INVESTMENT IN ESTABLISHMENT OF ECONOMIC ORGANIZATIONS IN VIETNAM

Investment in the establishment of economic organizations is one of the forms of investment that is selected by many foreign investors when investing in Vietnam currently. However, the conditions and procedures for foreign investors to implement investment in this form are more complex and demanding than domestic investors. Foreign investors need to understand the provisions of Vietnamese law on this form so that investment activities are convenient and effective.

I. About investment in the establishment of economic organizations

According to the Law on Investment 2014, business investment means "the use of investment capital by investors to carry out business activities through the establishment of economic organizations; contribution of capital to, or purchase of shares or capital contributions at, economic organizations; or investment in the form of contract performance or investment project implementation".

Clause 1 Article 22 of this Law also stipulates: "investors may establish economic organizations in accordance with law". Therefore, investment in establishment economic organizations is one of the forms of investment in Vietnam that is recognized in the Law on Investment 2014.

The Law on Investment 2014 does not specifically define the form of investment to establish an economic organization. However, an economic organization under Clause 16 Article 3 of this Law is "an organization established and operating under Vietnam’s law". Economic organizations include enterprises, cooperatives, unions of cooperatives, and other organizations which carry out business investment activities.

Thus, it is understandable that investment in the establishment of economic organizations means the use of investment capital by investors to carry out business activities through the establishment of enterprises, cooperatives, unions of cooperatives, and other organizations which carry out business investment activities.

II. Conditions for foreign investors when investing in the form of establishment of economic organizations

Both foreign investors and domestic investors are allowed to carry out investment activities in the form of the establishment of economic organizations. However, the establishment of an economic organization of a foreign investor meets more strict conditions.

Before establishing an economic organization, a foreign investor must have an investment project and shall carry out procedures to apply for an investment registration certificate in accordance with the Law on Investment and meet the following conditions:

- About the ownership ratio of charter capital:

Foreign investors may own an unlimited charter capital in economic organizations, except in the following cases:

+ The holding rates of foreign investors in listed companies, public companies, securities trading organizations, and securities investment funds must comply with the law on securities

+ The holding rates of foreign investors in state enterprises that are equitized or transformed in other forms must comply with the law on equitization and transformation of state enterprises

+ The holding rates of foreign investors in cases other than those belonging to the above two cases must comply with other relevant laws and treaties to which the Socialist Republic of Vietnam is a contracting party.

- Complying with the form of investment, the scope of operation, Vietnamese partners in investment activities, and meeting other conditions prescribed in treaties to which the Socialist Republic of Vietnam is a contracting party.

III. Procedures for investment in the form of establishment of economic organizations for foreign investors

According to Article 44 of Decree No. 118/2015/ND-CP of the Government detailing and guiding the implementation of a number of articles of the Law on Investment, steps for foreign investors to establish economic organizations are:

Step 1: Carrying out the procedures for grant of an investment registration certificate

Step 2: Carrying out the procedures for the establishment of an economic organization after being granted an investment registration certificate in order to implement the investment project and carry out business activities

The dossier, order, and procedures for the establishment of an economic organization must comply with the law on enterprises and other laws applicable to the type of economic organization. The business registration agency may not ask the investor to submit any documents other than those prescribed in the law on enterprises and other applicable laws, and may not reconsider any content of the investment registration certificate.

Step 3: After economic organizations are established, foreign investors shall implement investment projects through this economic organization.

The Charter capital of an economic organization established by a foreign investor to implement an investment project is not necessarily equal to the investment capital of the investment project. The economic organization established shall contribute capital and raise capital to implement the investment project according to the schedule stated in the investment registration certificate.

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