Avoiding legal risks in cooperative investment in vietnam with NPLaw

Cooperative investment is an effective method for foreign investors to expand in the Vietnamese market. However, the complexity of Vietnam’s legal system and differences in business culture may pose legal risks if not thoroughly prepared. This article by NPLaw provides a comprehensive overview of the growing demand for cooperative investment, main legal regulations that foreign investors must understand when engaging in cooperative ventures in Vietnam, related legal questions, and highlights NPLaw’s professional legal consulting services to help investors conduct cooperative investment activities safely and effectively while avoiding potential legal risks. 

I. Current demand for cooperative investment by foreign investors

In the context of globalization and international economic integration, cooperative investment has become a strategic trend chosen by many investors to expand business operations and optimize profits. In Vietnam, with an increasingly attractive investment environment and stable economic growth potential, the demand for cooperative investment, particularly from foreign investors, is on the rise.

Foreign investors seek cooperative investment opportunities in Vietnam to leverage local market knowledge, available partner networks, and the management experience of Vietnamese enterprises. Additionally, sharing financial resources, technology, and experience through cooperative investment allows them to reduce initial investment risks and costs while enhancing competitiveness in the market. Furthermore, cooperative investment serves as an effective channel for foreign investors to access industries and sectors where they lack expertise or face legal barriers when investing independently. This combination of the local advantages of Vietnamese enterprises and the international strength of foreign investors creates synergies, promotes sustainable development, and enhances the competitive positioning of both parties in cooperative investment activities.

II. Legal regulations on cooperative investment by foreign investors in Vietnam

1. Are foreign investors allowed to engage in cooperative investment in Vietnam?

According to Clause 1, Article 5 of the 2020 Law on Investment:

• Investors are entitled to conduct business investment activities in sectors and trades that are not prohibited by law.

Thus, foreign investors are fully permitted to engage in cooperative investment in Vietnam, particularly through forms such as business cooperation contracts, joint ventures, or capital contribution. Cooperative investment is encouraged to link international and local resources. However, investors must meet certain financial, technological, and sectoral conditions (Appendix I of Decree 31/2021/ND-CP). It reflects Vietnam’s open-door policy to attract foreign capital.

2. What forms of cooperative investment can foreign investors choose in Vietnam?

According to Article 21 of the Law on Investment 2020, foreign investors may choose from the following forms of cooperative investment:

• Establishment of an economic organization: As stipulated in Article 22, this is often chosen when the investor wants to establish a new legal entity for long-term cooperative investment. The establishment and operation of such organizations must comply with the Law on Enterprise 2020 and other relevant laws.
• Capital contribution, share purchase, purchase of capital contributions: Under Article 24, such a flexible form allows foreign investors to participate in the business of existing enterprises without establishing a new legal entity.
• Business Cooperation Contract (BCC): As per Article 27, a BCC is signed between investors to cooperate in business, share profits and products without establishing a legal entity. It suits projects with specific objectives and timeframes.

3. Which sectors are prohibited for foreign investors in cooperative investment in Vietnam?

Article 6 of the Law on Investment 2020, as amended by Clause 2, Article 2 of the Amending Law 2024 regulates certain business sectors. Foreign investors must carefully review such a list to avoid legal violations. Engaging in cooperative investment in these sectors is considered unlawful and may lead to serious legal consequences.

Additionally, investors should consult Appendix I of Decree No. 31/2021/ND-CP, which lists sectors with market access restrictions for foreign investors. Careful examination of these regulations is crucial to ensure compliance.

III. Questions on cooperative investment regulations in Vietnam

1. Are foreign investors allowed to use USD for cooperative investment in Vietnam?

According to Clause 1, Article 4 of Circular 06/2019/TT-NHNN and Article 10 of the Law on Investment 2020, foreign investors may use USD to implement cooperative investment in Vietnam.

However, the capital transfer must go through authorized foreign exchange banks in Vietnam and comply with current foreign exchange management regulations, including declaration and procedural requirements.

2. Which authority grants cooperative investment licenses?

Authority to issue Investment Registration Certificates (IRC) for cooperative investment projects by foreign investors is regulated under Article 37 of the Law on Investment 2020. Depending on the scale, nature, and location of the project, the following authorities may be responsible:

• Provincial People's Committees: For projects outside industrial zones, export processing zones, hi-tech parks, and economic zones (except where the authority belongs to management Boards or Departments of Planning and Investment).
• Management Boards: For industrial zones, export processing zones, hi-tech parks, and economic zones for projects within these areas.
• Departments of Planning and Investment: For projects outside the zones mentioned above.
• Investment registration authority at the project location: For projects implemented in two or more provinces, in and outside the above zones, or where no management Board is established.

The competent authority receiving the project dossier is also the one responsible for issuing the Investment Registration Certificates, unless the project requires investment policy approval by the National Assembly or the Prime Minister.

3. What are the conditions for foreign investors to engage in cooperative investment in Vietnam?

According to Article 38 of the Law on Investment 2020, unless the project requires investment policy approval by the National Assembly, Prime Minister, or Provincial People's Committee, foreign investors shall be granted an Investment Registration Certificate if they meet the following conditions:

• The investment project is not in a prohibited sector (Article 6 of the Law on Investment).
• The project has a clear and lawful implementation location.
• The project aligns with national, regional, and provincial planning regulations.
• It satisfies land use and labor criteria (if applicable).
• It complies with market access conditions applicable to foreign investors under Vietnamese law and Vietnam’s international commitments.

4. Is there a minimum capital requirement for cooperative investment?

Currently, neither the Law on Enterprise 2020 nor other general Vietnamese laws stipulate a minimum capital requirement for cooperative investment. The amount depends on the project's scale, nature, and investor’s financial capacity.

However, investors must ensure sufficient capital to execute the registered plan. For some conditional business lines, statutory capital must be met under sector-specific regulations. Localities may apply additional oversight; for example, Hanoi has its own policy on supervising foreign direct investment project capital as per Official Letter No. 599/UBND-KH&DT dated March 6, 2024.

5. What are the legal responsibilities between parties in cooperative investment?

The Civil Code 2015 regulates civil obligations and liability for damages. The Law on Enterprise 2020 governs responsibilities of company members/shareholders. The Law on Investment 2020 and Business cooperation contracts (BCCs) also serve as a legal basis for determining responsibilities. 

Responsibilities vary based on the investment form and contractual agreements:

• Business cooperation contracts (BCCs): Responsibilities are defined in the Business cooperation contracts. Each party is generally independently liable for its obligations.
• Establishment of an economic organization: Responsibilities are governed by the Law on Enterprise and company charter. Members/shareholders typically take limited liability within their capital contributions.
• Capital contribution/share purchase: Investor responsibilities correspond to their rights and obligations under the Law on Enterprise and company charter.

IV. Legal consulting services for cooperative investment in Vietnam 

To help foreign investors feel secure and avoid potential legal risks when conducting cooperative investment in Vietnam, NPLaw offers professional and comprehensive legal consulting services, including:

• Legal risk assessment and project feasibility review;
• Advice on investment forms and licensing conditions;
• Draft of BCCs, joint venture agreements, and cooperation contracts;
• Representation before government agencies for investment licensing;
• Dispute resolution related to profit distribution or contractual responsibilities.

Contact NPLaw today for expert legal consultation and support on cooperative investment in Vietnam. We are committed to providing peace of mind and effectiveness in every investment decision.