By Lawyer Luu Thi Hue – UniLaw LLC

AUTO INVESTMENT GROUP VIETNAM – UNILAW’S OPINION

The landscape of foreign direct investment in Vietnam has evolved into a sophisticated framework that balances state management with the protection of investor rights. For international conglomerates and investment groups, particularly those looking at the automotive and heavy equipment sectors, understanding the nuances of local compliance is the difference between a thriving operation and a costly legal battle. At Unilaw, we emphasize that investing Việt Nam requires more than just capital; it requires a deep alignment with the evolving “Law on Investment” and “Law on Enterprises.”

Lessons from the Courtroom: Internal Financing and Showroom Development Disputes

To understand the practical risks of fdi vietnam operations, one must look at how Vietnamese courts handle internal transactions. A significant case involved a dispute at “Company D,” an automotive joint-stock company (Judgment No. 01/2023/KDTM-GĐT). Mr. L, who served as the Chairman of the Board and Director, personally lent the company over 2.5 billion VND through 18 different loan contracts between 2009 and 2011 to fund the construction of a repair workshop and an auto showroom.

The company later refused to pay the interest on these loans, arguing that Mr. L had acted unilaterally without the approval of the General Meeting of Shareholders or the Board of Directors, as required by the company’s charter and the Law on Enterprises. The lower courts (first instance and appellate) ruled in favor of the company, declaring the 18 loan contracts void because they violated the internal approval procedures for transactions between the company and its managers.

However, upon reaching the Supreme People’s Court for Cassation, the verdict changed. The Supreme Court pointed out that the lower courts had failed to investigate whether the other board members or shareholders actually knew about the loans at the time and whether they had raised any objections. Furthermore, the court needed to verify if the borrowed money was indeed used for the company’s benefit to build the showroom. The Supreme Court ruled to cancel the previous judgments and remanded the case for retrial, noting that declaring a contract void without assessing whether the company benefited from the funds was insufficient. This case highlights that for any invest to vietnam strategy, internal governance and the paper trail of board approvals are as critical as the external investment license.

The Fundamental Framework for FDI to Vietnam

When considering fdi to vietnam, the first point of reference is the Law on Investment, which governs how capital is deployed within the territory. The Law on Investment No. 61/2020/QH14 sets the ground rules for all market participants.

Article 1. Scope of regulation

“This Law provides for business investment activities in Vietnam and business investment activities from Vietnam to foreign countries”.

Plain language: This law is the primary rulebook that tells you what you can and cannot do when you bring money into Vietnam to start or buy a business.

Article 2. Subjects of application

“This Law applies to investors and agencies, organizations and individuals involved in business investment activities”.

Plain language: If you are an individual or a company planning to invest, this law applies directly to you and the government offices you will deal with.

For an investing Việt Nam project to be successful, the investor must be clearly identified. The law distinguishes between domestic and foreign entities to determine the level of market access.

Article 3, Clause 18. Investment project

“An investment project is a set of proposals for medium or long-term capital investment to conduct business investment activities in a specific area for a determined period of time”.

Plain language: An “investment project” is basically your business plan and the commitment of money you are making for a specific location and timeframe.

Article 3, Clause 19. Expanded investment project

“An expanded investment project is an investment project to develop an active investment project by expanding the scale, increasing the capacity, innovating technology, reducing pollution or improving the environment”.

Plain language: If you already have a factory in Vietnam and want to make it bigger or upgrade the machines, the law treats this as an “expanded project” which may come with its own set of incentives or requirements.

Market Access and Conditional Sectors for Foreign Direct Investment in Vietnam

One of the most frequent questions we receive at Unilaw regarding foreign direct investment in Vietnam concerns “market access.” Vietnam generally treats foreign investors like domestic ones, but there are notable exceptions listed in a “Negative List” approach.

Article 9. Industries, trades and market access conditions for foreign investors

“1. Foreign investors shall be applied market access conditions as prescribed for domestic investors, except for the cases specified in Clause 2 of this Article”.

Plain language: You usually have the same rights as a Vietnamese local to open a business, unless your specific industry is on a special restricted list.

Article 9, Clause 2. Industries and trades with limited market access

“Based on laws, resolutions of the National Assembly, ordinances, resolutions of the National Assembly Standing Committee, decrees of the Government and international treaties to which the Socialist Republic of Vietnam is a member, the Government shall announce the List of industries and trades with limited market access for foreign investors, including: a) Industries and trades not yet accessible to the market; b) Industries and trades with conditional market access”.

Plain language: The government maintains a list of “no-go” zones and “restricted” zones where you might need a local partner or meet specific requirements like a minimum amount of capital.

For those in the automotive sector, such as an “Auto Investment Group,” it is essential to review Vietnam’s WTO commitments. For example, while distribution services (wholesale and retail) are largely open, there were historical phase-in periods for products like cars and motorcycles. Currently, the establishment of 100% foreign-invested enterprises for distributing most goods is permitted, but large-scale retail often requires an Economic Needs Test (ENT).

Establishing a Legal Presence: Corporate Forms and Procedures

To invest to vietnam, an investor must choose the right legal “vehicle.” The most common forms are the Limited Liability Company (LLC) and the Joint Stock Company (JSC).

Article 21. Forms of investment

“1. Investment in the establishment of economic organizations. 2. Investment in capital contribution, purchase of shares or portions of capital contribution. 3. Execution of investment projects. 4. Investment in the form of BCC contracts…”.

Plain language: You can start a brand new company, buy into an existing one, or just sign a contract to work together with a local partner without making a new legal entity.

Article 22. Investment in establishment of economic organizations

“a) Domestic investors shall establish economic organizations in accordance with the law on enterprises and laws corresponding to each type of economic organization; b) Foreign investors establishing economic organizations must satisfy market access conditions… c) Before establishing an economic organization, foreign investors must have an investment project and perform procedures for issuance and adjustment of the Investment Registration Certificate…”.

Plain language: Foreigners face an extra step compared to locals. You must get your “Investment Registration Certificate” (the project approval) first before you can get your “Enterprise Registration Certificate” (the company birth certificate).

At Unilaw, we have handled numerous cases where investors sought to establish 100% foreign-owned entities for specialized services. For instance, in 2011, we assisted a Korean client, “BNC Korea,” in establishing a 100% foreign-invested LLC for manufacturing and construction services. We advised them that under Vietnam’s WTO commitments, for the first two years after accession, such companies could only provide construction services to other foreign-invested enterprises or foreign-funded projects. This illustrates that timing and treaty knowledge are vital for investing Việt Nam.

Capital Contribution and Transaction Security

A major hurdle in foreign direct investment in Vietnam is the strict timeline for capital contribution. Under the Law on Enterprises, members of an LLC or shareholders of a JSC typically have 90 days to contribute the committed capital. Failure to do so can lead to a loss of rights or administrative fines.

Furthermore, transactions between the company and its major shareholders or managers are heavily regulated to prevent “self-dealing,” as seen in the “Company D” auto showroom case.

Article 112. Implementation of investment activities of foreign-invested economic organizations

“1. Economic organizations must satisfy the conditions and perform investment procedures in accordance with the regulations for foreign investors when investing in the establishment of other economic organizations; investing in capital contribution, purchase of shares… if such economic organization falls into one of the following cases: a) Having foreign investors holding more than 50% of the charter capital…”.

Plain language: If your company is more than 50% foreign-owned, any new investment you make inside Vietnam (like buying another company) is treated with the same strict rules as if a foreigner was coming in from outside for the first time.

Investors must also be wary of using real estate as a capital contribution. In one case, a foreign-invested enterprise attempted to lease land and then “sub-lease” it to a partner in violation of the Land Law, which stipulates that FIEs on annual rental plans do not have the right to sub-lease land. Such “Principle Agreements” are often declared void by Vietnamese courts for being “impossible to perform” legally.

Operational Safeguards: The Role of Investment Guarantees

To encourage fdi to vietnam, the state provides several “Investment Guarantees” to ensure that your property won’t be taken away without compensation and that you can move your profits home.

Article 10. Guarantee of property ownership

“1. Lawful assets of investors shall not be nationalized or confiscated by administrative measures. 2. In case the State compulsory purchases or requisitions property… the investor shall be paid and compensated in accordance with the provisions of the law on compulsory purchase and requisition of property…”.

Plain language: The government promises not to seize your business assets. If they absolutely need your land for a national project, they must pay you fairly according to the law.

Article 12. Guarantee of the right to transfer assets of foreign investors to foreign countries

“After fulfilling all financial obligations to the State of Vietnam in accordance with the law, foreign investors are entitled to transfer the following assets to foreign countries: 1. Investment capital, investment liquidation amounts; 2. Income from business investment activities; 3. Money and other property under the lawful ownership of the investor”.

Plain language: Once you have paid your taxes, you are legally allowed to send your initial investment, your profits, and any money from selling the business back to your home country.

However, “fulfilling financial obligations” is the key phrase. We assisted a client who wished to sell their apartment and repatriate the funds, but they faced significant hurdles because they had not registered the original investment purpose correctly with the bank. Without a clear “Capital Account” trail, moving large sums of money out of Vietnam becomes a bureaucratic nightmare.

Managing Legal Changes and Dispute Resolution

Vietnam is a dynamic jurisdiction where laws change frequently. To protect foreign direct investment in Vietnam, the law includes a “grandfathering” clause for investment incentives.

Article 13. Guarantee of business investment in case of changes in law

“2. In case a new legal document is issued providing for new investment incentives or higher investment incentives, the investor is entitled to enjoy the investment incentives… for the remaining incentive period of the project. 3. In case a new legal document is issued providing for lower investment incentives than the investment incentives that the investor has enjoyed before, the investor shall be continued to apply the previous investment incentives…”.

Plain language: If the law changes to give better tax breaks, you get them. If the law changes to take away your tax breaks, you usually get to keep your old ones until your project’s current term ends.

When disputes do arise, the forum matters. For fdi vietnam projects involving at least one foreign party, the law is quite flexible.

Article 14. Settlement of disputes in business investment activities

“3. Disputes between investors in which at least one party is a foreign investor… shall be resolved through one of the following agencies and organizations: a) Vietnamese Court; b) Vietnamese Arbitration; c) Foreign Arbitration; d) International Arbitration; dd) Arbitration established by the disputing parties”.

Plain language: If you have a fight with your Vietnamese partner, you don’t have to go to a Vietnamese court if you don’t want to. You can agree in your contract to use international arbitration in Singapore or elsewhere.

We saw this play out in the dispute between Global Payment Service (GPS) and “Company VMG” regarding a share purchase agreement. The parties had agreed to use the Singapore International Arbitration Centre (SIAC). When SIAC issued an award against the Vietnamese company, the Vietnamese court had to decide whether to recognize and enforce that award. Initially, the first-instance court refused, but international investors must know that such awards are subject to a rigorous review process under the New York Convention, which Vietnam has signed.

Sector-Specific Insights: Automotive Logistics and Distribution

For an “Auto Investment Group,” the business is rarely just about selling cars; it’s about the entire supply chain. FDI to Vietnam in logistics is a prime example of where WTO commitments and local regulations intersect. We assisted “a global logistics client,” a global logistics group, in evaluating the freight forwarding and warehouse sectors.

We advised that while many sectors allow 100% foreign ownership, certain logistics sub-sectors, like container handling or certain transport services, still had caps on foreign equity (e.g., 49% or 51%) at the time of their entry. Furthermore, companies must satisfy requirements for “Environmental Impact Assessments” or “Environmental Protection Commitments,” especially if they are storing hazardous materials or automotive fluids.

In the automotive manufacturing sub-sector, compliance with “Decree 116” (though later amended) on conditions for manufacturing, assembly, and import of automobiles has historically been a major focal point for investing Việt Nam. Even as regulations shift, the core requirement remains: a professional factory, a separate test track, and a valid technology transfer agreement.

Conclusion: The Unilaw Perspective

Foreign direct investment in Vietnam is currently at an all-time high, driven by a desire to diversify supply chains away from other regional powers. Vietnam’s membership in the CPTPP and various FTAs provides a massive advantage for manufacturers. However, as the “Company D” case proves, the most dangerous risks are often internal.

Whether you are setting up a new auto showroom, a high-tech manufacturing plant, or a regional logistics hub, your invest to vietnam journey must start with a robust legal audit. You must ensure that:

• Your internal approvals (Board/Shareholder) are documented according to the Law on Enterprises.
• Your capital is contributed within the strict 90-day window.
• Your “Investment Registration Certificate” matches your actual activities to avoid fines.
• You have a clear strategy for profit repatriation from day one.

At Unilaw, we don’t just provide “off-the-shelf” legal advice. We act as your strategic partner in investing Việt Nam, ensuring that your fdi vietnam projects are built on a foundation of total compliance and operational security. The automotive and investment group sectors are complex, but with the right legal guidance, the opportunities in the Vietnamese market are limitless.