Japanese FDI in Vietnam: 8 important notes for investors

Japan has emerged as a strategic foreign investor in Vietnam, consistently ranking among the top three countries in terms of foreign direct investment (FDI). This strong partnership has fostered a favorable investment climate, with Japanese businesses enjoying preferential treatment when investing in Vietnam.

According to a quick report of the Foreign Investment Department under the Ministry of Planning and Investment of Vietnam on the situation of attracting foreign investment capital by February 2024, there are 48 countries and territories that have invested in Vietnam during the first two months of 2024 [1]. Only behind Singapore and Hong Kong, Japan is currently one of the countries with a diverse number of investment projects and investment capital as well as investment sectors in Vietnam. To maintain the trust of Japanese investors, the Vietnamese Government has had many incentive programs for investors from this cherry blossom region.

However, navigating Vietnam’s investment regulations to successfully invest in Vietnam can be complex for Japanese investment. Here are some essential factors to keep in mind when considering investments in Vietnam, with a focus on Japan investment in Vietnam.

1. Market Research

Originating from the specific nature of business investment activities, any investor when conducting business needs to study the market carefully and thoroughly research before implementing. This research will help investors determine the market needs in the industry in which they plan to invest in Vietnam. Thereby, investors can outline effective business strategies in detail.

The young population and low labor costs are among the advantages of the Vietnamese market. Vietnam’s strategic geographic location at the heart of a dynamic economic region enhances its appeal to foreign investors. However, cultural barriers and unique characteristics in business, politics, and infrastructure,… will make investors in general and Japanese investors if there is no thorough research.

2. Forms of investment

Japanese investors exploring opportunities to invest in Vietnam can choose different investment forms in Vietnam depending on their respective business strategies and objectives. Accordingly, investors can consider common forms:

• Establishing economic organizations in Vietnam
• Joint ventures with domestic partners
• Investing under business cooperation contracts
• Development-operation-project transfer.

3. Determination of capital and commitment to contribute capital

Capital and financial concerns are significant factors for those involved in Japan’s investment endeavors in Vietnam. Regarding investment capital and charter capital in business operations, the following issues should be noted:

• The capital contribution roadmap as well as to comply with regulations related to capital contribution under the provisions of Vietnamese law.
• In addition, it is essential to avoid any delays or breaches in capital contribution commitments to prevent potential penalties imposed by the competent state authorities.

4. Plan human resource utilization

Depending on the nature of your business sectors in Vietnam, investors need to determine the quantity and type of human resources required to carry out business activities, which includes:

• The job positions to be recruited and the skills and experience required for each position.
• The Vietnamese government also encourages recruitment, training and development of domestic human resources to solve the employment issue for workers.

Therefore, investors need to plan personnel before conducting business activities to ensure the quality and quantity of employees to be recruited, meeting the set business plan.

5. Japan Investment incentives in Vietnam

Currently, Vietnam offers various investment incentives to entice foreign direct investment, this includes:

• Tax incentives
• Land use incentives
• Incentives when investing in specific sectors or areas.

Japanese investors should also note that taxable income arising when conducting business activities in Vietnam. These incomes are currently regulated by:

• Vietnamese law
• The Double Taxation Avoidance Agreement between Vietnam and Japan.

6. Specific regulations by business lines

In addition to meeting the conditions on restricting market access for certain business lines, it should be noted that Japan and Vietnam are members of:

• The World Trade Organization (WTO)
• The ASEAN – Japan Comprehensive Economic Partnership Agreement (AJCEP)
• The Comprehensive and Progressive Trans-Pacific Partnership (CPTPP)
• The Regional Comprehensive Economic Partnership (RCEP)…

Based on the provisions of these agreements, Vietnam will have specific regulations on market access for certain specialized sectors for Japanese investors.

Furthermore, it is necessary to that investor should carefully examine sector-specific regulations when determining their investment focus. For example, in certain sectors such as banking, insurance, telecommunications, and labor leasing, there are specific industry-specific requirements and regulations.

7. Reporting compliance

One of the regulations that Japanese investors should pay attention to is the obligations arising periodically (monthly, quarterly, yearly) such as the reporting regime on investment activities, production and business operations of enterprises. Specifically the report will focus on:

• The use of investment capital,
• Results of production and business operations
• Information on employees
• Enterprises ‘s obligations to the state budget
• Environmental protection treatment
• Performance indicators in each sector of operation.

8. Dispute resolution