How is investment in security sectors regulated under current Vietnamese law?
Investing in security sectors is a critical strategic decision for any organization. However, what is the current legal framework governing such investments in Vietnam? What factors should investors and enterprises pay special attention to? NP Law will answer these questions and clarify the relevant legal regulations in this article.
I. Current demand for investment in security sectors by investors
In the context of digital transformation, investing in information security sectors has become vital for enterprises and investors. However, many securities companies in Vietnam have yet to fully comply with information security regulations, posing major challenges in protecting investor rights.
As of 2024, individual investors account for approximately 89% of the total number of securities accounts in Vietnam, with over 2 million new accounts opened such a year. This group of investors often lacks experience, is susceptible to herd psychology, and has limited understanding of market risks, making them vulnerable to fraud or information manipulation.
Although Vietnam has built a relatively comprehensive legal framework to protect investors, enforcement remains limited. Raising awareness of information security and investment risks among individual investors, along with improving the legal framework, is necessary to ensure sustainable development of the financial market.
Therefore, the demand for investment in security and information safety by investors in Vietnam is becoming increasingly urgent amid digitalization and the growing number of individual investors. Raising awareness, applying security measures, and completing the legal framework are important steps to protect investors' rights and promote sustainable development of the financial market.
II. Legal regulations on investment in security sectors by foreign investors in Vietnam
1. Are foreign investors allowed to invest in security sectors in Vietnam?
Foreign investors are allowed to invest in the security sector in Vietnam. However, this is a conditional business sector related to national security and thus not as freely accessible as other sectors.
According to Article 9 of the Law on Investment 2020 and Appendix I of Decree 31/2021/ND-CP, the Government clearly stipulates the list of sectors where foreign investors are restricted or not permitted. This list includes areas related to national defense and security, such as security services, cybersecurity, and protection services. Thus, foreign investors may only participate if they meet special conditions as prescribed by law.
In short, it is not entirely prohibited, but investing in the security sector in Vietnam requires strict compliance with legal conditions and approval by competent State authorities.
2. Forms of investment in security sectors by foreign investors in Vietnam
Foreign investors may invest in Vietnam’s security sector through the following forms, as stipulated in Article 21 of the Law on Investment 2020:
2.1 Establishment of an economic organization
Foreign investors may establish enterprises in Vietnam, such as limited liability companies (single-member or multi-member), joint-stock companies, partnerships, or private enterprises. However, since the security sector is tied to national security, establishing such organizations must comply with special conditions and may be subject to ownership ratio restrictions.
2.2 Capital contribution, share purchase, or purchase of capital contributions
Foreign investors may participate in Vietnamese enterprises by contributing capital, purchasing shares, or purchasing capital contributions. In the security sector, it often requires cooperation with domestic partners and may involve restrictions on ownership ratios to ensure national security.
2.3 Implementation of investment projects
Foreign investors may implement investment projects in Vietnam by obtaining an Investment Registration Certificate. In the security sector, project implementation must meet special conditions and be approved by competent authorities to ensure no impact on national security.
2.4 Business cooperation contracts (BCC)
A business cooperation contract is a form of cooperation between a foreign investor and a Vietnamese partner to conduct business operations without establishing a new legal entity. In the security sector, this may be applied but must comply with special conditions and be approved by competent authorities.
2.5 Other forms of investment as prescribed by the Government
In addition to the above, foreign investors may invest in Vietnam through other forms regulated by the Government. In the security sector, such forms require compliance with special conditions and approval by competent authorities to ensure national security.
Thus, as the security sector is closely tied to national security, foreign investors must comply with special conditions and obtain approval from competent authorities when investing in such sector in Vietnam.
3. Prohibited security-related sectors for foreign investors in Vietnam
In Vietnam, foreign investors are prohibited from investing in certain security-related sectors, especially those impacting national security and social order. The list of prohibited business lines is provided in Article 6 of the Law on Investment 2020 and detailed in Decree 31/2021/ND-CP. Some prohibited security-related sectors include:
3.1 Investigation services
Activities involving personal data collection, monitoring, and surveillance are typically conducted by competent authorities. Foreign investors are not permitted to engage in this sector to safeguard national security and privacy.
3.2 Protection services
Providing protection services for individuals, organizations, or events is sensitive and tied to public order. Foreign investors are restricted or prohibited from participating to ensure domestic control and security.
3.3 Production and trading of weapons, explosives, and supporting tools
Manufacturing and trading weapons, explosives, and supporting tools is highly sensitive and directly affects national defense and security. Foreign investors are not allowed to engage in these activities.
3.4 Trading in disguised devices or software for recording audio/video and positioning
Manufacturing or trading disguised devices or software for unauthorized recording or positioning violates the Law and impacts each individual’s privacy right. It is prohibited for foreign investors.
3.5 Trading civil cryptography services for protecting State confidential information
Civil cryptography services related to protecting State secrets are crucial for national security. Foreign investors are barred from this sector to ensure the safety of national information.
3.6 Cybersecurity services
Cybersecurity services involve protecting information systems and data from online threats. Due to their sensitive nature and implications for national security, foreign investors are restricted or prohibited from participating.
Thus, foreign investors should consult current legal documents and seek legal advice before deciding to invest in any sector in Vietnam.
III. Questions on investment in security sectors
1. Can foreign investors invest in security sectors in Vietnam using USD?
According to Circular 06/2019/TT-NHNN of the State Bank of Vietnam, foreign investors may contribute capital to foreign-invested enterprises in foreign currency (e.g., USD) or Vietnamese dong (VND). Capital contributions must be made via a direct investment capital account opened at a bank authorized for foreign exchange in Vietnam, with separate accounts for each currency type.
While capital contributions in USD are allowed, the use of foreign currency within Vietnam is strictly regulated. All transactions, payments, quotations, advertisements, price lists, and contracts must be conducted in VND unless otherwise permitted by the State Bank.
In short, foreign investors may invest in Vietnam using USD, especially in foreign-invested projects, but must comply with foreign exchange regulations, use appropriate investment accounts, and convert currencies when necessary. Strict compliance is essential for smooth and lawful investment activities.
2. Competent authority to issue investment licenses of security sectors
The competent licensing authority for security-related investments in Vietnam depends on the nature and scope of the project, as regulated by Article 39 of the Law on Investment 2020:
- Department of Planning and Investment: issues Investment Registration Certificates for projects outside industrial parks, export processing zones, hi-tech zones, and economic zones.
- Management Boards of industrial parks, export processing zones, hi-tech zones, or economic zones: issue certificates for projects within these zones.
- Investment registration authorities where projects are implemented (local authorities): apply for special projects conducted across multiple provinces or in industrial parks without management boards.
Depending on the type and scope of the security investment project, investors must identify the appropriate authority to submit applications and complete necessary procedures. For more specific support, investors should provide detailed project information for accurate legal advice.
3. Conditions for foreign investors to invest in security sectors in Vietnam
Under Clause 3, Article 9 of the Law on Investment 2020, foreign investors must meet the following conditions when investing in sectors on the list of restricted market access:
- Charter capital ownership ratio: May be limited depending on the sector.
- Form of investment: May require joint ventures or specific investment forms.
- Scope of investment activities: May be restricted by geography or sector.
- Investor capacity: Requirements on experience, finances, or other criteria.
- Other conditions: As regulated by law and international treaties to which Vietnam is a party.
The detailed list of sectors with restricted market access for foreign investors is provided in Appendix I of Decree 31/2021/ND-CP. Thus, foreign investors looking to invest in security in Vietnam must carefully study relevant laws and complete necessary procedures to ensure legal and effective operations.
4. Are there technology transfer requirements for investment in security sectors?
Under Vietnamese law, investing in the security sector may come with technology transfer requirements depending on the technology and investment project. According to the 2017 Law on Technology Transfer:
- Register technology transfer contracts: Under Article 31, contracts transferring technology from abroad into Vietnam must be registered with the State authority for science and technology, unless already licensed for restricted technologies.
- Obtain technology transfer licenses: For technologies on the restricted transfer list, investors must obtain a transfer license under Article 28.
- Conduct technology appraisal: Under Article 15, investment projects using restricted technologies require technology appraisal before implementation.
In short, investing in the security sector in Vietnam may involve technology transfer requirements, especially for restricted technologies or those impacting national security. Investors must fully comply with these laws for lawful and efficient operations.
5. Regulations on data protection in investment in security sectors in Vietnam
Foreign investors operating in the security sector in Vietnam must strictly comply with data protection laws. Decree 13/2023/ND-CP on personal data protection requires all organizations and individuals processing data in Vietnam to obtain explicit user consent and ensure data security. Investors must implement appropriate technical and managerial measures to prevent leaks, losses, or unauthorized access.
The Law on Cyber Information Security 2015 also requires protecting information systems and personal data, prohibiting data collection and use without user consent. Meanwhile, the Cybersecurity Law 2018 mandates that foreign enterprises providing cyberspace services in Vietnam store user data domestically and supply it to authorities upon lawful request.
The Civil Code 2015 emphasizes citizens’ right to privacy and personal data protection, and Decree 85/2016/ND-CP guides how to determine information system safety levels for applying appropriate security measures.
Thus, investing in the security sector in Vietnam not only requires compliance with investment laws but also strict adherence to user data and information protection under current legal regulations.
IV. Legal advisory services on investment in security sectors
The above are legal issues regarding investment in security sectors shared by NP Law. Should you have any further questions or concerns, please contact NP Law via the following:
