Proportion of foreign ownership in enterprises in Vietnam

The potential of merger and acquisition industry in Vietnam has arisen in the recent years; especially in the field of food and beverage and retails. However, the complication of the law may bring troubles to foreign enterprises when they intend to invest in Vietnam. Although the Law on Investment 2014 and Decree No. 60/2015/NĐ-CP amending and supplementing several articles of Decree No. 58/2012/NĐ-CP have brought many opportunities but besides that, regulations on conditional business lines or equitizing state enterprise still avoid investor’s decisions.

According to Article 22 of the Law on Investment 2014:

“Foreign investors may own an indefinite amount of charter capital invested in business organizations, except for the following cases:

1. a) The holdings of the foreign investors at listed companies, public companies, securities-trading organizations, and securities investment funds are conformable with regulations of law on securities;
2. b) The holdings of the foreign investors at state-owned companies that have been equitized or converted are conformable with regulations of law on equitization and conversion of state-owned companies;
3. c) With regard to holdings of the foreign investors in other cases than those mentioned in Point a and Point b of this Clause, relevant regulations of law and the international agreements to which the Socialist Republic of Vietnam is a signatory shall apply”.

According to Clause 2 Article 1 Decree No. 60/2015/NĐ-CP:

“Rate of foreign ownership in a public company shall be stipulated as follows:

1. a) Where the International Agreement of which Vietnam is a signatory lays down regulations on the rate of foreign ownership, it will be governed by this Agreement;
2. b) Where a public company operates in the investment and business sector which is governed by the law on investment, other relevant laws stipulating the rate of foreign ownership, it will be governed by these legal regulations.

Where a public company operates in the investment and business sector subject to conditions applied to foreign investors but none of specific regulations on the rate of foreign ownership, the maximum rate of foreign ownership will be 49%;

1. c) Where a public company operates in multiple industries or sectors that have different regulations on the rate of foreign ownership, it will not exceed the lowest rate defined in these industries or sectors that have regulations on the rate of foreign ownership, unless otherwise regulated by the International Agreement;
2. d) As regards a public company which is not governed by regulations laid down in Point a, b, c of this Clause, the rate of foreign ownership will not be restricted, unless otherwise stipulated by the company’s rules and regulations”.

Therefore, the most important legal matter foreign investors should pay attention is the legal proportion prescribed by the law when they intend to contribute capital, buy capital contributions or shares in an operating enterprise in Vietnam, following the steps below:

Step 1: Determine business lines of the enterprise:

Does any business line of the enterprise subjected to any international agreement to which Vietnam is a member that regulating the proportion of foreign ownership? If there is any, investors shall have to comply with the regulations.

Example: According to WTO Commitment of Vietnam, foreign investors can own maximize 49% capital of an enterprise which practice business lines: Passenger transportation less cabotage or Freight transportation less cabotage.

If intended business lines are not subjected to WTO Commitment of Vietnam, they have to determine whether those are in the list of conditional business lines or not. Then turn to step 2.

Step 2: Determine the limits foreign investors:

Depends on specialized law or the list of conditional business lines:

• If the specialized law prescribes the proportion, foreign investors must comply with it;
• The list of conditional business lines is often updated on the National Portal of Foreign Investment. In this case, foreign investors must comply with each different regulations of each business line.

Example: Motion pictures projection services (CPC: 9612) allow foreign investors own no more than 51% charter capital of the enterprise.

• If a conditional business line is not specially regulated in any specialized law, the maximum proportion for foreign investors is 49%;
• If the enterprise practices multi-business lines, foreign investors must determine which lines are regulated then pick out the lowest one.

Step 3: Regulated in company’s charter

If the law does not regulate and any business line is not subjected to the list of conditional business lines, investors should take a look at the company’s charter to find any proportion limit. If not, foreign investors shall own up to 100%. For example, Vietnam Dairy Products Joint Stock Company on May 21, 2016 has maximized room for foreign ownership up to 100%.

State enterprises equitization:

State enterprises equitization shall comply with Decree No. 59/2011/NĐ-CP on transformation of state enterprises into joint-stock companies, Decree 116/2015/NĐ-CP amending and supplementing Decree No. 59/2011/NĐ-CP, Circular No. 123/2015/TT-BTC providing guidelines on foreign investment activities on securities market.

Foreign investors who intend to invest in Vietnam through capital contribution, shares purchase, please feel free to contact Viet An Law Firm for more information!