A contract between a Vietnamese party and a foreign party usually counts as a contract with a foreign element, and the parties can then choose a foreign law, such as English or Singapore law, to govern it. The choice is limited: Vietnamese law still applies to certain matters, such as rights over land and real property in Vietnam, and a foreign law will not be applied where its effect would breach the fundamental principles of Vietnamese law.
The harder question is often not whether you may choose foreign law, but whether choosing it helps you. A judgment or award built on foreign law still has to be recognised and enforced in Vietnam if the debtor's assets are there. This guide explains the rules in plain terms and the practical calculation behind the clause.
What counts as a contract with a foreign element
Vietnamese private international law separates purely domestic relationships from relationships with a foreign element. In broad terms, a civil relationship has a foreign element when at least one party is a foreign individual or a foreign legal entity, when the parties are Vietnamese but the facts giving rise to the relationship occurred abroad, or when the subject matter of the relationship is located abroad. A sales contract between a company incorporated in Germany and a company incorporated in Vietnam clearly qualifies.
The grey zone involves foreign-invested enterprises. A company incorporated in Vietnam with 100% foreign ownership is still a Vietnamese legal entity. A contract between that company and another Vietnamese company is, on the usual reading, a domestic contract, even though the money and the managers come from abroad. Courts and scholars have not always agreed on every scenario, and arbitration law contains a specific rule allowing disputes involving foreign-invested enterprises to be heard by foreign arbitration, which is a different question from governing law.
If your contracting entity is the Vietnamese subsidiary rather than the parent, assume the safer position that Vietnamese law will govern unless a licensed Vietnamese lawyer confirms otherwise for your exact structure. Many groups solve this by having the offshore parent sign key cross-border agreements, which creates a genuine foreign element.
The limits on choosing foreign law
Real property in Vietnam. Contracts concerning ownership and use of land, houses and other immovable property located in Vietnam are governed by Vietnamese law. A clause choosing foreign law will not change that.
Fundamental principles. A Vietnamese court will not apply foreign law where the consequences of applying it would be contrary to the fundamental principles of Vietnamese law. This is a narrow public-policy exception, but it exists.
Mandatory regulatory rules. Foreign law cannot switch off Vietnamese rules on licensing, foreign exchange, tax, customs, competition, labour for work in Vietnam or data. Those apply because the activity takes place in Vietnam, whatever law governs the contract.
Consumer and labour relationships. Rules protecting consumers and employees have their own conflict rules and are much less open to party choice. A foreign-law clause in a consumer or employment contract offers little protection.
Proving foreign law. If a Vietnamese court has to apply foreign law, the party relying on it may need to provide the foreign legal texts and explain their content. Where foreign law cannot be established, the court may fall back on Vietnamese law.
Formal validity. Even with a foreign governing law, formalities such as notarisation or registration required by Vietnamese law for specific transactions still have to be satisfied for the transaction to work in Vietnam.
Matching governing law with the dispute forum
The governing law clause should be read together with the dispute resolution clause. Some combinations work smoothly; others create cost and uncertainty.
| Combination | How it plays out | Typical fit |
|---|---|---|
| Foreign law + foreign arbitration | Arbitrators apply the chosen law in a neutral forum; the award is enforced in Vietnam under the New York Convention | Large cross-border supply, distribution or investment agreements |
| Foreign law + arbitration in Vietnam | A Vietnamese arbitration centre can apply foreign law if the contract has a foreign element; arbitrators may be foreign | Mid-size deals where both sides want a local seat but a familiar law |
| Vietnamese law + arbitration in Vietnam | Familiar territory for the Vietnamese party; foreign party relies on local counsel | Contracts performed entirely in Vietnam |
| Foreign law + Vietnamese court | Possible but awkward: the court works in Vietnamese and may require proof of the foreign law | Rarely chosen deliberately; often the result of a missing arbitration clause |
| Vietnamese law + foreign court | A foreign judgment is not automatically enforceable in Vietnam; recognition depends on treaties or reciprocity | Risky if the debtor's assets are in Vietnam |
The table explains why foreign-law clauses are usually paired with arbitration. Vietnam is a party to the New York Convention, which gives arbitral awards a well-defined route to recognition. Foreign court judgments do not enjoy the same broad route, and recognition depends on a treaty on judicial assistance with the country concerned or on reciprocity.
Is foreign law actually better for you?
Foreign companies often reach for their home law by reflex. It feels safer because their lawyers know it. But the choice has costs. A Vietnamese counterparty may resist a law it does not understand and ask for concessions elsewhere. A tribunal applying English law to a contract performed entirely in Vietnam still has to grapple with Vietnamese regulatory rules on the ground. And if enforcement ends up before a Vietnamese court, a court asked to recognise an award will look at whether recognition would breach the fundamental principles of Vietnamese law, which is easier to argue when the award rests on a foreign legal concept that has no local equivalent.
Vietnamese contract law, set out mainly in the Civil Code and the Commercial Law, is a developed civil-law system. It recognises freedom of contract, damages, penalties within limits, force majeure, changed circumstances and the usual remedies. For a contract performed in Vietnam, with assets in Vietnam, governed by Vietnamese law and resolved by an arbitration centre with experienced arbitrators, the overall risk can be lower than an elegant foreign-law clause that later meets friction at enforcement.
The right answer depends on the deal. Long-term cross-border relationships, financing and complex IP licences often justify foreign law. Simple supply and service contracts performed locally often do not.
Three hypothetical scenarios
Hypothetical example one: a Singapore company sells industrial equipment to a manufacturer in Bac Ninh, with delivery by sea and installation by the seller's engineers. The contract has an obvious foreign element. Choosing Singapore law with arbitration in Singapore is legally open and commercially common. The seller should still check Vietnamese customs, import and technical standards rules, which apply to the equipment entering Vietnam whatever the contract says.
Hypothetical example two: a wholly foreign-owned trading company incorporated in Ho Chi Minh City buys packaging from a local supplier in Dong Nai. Both are Vietnamese legal entities, the goods never cross a border and performance happens entirely in Vietnam. A clause choosing English law here is vulnerable: a court may treat the contract as domestic and apply Vietnamese law anyway. Vietnamese law with a clear arbitration clause is the more robust choice.
Hypothetical example three: a Japanese parent lends money to its Vietnamese subsidiary under a loan agreement governed by Japanese law. The loan has a foreign element, but offshore loans to Vietnamese borrowers are subject to Vietnamese foreign exchange and registration rules. The governing law clause decides how the contract is interpreted, not whether the loan complies with those rules. Both questions need answers before the money moves.
These sketches are simplified, and real cases turn on details. They show the pattern, though: the further the facts sit inside Vietnam, the weaker the case for foreign law and the stronger the pull of Vietnamese mandatory rules.
Drafting tips for the clause
Whatever law you pick, the clause itself should be short and unambiguous. Points that experienced drafters check:
- Name one law clearly, for example "the laws of Singapore", rather than "international law" or "international commercial practice", which tribunals struggle to apply.
- Decide whether you want to exclude the conflict-of-laws rules of the chosen law so that it cannot point back to another system.
- Consider whether the UN Convention on Contracts for the International Sale of Goods applies to your sale contract; Vietnam is a party to it, and if you do not want it to apply, say so expressly.
- Keep the governing law clause consistent with the language clause and dispute clause, so that the same contract is not governed by one law, interpreted in another language and litigated in an incompatible forum.
- Make sure the Vietnamese translation of the clause names the same law; translation errors in boilerplate are more common than people expect.
- For related documents such as guarantees, security agreements and side letters, decide whether they follow the main contract or Vietnamese law, especially where the security is located in Vietnam.
A one-line clause that matches the dispute clause and the realities of performance is worth more than a page of boilerplate copied from a template built for another jurisdiction.
When you need a Vietnamese lawyer
Choice of law is one of the clauses where a licensed Vietnamese lawyer earns their fee before any dispute exists. Ask them whether your contract has a foreign element on its specific facts, which Vietnamese mandatory rules will apply regardless of the chosen law, and how a court in Vietnam would treat an award or judgment based on that law. If you also have home-country counsel, put the two in touch; the best advice comes from someone who understands both ends of enforcement.
A lawyer is essential when the contract involves land, real estate, a licensed activity, state counterparties or security over assets in Vietnam, because those areas are the most likely to be governed by Vietnamese law no matter what you write. They are also useful when a Vietnamese subsidiary is the contracting party, given the debate over domestic versus foreign-element contracts.
Prepare for that conversation by sending the draft contract, a note on where each party is incorporated, where the goods or services will be delivered, where each party holds assets and which forum you prefer. With those facts, the lawyer can tell you quickly whether your preferred law is open to you and whether it is worth the friction it may cause in negotiation and at enforcement.
Rules on conflicts of law, arbitration and recognition of foreign judgments have been reviewed several times in recent years, so check the current rules with a licensed lawyer before reusing an old template.
Frequently asked questions
Can two Vietnamese companies choose English law for their contract?
Generally not. A contract between two Vietnamese entities with no foreign element is treated as domestic and governed by Vietnamese law. Even if one company is foreign-owned, it is a Vietnamese legal entity, so take advice before choosing a foreign law.
Will a Vietnamese court apply foreign law?
It can, if the contract has a foreign element and the parties validly chose that law. The court will not apply it where the consequences would be contrary to fundamental principles of Vietnamese law, and the parties may need to help the court establish what the foreign law says.
Does foreign governing law help me avoid Vietnamese licensing rules?
No. Licensing, tax, customs, foreign exchange and similar regulatory rules apply to activities in Vietnam regardless of the governing law of the contract. Choosing foreign law only affects the contractual relationship between the parties.
Does the CISG apply to my sale contract with a Vietnamese buyer?
It may. Vietnam is a party to the UN Convention on Contracts for the International Sale of Goods, so it can apply to international sales between parties in member states unless the contract excludes it. Decide deliberately and write your choice into the contract.
Is a foreign court judgment enforceable in Vietnam?
Not automatically. A foreign judgment must be recognised by a Vietnamese court, which depends on a treaty on judicial assistance with that country or on reciprocity. Arbitral awards from New York Convention states have a clearer route, which is why arbitration is popular.
Should my guarantee follow the same law as the main contract?
Not necessarily. If the guarantor and its assets are in Vietnam, a guarantee governed by Vietnamese law may be easier to enforce there. Security over Vietnamese assets is typically governed by Vietnamese law in any event. Ask a lawyer to align the documents.