Issue 010725 – Procedure for Capital contribution, share purchase, and capital contribution purchase by foreign investors in Vietnam

Dear Valued Clients,

In the context of deepening international economic integration, Vietnam continues to be an attractive destination for foreign investors thanks to its increasingly improved investment environment, strong economic growth potential, and open policies aimed at attracting foreign direct investment. Among the permitted investment methods in Vietnam, capital contribution, share purchase, or acquisition of equity in Vietnamese enterprises is a common and flexible option that enables foreign investors to access the market quickly.

The following article provides an overview of the relevant procedures and legal framework, along with key considerations to help foreign investors conduct their investments effectively and in compliance with Vietnamese law.

1. Conditions for carrying out investment activities in the form of capital contribution, share purchase, or acquisition of equity interest

Pursuant to the Law on Investment No. 61/2020/QH14 dated 17 June 2020 (“Law on Investment 2020”), foreign investors engaging in capital contribution, share purchase, or acquisition of equity interest in an economic organization must satisfy the following conditions and requirements:

(i) Market access conditions for foreign investors [1] : In cases where a foreign investor contributes capital, purchases shares, or acquires equity interest in a Vietnamese economic organization engaged in a business line listed in the List of sectors and industries restricted to foreign investors, such investor must fully comply with the applicable market access conditions. These conditions typically include:

– The foreign investor’s ownership ratio in the charter capital of the economic organization;

– Permitted forms of investment;

– Scope of investment activities;

– Capability of the investor and its investment partners;

– Other conditions as prescribed under laws, Resolutions of the National Assembly, Ordinances, Resolutions of the Standing Committee of the National Assembly, Decrees of the Government, and international treaties to which the Socialist Republic of Vietnam is a party.

Typical sectors subject to market access conditions include, among others, advertising services, real estate business, tourism services, and logistics services, etc.

(ii) Conditions concerning assurance of national defense and security and conditions for land use applied to a business organization to which foreign investors contribute capital or whose shares/stakes are purchased by foreign investors in case such business organization has the certificate of rights to use land on the island, in border commune, ward or town and coastal commune, ward or town; other areas that affect defense and security, except for the business organization executing the investment project in an industrial park, export-processing zone, hi-tech zone or economic zone established under the Government’s regulations.
2. Cases requiring registration procedures for capital contribution, share purchase, or acquisition of equity interest

Foreign investors are required to carry out the procedures for registration of capital contribution, share purchase, or acquisition of equity interest in an economic organization prior to any change in members or shareholders in the following cases [2] :

(i) The capital contribution, share purchase, or equity acquisition results in an increase in the foreign investor’s ownership ratio in an economic organization conducting business in sectors or industries subject to market access conditions applicable to foreign investors;

(ii) The capital contribution, share purchase, or equity acquisition leads to a foreign investor or an economic organization as defined in Article 23.1(a), 23.1(b), and 23.1(c) of the Law on Investment 2020 [3] holding more than 50% of the charter capital of the target economic organization, in the following scenarios: an increase in the foreign investor’s ownership from 50% or less to more than 50% of the charter capital; or any further increase in the ownership ratio where the foreign investor already holds more than 50% of the charter capital;

(iii) The foreign investor contributes capital, purchases shares, or acquires equity interest in an economic organization that holds a Certificate of Land Use Rights for land located on islands; in border communes, wards, or townships; coastal communes, wards, or townships; or in other areas having implications for national defense and security.

Foreign organizations and individuals receiving shares or equity interests in an economic organization established in Vietnam through contracts for exchange, gifting, or other legal transfer instruments, or through inheritance, must comply with the conditions applicable to capital contribution, share purchase, or equity acquisition, and must carry out the prescribed procedures applicable to foreign investors investing in such forms.

3. Procedures for investment activities in the form of capital contribution, share purchase, or acquisition of equity interest by foreign investors

An economic organization receiving capital contribution, share purchase, or equity acquisition from a foreign investor, as prescribed by law, shall submit one (01) set of registration documents for capital contribution, share purchase, or acquisition of equity interest to the investment registration authority where the economic organization is headquartered. The application dossier includes [4]:

(i) A registration form for capital contribution/purchase of shares/stakes, which contains: enterprise registration information of the economic organization to which the foreign investors expect to contribute capital or whose shares/stakes are expected to be purchased by the foreign investors; business lines; list of owners, members and founding shareholders, list of owners, members and founding shareholders that are foreign investors (if any); holding of charter capital by foreign investors before and after the capital contribution/purchase of shares/stakes in the economic organization; expected transaction value of the contract for capital contribution/purchase of shares/stakes; information about the economic organization’s investment project (if any);

(ii) Copies of legal documents of the individual or organization that contributes capital or purchases shares/stakes and of the economic organization to which foreign investors contribute capital or whose shares/stakes are purchased by foreign investors;

(iii) A principal agreement on capital contribution or purchase of shares/stakes between the foreign investors and the economic organization to which foreign investors contribute capital or whose shares/stakes are purchased by foreign investors, or between the foreign investors and the shareholders or members of such economic organization;

(iv) A copy of the certificate of land use rights of the economic organization to which foreign investors contribute capital or whose shares/stakes are purchased by foreign investors [5] .

Within 15 days from the date of receipt of a valid application dossier as prescribed, the investment registration authority shall review the satisfaction of conditions for capital contribution, share purchase, or acquisition of equity interest, and notify the investor. The written notification shall be sent to the foreign investor and the economic organization in which the foreign investor contributes capital, purchases shares, or acquires equity interest.

Upon receiving approval for capital contribution, share purchase, or acquisition of equity interest, the economic organization with foreign investor participation shall carry out procedures for changing its members or shareholders at the business registration authority in accordance with the applicable laws on enterprises and other relevant regulations corresponding to the type of economic organization. The rights and obligations of the foreign investor as a member or shareholder of the economic organization shall be established upon completion of the procedures for changing members or shareholders.

As usual, we hope you find this Legal Article helpful and look forward to working with you in the upcoming time.

Kind regards,

ENT Law LLC
The full version of this Legal Update can be found here.

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[1] List of sectors and industries subject to market access restrictions applicable to foreign investors under the Law on Investment 2020.

 

[2] Article 66.2 of Decree 31.

 

[3] Article 23 Law on Investment 2020 [Investment activities conducted by economic organizations having foreign investment capital] “1. An economic organization must satisfy the conditions and carry out investment procedures applicable to foreign investors when making investment in the establishment of another economic organization; investing in the form of capital contribution, share purchase, or acquisition of equity interest in another economic organization; or investing under a business cooperation contract (BCC), if such economic organization falls under any of the following cases:
a) A foreign investor holds more than 50% of its charter capital, or the majority of general partners are foreign individuals in case the economic organization is a partnership;
b) An economic organization specified in Point a of this Clause holds more than 50% of its charter capital;
c) A foreign investor and an economic organization specified in Point a of this Clause jointly hold more than 50% of its charter capital.”

 

[4] Article 66.2 of Decree 31.

 

[5] For the case specified in Article 65.4(b) of Decree 31.