The use of shares in Vietnam to contribute capital to establish enterprises in foreign

Capital contribution by shares is a current issue in business investment activities in Vietnam. However, because of the cost-effectiveness of all aspects compared to other countries in the world, many foreign investors choose to establish a company in Vietnam for investment activities, then use shares of the company in Vietnam to contribute capital to establish an enterprise in the host country. Currently, Vietnamese investors prioritize this option in foreign investment activities. 

1. Right to use shares of Vietnamese companies to contribute capital to foreign enterprises 

The current law of Vietnam does not have detailed provisions on the right to use shares in Vietnamese companies to contribute capital to foreign enterprises. However, within the rights of shareholders stipulated in the Law on Enterprises, shareholders can freely assign their shares to other people, except in cases following the law. In essence, according to the Law on Enterprise, using a company’s shares to contribute capital to another company is similar to the transfer of shares, because when a shareholder transfers shares to a third party, the transferee becomes a shareholder of the company corresponding to the number of assigned shares, and when a shareholder uses the company’s shares to contribute capital to another enterprise, the new enterprise will automatically become the owner of that share, thereby becoming a shareholder of the original company. Therefore, using shares by a shareholder to contribute to another legal entity is also considered a transfer of shares. At the same time, the law on enterprise has no restrictions or specific conditions for performance.  

In general, assets contributed as capital to an enterprise can be money, gold, land use rights, intellectual property rights, technology, or other cash assets by the laws of each country. Shares are also valuable assets, so those should be considered capital contribution assets. 

However, the transaction using shares to contribute capital will not cause the investment capital contribution to the new enterprise and depends on the regulations about the company establishment in the host country where the enterprise expects to contribute capital. Before preparing for the transaction, the parties should research foreign provisions. 

2. Vietnamese investors perform transactions using shares of Vietnamese companies to contribute capital to foreign enterprises 

According to the law of Vietnam, offshore investment means the investor transfers capital or makes payment to purchase a part or whole of business premises; or certificate of ownership to carry out investment activities outside the Vietnamese territory and, at the same time, directly participate in the management of such investment activities. Accordingly, investors conduct offshore investment activities in the following forms: 

– Establishment of economic organizations in accordance with the laws of the investment recipient country; 

– Investment on the basis of an offshore contract; 

– Capital contribution, purchase of shares or purchase of a capital contribution portion in an offshore economic organization to participate in the management of such economic organization; 

– Purchase or sale of securities or other valuable papers or investment via securities investment funds or other intermediary financial institutions in a foreign country; or 

– Other investment forms in accordance with the law of the investment recipient country.  

Based on the above forms of offshore investment,  Vietnamese investors using shares in Vietnam contribute capital and establish foreign economic organizations offshore investment activities by establishment of economic organizations or capital contribution, purchase of shares, or directly invest through the purchase of capital contribution portions in foreign economic organizations to participate in the management of economic organizations.  

In this situation, towards Vietnam, a Vietnamese individual or organization must carry out two procedures as follows: 

(i) Apply for an Offshore Investment Registration Certificate at the Ministry of Planning and Investment; and   

(ii) Apply for confirmation for the foreign exchange transactions registration at the branch of the State Bank according to the Offshore Investment Registration Certificate.  

3. Foreign investors perform transactions using shares of Vietnamese companies to contribute capital to foreign enterprises  

In contrast to the situation of Vietnamese investors, if the foreign investors use their shares in Vietnam for capital contribution or establishment of a foreign enterprise is not considered an offshore investment activity because capital contribution transactions are entirely abroad, and foreign investors are not subject to offshore investment activities according to the provisions of the Law on Investment2. 

At the same time, the result of the right to use shares in the company to contribute capital to other businesses does not arise money transfer/receipt activities between the parties, so foreign investors do not need to apply for approval or any decision related to foreign exchange management activities following the law of 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.

For issues related to the content or intellectual property rights of the article, please email cs@apolatlegal.vn.

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.

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