Vietnam’s data center economy is expected to experience steady growth, with the sector projected to reach US$1.03 billion by 2028.

Sector outlook

Vietnam’s data center economy growth is driven by a compound annual growth rate (CAGR) of 10.68 percent from 2022 to 2028. Vietnam had 77.93 million internet users in January 2023, indicating a 7.3 percent increase from the previous year.

The digital economy in Vietnam is undergoing significant transformations due to evolving regulations and the push for greater digitization. Recent regulations prioritize data sovereignty, personal information protection, and cybersecurity. Data localization norms came into effect on October 1, 2022, to ensure data stays within Vietnam. The government also focuses on digitization initiatives, such as tax incentives for high-tech investments, e-governance, fiber connectivity expansion, and 5G rollout. These policies have stimulated increased investments in data centers in Vietnam.

Developments in advancing connectivity

In terms of connectivity, Vietnam has made advancements, including the introduction of commercial 5G in December 2020. 5G network coverage now extends to 40 out of 63 provinces and cities in Vietnam. The Ministry of Information and Communications conducted a spectrum auction to expand 4G and 5G services. Efforts are also underway to develop 6G technology.
Vietnam is connected to Asia-Pacific and Europe, Middle East, and African countries as well as the U.S. through five operational submarine cables. Additional cables like the Asia Direct Cable and Southeast Asia-Japan Cable 2 will further enhance Vietnam’s connectivity by 2023/2024.

The “National Digital Transformation Program to 2025” aims to shift 50 percent of business operations to digital platforms by 2025. Edge data center deployment is expected to increase due to the growing connectivity of the 5G network, providing last-mile connectivity and lower latency services. The program’s targets include a digital economy contributing to 20 percent of the GDP, at least 10 percent representation of the digital economy in each sector, annual productivity growth of no less than 7 percent, and rankings within the top 50 on various indices measuring ICT development, global competitiveness, and innovation. Additionally, goals related to digital society development involve expanding fiber optic internet infrastructure, ensuring widespread availability of 4G/5G services and smartphones, increasing digital checking account adoption, and improving cybersecurity rankings.

Sector promotion and favorable tax policy

To promote growth in the ICT sector, the Vietnamese government has introduced favorable tax policies and incentives for high-tech investments. Companies operating in digital technology domains can benefit from a reduced corporate income tax rate of 10% for 15 years, along with other advantages.
Vietnam’s data center market attracts investments from both newcomers and established operators. Ho Chi Minh City and Hanoi serve as major data center hubs, collectively hosting 27 data centers. The industry segments include IT infrastructure, electrical infrastructure, mechanical infrastructure, general construction, security and compliance, and tier standards.
Overall, Vietnam’s data center economy shows promising growth prospects, driven by favorable regulations, increasing connectivity, and government support for digitization initiatives.

Regulatory frameworks that apply to data centers in Vietnam

Regulatory frameworks that apply to data centers in Vietnam include:
Law on Investment No.61/2020/QH14: This law governs investment activities in Vietnam, including the establishment of data center businesses.
Decree No.25/2011/ND-CP: This decree provides guidelines for implementing regulations related to telecommunications, which includes data center operations.

Foreign data center companies operating in Vietnam have two options:
Business cooperation contract (BCC): Foreign companies can enter into a BCC with a local partner to operate a data center without setting up a local company. The BCC must involve at least one local partner, and foreign ownership cannot exceed 100 percent.
Joint venture (JV): Foreign companies can establish a local entity through a JV, as data center businesses are classified as telecommunication services under Vietnamese law. Foreign ownership is subject to specific restrictions depending on the type of service provided.

For JVs,
1. In non-facilities-based services, foreign ownership cannot exceed 65 percent.
2. In facilities-based services, foreign ownership should not exceed 50 percent. Importantly, certain international trade and investment agreements may facilitate flexibility in the foreign ownership ratio.

Additionally, if a foreign investor already holds more than 20 percent of the charter capital in another Vietnamese telecommunication enterprise, they cannot possess more than 20 percent of the charter capital in a Vietnamese data center company.

Depending on the data center investment path selected in Vietnam, certain registration procedures are mandated:

1. In the case of a BCC, both parties involved will need to obtain an Investment Registration Certificate (IRC) to proceed with the investment under the BCC.

2. In the case of a JV, not only will an IRC be required, but also an Enterprise Registration Certificate (ERC) will be necessary for the establishment of the joint venture.

3. If the data center business falls under the category of a facilities-based service, obtaining Investment Policy Approval from the Prime Minister is essential before the IRC can be issued. This additional step is crucial for regulatory compliance in this specific sector.

Decree 25, which was issued on April 6, 2011, applies to the telecommunications domain. The decree stipulates details and specifies new guidelines for the execution of several articles of Telecom Law relating to the ratio of ownership, foreign investment, commercial rights fees, and authorized capital.

International norms under UN, WTO, and FTA frameworks

Vietnam’s international commitments under the UN, WTO, and free trade agreements also influence data center regulations. While specific provisions for data centers may be lacking, existing agreements cover related services such as online information and database retrieval.

Law impacting telecommunications and Internet services

• Telecommunications Law No. 41/2009/QH12
• Decree No. 25/2011/ND-CP
• Decree No. 53/2022/ND-CP (provisions of Law on Cybersecurity)
• Decree No. 72/2013/ND-CP
• Circular No. 17/2016/TT-BTTTT, as amended by Circular No. 08/2017/TT-BTTTT

Data and cybersecurity laws

• Law on Cyber Information Security No. 86/2015/QH13, dated November 19, 2015
• Law on Cyber Security No. 24/2018/QH14, dated June 12, 2018
• Decree No. 53/2022/ND-CP, dated August 15, 2022, detailing several provisions of the Law on Cyber Security
• Decree No. 13/2023/ND-CP, dated April 17, 2023, regarding Personal Data Protection (Decree 13), in effect from July 1, 2023

Data and cybersecurity laws require the storage of certain data types within Vietnam. Foreign entities may need to localize data storage or establish a presence in Vietnam if requested by the Ministry of Public Security. In specific, decree 13/2023/ND-CP regulates personal data protection, imposing obligations on organizations and individuals involved in data center-related services. It also restricts the transfer of Vietnamese personal data outside of Vietnam.

Construction of data centers

Construction of data centers must adhere to specific national standards and technical regulations outlined in Circular 03. These include requirements for data center design, fire prevention, lightning protection, and earthing.
1. The national standard for data centers and telecommunications technical infrastructure requirements, as outlined in TCVN 9250:2021 (or ANSI/TIA-942-B:2017 standard or the Tier standard by the Uptime Institute).
2. The national technical regulation (NTR) concerning fire prevention and firefighting equipment applicable to buildings and facilities, as specified in QCVN 06:2021/BXD.
3. The NTR about lightning protection, which is relevant to telecommunications substations and peripheral cable networks, as detailed in QCVN 32:2020/BTTTT.
4. The NTR regarding earthing for telecommunication stations, as specified in QCVN 9:2016/BTTTT. These regulations are essential in ensuring the compliance and safety of data centers in Vietnam.
These regulations are essential in ensuring the compliance and safety of data centers in Vietnam.

Land law

• Law on Land No. 45/2013/QH13
• Civil Code No. 91/2015/QH13, dated November 24, 2015

Under Land Law No. 45/2013/QH13 and the Civil Code No. 91/2015/QH13 in Vietnam, foreign investors are not allowed to own land for data center development directly. However, there are provisions for foreign investors to establish data centers through business cooperation contracts (BCC) or joint ventures (JV).
In the case of a BCC, the ownership of real estate must be with the local partner, who then contributes it to the BCC. Foreign investors are not permitted to own real property for data center development.
For JVs, land ownership is also prohibited. Instead, JVs have the option to lease land from the State or sub-lease land within an industrial zone from an industrial zone developer specifically for data center development. Although they cannot own the land, JVs can retain ownership of the data center buildings constructed on the leased land. Any assets attached to the land must be registered with the relevant land authority.
These arrangements allow foreign investors to develop and maintain data center facilities in Vietnam while complying with local land ownership regulations.

Electricity law

• Law on Electricity No. 28/2004/QH11, dated December 3, 2004

Under the current electricity law in Vietnam, specifically the Law on Electricity No. 28/2004/QH11, there is no requirement for special power purchase agreements specifically for data center operations. The law also lacks guidelines for purchasing power from Independent Power Producers (IPPs), except for IPPs operating rooftop solar systems.
However, there is a draft decision proposed by Vietnam’s Prime Minister that aims to establish a pilot program allowing direct power purchase agreements between renewable power producers and consumers, including data centers. To participate in this program, renewable power plants and consumers, such as data centers, must register with the Ministry of Industry and Trade (MOIT). MOIT will assess and create a list of eligible participants. Only those on the list will be able to directly purchase power from IPPs.
It’s important to note that this draft decision has not been finalized yet but is expected to be fast-tracked in 2023 after the release of Vietnam’s Power Development Plan 8 on May 15, 2023. This potential development could provide opportunities for data centers to directly purchase renewable power in the future.