FDI – What is foreign direct investment? What are the forms of foreign direct investment in Vietnam? Characteristics and impacts of FDI on the current economy? All will be shared by Accounting fdiinvietnam.com in the article below.
FDI – What is Foreign Direct Investment?
Foreign Direct Investment (FDI) is a form of international investment in which the investor of this country will invest all or a large enough portion of capital for a project in another country, this is to take control or participate in the control of that project. FDI is private investment with the purpose of seeking profit being the top priority.
Thus, according to the legal definition of our country, FDI is an activity of bringing investment capital of foreign investors into Vietnam with the condition that they must participate in the management of that investment activity.
>> See more: What is an FDI enterprise?
Forms of foreign direct investment
1. By method of penetration
- New investment: is when a company invests to build new production, marketing or administrative facilities;
- Acquisition: is the direct investment or purchase of an operating company or business establishment;
- Merger: is a special form of the above-mentioned acquisition, in which two companies will contribute capital to establish a new, larger company. Merger is a popular form used between companies of the same size because it has the ability to combine activities together on a relatively balanced basis.
2. According to the direction of the country receiving investment
- Import substitution FDI: FDI is conducted with the aim of producing and supplying the market of the host country with products that the country previously had to import. This form of investment is affected by the market capacity, trade barriers of the host country and transportation costs;
- FDI increases exports: The target markets are larger markets globally, including the market of the investor country;
- FDI according to other Government directions: The Government of the investment recipient country applies investment incentive measures to regulate FDI flows into its country according to its plan.
3. According to legal form
- Business cooperation contract: Is a type of contract (document) signed between parties to conduct investment, which shows the responsibility for sharing business results among the parties without having to establish a new legal entity;
- Joint venture enterprise: is an enterprise established in the host country based on a joint venture contract signed between the parties, or more specifically, it can be established based on an Agreement signed between countries, to conduct investment and business in the host country;
- 100% foreign-owned enterprise: is an enterprise established by a foreign investor in the host country and owned by that investor, who will self-manage and be responsible for business results;
- BOT, BTO, BT.
Characteristics of FDI – Foreign Direct Investment
Foreign direct investment activities have the following specific characteristics:
- Associated with the movement of investment capital (ie: money and other assets between countries), leading to an increase in the amount of money and assets of the country receiving the investment capital, and conversely, a decrease in the amount of money and assets of the country sending the investment;
- Conducted through the establishment of new enterprises, business cooperation contracts, acquisition of existing branches or enterprises, purchase of shares at a controlling level or carrying out mergers and transfers of companies;
- Foreign investors owning 100% of investment capital or owning investment capital at a rate at which they are allowed to directly participate in enterprise management;
- As a private investment activity, it is less affected by politics between countries;
- Investors directly control and operate the investment capital flow process;
- FDI is investment from foreign countries into the country and from domestic countries to foreign countries, so FDI includes investment capital flows into a country and capital flows out of that country;
- Much of it is done by transnational corporations;
- FDI often comes with technology transfer to the host countries to implement the project.
Positive Impact of Foreign Direct Investment (FDI) on the Economy
Foreign direct investment brings many great benefits to the domestic economy such as:
- Most foreign investors are highly responsible and skilled, contributing to improving the investment situation in Vietnam;
- Exploiting mineral resources and labor resources, increasing employment and training high-quality workers;
- Expanding consumer markets and large-scale production, improving production capacity, leading to reduced product costs, suitable for consumers’ income;
- Avoid trade protection barriers and trade fees of investment recipient countries;
- Promote economic development and growth of the recipient country;
- Create a large source of revenue for both the recipient and the investor;
- Received resource transfer.
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Currently, foreign investors can invest in Vietnam in 1 of 2 ways:
- Method 1: Establish a company with Vietnamese capital and then contribute capital, buy shares or transfer capital contributions. With this method, investors will only receive a business registration certificate without an investment license;
- Method 2: Apply for an investment registration certificate, which means establishing a business with foreign capital directly from the beginning without going through a Vietnamese person.
Accounting fdiinvietnam.com has many years of experience consulting and completing legal procedures for foreign investors (opening FDI enterprises), please refer to the following article for details:
>> Foreign capital company establishment service – From 15,000,000 VND.
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Some frequently asked questions about foreign direct investment
1. How is FDI understood?
According to the legal definition of our country, FDI or foreign direct investment is the capital investment activity of foreign investors in Vietnam with the condition that they must participate in the management of that investment activity.
2. What are the forms of FDI investment?
- By method of entry: New investment, acquisition, merger;
- According to the orientation of the country receiving investment: FDI to replace imports, FDI to increase exports, FDI following other orientations of the Government;
- By legal form: Business cooperation contract, joint venture enterprise, 100% foreign-owned enterprise, BOT – BTO – BT.
3. Benefits of FDI?
Foreign direct investment activities in Vietnam bring many benefits such as:
- Increase employment and help train a high-quality workforce;
- Expanding consumer markets and large-scale production, improving production capacity, leading to reduced product costs, suitable for consumers’ income;
- Avoid trade protection barriers and trade fees of investment recipient countries;
- Promote economic development and growth of the recipient country;
- Create a large source of revenue for both the recipient and the investor;
- Received resource transfer.
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