Notes of foreign-invested organizations when establishing companies /contributing capitals/buying shares in Vietnam

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Notes of foreign-invested organizations when establishing companies /contributing capitals/buying shares in Vietnam

A foreign-invested economic organization means an economic organization in which foreign investors are members or shareholders. Currently, the proportion of foreign investors is increasing, and foreign investors investing in Vietnam need to comply with the Law on Investment 2020. However, economic organizations with foreign-invested capital are difficult to invest in establishing a subsidiary or joint venture or buying capital/shares in another company in Vietnam? This is also an issue that many foreign investors and foreign-invested economic organizations are still ambiguous and not really understood. In this article, we will introduce the regulations and limitations of foreign-invested organizations when establishing companies / contributing capital/buying shares in Vietnam.

According to Article 23 of the Law on Investment 2020:

1. When establishing a business entity, when making an investment by contributing capital, purchasing shares, or purchasing stakes of a business entity, or when making investment under a business cooperation contract in one of the following cases, the foreign investor must satisfy the conditions and follow investment procedures applied to foreign investors:

  • Over 50% of its charter capital or more is held by a foreign investor(s) or the majority of the general partners are foreigners if the business entity is a partnership;
  • Over 50% of its charter capital or more is held by a business entity(ies) mentioned in Point a of this Clause;
  • Over 50% of its charter capital or more is held by a foreign investor(s) and a business entity(ies) mentioned in Point a of this Clause.

2. Business entities other than those mentioned in Points a, b, and c Clause 1 of this Article shall satisfy conditions and follow investment procedures applied to domestic investors when establishing a business entity, when making an investment by contributing capital, purchasing shares, or purchasing stakes of a business entity or when making investment under a business cooperation contract.

  • Investors need to meet the conditions and carry out investment procedures as prescribed for foreign investors when investing in establishing/contributing capital/buying shares/ buying capital contributions on The Company B;
  • Company A needs to meet the conditions and carry out the investment procedures as prescribed for foreign investors when investing in establishment/capital contribution/share purchase/purchase of capital contributions on The Company B;
  • Company B needs to meet the conditions and carry out investment procedures as prescribed for foreign investors when investing in establishment/capital contribution/share purchase/purchase of capital contributions on the Company C;
  • Company C shall comply with investment conditions and procedures as prescribed for domestic investors when investing in establishing another economic organization; Investment in the form of capital contribution, share purchase, purchase of capital contribution on Company D.

Besides, in the following case, the Investor also needs to meet the conditions and carry out investment procedures as prescribed for foreign investors when investing in establishment/capital contribution/share purchase /purchase of capital contributions to other economic organizations:

(economics organization as regulated at Article 23.1.c Investment Law)

  • Company A and the foreign investors need to meet the conditions and carry out investment procedures as prescribed for foreign investors when investing in establishment/capital contribution/share purchase/purchase the capital contribution on Company B.

With the above simulation diagrams, we hope that investors and foreign-invested economic organizations have a better overview and understanding of the conditions of economic organizations when making investments into a certain economic organization so that they can consider making appropriate investment plans and prepare the necessary conditions when investing in a certain sector that Vietnam has not undertaken to open the market to foreign investors as well as foreign-invested economic organizations.

If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.

This article is for general information only and is not a substitute for legal advice.