Capital contribution in Vietnam by foreign investors

Foreign investors are understood as foreign individuals or enterprises, foreign organizations contributing capital, purchasing shares in 100% Vietnamese capital companies. With opening policies, an increasingly complete investment environment and great economic development potential, Vietnam has become a top attractive destination for foreign investors. FDI inflows into Vietnam have been constantly growing in recent years, making an important contribution to modernizing the economy, improving the competitiveness of Vietnamese businesses and improving people’s lives. Political stability, a young, dynamic workforce, and a favorable geographical location have created a favorable business environment, attracting multinational corporations to invest in a wide range of sectors, from the processing and assembly industries to services and real estate. Viet An Law would like to guide clients about capital contribution in Vietnam by foreign investors under Law on Investment 2020 and relevant decrees guide through the article below.

Forms of capital contribution by foreign investors

According to Clause 25 of the Law on Investment 2020, the forms of capital contribution of foreign investors include:

“1. Investors may contribute capital to economic organizations in the following forms:

a) Purchase of shares issued for the first time or additional shares of a joint-stock company;

b) Contributing capital to a limited liability company or partnership;

c) Contributing capital to other economic organizations other than those specified at Points a and b of this Clause.”

Contributing capital by buying shares of foreign investors

Capital contribution by buying shares is a form of foreign investors participating in the business activities of a joint stock company in Vietnam. When buying shares, the investor becomes a shareholder of that company and has the right to own a part of the company’s charter capital. The rights and obligations of shareholders will be stipulated in the company’s charter and Vietnamese law.

Forms of share purchase include:

• Initial Public Offering (IPO): This is a form of investors buying shares when the company first issues shares to the public.
• Purchase of additional issued shares: When the company needs capital to expand its production and business, it can issue more shares and investors can buy these new shares.
• Buy shares on the stock market: Investors can buy shares of companies listed on the Vietnamese stock market.
• Buy shares directly from existing shareholders: Investors can buy back shares from existing shareholders of the company.

Dossier of registration for capital contribution by purchase of shares of foreign investors

• Written registration of capital contribution, purchase of shares, purchase of contributed capital (according to Form A.I.7 issued together with Circular 25/2023/TT-BKHDT).
• Written agreement in principle on capital contribution, share purchase or purchase of contributed capital between foreign investors and economic organizations with foreign investors contributing capital, purchasing shares or purchasing contributed capital.
• Copies of legal papers of individuals and organizations contributing capital, purchasing shares, purchasing contributed capital; and of economic organizations with foreign investors contributing capital, buying shares, buying contributed capital.
• In case of necessity, the External Economic Relations Division may request the supply of a copy of the land use right certificate of the economic organization to which foreign investors contribute capital, purchase shares or purchase contributed capital.

Capital contribution to limited liability companies or partnerships of foreign investors

First, we need to understand the company’s operating model

Limited Liability Company (Limited)

• Capital contribution: When contributing capital to a limited liability company, the foreign investor becomes a member of that company. The amount of money or assets contributed is called the value of the contributed capital already owned.
• Rights and obligations: The liability of foreign investors to the company is limited to the amount of capital contributed. If the company is in financial difficulties, it will only be responsible for making up for losses with the amount of money that investors have contributed, not with all personal assets.

Partnerships

• Capital contribution: In a partnership, there are two types of members:
  • General Partner: This member is responsible for unlimited liability for the company’s debts. That is, if the company goes bankrupt, the personal assets of the general partner can be used to pay off debts.
  • Capital contributor: This member is only responsible for the limit of the contributed capital, similar to that in a limited liability company.
• Rights and obligations:
  • General Partner: Has the right to directly manage the company and has unlimited responsibility for the company’s debts.
  • Capital contributors: Have the right to participate in the management of the company, but the powers will be smaller than that of a general partner and are only responsible within the limits of the amount of capital contributed.

Dossier of registration for capital contribution to a limited liability company or partnership

• Written registration of capital contribution, purchase of shares, purchase of contributed capital (according to Form A.I.7 issued together with Circular 25/2023/TT-BKHDT).
• Written agreement in principle on capital contribution, share purchase or purchase of contributed capital between foreign investors and economic organizations with foreign investors contributing capital, purchasing shares or purchasing contributed capital.
• Copies of legal papers of individuals and organizations contributing capital, purchasing shares, purchasing contributed capital; and of economic organizations with foreign investors contributing capital, buying shares, buying contributed capital.
• In case of necessity, the External Economic Relations Division may request the supply of a copy of the land use right certificate of the economic organization to which foreign investors contribute capital, purchase shares or purchase contributed capital.

Contributing capital to other economic organizations other than the above cases

“Other economic organization” means any economic entity capable of participating in business, production or service activities and having or without legal person status, but not in the two forms of capital contribution specified at Points a and b, may include specific forms of enterprises such as joint venture companies, state-owned companies or cooperatives.

A dossier of capital contribution to another economic organization includes

• A document on registration of capital contribution, purchase of shares, purchase of contributed capital includes the following contents: information about other economic organizations to which foreign investors plan to contribute capital, purchase shares, purchase capital contributions; business lines; list of owners, members and founding shareholders, list of owners, members and shareholders being foreign investors (if any); the rate of ownership of charter capital of foreign investors before and after capital contribution, purchase of shares, purchase of capital contributions to economic organizations; the expected transaction value of the capital contribution, share purchase, or capital contribution purchase contract; information on investment projects of economic organizations (if any);
• Copies of legal papers of other individuals and organizations contributing capital, buying shares, purchasing contributed capital and economic organizations with foreign investors contributing capital, purchasing shares, purchasing contributed capital.
• A written agreement in principle on capital contribution, share purchase or purchase of contributed capital between a foreign investor and an economic organization in which a foreign investor contributes capital, purchases shares, or purchases contributed capital or between a foreign investor and a shareholder or member of such economic organization;
• A copy of the certificate of land use rights of an economic organization in which foreign investors contribute capital, purchase shares, or purchase contributed capital (for the case specified at Point b, Clause 4, Article 65 of Decree No. 31/2021/ND-CP.

Conditions for foreign investors to contribute capital to Vietnamese companies

Foreign investors contributing capital to Vietnamese companies must comply with the investment form, scope of activities, Vietnamese partners participating in the implementation of investment activities and other conditions in accordance with international treaties to which the Socialist Republic of Vietnam is a member.

The ownership proportion of charter capital of foreign investors in Vietnamese companies is not limited, except for the following cases:

• The ownership proportion of foreign investors in listed companies, public companies, securities-trading organizations and securities investment funds in accordance with the law on securities;
• The ownership proportion of foreign investors in state-owned companies that have been equitized or converted are conformable with regulations on equitization and conversion of state-owned companies;
• The ownership proportion of foreign investors who are not public companies, securities trading organizations, investment funds, state-owned enterprises shall comply with other relevant laws and international treaties to which the Socialist Republic of Vietnam is a member.

Carrying out procedures for registration of capital contribution, purchase of shares or contributed capital in Vietnamese companies in the following cases

• Foreign investors contribute capital, purchase shares, or contributed capital to Vietnamese companies operating in conditional business investment sectors and trades applied to foreign investors;
• Capital contribution, shares purchase, or capital contribution result in foreign investors holding 51% or more of charter capital of Vietnamese companies.

Dossier for registration of capital contribution, purchase of share and contributed capital of foreign investors to Vietnamese companies

• A written registration of capital contribution, share purchase or capital contribution comprising the following information: about economic organizations that foreign investors plan to contribute capital, purchase shares or contributed capital; ownership proportion of charter capital of foreign investors after contributing capital, buying shares, or buying contributed capital of economic organizations;
• Copies of identity card, identity card or passport for individuals; copy of the Establishment Certificate or other equivalent documents certifying the legal status for institutional investors.

Procedures of investments for foreign investors to contribute capital to Vietnamese companies

In case foreign investors register to contribute capital, purchase shares or contributed capital to the company with 100% Vietnamese capital

Step 1: The investor submits a dossier at the Investment Office – Department of Planning and Investment where the economic organization is headquartered to complete the procedures for registration of capital contribution, purchase of  shares and contributed capital to the Company with 100% Vietnam.

If the capital contribution, purchase of shares or contributed capital of foreign investors meet all the conditions, the Department of Planning and Investment will notify in writing within 15 days from the date of reveiving the complete dossier so that investors can carry out procedures for changing shareholders and members according to the provisions of law. In case of failure to meet the conditions, the Department of Planning and Investment shall notify the investor in writing, clearly stating the reason.

Step 2: After obtaining the Investment Department – Department of Planning and Investment’s approval for foreign investors to contribute capital, buy shares or contributed capital, investors shall carry out the following procedures: Open a direct investment account for a Vietnamese company if buying from 50% capital of a Vietnamese company, then the foreign investors will contribute the transferred capital and declare the transferred income tax.

Step 3: Follow procedures for changing shareholders and members on the Business Registration Certificate (Enterprise Registration Certificate) in accordance with the regulations at the Business Registration Office – Department of Planning and Investment .

In case foreign investors register to contribute capital, purchase shares, or contributed capital to foreign-invested companies in Vietnam

Step 1: The investor submits the dossier to the Investment Office – Department of Planning and Investment where the economic organization is headquartered to complete procedures for registration of capital contribution, purchase of shares and contributed capital to the Company with foreign-invested capital.

Step 2: After obtaining the Investment Department – Department of Planning and Investment’s approval for foreign investors to contribute capital, buy shares or contributed capital. If the company has not yet split the Investment Certificate into an Investment Registration Certificate and Enterprise Registration Certificate, the investor shall carry out the procedures for splitting and issuing the Enterprise Registration Certificate, making a new legal seal at Business Registration Office – Department of Planning and Investment.

Step 3: After obtaining the Investment Office – Department of Planning and Investment’s approval of foreign investors to contribute capital, buy shares or contributed capital, investors shall carry out the following procedures: Open a direct investment capital account for a Vietnamese company if buying from 51% capital of a Vietnamese company, then the foreign investor will contribute the transferred capital and declare the transferred income tax.

Step 4: After splitting the Investment Registration Certificate and the Enterprise Registration Certificate, the investor shall adjust the Investment Registration Certificate at the Investment licensing agency.

Payment by the assignee to the assignor of capital transfer

Pursuant to Circular No. 06/2019/TT-NHNN of the Bank of Vietnam, the payment for the transfer of investment capital in an enterprise with foreign direct investment must be made via the foreign direct investment of that enterprise. Therefore, a foreign investor contributes capital to a Vietnamese company  must open a foreign direct investment account at a bank in Vietnam; it can be opened in VND or foreign currency depending on the currency used to contribute capital to invest in the enterprise.

If you need support with information on the forms of capital contribution of foreign investors, please contact Viet An Law for the fastest support!