The 2020 Investment Law (Law No. 61/2020/QH14) officially came into effect on January 1, 2021, completely replacing the previous 2014 version. This is considered a foundational legal document, creating a favorable environment for investment and business activities in Vietnam. Entering 2025, after four years of implementation, a thorough understanding of investment incentives, conditional business sectors, and project implementation steps is crucial for businesses to not only comply with the law but also maximize their competitive advantages in the market.
Overview of the 2020 Investment Law within the Vietnamese legal system.
The 2020 Investment Law serves as a "framework law" regulating all investment and business activities in Vietnam and from Vietnam abroad. Its scope covers direct and indirect investment activities, as well as specific forms of investment such as business cooperation contracts (BCCs). The law applies not only to domestic individuals and organizations but also to foreign investors conducting economic activities within Vietnam.
Within the legal system, the Investment Law is closely linked to the Enterprise Law, the Land Law, and specialized tax laws. Understanding this connection helps investors avoid mistakes when establishing businesses or applying for land allocation for projects. Since its enactment, the 2020 Investment Law has significantly contributed to improving the business environment index, making Vietnam an attractive destination for high-quality FDI.
Basic concepts and important legal terminology
To properly understand the nature of the regulations, investors need to clearly distinguish between core legal concepts. According to current regulations, business investment is understood as an investor contributing capital and assets to conduct business activities through the establishment of an economic organization or through capital contribution and share purchase.
The most important point to note is the distinction between domestic and foreign investors. An economic organization with foreign investment capital (commonly referred to as an FDI enterprise) will be subject to the same conditions and procedures as a foreign investor if it has a percentage of charter capital exceeding 50% or if the majority of its partners are foreign individuals. Correctly determining the legal status of the entity will directly impact market access and the administrative procedures the enterprise must undertake.
The groundbreaking changes in the 2020 Investment Law compared to the previous period.
One of the most significant reforms of the 2020 Investment Law is the reduction of the list of conditional business sectors. This helps remove unnecessary administrative barriers, creating a free and innovative space for businesses, especially startups in the technology sector.
The law also adds many new investment-incentive sectors, focusing on areas such as software production, digital content, clean energy, and environmental protection projects. In particular, the management approach has shifted to a "selective exclusion" mechanism for foreign investors through the List of Sectors Restricted from Market Access. This means that, except for those sectors publicly listed as restricted, foreign investors will enjoy equal market access rights as domestic investors.
The investment guarantee mechanism under Article 13 has also been strengthened. In cases where newly enacted legislation provides lower incentives than the previous one, investors will be guaranteed the same incentives as the old regulations for the remainder of the project, reassuring businesses about the stability of the policy.
Issues arising after 4 years of implementing the 2020 Investment Law
Despite its many positive impacts, the implementation during the 2021-2024 period also revealed some issues that need attention for 2025. Many businesses are still confused about whether their projects require an Investment Registration Certificate (IRC), especially projects involving expansion or changes in business objectives.
The overlap between the Investment Law and the 2024 Land Law also presents a challenge. Selecting investors through land use rights auctions or bidding for land-use projects sometimes encounters procedural obstacles. Furthermore, pressure from post-audit mechanisms requires businesses to maintain high transparency in periodic reports on project implementation, avoiding "stalled projects" that waste social resources.
List of prohibited and conditionally permitted business sectors.
Defining the business sector is the first and most important step when starting a project. Investors need to pay particular attention to prohibited sectors to avoid serious legal risks.
Below is a summary table of business sectors prohibited from investment according to the latest regulations, for investors to easily refer to and compare:
| No. | Prohibited business sectors/industries |
|---|---|
| 1 | Trading in narcotic substances as regulated. |
| 2 | Trading in toxic chemicals and minerals. |
| 3 | Trading in specimens of endangered wild plants and animals. |
| 4 | Prostitution business |
| 5 | Buying and selling people, fetuses, and human body parts. |
| 6 | Business activities related to human cloning. |
| 7 | Fireworks business |
| 8 | Debt collection services business |
Please note that the current list of conditional business sectors still includes over 200 sectors. Investors need to carefully review the specific conditions regarding capital, personnel, and licenses before officially commencing operations.
Investment incentives and support policies under the new regulations.
The 2020 Investment Law designs diverse incentive packages to attract capital to disadvantaged areas or priority sectors. The main forms of incentives include:
- Corporate income tax incentives: These include applying a lower-than-normal tax rate for a limited period or for the entire duration of the project; tax exemptions, and tax reductions.
- Import duties are exempted for goods imported to create fixed assets; raw materials, supplies, and components for production.
- Exemption or reduction of land rent, land use fees, and land use tax.
- The accelerated depreciation scheme increases the amount of expenses that can be deducted when calculating taxable income.
Example: A business invests in a project to manufacture electronic components (classified as high-tech) in an area with particularly difficult socio-economic conditions. According to regulations, the business may enjoy a corporate income tax rate of 10% for 15 years, tax exemption for 4 years, and a reduction of 50% in the tax payable for the following 9 years.
However, the biggest risk is that businesses may incorrectly determine eligibility for tax incentives. If the tax authorities inspect and discover that the business does not meet the eligibility criteria as declared, the business will not only have to pay back taxes but also face significant penalties for late payment and administrative violations. This requires close coordination between the legal and accounting departments within the business.
Procedures for implementing investment projects and issuing Investment Registration Certificates
Administrative procedures are one of the top concerns for investors. The process of implementing an investment project typically goes through the following basic steps:
- Approval of investment policy: Applicable to large-scale projects, those with environmental impacts, or those requiring a large area of land. Authority rests with the National Assembly, the Prime Minister, or the Provincial People's Committee.
- Issuance of Investment Registration Certificate (IRC): This is the "birth certificate" for projects of foreign investors or FDI enterprises that are required to have one issued.
- Establishing an economic organization: After obtaining the IRC, the investor proceeds with the procedures for obtaining a Business Registration Certificate at the Department of Planning and Investment.
An application for an Investment Regulatory Commission (IRC) typically includes a project proposal, documentation of the investor's legal status, an investment project proposal, and documents demonstrating financial capacity. The processing time is usually 15 days from the date of receipt of a complete and valid application.
Overseas investment activities of Vietnamese enterprises
In the trend of integration, many Vietnamese businesses have boldly expanded into international markets. Traditional and potential markets in 2025 include Laos, Cambodia, and financial centers such as Singapore.
To legally invest abroad, businesses must meet capital requirements and not operate in sectors prohibited from overseas investment. After obtaining a Certificate of Registration for Overseas Investment, businesses are obligated to submit periodic reports and, importantly, to repatriate profits within six months of submitting their tax return or equivalent legally valid document in the host country. Delays in repatriating profits without justifiable reasons may result in severe administrative penalties.
State management and sanctions for violations in the investment sector.
The current state management system for investment is clearly decentralized from the central to the local level. The Ministry of Planning and Investment is responsible for overall management, while the Department of Planning and Investment or the Management Board of industrial parks and export processing zones directly manage projects in their respective areas.
Businesses should be aware of actions that may result in penalties or project termination, such as:
- Failure to comply with the contents of the Investment Registration Certificate.
- The project is behind schedule, but no extension procedures have been initiated.
- Violating environmental protection regulations or using land for purposes other than those intended.
- Failure to deposit project performance security as required in cases where the state allocates or leases land.
Frequently Asked Questions about the 2020 Investment Law
Below is a summary of some common questions that investors often encounter during the project operation process:
A frequently asked question is: Are businesses with FDI capital at level 49% considered domestic investors? The answer is yes. According to the 2020 Investment Law, only when the foreign capital ratio exceeds 50% will a business be subject to the conditions and procedures of a foreign investor. At level 49%, the business can still exercise investment rights as a domestic economic organization.
Regarding project adjustments, when a business wants to increase capital or change location, it is mandatory to amend the Investment Registration Certificate before implementing the changes in practice. In case of project delays, investors need to proactively submit an application for extension and explain the objective reasons to avoid project revocation.
Notes for investors on legal compliance and risk mitigation in 2025
For investment activities to proceed smoothly in 2025, conducting a legal due diligence review is absolutely essential. This not only helps identify potential risks but also enables businesses to optimize their capital structure and tax policies in a coordinated manner.
In the context of increasingly stringent global minimum tax regulations and ESG (Environmental, Social, and Governance) commitments, a proper understanding of the 2020 Investment Law, combined with specialized tax laws, is crucial. Businesses should regularly update themselves on guiding documents such as Decree 31/2021/ND-CP and new circulars. Leveraging support from professional legal consultants or reputable accounting organizations like MAN – Master Accountant Network will help investors save time and costs and ensure all operations remain within a legal framework.
Sources for data and legal documents: Government Electronic Information Portal (chinhphu.vn), Law Library and Legal Normative Documents of the 14th National Assembly.
Conclusion on the implementation of the 2020 Investment Law in the new context.
The 2020 Investment Law is not merely a rigid legal document, but has truly become a crucial launching pad for economic activities in Vietnam. By strongly shifting from a "pre-approval" to a "post-approval" mindset, the law has created a transparent, equitable, and promising business environment. However, along with liberalization comes stringent requirements regarding compliance and the ability of businesses to manage legal risks.
In 2025 and beyond, as new-generation free trade agreements (FTAs) and international standards for green and sustainable investment become mandatory, mastering the 2020 Investment Law will be a solid foundation. Investors need to proactively review market access conditions, optimize investment incentive packages, and maintain close connections with consultants to transform legal challenges into sustainable competitive advantages on their business development journey.
Contact information for MAN – Master Accountant Network
- Address: 19A, 43rd Street, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- Email: man@man.net.vn
Other services
- Auditing: Auditing Services, Construction Auditing Services, Financial statement audit services
- Accounting and Taxation: Tax accounting services, Tax report, Transfer Pricing Advisory. Tax Accounting Services, Tax reporting services, Transfer Pricing Service, Affiliate Trading Service
- Legal aspects: Work permit services, Business registration certification services, Investment Certificate
- Other: Transfer Pricing Service, Affiliate Trading Service, Business Operations Consulting Services
Content production is overseen by: Mr. Le Hoang Tuyen – Founder & CEO of MAN – Master Accountant Network, CPA Vietnam with over 30 years of experience in accounting, auditing, and financial consulting.
