Many companies established under Vietnamese law, and Vietnamese individuals, are investing in other countries such as Singapore, Taiwan, Cambodia, etc., to expand their markets. The common form of investment is establishing a company or branch in the host country. In such cases, investors must not only comply with Vietnamese legal regulations on obtaining approval for outward investment and transferring investment capital but also comply with the legal regulations of the host country regarding procedures for establishing companies and branches, and business operating conditions. Here are some considerations for investors when establishing a company abroad:
1. Not all cases of Vietnamese Investors establishing companies or branches abroad are governed by the 2020 Law on Investment
The 2020 Law on Investment prescribes that only Vietnamese Investors who transfer investment capital from Vietnam to a foreign country or use profits from this investment to conduct business investment activities abroad are subject to Vietnamese legal regulations on outward investment.
Accordingly, in case where Vietnamese Investors do not transfer investment capital from Vietnam abroad because (i) they do not need to contribute capital or transfer investment capital; or (ii) the establishment of a company or branch abroad is funded by capital sourced from the host country itself or a country other than Vietnam (for example, salaries earned by Vietnamese individuals working abroad), an Outward Investment Registration Certificate (OIRC) is not required.
2. Investment in the form of capital contribution, purchase of shares/capital contributions abroad requires participation in management
Article 52.1.c of the 2020 Law on Investment prescribes that Vietnamese Investors investing in the form of contributing capital to, or purchasing shares/capital contributions of, a Foreign Company must participate in the management of that economic organization. Currently, investment laws do not have regulations to determine whether Vietnamese Investors participate in management when investing in this form. However, competent state authorities often consider this based on the amount of investment capital, the ownership ratio that the Vietnamese Investor will hold in the Foreign Company, and the content of the capital contribution agreement, share/capital contribution purchase agreement, or other documents demonstrating the Vietnamese Investor’s participation in management.
This requirement does not apply to other forms of investment, such as establishing an economic organization under the laws of a foreign country; contracts abroad, etc., listed in Article 52.1 of the 2020 Law on Investment.
3. Discrepancies between the registered investment capital in Vietnam and the foreign country
When carrying out procedures to apply for an OIRC, many Vietnamese Investors choose to transfer foreign currency abroad in US Dollars (USD). However, the Host Country may record the investment capital on the company establishment license in their own currency; for example, Taiwan will use New Taiwan Dollars (TWD). Due to potential exchange rate fluctuations between the time of applying for the license and the time of transferring the investment capital, the actual amount of capital received in the Host Country may be higher or lower than the amount stated on the license issued in the Host Country. Depending on the regulations of the Host Country’s bank, (i) if the actual investment capital received is lower than the registered capital, the Bank may return the received funds for the Vietnamese Investor to re-transfer from the beginning or request additional capital corresponding to the shortfall; (ii) if the investment capital received is higher than the registered capital, the Bank will refund the excess (if requested).
To mitigate this, many Vietnamese Investors have chosen international banks with branches in both Vietnam and the Host Country. In this case, the Vietnamese Investor can negotiate with the Bank to agree on an exchange rate when transferring funds, and coordinate closely with the branches to ensure that the capital contribution is carried out smoothly.
4. Linkage between the procedures for establishing a company abroad and applying for an OIRC in Vietnam
Coordination is needed between Foreign Lawyers when carrying out the procedures for establishing a company in the Host Country and Vietnamese Lawyers carrying out the procedures for applying for an OIRC in Vietnam, to ensure that the information from both sides is consistent and complies simultaneously with the laws of both countries. If different information is registered, Vietnamese Investors may have to spend extra time and effort to amend the licenses.
In addition, Foreign Investors can refer to the provisions of Vietnamese law on outward investment here: Q&A Đầu Tư Ra Nước Ngoài.
See more:
1/ Foreign investors establishing manufacturing companies in Vietnam
2/ Challenges in establishing foreign-invested real estate companies in Vietnam
Disclaimers:
This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.
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Apolat Legal is a law firm in Vietnam with experience and capacity to provide consulting services related to Business and Investment and contact our team of lawyers in Vietnam via email info@apolatlegal.com.
