This report provides a comprehensive analysis of different investment forms for startups in Vietnam, covering domestic VC funds, international VC funds, corporate venture capital (CVC), and outbound investments by Vietnamese investors.
Domestic Venture Capital Funds under Decree 38
1. Objectives and Significance
The enactment of Decree No. 38/2018/ND-CP was a crucial step in formalizing venture capital investment in Vietnam. Prior to its introduction, Vietnam’s legal system lacked a clear regulatory framework for startup investments. The decree aims to:
- Establish a legal identity for venture capital funds in Vietnam, offering a structured investment mechanism for both local and foreign investors.
- Set clear guidelines to differentiate startup investments from traditional business investments, ensuring transparency and reducing risks related to fraud and exploitation.
- Provide tax incentives to encourage investments in startups by defining venture investors as corporate startup investors eligible for corporate income tax (CIT) benefits under the Law on Supporting Small and Medium-sized Enterprises (SMEs).
- Unlock capital flow into the startup ecosystem by facilitating the establishment of venture capital funds, offering tax advantages, and stimulating innovation.
2. Legal Framework
The operation of domestic venture capital funds is governed by:
- Decree No. 38/2018/ND-CP, detailing investment in SMEs and the formation of venture capital funds.
- Circular No. 111/2013/TT-BTC, regulating personal income tax (PIT) on capital transfer earnings.
- Circular No. 78/2014/TT-BTC, guiding corporate tax policies for startup investments.
International Venture Capital Funds Investing in Vietnamese Startups
1. Investment Objectives
Foreign venture capital firms play a dominant role in Vietnam’s startup investment landscape. The primary objectives of these funds include:
- Enhancing capital availability: International VCs bring large-scale investments, enabling startups to scale operations, expand R&D, and access new markets.
- Leveraging global expertise: Foreign investors offer strategic mentorship, advanced management models, technology transfer, and international networking.
- Positioning Vietnam as a global startup hub: High-profile foreign investments create a positive investment climate, attracting further international funds.
- Driving competitiveness and innovation: To secure foreign VC funding, Vietnamese startups must meet stringent quality and innovation criteria, fostering overall ecosystem growth.
2. Investment Methods
According to Article 21 of the 2020 Investment Law, foreign investors can enter the Vietnamese market through:
- Establishing a legal entity in Vietnam.
- Equity financing via direct stock purchases.
- Project-based investments.
- Business cooperation contracts (BCCs).
- Other Government-approved investment structures.
However, foreign VC funds often require startups to restructure by incorporating a holding company in Singapore before injecting capital. This approach facilitates international investment transactions while mitigating regulatory constraints in Vietnam.
3. Legal Framework
International investment activities in Vietnam follow:
- Investment Law No. 61/2020/QH14 (June 17, 2020).
- Official Letter No. 8909/BKHDT-PC (December 31, 2020), issued by the Ministry of Planning and Investment.
Corporate Venture Capital (CVC) Funds in Large Enterprises
1. Role and Benefits of CVC in Vietnam
Corporate-backed venture capital (CVC) funds are an emerging investment trend in Vietnam. Large corporations and enterprises establish CVC funds to:
- Identify and nurture promising startups aligned with their industry expertise.
- Diversify business portfolios by investing in disruptive innovations.
- Secure long-term financial gains by acquiring stakes in high-potential startups.
- Foster open innovation, bridging the gap between established businesses and agile startups.
2. Investment Mechanisms
CVC investments typically take one of the following forms:
- Incorporating a venture capital fund under Decree 38, requiring corporate investors to register startup investment activities with business authorities.
- Creating a joint-stock investment company dedicated to specific venture deals.
- Setting up offshore venture capital funds in jurisdictions with favorable investment policies (e.g., Singapore, Hong Kong, South Korea).
3. Legal Framework
CVC investments adhere to:
- Decree No. 38/2018/ND-CP (guiding SME startup investment funds).
- Investment Law No. 61/2020/QH14.
- Enterprise Law No. 59/2020/QH14.
- Decree No. 31/2021/ND-CP, which outlines detailed investment regulations.
Outbound Investments by Vietnamese Investors in Foreign Startups
1. Strategic Importance of Outbound Startup Investments
Vietnamese investors are increasingly expanding their reach into global startup ecosystems, aiming to:
- Strengthen Vietnam’s global economic footprint.
- Facilitate knowledge transfer by acquiring expertise from leading foreign startups.
- Enhance international business collaborations to bring advanced solutions back to Vietnam.
- Gain competitive advantages through early-stage investment in high-growth tech ventures abroad.
2. Investment Methods
As per Article 52 of the 2020 Investment Law, Vietnamese investors can invest overseas through:
- Establishing foreign legal entities.
- Participating in joint ventures and contracts with international businesses.
- Acquiring foreign company shares.
- Investing in securities, investment funds, and financial instruments abroad.
3. Legal Framework
Outbound investments are governed by:
- Investment Law No. 61/2020/QH14.
- Decree No. 31/2021/ND-CP (detailed investment guidelines).
- Decree No. 135/2015/ND-CP (foreign indirect investment regulations).
- Decree No. 16/2019/ND-CP, which amends financial regulations for overseas investments.
Conclusion
Vietnam’s startup investment landscape is evolving with diverse financing models, including domestic VC funds, international VC participation, corporate venture capital, and outbound investments.
To sustain this growth, the government must continue enhancing legal frameworks, offering tax incentives, and simplifying investment procedures. At the same time, Vietnamese startups must elevate their innovation capabilities, governance standards, and global integration strategies to remain competitive in attracting capital from both domestic and international sources.
By strengthening the investment ecosystem, Vietnam can position itself as a leading startup hub in Southeast Asia, driving technological innovation, economic resilience, and long-term national growth.
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Access Full Report – Vietnam Startup Investment Policy Report 2024 – Key Insights
