Vietnam investment regulations – Direct investment v.s. indirect investment
Under the Investment Law, direct investment means a form of investment whereby the investor invests its invested capital and participates in the management of the investment activity. On the other hand, indirect investment means a form of investment through the purchase of shares, share certificates, other valuable papers or a securities investment fund and through other intermediary financial institutions and whereby the investor does not participate directly in the management of the investment activity.
The confusing point here is what “participating in the management” of investment activity. If having purchased shares of a listed company in Vietnam, a foreign investor attends the shareholders meeting of such company and exercises its voting rights then arguably the investor has “participated in the management” of the company in Vietnam. A more relevant example is a foreign investor purchases a minority stake in a domestic joint stock company and nominates its personnel to hold position in the Board of Directors of such company. In such case, it is not clear if the investor could be deemed to have “participated in the management” of the company in Vietnam.
The consequences of being treated as a direct investment and an indirect investment may be material. If an investment is an indirect investment then the parties may not need to obtain an Investment Certificate and must settle the transaction in Vietnamese Dong through a VND capital contribution account. If an investment is a direct investment then the parties may need to obtain an Investment Certificate and could settle the transaction in foreign currency.
It would have been clearer if the Investment Law replaces the concept of “participating in the management” with “control”. In such case, an investor will be deemed to make a direct investment if it has “control” of the investment activity. In other cases, the investor will be deemed to make an indirect investment.
Introduction
From 1 July 2025, Vietnam’s local Government system formally operates according to a new “two-tier” system in 34 provinces as opposed to the old “three-tier” system in 63 provinces. In the new system, there are only two levels of local Government including provinces (tỉnh) and wards (xã, phường). Government agencies at district level no longer exist. Vietnam also combines several existing wards to form a larger ward. As a result, we estimate that Vietnam now has about 3,300 local people’s committees down from 10,000 local people’s committees.
To achieve this, by 1 July 2025, the National Assembly and the Government have, among other things, amended the Constitution, amended the Law on Organisation of Local Government, issued 34 resolutions and 28 Decrees to restructure the local government system. Unfortunately, despite such herculean efforts, it appears that the new regulations have not addressed adequately various legal issues arising from the restructuring. In this post we will discuss some of these issues. More information can be found from the attached research generated by the latest AI LLM from Google (Gemini Pro 2.5).
No clear geographical boundaries between various local authorities at wards levels.
It appears that on 1 July 2025, the Government did not establish clear geographical boundaries between the newly established wards. This is because the Standing Committee of the National Assembly sets a deadline of 30 September 2025 for the Government to do so for each province. Until a source of truth of the geographical boundaries at wards level is set up, many companies and individuals may not know for sure the correct addresses that they may use in their operations including application submitted to the authorities, invoices issued to clients, or contracts.
n 2024, the National Assembly of Vietnam enacted the new Law on Organization of the People’s Court (Law on Courts), which implemented significant reforms to the structure of the People’s Court system in comparison to the 2014 Law on Courts. Shortly after the promulgation of the 2024 Law on Courts, Vietnam initiated a substantial reorganisation of its administrative divisions, transitioning from a three-tier (province, district, commune) model to a two-tier (province, commune) model. Consequently, in 2025, the National Assembly approved an amendment to the 2024 Law on Courts to align the court system with the updated two-tier administrative division model (2024-2025 Law on Courts). Below are our discussions on the key changes under the 2024-2025 Law on Courts when compared to the 2014 Law on Courts.
1) Complete Restructuring of the Court Hierarchy
The court system is majorly reformed with the removal of the High People's Courts (Tòa án nhân dân cấp cao) and replacement of District Courts with Regional Court (Tòa án nhân dân khu vực).
In this post, we continue to discuss certain aspects of the new provisions on beneficial owners (BOs or commonly called as “UBOs”) under the new amendments to the Enterprise Law 2020 passed in June 2025 (2025 Enterprise Law Amendment) and the new Decree 168/2025 on enterprise registration. We have discussed some of the issues in our earlier post.
UBOs with joint controls
Under the 2025 Enterprise Law Amendment and Decree 168/2025, the criteria to determine whether an individual is an UBO seem to apply to a single individual only. As such, it is not clear if the information about related persons of such individual (e.g., his/her relatives) should be taken into account when determining an UBO. For example, it is not clear if an individual together with his/her spouse hold more than 25% voting rights of an enterprise should be declared as an UBO. A literal reading of Decree 168/2025 suggests that declaration of UBOs is not required in case of joint control. However, such an approach is likely not consistent with the purpose of the provisions on UBOs.
The law amending the Enterprise Law 2020 (Amended Enterprise Law 2020), effective 1 July 2025, introduces the following key changes:
1. The New Beneficial Owner Regime
1.1. The Amended Enterprise Law 2020's most significant change is the introduction of a Beneficial Owner (BO) regime, designed to enhance transparency and align Vietnam with international anti-money laundering standards.
Who are BOs?
1.2. The Amended Enterprise Law 2020 defines a BO as the individual who ultimately owns or controls an enterprise. The recently issued Decree 168/2025 on enterprise registration (Decree 168/2025) further clarifies the specific criteria for identifying a BO. In particular, an individual is considered a BO if they meet one of the following conditions:
In Vietnam, industrial parks are usually developed by private investors (IP Developer), rather than the State. The IP Developer will directly lease a large land parcel from the State, build necessary infrastructure, and then sublease land with ready-built infrastructure to the ultimate tenants (IP Tenant) for their investment projects.
From a legal standpoint, the nature of these land sublease agreements (sublease contract) between the IP Developer and the IP Tenant is an interesting issue. Should the sublease contract be treated as a property sale or a traditional lease? The answer has significant implications for the rights and obligations of both parties.
As discussed in our previous post, we believe the pilot mechanism introduced under Resolution 171 will bring a significant improvement to the legal framework for commercial housing development in Vietnam. With the enactment of implementing Decree 75/2025, this pilot mechanism is now fully set up. In this post, we will highlight key takeaways from Decree 75/2025 and discuss potential implications for housing developers.
On 29 April 2025, the State Bank of Vietnam (SBV) has issued Circular 3 on the opening and using of VND account for conducting indirect investment in Vietnam (Circular 3/2025). From 16 June 2025, Circular 3/2025 will replace Circular 5 dated 12 March 2014 of the SBV (Circular 5/2014) guiding the opening and using of indirect investment capital account (IICA) for conducting indirect investment in Vietnam.