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