WHEN MUST FOREIGN INVESTORS ESTABLISH AN ECONOMIC ORGANIZATION?

Question: In which cases are foreign investors required to establish an economic organization.

Gattaca Law attorney answers:

According to Clauses 1 and 2 of Article 23 of the 2020 Investment Law, which regulates the implementation of investment activities by economic organizations with foreign capital:

Investment activities of an economic organization with foreign investment capital

a) A foreign investor holds over 50% of the charter capital, or a majority of the general partners are foreign individuals in the case of a partnership;
b) An economic organization as defined in point a of this clause holds over 50% of the charter capital;
c) A foreign investor and an economic organization as defined in point a of this clause hold over 50% of the charter capital.

2. Economic organizations not falling under points a, b, and c of Clause 1 of this Article follow the conditions and investment procedures applicable to domestic investors when investing in establishing another economic organization, investing in capital contribution, purchasing shares, acquiring a capital contribution of another economic organization, or investing under a BCC contract.

3. An economic organization with foreign investment capital already established in Vietnam, if it has a new investment project, can carry out the procedures for implementing that project without necessarily establishing a new economic organization.

Thus, as regulated above, an economic organization with foreign investment capital already established in Vietnam, if it has a new investment project, may implement that project without needing to establish a new economic organization.

Foreign investors must establish economic organizations as regulated in Article 22 of the 2020 Investment Law as follows:

• Domestic investors establish economic organizations according to the laws on enterprises and corresponding laws for each type of economic organization;
• Foreign investors must meet the market access conditions applicable to foreign investors as regulated in Article 9 of the 2020 Investment Law to establish economic organizations;
• Before establishing an economic organization, foreign investors must have an investment project and follow the procedures for obtaining or adjusting the Investment Registration Certificate, except in cases of establishing small and medium-sized enterprises in innovative startups or venture capital funds as regulated by the law on supporting small and medium-sized enterprises.

From the date the Enterprise Registration Certificate or another equivalent legal document is issued, the economic organization established by foreign investors is considered the investor and will implement the investment project as regulated in the Investment Registration Certificate.

(Source: Vietnam Investment Guidebook)