Investment in Vietnam

Ed-Tech

09/01/2022

2468

This post compares major differences between a foreign-invested education establishment and a purely domestic one to help foreign investors better structure their deals in this industry at the outset. For that purpose, we assume the investment will land on 02 ‘hot’ educational sectors just now which are foreign language and IT training.

Items	Domestic Enterprises^[1]	FIEs^[2]
Main regulating documents	1. Law on Education (2019) 2. Decree 46/2017/ND-CP prescribing regulatory requirements for educational investment and operation as amended by Decree 135/2018/ND-CP 3. Circular 21/2018/TT-BGDDT on organization and operation of foreign language and IT centers	1. Law on Education (2019) 2. Decree 86/2018/ND-CP on foreign cooperation and investment in the educational sector 3. Circular 21/2018/TT-BGDDT on organization and operation of foreign language and IT centers
Market access conditions	None	None
Business conditions	Application for an establishment decision issued by the local Department of Education and Training by satisfying the following conditions:^[3] There is a team of managers, teachers, and staff who meet the prescribed standards, meeting the operational requirements of the center.^[4] Having appropriate facilities, equipment, programs, teaching materials, and funding sources, ensuring the quality of education according to the center’s construction and development plan and operation scale.	Application for a decision approving the educational operation (quyet dinh cho phep hoat dong giao duc in Vietnamese) issued by the local Department of Education and Training by satisfying the following conditions: Investment unit cost is VND 20 million/ student at the minimum.^[5] Facilities and equipment:^[6] Classes shall have appropriate light, desks, chairs, and teaching equipment and materials. The minimum average area for teaching shall be 2.5m2 per student. There must be offices for the board of directors and teachers, libraries, and other functional rooms. Teaching staff: The teachers shall have college degrees or equivalent in the profession suitable for the subjects that they teach. The maximum ratio of students to teachers shall be 25:01.
Operating term	Varies by licensing authorities can be from 2 – 5 years and extendable.	Maximum 50 years from the issuance date of the investment registration certificate and no longer than the land lease term^[7]
Possible consequences/ Other considerations	Domestic operating companies using the holding structure as discussed at Footnote 1 may be deemed as a fabricated transaction that is created in order to ultimately avoid restrictions on foreign-invested education service suppliers. This may then end up in the entire arrangement being rendered invalid by a court decision or an arbitral award. While we cannot rule out this possible risk, we consider it nominal in practice. Another risk, albeit nominal, is the lack of guidance of Vietnamese law on holding company structure.	For now, Vietnamese law is not crystal clear on the provision of education services via online platforms. In such absence, we are aware that a number of licensing authorities take a conservative view that even if the relevant courses are provided online, conditions applicable to a physical facility are still required.

With the contribution of Quynh Nguyen, Associate at Duane Morris Vietnam.

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[1] Including using holding structure i.e. – establishing layers of holding companies that ultimately own an operating local company.

[2] Including acquiring a purely local company to make it a foreign-invested company after the acquisition.

[3] Article 1.21, Decree 135.

[4]Article 18, Circular 21.

[5]Article 35.3, Decree 86.

[6] Article 36.1, Decree 86.

[7] It is however unclear on the operational terms of an FIE establishment that neither is subject to any investment registration certificate (IRC) nor leases any land (not space) from the Government of Vietnam.