If foreign contractors do construction activities in Vietnam, do they have to set up a joint venture with Vietnamese contractors?

If foreign contractors do construction activities in Vietnam, do they have to set up a joint venture with Vietnamese contractors?

Pursuant to Article 102 of the Decree 15/2021/ND-CP on the principles of management of activities of foreign contractors as follows:

1. The foreign contractor is only permitted to carry out construction activities in Vietnam after receiving a construction operating license issued by state agency in charge of construction.

2. The operation of the foreign contractor in Vietnam must comply with Vietnamese law and international treaties that Vietnam concluded or acceded.

In Article 103 of the above Decree, the conditions for granting construction operation permits are as follows:

1. A foreign contractor will be granted the construction operating license if it has been awarded the contract by the investor/contractor (subcontractor).

2. The foreign contractor must set up a joint venture with a Vietnamese contractor or employ Vietnamese sub-contractors, unless the Vietnamese contractor is ineligible to execute any tasks of the contract package. Upon the joint venture or employment of Vietnamese contractors, it is required to clarify contents, quantity and value of tasks performed by Vietnamese contractors in the joint venture or Vietnamese sub-contractors.

3. The foreign contractor must commit to comply with regulations of Vietnamese law on contract execution in Vietnam.

Thus, foreign contractors operating in Vietnam must have a joint venture with Vietnamese contractors, except for domestic contractors who are incompetent to participate in any work of the bidding package.

What are the penalties for foreign construction contractors who not set up a joint venture with Vietnamese contractors?

According to the provisions of Clause 3, Article 24 of Decree 16/2022/ND-CP, regulations on violation of regulations on construction capacity are as follows:

3. In addition to the penalties under Clause 2 of this Article, the foreign contractors must also incur fines ranging from VND 50.000.000 to VND 70.000.000 for:

a) Borrowing, lending, hiring, or leasing license of operation for construction work;

b) Engaging in construction work in Vietnam without construction permit;

c) Refusing to establish joint venture with Vietnamese contractors or refusing to utilize Vietnamese secondary contractors as per the law;

d) Refusing to establish coordinating office after obtaining the construction permit; Refusing to register or disclose address, phone number, fax number, e-mail, seal, account, or TIN of the coordinating office as per the law;

dd) Employing foreign workers who are not experts in economic management, technical management or very high skilled workers which Vietnam cannot provide to do construction work in Vietnam;

e) Failing to execute joint venture contracts signed with Vietnamese contractors or failing to utilize Vietnamese secondary contractors which have been defined under the application for issuance of license for construction operation;

g) Failing to clearly define contents, workload, or value of workload of the Vietnamese contractors in a joint venture or Vietnamese secondary contractors;

h) Failing to perform quality register for imported materials, equipment as per the contracts or failing to perform safety register for construction equipment and traffic relating to business activities of the foreign contractors as per Vietnamese laws;

i) Violating report policies dictated in the construction permit.

According to this Article, foreign contractors operating in Vietnam who do not have a joint venture with Vietnamese contractors under regulations shall be subject to a fine of between VND 50,000,000 and VND 70,000,000.

Best Regards!