[Legal Update] "Foreign Direct Investment: A New Approach to Licensing Procedures"
Foreign Direct Investment: A New Approach to Licensing Procedures
April 28, 2026
1. Introduction
On March 31, 2026, the Government of Vietnam issued Decree 96/2026/NĐ-CP (“Decree 96”) to guide the Law on Investment 2025. This decree allows foreign investors to establish an economic organization (ERC) before applying for an investment project license (IRC). By reversing the process under the Law on Investment 2020, the new regulation is seen as a solution to long-standing legal bottlenecks, promising to boost foreign capital inflows and align Vietnam’s legal framework with international standards.
2. New Procedure under Decree 96
Previously, under the Law on Investment 2020 and Decree 31/2021/NĐ-CP, foreign investors were required to establish an investment project first and then form an economic organization. However, the Law on Investment 2025 and Decree 96 now permit investors to establish an ERC [Defined above] before applying for an IRC, provided they meet requirements on capital ownership ratios, investment forms, and scope of activities (i.e., market access conditions). The application dossier for establishing an economic organization must include a commitment to comply with market access conditions. Accordingly, the authority responsible for assessing market access conditions is the business registration office or an equivalent authority.
Within 12 months from the date of establishment, foreign investors must complete the IRC application for a project consistent with their registered business lines. Failure to do so may result in revocation of the ERC and compulsory dissolution.
3. Significantly Shortened Market Entry Time
Allowing ERC registration before IRC application marks a major step forward in investment law. This reform may substantially reduce the time required for market entry. Instead of preparing all IRC application documents, which could take approximately 3 to 6 months, including project proposals, proof of financial capacity, land-use rights, and explanatory documents, foreign investors may now only need 2 to 4 weeks to establish a legal entity in Vietnam. This levels the playing field between foreign investors and domestic enterprises in the pre-project stage, enabling investors to seize business opportunities more effectively. Under the Law on Investment 2020, investors lacked legal entity status during the IRC stage, meaning initial activities such as leasing premises or hiring staff had to be conducted through a parent company or partners.
4. Remaining Issues
Despite its advantages, Decree 96 still has shortcomings. It provides only general procedural guidance without detailed templates for implementation. Meanwhile, Circular 68/2025/TT-BTC has not yet incorporated the new procedures under Decree 96. As a result, investors must await further guidance or follow instructions from competent authorities.
Additionally, allowing investors to establish entities before project approval introduces risks. There are no clear rules on ERC revocation if investors fail to establish a project within the prescribed timeframe. This could lead to entities being set up for unlawful purposes without concrete projects, particularly in real estate. Moreover, neither the Law on Investment 2025 nor Decree 96 addresses the legal consequences when a company is established but its project application is rejected.
5. Recommendations for Leveraging the New Regulation
To maximize the benefits of the new regulation, foreign investors should prepare carefully. Specifically, they should thoroughly review market access conditions to ensure compliance, and consider preparing ERC and IRC applications simultaneously to optimize licensing time. For projects under business cooperation models, parties should also design appropriate exit clauses in case the IRC is not approved.
Date of writing: April 14, 2026