With the remarkable growth of the Vietnamese economy and the refinement of administrative procedures for foreign investors, many investors choose Vietnam as a destination to build up and develop their business.  In addition to establishing greenfield investment, some foreign investors decide to contribute capital, purchase share/capital contribution in established economic organizations in Vietnam to approach the Vietnamese market speedily.

This insight will assist the foreign investors in understanding the Vietnamese legal framework on the capital contribution, share/capital contribution purchase of foreign investors in economic organizations.

Definitions

Investor means an organization or individual conducting business investment activities, including domestic investors, foreign investors and foreign-invested economic organizations.  Economic organization means an organization established and operating under Vietnamese laws, including enterprises, cooperatives, unions of cooperatives and other organizations conducting business investment activities.  Among those, foreign investor means an individual having foreign nationality or an organization established under foreign laws conducting business investment activities in Vietnam; foreign-invested economic organization means an economic organization having members or shareholders being foreign investors.

According to the 2020 Law on Investment, in case of the foreign investors contribute capital, purchase share/capital contribution in other economic organizations, such economic organizations must satisfy the conditions and conduct investment procedures as prescribed for foreign investors if those economic organizations fall into one of the following cases:

  • Having foreign investor(s) holding more than 50% of the charter capital, or having a majority of general partners being foreign individuals for economic organizations being a partnership;
  • Having economic organization(s) stipulated in point (i) holding more than 50% of the charter capital;
  • Having foreign investor(s) and economic organization(s) stipulated in point (i) holding more than 50% of the charter capital.

(hereinafter collectively referred to as the Foreign Economic Organization)

Economic organizations that do not fall into the above cases will carry out the investment conditions and procedures prescribed for domestic investors in case the foreign investors invest in the form of capital contribution, share/capital contribution purchase in other economic organizations.

Conditions for Capital Contribution, Share Purchase, Capital Contribution Purchase

Investors are allowed to contribute capital to economic organizations in the form of purchasing shares in the initial public offering or follow-on offerings of joint stock companies, or contributing capital in limited liability companies, partnerships, or other economic organizations.  Besides, investors could also purchase share/capital contribution of economic organizations in the form of purchasing shares of joint stock companies from companies or shareholders; purchasing capital contribution from members of limited liability companies or partnerships, or other economic organizations to become members of limited liability companies or other economic organizations.

The capital contribution, share/capital contribution purchase of foreign investors in economic organizations must satisfy the following terms and conditions:

  • Market access conditions for foreign investors. Specifically, foreign investors are entitled to applying market access conditions for domestic investors, except in cases where the foreign investors’ investment areas are restricted from having market access for foreign investors through foreign ownership limit in economic organizations, investment forms, scope of investment activities, capability of investors, partners participating in the implementation of investment activities, or other conditions as prescribed in the laws and international treaties to which the Socialist Republic of Vietnam is a signatory.
  • Ensuring national defense, security according to regulations;
  • Regulations of land laws on conditions for receiving land use rights, conditions for using land on islands or borderline/coastal communes, wards or towns.

Registration for Capital Contribution, Share Purchase, Capital Contribution Purchase

Foreign investors must carry out procedures to register capital contribution, share/capital contribution purchase in economic organizations before changing members or shareholders if they fall into one of the following cases:

  • The capital contribution, share/capital contribution purchase increases the foreign ownership in economic organizations having business lines with conditional market access for foreign investors.

Examples: According to Vietnam’s WTO Commitments on services, for film production services (CPC 96112, excluding videotapes), foreign investors are only allowed to establish commercial presence in Vietnam in the form of a business cooperation contract or a joint venture with Vietnamese partner(s) licensed to provide these services in Vietnam.  The capital contribution of the foreign investor(s) must not exceed 51% of the charter capital of the joint venture.

Therefore, foreign investors will have to carry out procedures to register capital contribution, share/capital contribution purchase in case where the capital contribution, share/capital contribution purchase increases the foreign ownership in the company.

  • The capital contribution, share/capital contribution purchase causes the fact that the foreign investors, Foreign Economic Organizations holding more than 50% of the charter capital in economic organizations: increase the foreign ownership from 50% or less to over 50%; increase the foreign ownership of foreign investors when the foreign investors already own more than 50% of the charter capital in economic organizations;
  • Foreign investors contribute capital, purchase share/capital contribution of economic organizations having land use right certificates in islands and borderline/coastal communes, wards or towns; other areas affecting national defense and security.

Investors who do not fall into the above cases will carry out the procedures for changing shareholders or members in accordance with the relevant laws upon capital contribution, share/capital contribution purchase in economic organizations.  In case the investors have the need to register the capital contribution, share/capital contribution purchase, they must comply with the above provisions.

Regarding the procedures, economic organizations having foreign investors to contribute capital, purchase share/capital contribution who fall into cases subject to registration as above must submit 01 application for registration of capital contribution, share/capital contribution purchase to the investment registration agency where the economic organization’s head office is located.  After receiving a valid application, the investment registration agency will consider the satisfaction of conditions for capital contribution, share/capital contribution purchase.  In case the foreign investors to contribute capital, purchase share/capital contribution in economic organizations have land use right certificates in islands and borderline/coastal communes, wards or towns, or areas affecting national defense and security, the investment registration agency will consult with the Ministry of Defense and the Ministry of Public Security on the satisfaction of conditions for national defense, security assurance and land use conditions.  After that, the investment registration agency will send a notice to the foreign investors and economic organizations having foreign investors to contribute capital, purchase share/capital contribution on their approval or disapproval of the capital contribution, share/capital contribution purchase.