Offshore issued bonus share plans for Vietnamese employees

Currently, a number of foreign investors who are offshore economic organizations wish to reward shares for employees working for their subsidiaries, representative offices, branches, executive offices, … in Vietnam. This article provides readers with an overview of the offshore issued bonus share plans to Vietnamese employees in accordance with Vietnamese laws.

1. Vietnamese laws allows offshore organizations to issue bonus shares to Vietnamese employees

Pursuant to Article 5.1 of Decree 135/2015/ND-CP, Article 7 of Circular 10/2016/TT-NHNN, Vietnamese employees working at foreign organizations in Vietnam may make offshore indirect investment in the form of participating in  offshore issued bonus share plans (hereinafter referred to as “Offshore ESOP“). 

Offshore ESOP is defined as a plan of an offshore organization that awards shares to employees working for foreign organizations in Vietnam. Where: 

• Offshore organization: is interpreted as an organization established under foreign laws with presence in Vietnam; 

• Foreign organization in Vietnam: is interpreted as the presence of an offshore organization in Vietnam, including: foreign-invested economic organizations, branches, representative offices, operating offices of foreign parties in business cooperation contracts.  

From the above regulations, offshore organizations are allowed to issue bonus shares to Vietnamese employees working for their presence in Vietnam. This is considered a form of offshore indirect investment of Vietnamese individuals. Foreign organizations in Vietnam implementing Offshore ESOP hereinafter referred to as “ESOP Implementing Organization“. 

2. Principles of implementation of the Offshore ESOP plan

• Offshore ESOP plan is only allowed through the ESOP Implementation Organization and after registration has been confirmed by the State Bank. 
• Foreign currency earned from the sale of shares, sale of right to purchase offshore shares of Vietnamese employees; dividends and other lawful income must be transferred to Vietnamese employees through the plan implementation account specified in Article 12 Circular 10/2016/TT-NHNN (“ESOP Account”).
• Related parties must comply with regulations on foreign exchange management, income tax payment obligations and other relevant provisions of law. 

3. Conditions for offshore organizations to issue bonus shares to Vietnamese employees

Circular 10/2016/TT-NHNN does not stipulate specific conditions to implement the Offshore ESOP plan. In general, foreign organizations need to meet the following conditions to issue bonus shares to Vietnamese employees:  

• The foreign organization must be an organization that is legally established and operating overseas;  
• There is a relationship between foreign organizations and their presence in Vietnam as stated in Article 3.14  of Decree 135/2015/ND-CP; and  
• The foreign organization has a plan to issue bonus shares to Vietnamese employees (the plan document must be signed by a competent person of the foreign organization). 

4. Bonus form of Offshore ESOP plan

• Direct bonus by shares; or 
• Bonus by the right to purshase shares with preferential conditions. 

5. Rights of employees participating in the NN ESOP plan

Vietnamese employees participating in the Offshore ESOP plan have the following rights: 

• To receive, own bonus shares, sell bonus shares overseas; receive dividends and other legitimate income. 
• Receive the right to purchase bonus shares; exercise the right to purchase bonus shares overseas and own bonus shares; receive dividends and other legitimate income; sell the right to purchase bonus shares overseas.
• To use self-available foreign currency on the ESOP Account; deduct salary, bonus or use other lawful income to buy foreign currency at an authorized credit institution to pay for the purchase of bonus shares. 
• To receive proceeds from the sale of bonus shares overseas, the sale of the right to purchase offshore bonus shares in foreign currency. 

Note: According to Article 8.1 of Circular 10/2016/TT-NHNN, all the above activities must be carried out through the ESOP Implementation Organization. This means that when employees need to make transactions related to bonus shares, they must contact the ESOP Implementation Organization to request. Therefore, in order to facilitate the implementation of the Offshore ESOP plan and ensure the interests of employees, the ESOP Implementation Organization should promulgate processes, regulations and policies related to this issue. 

6. Procedures for implementing the Offshore ESOP plan

6.1. Step 01: Registration with the State Bank

6.2. Step 02: Opening an ESOP account

After being confirmed by the State Bank of Vietnam on registration for Offshore ESOP, the ESOP Implementing Organization must open 01 (one) plan implementation account (ESOP Account) to perform related transactions, including:  

Revenue transactions:: 

• Revenue in foreign currency from sale of shares offshore; 
• Revenue in foreign currency from sale of right to purchase shares offshore; 
• Revenue from dividends and other lawful income relating to the Offshore ESOP plan; 
• Revenue from foreign currency accounts of Vietnamese employees participating in the Offshore ESOP plan; 
• Revenue in foreign currency purchased from authorizedcredit institutions for Vietnamese employees participatingin in the Offshore ESOP plan. 

Disbursement transactions: 

• Disbursement to purchase shares offshores; 
• Disbursement in foreign currency sold to authorized credit institutions to transfer to Vietnamese Dong accounts of Vietnamese employees participating in the Offshore ESOP plan; 
• Disbursement to transfer to foreign currency accounts of Vietnamese employees participating in Offshore ESOP; 
• Other expenses such as fees or charges (if any). 

7. Personal income tax of Vietnamese employees participating in the Offshore ESOP plan

Pursuant to Circular No. 111/2013/TT-BTC and Official Letter No. 6689/CT-TTHT dated 12/9/2012 of Ho Chi Minh City Department of Taxation, bonus shares are considered income from taxable salary and wages. At the same time, when an employee transfers bonus shares, he is considered to have income from securities transfer.  

Therefore, employees receiving bonus shares will incur both obligations: (i) paying taxes due to income from salaries and wages, and (ii) paying taxes due to income from securities transfers.  

The declaration and payment of taxes is carried out as follows: 

• Vietnamese employees, when receiving bonuses in shares, do not have to pay tax from wages and wages at that point in time. Until individuals transfer bonus shares, they shall simultaneously declare tax for: income from shares transfer and income from salary and wages.

• Tax calculation:  

• • Payable taxes on income from wages and wages:  

Taxable income          x         Partial progressive tax rate

• • Payable taxes on income from the transfer of securities:  

Securities transfer price at a time        x Tax rate: 0.1% 

8. Other notes

Unlike the share bonus plan for employees by domestic public companies27, the Offshore ESOP plan does not have to meet the conditions and does not have to go through procedures with the Vietnamese State Securities Commission because:  

• Shares under the Offshore ESOP plan are issued by offshore organizations, and 
• Vietnamese employees can only make transactions with the bonus shares on offshore shares markets; 

Therefore, Offshore ESOP is not under the management of the Vietnamese State Securities Commission, and the ESOP Implementing Organization does not have to go through registration procedures with the State Securities Commission. 

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