By Duyen Ha Vo
Senior Partner, VILAF
duyen@vilaf.com.vn

On January 14, 2024, Vietnam commemorates the fifth anniversary of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) coming into force. This marks a pivotal milestone since specific exceptions granted to Vietnam under the CPTPP commitments cease to be effective on this fifth anniversary.  Consequently, the foreign investor market access rules undergo a permanent transformation, signifying a significant milestone in Vietnam’s foreign investment landscape.

Below is a summary of what will change as of 14 January 2024 with respect to investors from CPTPP country members:

• Retail: Elimination of the Economic Needs Test (ENT) for opening subsequent retail stores in foreign-owned enterprises after the first one.
• Telecom Services: Removal of foreign equity restrictions on non-facilities-based telecom services; increase of the foreign equity limit for facilities-based value-added telecom services from 51% to 65%.
• Electronic Game Services: Elimination of foreign equity restrictions on electronic game services provided over the Internet.
• Financial Services: Removal of restrictions on foreign participation of above 49% to less than 100% of the charter capital of securities and fund management companies.
• SCIC: Abolition of exceptions related to commercial considerations and discriminations applicable to asset management, investment, and related activities involving the financial assets of SCIC.
• Cybersecurity Laws: Termination of the exemption from other member countries’ rights of recourse to Chapter 28 on dispute settlement of the CPTPP concerning measures adopted based on Vietnam’s cybersecurity laws.

CPTPP country members include Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, New Zealand, Singapore and Vietnam.

Retail outlets

Under Vietnamese laws, the establishment of outlets for retail services beyond the first one of a foreign owned enterprise is subject to an Economic Needs Test (ENT), except for the establishment of any outlet for retail services which has an area of less than 500 m2 in a shopping center and is not a convenience store or mini supermarket. The main criteria of the ENT include the number of existing service suppliers in a particular geographic area, the stability of market and geographic scale, among others.  Under the CPTPP, the ENT shall no longer apply to investors from CPTPP country members as from 14 January 2024.

It’s helpful to note that Vietnam also commits to remove the ENT under the EU-Vietnam Free Trade Agreement (EVFTA) and The Vietnam – UK Free Trade Agreement (UKVFTA) five years after the date on which these respective agreements entered into force.  The applicable ENT lifting dates under these agreements will be slightly later than that under the CPTPP.

Telecommunications

Non facilities-based services

At present, foreign investors may only invest in non facilities-based telecom services through a joint venture or the purchase of shares in a Vietnamese enterprise, with foreign equity not exceeding 65%, or 70% in the case of virtual private networks.  Under the CPTPP, Vietnam shall remove the above foreign equity restrictions by 14 January 2024.

For further reference, under the new Telecommunications Law to take effect on 1 July 2024, foreign investment in basic telecom services on the Internet (what will be encompassed in this newly introduced concept will be guided in a sub-law regulation to be issued by the Government), data centers and cloud computing shall not be subject to any foreign equity restriction.

Facilities-based value added services

At present, foreign investors may only invest in facilities-based value-added telecom services through a joint venture or the purchase of shares in a Vietnamese enterprise, with foreign equity not exceeding 51%. Under the CPTPP, Vietnam shall raise this 51% limitation to 65% by 14 January 2024.

Electronic game services

At present, foreign investment to supply electronic games services is not permitted except through a business cooperation contract or a joint venture with Vietnamese partner authorised to supply such services or the purchase of shares in a Vietnamese enterprise authorised to supply such services.  In case of a joint venture or the purchase of shares in an enterprise, foreign equity shall not exceed 49%, or, with respect to electronic game services offered over the Internet, 51%.

Under the CPTPP, the above 51% foreign equity limitation on investment in electronic game services offered over the Internet shall be lifted by 14 January 2024.

Financial services

At present, foreign participation from above 49% to less than 100% of the charter capital of a securities company and a fund management company in Vietnam is subject to the approval of the Government of Vietnam, including the imposition of conditions for the approval.  This condition shall be lifted by 14 January 2024.

State Capital Investment Corporation (SCIC)

The State Capital Investment Corporation (SCIC) is a state-owned holding company considered a National Wealth Fund of Vietnam.  It was established on 20 June 2005 under the mandate of Prime Minister Phan Van Khai in a reform aimed at enhancing the efficiency of state capital utilisation.

Under Article 17.4 and Article 17.6 of the CPTPP, each member country must ensure that its state-owned enterprises, when involved in commercial activities, adhere to certain principles, such as acting in accordance with commercial considerations in the purchase or sale of goods or services, except when fulfilling public service mandates, and providing no less favorable treatment in the purchase and sale of a good or service compared to enterprises of any other member country.  Among others, each member country also commits not to cause adverse effects on the interests of another member country by providing non-commercial assistance to its state-owned enterprises.

The CPTPP exempts Vietnam from the obligations outlined in Article 17.4 and Article 17.6 concerning asset management, investment, and related activities of SCIC involving its financial assets, but this exemption ceases to be effective on 14 January 2024.

Cybersecurity laws

Vietnam has entered into specific side letters with Japan, Australia, New Zealand, and Malaysia. In these letters, the aforementioned countries have agreed to abstain from pursuing resolution through Chapter 28 on dispute settlement of the CPTPP concerning measures implemented by Vietnam’s cybersecurity laws until 14 January 2024.

For reference, articles of the CPTPP which may be relevant to Vietnam’s cybersecurity laws include Article 14.11 addressing the cross-border transfer of information by electronic means and Article 14.13 regarding the location of computing facilities. According to these articles, each member country is obliged to permit the cross-border transfer of information by electronic means, including personal information, when such activity is conducted for the business operations of a covered person (as defined in the CPTPP). Furthermore, no member country is allowed to mandate that a covered person use or locate computing facilities within its territory as a prerequisite for conducting business there, except as explicitly provided for in the CPTPP.