When investing in a foreign jurisdiction, investors assess multiple factors to minimize risk and make informed investment decisions. One of the most important factors for investors is the stability of the host country. Here, the political stability, economic stability, legal stability and other circumstances of the country are taken into account. Because when there is stability, it is easier for an investor to make predictions and manage risk.
As is known, Vietnam has recently been a country that has been distinguished in the world for its comprehensive stability and is known for attracting investors. However, large-scale changes in the state’s governance structure may cause certain questions among investors. In the previous section, possible risks that may arise for investors in the short and medium term were assessed and analyzed. Although there is always a possibility of risk, the extensive reforms taking place in the state’s governance system bring the issue of risk and risk protection to the agenda more from the point of view of investors.
Legal Continuity Under Administrative Restructuring
The greatest guarantee during investment is legal security. Legal security protects the interests and benefits of the investor and ensures the legal equality of “investor-state” within the framework of international economic law relations. In this section, the issues of the impact of administrative changes on existing or future investments and the issues of legal security of investors against the background of the reforms taking place are discussed from the aspects of both domestic legislation and international law.
Merging provincial-level administrative units, abolishing district-level units, and merging commune-level units, thus building a two-level local government model may raise questions for investors about the fate of licenses, changes in their land rights, the validity of existing investment decisions, and whether new administrative units recognize previous obligations.
First, it should be noted that the transition from a three-level local government model to a two-level local government model does not create a new legal rule. This administrative change is a restructuring process carried out within the Constitution and legal framework of Vietnam. Despite the change, the investment certificates, land use rights and incentives previously granted to investors remain valid and enforceable. As a result of restructuring, the rights and obligations of the former administrative bodies are transferred to the successor bodies, and the latter continue to fulfill the existing obligations. Therefore, the reform does not change the legal protection, position, incentives of investors, but the administrative management structure. While the reform does not affect substantive investor rights, certain procedural updates may be required to reflect changes in the competent administrative authority.
Protection of Investor Rights under Domestic Law
To eliminate questions and concerns that may arise in investors, it is first necessary to pay attention to the “Law on Investment”. According to the fourth paragraph of Article 5 of this law, the state recognizes and protects the ownership rights of investors over property, investment capital, income and other legitimate rights and interests. This is the investment policy of the state, and administrative restructuring does not change the fundamental obligation of the state to investors to protect legitimate investment activities. The reflection of equal treatment of investors in this article will prevent the selective behavior of the new administrative management system and the application of different rules in different regions.
One of the most controversial issues in international investment law is the State’s right to expropriate foreign investment. The 1985 Seoul Convention on the Establishment of a Multilateral Agency for Investment Guarantees states that any legislative action or inaction that would deprive the insured of the right to private property in the receiving state and the income resulting from investment activities is considered expropriation. This issue is also stated in Article 10 of the Law on Investment in such a way that the legitimate assets of investors shall not be nationalized or confiscated by administrative measures. The exceptions are national defense and security, national interests, emergency situations or natural disaster management. As can be seen, the issue of merging provinces is not intended as a case of expropriation. Even if such a case occurs, the investor will be paid full, fair and adequate compensation for the property taken in accordance with the law.
Article 11 of the law provides guarantees for business activities. As is known, one of the goals of reducing the number of provinces is to further increase the economic development of economically underdeveloped areas and the prospects of developed cities. According to the guarantee provided to the investor by the said article, the State cannot make demands against investors that are contrary to the interests of the investor for the sake of the development of the provinces (i.e., purchase or use only goods/services provided by local producers/service providers, limit the quantity, value, and types of goods/services exported or locally produced/provided, balance foreign exchange earned from exports to meet import demand, etc.).
One of the most important issues for investors is whether the incentives applied to them will also change if the laws change. According to Article 13 of the Law on Investment, if the new law provides more favorable incentives for investors, the investor has the opportunity to benefit from the new incentives for the rest of the project. If the opposite happens, that is, if the new law provides less favorable incentives, investors have the opportunity to use the existing incentives for the rest of the project. This provision prevents the deterioration of the investor’s current situation in the event of a change in the law as a result of administrative restructuring and seeks to create the best possible conditions for the investor.
Dispute Resolution and Legal Remedies
It has been emphasized so far that in the context of administrative restructuring, uncertainties or administrative inconsistencies may arise, but legal guarantees are binding on the successor administrative bodies. Nevertheless, disputes between investors and the host State may arise, particularly in periods of institutional transition, and the provisions on dispute resolution must also be in the interest of the investor and not unilaterally serve the interests of the state. Article 14 of Vietnam’s Investment Law provides several dispute resolution methods for foreign investors, in line with international law. These include negotiation, mediation, arbitration (Vietnamese or foreign), court proceedings, and investor–State arbitration based on international treaties. As can be seen from the provision, administrative reform does not leave investors without remedies.
Procedural Adjustments and Administrative Updates
At the beginning of this article, it was mentioned that the administrative change did not affect the substantive rights of investors, but only caused some procedural changes. A practical example of this is the regulation of Investment Registration Certificates (IRC). If the name of the administrative territorial unit is changed in the
se certificates, this should be corrected in the certificate. Thus, according to the second paragraph of Article 47 of Decree No. 31/2021/ND-CP, when the name, location or authority of the provincial authority changes, these changes may require updating in the IRC. This is an information update, this adjustment is not a waiver of right. Article 48 of Decree No. 31/2021/ND-CP regulates the procedure of adjustment of investment projects in case of transfer. Even then, a new investment approval procedure is not required, subject to regulation of the IRC. This also shows “legal continuity logic” in law.
Land Rights and Asset Protection
In the legal acts listed above, investors’ access to the market and legal guarantees are mentioned in the related part. However, one of the most important legal guarantees for investors is the legal guarantee given by the state to their assets, and after the administrative reform, the issue of “asset security” may raise concerns among investors. In this context, land legislation is coming to the fore. In Vietnam, as in other developing countries, foreign investment mainly is in infrastructure, energy projects, etc. related to land. For this reason, the legal guarantee of land use is important for foreign investors.
Article 17 of the Land Law dated 2024 regarding the protection of the right to use land, which is the legal basis of long-term investment projects, clearly states the state’s obligation to land users to protect the rights to use land and land-related property.
Legal grounds for land acquisition, including national defense, security, socio-economic development and certain violations of land legislation for the sake of public interests, are defined in an extensive list in the aforementioned law. Administrative restructuring is not on this list. This legislation is another clear proof of “legal continuity logic”.
International Law and Treaty-Based Protection
From the perspective of international law, internal administrative territory reform is a sovereign power of Vietnam. The most important point is that the reform does not affect Vietnam’s international investment obligations.
In addition, investors from certain jurisdictions benefit from treaty-based protections under international agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the EU–Vietnam Investment Protection Agreement (EVIPA).
The legal status of investors is linked to international agreements, especially BITs, in addition to domestic legislation. An investor invests in Vietnam in “reliance” on the provisions of the BIT. Since the reform is governance-oriented, it does not change the basic rights of foreign investors, so Vietnam’s obligations under bilateral investment treaties are not affected. Thus, Vietnam’s international investment position remains unchanged.
Read more: How Vietnam’s Provincial Mergers Are Transforming Business and Foreign Investment
