Vietnam’s existing data centers were created by several Vietnamese telecom companies–VNPT, Viettel IDC, FPT Telecom and CMC Telecom. But this monopoly is being challenged. International enterprises have joined the market and are building their own data centers. Some notable foreign invested projects are Gaw Capital’s 20MW data center; Worldwide DC Solution’s 30MW project, and a joint venture between NTT Global Data Centers and DQTek operating a data center located in the Saigon High-Tech Park. Other international corporations, eg, Alibaba, Hyosung, etc., have plans to build data centers.
A report presented at the Data Center & Cloud Infrastructure Summit in 2024 predicts that the value of data centers in Vietnam by 2030 will be US$ 1.27 billion with a compound annual growth rate of 10.8%.
Development at this pace requires a clear and transparent legal structure, not only for the data center business but also for related areas such as cloud services, real estate, electricity consumption, cybersecurity, private data information, etc. Vietnam has committed to create the necessary legal framework. The new Land Law, Law on Real Estate Business and especially the new regulations on direct power purchase agreements are expected to support both domestic and foreign investment in the data center business. Importantly, regulations involving data center services have been included in the 2023 Law on Telecommunications (“LoT”) which took effect on July 1, 2024.
Under the LoT, the data center business is defined as a telecommunications service that provides information processing, storage and retrieval functions to users via telecommunications networks by leasing part or all of a data center. Decree No. 163/2024/ND-CP of the Government (“Decree 163”) provides detailed guidance on the operation of data centers. Under Decree 163, data center services are classified as value-added telecoms services. However, somewhat unexpectedly, and unlike basic telecommunications services which require service providers to obtain requisite telecoms licenses to operate, a company that provides data center services is not required to obtain a telecoms license as a condition. A telecoms license is required only if the operation of its data center involves providing traditional/basic telecommunications services. This is a significant factor because, irrespective of what the LoT says, the path to a telecoms license for enterprises (especially, foreign invested companies) is restrictive. In addition, the LoT has not imposed particular investment restrictions on investment in the data center business. Nor has it imposed any conditions on market entry by foreign investors.
Interestingly, previous to July 1, 2024, operations of a data center were not classified as telecom services. They were considered merely information technology/software services or computer-related services. These services were delivered to users via telecommunications networks (mostly the internet). But as from July 1, 2024, data center’s operations are within the LoT’s regulatory scope. Thus, a data center service provider is currently treated as a telecoms enterprise and is entitled to certain rights and is subject to specific obligations which are applicable to telecoms enterprises. However, and to repeat, a telecoms license is not required.
Below is a brief discussion of data centers and the path for foreign investors to form a data center. We highlight several key considerations.
What is a data center
The physical infrastructure of a data center (buildings, cable systems and the like) hosts a computer system and auxiliary equipment. It stores, exchanges, and manages data of one or multiple organizations or individuals. A data center’s functions include processing, storage, and extraction of information via the telecommunications network. There are two main types of data center–one is an enterprise data center which is built, owned and managed by a company for its own internal use. The other is a serviced data center that leases out its capacity including data storage and computing services to third parties who actually own the data. Serviced data centers manage and protect the data.
Investment in the data center business
As mentioned above, the LoT does not differentiate between foreign and Vietnamese investment in the data center business. A foreign investor is permitted to establish a wholly foreign owned company in Vietnam to construct a data center and to provide data center services. A foreign investor is also permitted to provide data center services to users in Vietnam on a cross-border basis (ie, without formation of a commercial presence in Vietnam).
Licensing process to form a data center with foreign owned capital
The investor can choose the corporate form to conduct the data center business. Depending on the number of owners and/or investors, the subsidiary can be established as a single member limited liability company (“LLC”) or a two-to-50-member LLC, or as a joint stock company (“JSC”). An LLC is the simplest format. A JSC has a more complex corporate structure but is more suitable for complex ownership.
To establish the subsidiary, the foreign investor must first apply for an Investment Registration Certificate (“IRC”) by which the investment project is actually approved. After the IRC is issued, the investor will apply for an Enterprise Registration Certificate (“ERC”) which allows the investor to establish the subsidiary to carry out the investment project which was licensed in the IRC.
Obtaining an IRC involves government review to assure, for example, that statutory requirements and safety concerns have been and to assure that the investment conforms to the government’s master plan. There are other conditions. After the IRC has been issued, obtaining an ERC is relatively routine.
Key operational considerations
- Registration to provide telecoms services (ie, data center services)
Before providing data center services, the service provider must register with and obtain from the Vietnam Telecommunications Authority (VNTA) a certificate of registration to provide telecoms services–note this certificate of registration is not a telecoms license. This is a new requirement under Decree 163. To register, the company needs to provide VNTA, among other things, with a description of its data center’s infrastructure and operations.
- Announcement of technical conformity
Before putting a data center into commercial operation, the service provider must announce conformity of the data center to professional standards and technical regulations. This is a process prescribed by the Minister of Information and Communications (currently, the Ministry of Science and Technology).
- Notification to provide data center services
A foreign data center service provider is not required to obtain a certificate of registration to provide telecom services nor to make an announcement of technical conformity, but it must notify the VNTA before it provides data center services to users in Vietnam on a cross-border basis. After receiving a proper notification dossier, the VNTA will publicize the information of the offshore data center provider on its website.
- Obligations of data center service providers
Below are some notable obligations imposed on a data center service provider:
- to comply with regulations on network information security, cybersecurity, personal data protection plus similar requirements;
- not to access, exploit or access a user’s data without their consent;
- to take necessary and timely actions in order to prevent accessing information at the request of competent authorities; and
- not to monitor or supervise users’ information, unless requested by competent authorities.
Enterprises that provide data center services to state agencies are responsible to provide complete information, to design technical infrastructure, to ensure information security for the operation and to ensure information system security.
In conclusion, the LoT and Decree 163 provide a new legal framework to invest and operate data centers. But, under the new regulations, data centers are now under more strict management by the authorities than was previously the case.
