Investing in Logistics Businesses in Vietnam for Foreign Firms

An evermore important link in global supply chains, getting goods into, around, and out of Vietnam quickly and easily is becoming increasingly important. In this article, we look at the regulations around investing in logistics services in Vietnam.

Vietnam’s economy is growing rapidly. Its middle class is bulging and demand for consumer goods is soaring. And it’s booming because international trade is booming. Billions of dollars worth of goods are moving into and out of Vietnam every day.

Facilitating this movement are a number of key infrastructure projects scattered up and down the coast. Airports in Hanoi and Ho Chi Minh City are receiving and sending air freight by the ton, and massive ports like those found in Hai Phong in the north and Cai Mep in the south are loading and unloading huge containers of exports and imports seemingly around the clock.

But whereas these huge infrastructure projects are an important part of Vietnam’s logistics network, the bits in between, the actual transportation of these goods is just as important. From planes to trains to trucks to ships billions of dollars worth of goods are being moved around the rapidly developing nation every day and demand for these services is only getting stronger.

With this in mind, in this article, the Vietnam Briefing looks at this bulging sector of Vietnam’s economy and the regulatory guardrails that foreign firms should be aware of when considering making an investment in Vietnam’s logistics sector.

General regulations

As a member of the World Trade Organisation (WTO), Vietnam’s regulatory environment around its logistics sector is built on WTO rules. These are codified in Vietnam in Decree 163/2017/ND-CP. These rules provide the following restrictions.

Marine transportation services: Foreign firms are permitted to invest in marine transportation services and to operate a fleet of ships flying the Vietnamese flag under the following restrictions:

• They cannot own more than 49 percent of the company;
• No less than two-thirds of sailors on a ship flying the Vietnamese flag can be Vietnamese; and
• Either the captain or the first mate must be a Vietnamese citizen.

Container handling services: Foreign firms may also invest in container handling services but cannot own more than 50 percent of a firm providing these services.

Inland waterway and rail freight transportation services: Foreign firms can invest in rail freight and the transportation of goods via inland waterways. However, their ownership of a firm in these sectors is capped at 49 percent.

Road transport services: Foreign firms can invest in road transport services under the following conditions:

• A foreign firm’s capital contribution cannot be more than 51 percent of the company’s chartered capital; and
• The firm cannot employ foreign drivers.

Air transport services: Restrictions on investment in air transport services are outlined in Decree 89/2019/ND-CP. These restrictions are as follows:

• Foreign firms cannot own more than 34 percent of an air transportation company;
• The largest shareholder must be a Vietnamese national or a Vietnamese legal entity;
• If a Vietnamese legal entity is the majority shareholder, a foreign investor or investors cannot own more than 29 percent; and
• No more than one-third of the company’s executive-level roles can be performed by a foreign worker.

European Vietnam Free Trade Agreement regulations

Whereas the regulations outlined above provide the baseline regulations for investing in Vietnam’s logistics sector, several free trade agreements have clauses that provide greater access for member states. The European Vietnam Free Trade Agreement (EVFTA) is one such agreement and its schedule of commitments for Vietnam opens maritime transport service for greater investment from EU forms.

EU member states are permitted to invest in marine transportation services and to operate a fleet of ships flying the Vietnamese flag in much the same way as is outlined above–only a third of sailors on board a Vietnamese-flagged ship can be non-Vietnamese and the captain or first mate must be a Vietnamese citizen. However, under the EVFTA member states can own up to 70 percent of a marine transport services company.

ASEAN Framework Agreement on Services regulations

Possibly the most liberal of Vietnam’s free trade agreements with respect to logistics services is the ASEAN Framework Agreement on Services (AFAS). This agreement opens up the logistics sector to greater foreign investment making it easier for firms to establish a regional presence and facilitating greater supply chain integration.

In the tenth package of commitments under the AFAS Vietnam has agreed to the following limitations on foreign ownership:

Inland waterway transport services: ASEAN member states that are a part of the AFAS can invest in firms carrying out the transportation of goods via inland waterways in Vietnam. They are permitted to own up to 51 percent of a joint venture as opposed to 49 percent under WTO rules.

Rail transport services: ASEAN member states that are signatories to the AFAS are also eligible for a higher cap on foreign ownership with respect to rail transport services. Parties to the agreement can own up to 70 percent of a joint venture with a Vietnamese firm in a rail transport service business.

Road transport services: AFAS members can invest in road transport services as part of joint venture agreements with Vietnamese firms. All of the firm’s drivers must still be Vietnamese, however, a foreign firm can own up to 70 percent of the company as opposed to 51 percent under WTO commitments.

Vietnam’s logistics sector moving forward

Vietnam’s logistics sector is full of opportunities for foreign firms and these opportunities are only getting better as a slew of free trade agreements slowly opens Vietnam’s logistics sector to even more foreign investment.

That said, navigating Vietnam’s free trade agreements and subsequently accurately assessing opportunities in Vietnam’s logistics market can be tricky. In this respect, firms looking for boots-on-the-ground assistance should reach out to the business advisory experts at Dezan Shira and Associates.

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