Expectations from the amended Law on Investment

Over the course of nearly 40 years, Vietnam’s legal framework on investment has continually adapted to both domestic and global circumstances, with seven amendments made in total. In this new period of development, however, the latest draft amendment to the Law on Investment is not only tasked with addressing long-standing overlaps and inconsistencies but also with reshaping the country’s strategy for selective FDI attraction and, for the first time, advancing Vietnamese investment abroad.

Evolving process

The Law on Foreign Investment 1987 was the first law of Vietnam’s “Doi Moi” (Economic Renewal) process, built on the principles of a market economy. The Law regulated not only issues related to the form, sector, and location of investment as well as incentives and support for foreign investment but also provisions on the establishment, management, and operation of enterprises with FDI.

From 1987 to present, seven amendments of varying degrees were made in 1990, 1992, 1996, 2000, 2005, 2014, and 2020. The most notable was in 2005, when the Law on Foreign Investment was merged with the Law on Enterprises 1999 to form the Law on Investment 2005, which has seen significant progress in building and refining Vietnam legal framework on investment.

Additionally, on August 20, 2019, the Politburo issued Resolution No. 50-NQ/TW on the orientation for completing institutions and policies, enhancing the quality and efficiency of foreign investment cooperation to 2030, with the following key guiding principles.

First, recognizing foreign investment as an important component of Vietnam’s economy, to be encouraged and facilitated for long-term development.

Second, proactively attracting and cooperating in selective foreign investment, using quality, efficiency, technology, and environmental protection as the primary evaluation criteria.

Third, diversifying and multi-lateralizing partners, ensuring national defense and security and social order, and enhancing the economy’s autonomy and independence. Resolution No. 50 demonstrated the Party and State’s close guidance on investment in general and FDI attraction in particular, and has been continually updated to align with domestic and international contexts. However, despite improvements in the quality of investment legislation, overlaps remain between related legal documents, failing to fully meet the country’s socio-economic development needs.

The current draft Law on Investment (amended) is a timely policy decision in this new era of national development. From a general investment research perspective, particularly regarding foreign investment, Resolution No. 50 remains the main orientation for attracting FDI and continues to serve as the most important legal basis for amending the existing Law. In addition, several issues require careful consideration and appropriate adjustment, drawing lessons from previous amendments and supplements to the Law on Investment.

Fourth, applying the Law on Investment 2014 highlighted the need to further adjust certain provisions, as the Law still does not ensure consistency and coherence within the system of related investment and business laws. Clear delineation is needed regarding the scope and principles of applying the Law in conjunction with other related laws, such as the Law on Construction, the Law on Public Investment, and the Law on the Management and Utilization of State Capital, among others. Provisions on prohibited sectors and businesses are still not closely aligned with actual production and business conditions. Investment forms remain outdated and not fully adapted to development needs.

Fifth, implementing the Law on Investment 2020 (Law No. 61/2020/QH14), effective from January 1, 2021, created significant “openness” in attracting investors to Vietnam. Its new provisions regarding beneficiaries of investment incentives focus more on high-tech sectors and innovative startup projects. These changes are positive in clarifying and supplementing Vietnam’s reasonable policies for attracting FDI. However, the implementation of the Law on Investment 2020 still generated difficulties and inadequacies, directly affecting business investment, production, and operations as well as the State management of investment.

Optimizing investment frameworks

In practice, creating a legal environment to attract foreign investment is not limited to merely amending and improving the Law on Investment. A notable success for Vietnam is that it has simultaneously expanded and refined its bilateral and multilateral legal framework on foreign investment by signing numerous investment promotion and protection agreements with countries, regions, and territories.

Alongside this, several important laws related to investment activities have been continually supplemented and perfected, such as the Land Law, the Commercial Law, the Labor Code, the Law on Construction, the Law on Real Estate Business, the Law on Housing, and the Law on Credit Institutions.

However, gaps remain in reviewing and ensuring the quality of legal documents, with conflicts and overlaps persisting. Adjustments therefore play a crucial role in completing Vietnam’s legal framework on investment. This is precisely the objective of the current draft amendments to the Law. Several issues need careful consideration and adjustment.

First, the number of legal documents related to investment is quite large, scattered across various laws and sub-legal documents. Notably, some provisions have been issued but remain inconsistent, overlapping, or contradictory, reducing each other’s effectiveness.

Second, the quality of certain legal documents is inadequate. Many regulations lack practical applicability, causing difficulties and complications for citizens and businesses in production and business activities.

Third, investment-related legal documents are unstable due to continuous changes in tax incentives, land incentives, and administrative procedures, making it difficult for businesses to forecast medium and long-term business outcomes.

Fourth, in the context of digital economic development, new business models linked to digital technology have been recognized by the business community but State support measures remain slow and financial capacity and high-quality human resources are still insufficient. Consequently, regulations and systems still rely heavily on paper-based processes, and the transition to digital or online solutions has been slow and limited.

In addition to the above issues, two more points require attention in implementing the draft Law on Investment (amended). The investment forms of foreign investors in Vietnam, with 100 per cent foreign-owned investment currently representing a very large share of FDI, especially as Vietnam’s economy has made encouraging progress, require a focused effort to promote joint ventures and diversify investment forms. Additionally, Vietnam’s outward investment to emerging markets that accept investment and “Made in Vietnam” products needs to be strengthened. The country should continue to build on the successes of leading enterprises that have already invested abroad, such as Viettel and the Vietnam Rubber Group, to name just two.

Matters to address

Given the above context, to complete the legal framework for attracting foreign investment into Vietnam and promoting Vietnamese investment abroad, the amended Law on Investment should focus on clarifying the following points.

Firstly, improve regulations on investment policy approval and the decentralization of authority, and implement a management decentralization mechanism between the central and local governments based on ensuring the effectiveness and efficiency of State management.

Second, reconsider and clarify regulations on investment forms. Specific provisions should encourage joint ventures or business cooperation contracts, which are essential for high-tech transfer and adoption, environmental protection, and given digital transformation and green investment - trends that have become inevitable in the global economy.

Third, regarding outward Vietnamese investment, it is time for Vietnam to adopt a “two-pronged” approach, including receiving FDI (currently the main source of foreign investment in Vietnam) and also promoting direct investment by Vietnamese enterprises abroad, or overseas FDI (OFDI). For OFDI, it is recommended that reforms are made to administrative procedures, compliance time and costs cut, and consideration given to adding clear reporting requirements to support post-approval monitoring.

Additionally, the implementation of the amended Law on Investment should urgently focus on improving institutions and laws to immediately address identified shortcomings, such as a lack of systematization and the overlaps and inconsistencies between codes. Implementing detailed guiding documents for legal enforcement would make regulations easier for investors to understand and follow. Procedures and investment conditions for foreign investors should be clearly and easily applicable, facilitating investment while ensuring effective State management. The stability of FDI policies should be maintained, as investors legitimately expect.

(*) Dr. Phan Huu Thang from the Institute of International Investment (ISC) is the former Director of the Foreign Investment Agency at the Ministry of Planning and Investment, now the Ministry of Finance.