The Communist Party’s and Renovation (Doi Moi) policy in 1986 has been the catalyst for significant changes in Vietnam’s economic growth, political stability, investment and legal environments, and international relationships in recent years. Yet despite the many changes that have already occurred, Vietnam is still a country with significant growth potential. Its economy is still relatively small and regulated by regional standards, but this is expected to gradually change. Vietnamese companies and individuals are quickly acquiring the skills and knowledge they need to compete in the international market. By combining these new skills with Vietnam’s abundance of natural resources (including labour) Vietnam is certain to outpace the growth of its regional neighbors for some time to come.
Other major economic events over the last few years include:
- Becoming a member of the Associations of South East Asian Nations (ASEAN) in July 1995, ASEAN Free Trade Area (AFTA) in January 1996, and Asia Pacific Economic Co-operation (APEC) in 1998
- The passing of the Enterprise Law in 1999 has legitimized the many private business that exist within the country and is a strong signal of the government’s support of private enterprises.
- Opening the country’s first stock exchange in Ho Chi Minh City as the commercial hub of the country in July 2000.
- The lifting of the US Trade embargo in 1994 and the US Bilateral Trade Agreements (BTA) took effect since 11 December 2000. This agreement is expected to create major opportunities for foreign investors in the future.
Foreign Direct Investment
Under the Law on Foreign Investment, a foreign organization or individual can establish business activities in Vietnam under one of three types of investment:
Joint Venture is a legal entity established under a contract between two or more parties (at least one foreign party and one local party) to carry out an investment activity in Vietnam under the form of a limited liability company. Each party is only liable for the JV’s obligations to the extent of the amount of their committed capital.
The legal capital (contributed equity) of a joint venture company must be at least 30% of the investment capital (contributed equity plus long term debt). Furthermore, the foreign parties’ contribution to legal capital cannot be less than 30% of total legal capital.
JV’s operations are managed by the General Director who is appointed by the Board of Management, BoM. The Board of Management is made up of representatives of all the owners in proportion to the amounts of capital contributed to the JV. If the JV is owned by two parties, each party must appoint at least two representatives to the Board of Management. Where a JV has more than two owners each party must have at least one representative on the BoM.
If a JV is established between a Vietnamese party and several foreign parties, or a foreign party and several Vietnamese parties, the minor party has the right to appoint at least two representatives to the BoM.
A new JV may be established by an existing JV partnering with another foreign investor or Vietnamese enterprise. In this situation the existing JV must have at least two representatives on the BoM of the new JV, one of which must be appointed by the Vietnamese party of the existing JV.
All parties may contribute legal capital in the form of cash, property and technical know-how. Vietnamese parties may also contribute to legal capital in the form of land use rights.
The Law on Promotion of Domestic Investment and Enterprise Law permit a foreign individual(s) possessing a Permanent Residence Certificate issued by relevant Vietnamese authorities to contribute capital or acquire shares in one of the following types of Vietnamese entities:
There are two types of limited liability companies – one member companies, and two or more (but not exceeding 50) member companies. Owners are only liable for the company’s obligations to the extent of their contributed capital. Limited liability companies do not issue shares. The proportions of ownership simply reflect the value of capital contributed by each owner.
One member limited liability companies must be fully owned by another legal entity. Limited liability companies with two or more members can be owned by other legal entities or individuals.