)
Points to be aware of in Vietnam’s “foreign capital regulation”
A major point in understanding Vietnam’s foreign investment regulations is that the old investment law has been abolished and the new investment law has been in force since January 2021.
Under the old Investment Law, the Vietnamese government did not create a negative list summarizing foreign capital regulations, and as mentioned above, it was very complicated because it took time to check multiple individual laws and treaties in order to finalize foreign capital regulations. It was something like that.
In addition, the new investment law has changed the conditional investment fields that apply to both domestic and foreign capital. For example, the debt collection business, which was a conditional investment field under the old investment law, is now a prohibited investment field under the new investment law. Please note that what was previously allowed to invest in foreign capital may be banned.
Major areas of regulation under the revised Investment Law
■ Investment prohibited areas
1. Business related to narcotic substances
2. Business related to various chemical substances and minerals (specified in Appendix 2 of the New Common Investment Law)
3. Business related to endangered wild animals, plants and animal specimens
4. Prostitution business
5. Buying and selling of human body, human body tissue, and parts
6. Business activities related to human asexual reproduction
7. Buying and selling firecrackers
8. Debt collection business
■ Conditional investment areas
There are 227 conditional investment fields, and almost all service fields that foreign-affiliated companies will consider investing in, such as security business, lawyer business, insurance and logistics, real estate business and cosmetics production, are conditional investment fields. ..
Please refer to the JETRO website below for details on specific industries.
Capital regulation and investment ratio of foreign companies in Vietnam
■ Capital regulation
In Vietnam, statutory capital is stipulated in some conditional management investment fields such as banking, insurance, and aviation services.
■ Investment ratio
If you are a public company and fall into the conditional investment field, the shareholding ratio that foreign capital can acquire is limited to 49%.
Whether foreign companies can own land in Vietnam
In Vietnam, the land is under the control of the government, so foreigners and foreign companies are not allowed to own the land. If you want to use the land, you need to obtain the land use right from the Vietnamese government, but only the organizations with diplomatic functions such as consular agencies are eligible for the land use right. However, it is possible to rent land from someone who has the right to use the land.
In addition, foreign-affiliated companies such as 100% foreign-affiliated companies and joint ventures can acquire land use rights only in the following cases.
・ When accepting land use rights as in-kind contributions
・ When the government assigns land use rights when implementing an investment project to build a residential house for sale or rent.
・ When acquiring land use rights by acquiring a company that holds land use rights
・ When a local company in Vietnam has the right to use the land and this company receives a foreign capital investment and becomes a foreign-affiliated company
・ When renting land use rights from the state
・ When acquiring ancillary assets of land rented annually from the Vietnamese government
6.Introducing excellent overseas expansion support companies
Introducing the perfect Vietnam expansion support company for your company
This time, as “Vietnam’s foreign capital regulation”, I explained from the basic knowledge of foreign capital regulation, foreign capital regulation in Vietnam business, “Revised Investment Law” enforced in January 2021 and so on.
Vietnam has been successful in responding quickly to the new coronavirus infection and has kept the number of deaths extremely low in the world, but as of June 2021, it was announced that a hybrid mutant strain of Indian type and British type was found. , I still can’t release the tension.
However, Vietnam is also called an honor student for corona countermeasures because it is quicker and more accurate than other countries. The economic damage caused by the spread of the new coronavirus infection will not be so great, and it is expected that the economy will continue to grow steadily in the future.
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