A question many foreign investors ask when setting up manufacturing projects in Vietnam: is an FDI project legally required to meet a minimum local content ratio? The short answer is no — Law 143/2025/QH15 (the 2025 Investment Law) not only sets no mandatory local content ratio, it prohibits the State from imposing such a requirement on investors.
The legal basis: Article 10 of the 2025 Investment Law bans mandatory localization
Point d, clause 1, Article 10 of Law 143/2025/QH15 (passed 11/12/2025, effective 01/3/2026) lists “achieving a local content ratio for domestically manufactured goods” among the requirements the State may not compel investors to meet. This is part of the investment guarantee principle, alongside other requirements the State may not impose:
- achieving a local content ratio for domestically manufactured goods;
- giving priority to purchasing and using domestic goods and services;
- exporting goods or services at a certain ratio;
- balancing foreign currency;
- conducting research and development at a certain ratio;
- supplying goods or services at a specific location;
- locating the head office at a State-designated place.
Note: this is not entirely new — the 2020 Investment Law (Law 61/2020/QH14, Article 9) contained a similar provision. However, Law 61/2020 expired on 01/3/2026 and was fully replaced by Law 143/2025; all citations of current law must refer to Law 143/2025, not Law 61/2020.
Decoding the “45–50%” figure: a policy target, not a legal obligation
Many media reports mention a target of 45–50% average local content for key industrial sectors in 2026–2030, along with a goal of around 10,000 domestic enterprises joining supply chains (including 500–1,000 tier-1 suppliers). These are orientation targets in Resolution 10-NQ/TW of the Politburo (issued June 2026).
A Party resolution is a policy orientation document — it does not create direct legal obligations for individual FDI projects. Confusing a “policy target” with a “mandatory condition for each project” is the most common trap in this topic and must be avoided.
The other side of the coin: localization as a special incentive criterion
Although not mandatory, localization carries significant legal-economic value for investors: it is a criterion for special investment incentives. Clause 5, Article 21 of Decree 96/2026/ND-CP (issued and effective 31/3/2026) provides that the Prime Minister decides the level and duration of special investment incentives based on criteria including “Vietnamese enterprises participating in the chain, domestic production value”.
In other words: strong localization — bringing Vietnamese enterprises into the supply chain and raising domestic production value — helps a project qualify for special investment incentives; weak localization triggers no penalty but may mean missing out on incentives. (Quoted exactly as written in the decree: it uses the phrase “Vietnamese enterprises participating in the chain, domestic production value”, not the term “localization”.)
Practice: why investors still raise localization without being forced to
In practice, the local content ratios of many FDI projects in Vietnam keep rising — not because the law requires it, but because of economic benefits: lower logistics costs, supply security, meeting rules-of-origin requirements under free trade agreements, and stronger competitiveness when accessing support policies.
Some investors also voluntarily commit to raising their use of domestic goods when applying for special investment incentives or support (Article 17 of Law 143/2025) or accessing the Investment Support Fund (Article 16). However, the detailed legal basis of such voluntary commitments depends on the guiding documents of each specific support program — investors should check the original documents before signing, rather than assuming every incentive program demands a localization commitment.
Does Law 24/2026 change anything on localization?
No. Law 24/2026/QH16 (passed 24/8/2026, effective from 01/3/2027 — not yet effective at the time of writing) only amends Article 6 and replaces Appendix IV of the 2025 Investment Law; it does not amend Article 10. The ban on mandatory localization therefore remains unchanged after 01/3/2027.
Frequently asked questions
Is any sector subject to a mandatory local content ratio?
Under the 2025 Investment Law, no — the ban in Article 10(1)(d) applies generally. Any sector-specific localization policy (for example, the automotive sector) would have to come from a separate specialized legal document; the author has not verified any currently effective document imposing a mandatory ratio, so investors should check the specialized documents applicable to their sector.
Can an FDI project be penalized for low localization?
No. Since there is no legal obligation on the local content ratio, there is no sanction for “failing to meet a ratio”. The only practical consequence is that the project may not meet the criteria for special investment incentives under Article 21.5 of Decree 96/2026.
Legal references
- Investment Law 143/2025/QH15 (passed 11/12/2025, effective 01/3/2026): Article 10, clause 1, point d.
- Decree 96/2026/ND-CP (issued and effective 31/3/2026): Article 21, clause 5.
- Resolution 10-NQ/TW of the Politburo (June 2026): target of 45–50% average local content for key industrial sectors, 2026–2030.
- Law 24/2026/QH16 (passed 24/8/2026, effective 01/3/2027): does not amend Article 10 of the 2025 Investment Law.
- Investment Law 61/2020/QH14, Article 9: expired 01/3/2026 — for background comparison only, not a current-law citation.
Need advice on incentive structuring and investment law compliance for your FDI project? The FLAT Law Firm team accompanies investors from investment policy approval and IRC issuance to project operation and extension. Contact us at contact us.
This article is general reference based on the law in force at the time of writing (14/10/2026) and does not constitute legal advice for any specific case.
Transparency note: This article was drafted by the AI content production system of FLAT Law Firm and is undergoing internal review (AI Legal Council QA and owner approval before publication). It has not been reviewed by a licensed human lawyer.