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Per the current regulations, there are 5 methods of investment by which foreign investors may invest in Vietnam. Depending on the scale of the project and the investment objective, foreign investors might choose the most appropriate form of investment.
Methods of investment in Vietnam include:
- Establishment of economic organizations
- Purchase of stocks/contributed capital
- Investment projects
- Investment via BCC (Business Cooperation Contract)
- Other alternative methods of investment permitted by the Government
Establishment of Economic Organizations
What is the establishment of economic organizations?
Establishment of economic organizations is one of the more popular forms of investment in Vietnam performed by foreign investors.
Economic organizations are organizations that are established and operated under the laws of Vietnam, including enterprises, cooperatives, cooperative federations, and other organizations that participate in business activities. Accordingly, the establishment of economic organizations is the use of one’s own budget to establish enterprises, cooperatives, cooperative federations, etc.
Establishment of economic organizations is a form of direct investment because investors make the investment directly and participate in the management activities. Moreover, investors must satisfy conditional prerequisites and undergo proper procedures to establish economic organizations.
Upon the selection of this method of investment, investors often favor the establishment of enterprises over cooperatives or cooperative federations.
Once an investor decides to establish an enterprise, one of the following common types of enterprises may be chosen:
Establishing Companies with Foreign Capital
Prior to the establishment of companies, with the exception of establishments of small and medium innovative startups or innovation funds per the laws on support for small and medium enterprises, foreign investors must possess investment projects and appropriate Investment Registration Certificates (whether newly issued or amended).
Foreign investors must also comply with market access conditions on (i) the ratio of foreign capital within the economic organization; (ii) the method of investment; (iii) the scope of investment; (iv) the capacity of the investors; (v) investment collaborators (vi) other conditions per the law.
In summary, foreigners establishing companies in Vietnam, must have investment projects, followed by the procedures to obtain appropriate investment registration certificates, and, finally, the establishment of the company.
Purchase Of Stocks/Contributed Capital
Investment by purchases of stocks/contributed capital is another popular method of investment in Vietnam, that foreign investors often opt for.
To purchase stocks/contributed capital of economic organizations, foreign investors must meet the following conditions:
- Market access conditions against foreign investors under the law;
- National defense and security requirements;
- Compliance with laws on land, regulations on land use rights, and requirements to use land from islands or borders, and coastal areas.
Foreign investors may make capital contributions to and/or, purchase stocks/contributed capital from economic organizations in Vietnam under the following methods:
Methods for foreign investors to make capital contributions, purchase stocks/contributed capital in Vietnam
Methods for foreign investors to make capital contributions
Capital contributions are contributions from an investor’s own assets to the charter capital of the company. This contribution is made either during or after the establishment of the enterprise.
According to the law, methods for foreign investors to make capital contributions include:
- Purchases of stocks of joint stock companies during the initial public offering or subsequent public offering.
- Contribution to the charter capital of limited liability companies, partnerships; or
- Contribution to the charter capital of other economic organizations aside from those mentioned above.
Methods for foreign investors to purchase stocks/contributed capital
Purchases of stocks/contributed capital are the purchases of stocks bought by organizations and/or individuals who are shareholders of joint stock companies or contributed capital held by organizations and/or individuals who are members of limited liability companies or partnerships in Vietnam. After the purchase, foreign investors become shareholders/members of the companies whose stocks/contributed capital they have bought.
According to the law, methods for foreign investors to purchase stocks/contributed capital include:
Steps for foreign investors to make capital contributions, purchase stocks/contributed capital
Aside from the method of establishment of enterprise, under the method of capital contributions, purchase of stocks/contributed capital of company, foreign investors ARE NOT required to obtain Investment Registration Certificates.
However, the Registration for capital contribution, purchase of stocks/contributed capital by foreign investors is required if the foregoing falls under one of the following situations:
a) The capital contributions, purchases of stocks/contributed capital increase the ratio of foreign capital within the companies that operate in business lines with market access conditions.
b) The capital contributions, purchases of stocks/contributed capital allow foreign investors, economic organizations listed in Item a to own more than 50-percent (50%) of the charter capital, whether the increase resulted from such actions would cause the ratio of charter capital owned by foreign investors within the economic organization to go from 50-percent (50%) or below to over 50-percent (50%) or from over 50-percent (50%) to increase further;
c) Foreign investors make capital contributions, purchase stocks/contributed capital from economic organizations with land use rights at the border, coastal areas or other areas that might affect national defense and security.
Example:
Company A, a Multi-membered Co. Ltd, has 2 members who are Vietnamese citizens, namely (i) Mr. D who owns 60-percent (60%) of the charter capital; and (ii) Mr. H, who owns 40-percent (40%) of the charter capital.
After a period of operation, Mr. D desires to transfer his shares in Company A to an individual named X (of M nationality). Based on the regulations specified above, it could be observed that the purchase of contributed capital by X falls within the list of situations where the registration for capital contributions, purchases of stocks/contributed capital is required.
Therefore, only after the Registration of capital contributions, purchases of stocks/contributed capital and the approval in writing thereof by competent authorities, Company A might proceed with the procedures to adjust its member list, namely, to replace Mr. D with Mr. X. Afterward, the foreign investor will officially become a member of the company.
Attention: If investors are not required to register their capital contributions, purchases of stocks/contributed capital, only procedures to adjust the list of shareholders/members in accordance with the laws needs to be performed.
Investment Projects
Investment Projects are collective proposals for medium-term or long-term funding to perform investment activities in certain locations, within specific amounts of time.
Investment Projects include:
a) Expansion Projects are investment projects that are extensions of existing projects by expansion of scale, increase in performance, technology changes, reduction of pollution, or environmental improvements.
b) New investment projects are brand new investment projects or investment projects independent of those that already exist.
c) Start-up Innovation Projects are investment projects that implement ideas on the basis of utilizing new intellectual property, technologies, and business models with the potential for explosive growth.
Prior to the implementation of investment projects, if the concerned project requires the approval for investment guidelines, Investors shall proceed with the procedures to obtain approval for investment guidelines prior to the implementation of the project.
Investment Via BCC
BCC, which stands for Business Cooperation Contract, is a type of contract entered into by investors whose purpose is business cooperation and share of profits, benefits without involving the establishment of any economic organization. Depending on the identity of the parties to the contract, the applicable law of the contract may differ. Clause 2,3 Article 27 of Law on Investment 2020 on the applicable law of investment via BCC provides as follows:
- Civil laws shall be applied whenever a BCC is entered into by domestic investors.
- Investment Registration Certificates must be obtained whenever a BCC is entered into by domestic investors and foreign investors, or by foreign investors only.
Parties to a BCC shall establish a management board for the implementation of a BCC. Functions, responsibilities, and powers of the management board shall be agreed upon by the parties.
Other Alternative Methods Of Investment Permitted By The Government
Generally, methods of investment by foreign investors in Vietnam are diverse and varied. Depending on the objective and/or financial capacity, investors are invited to choose appropriate investment methods for the most optimal result.
Through this article, we hope that any challenges pertaining to methods of investment by foreign investors in Vietnam are alleviated
Individuals or organizations encountering investment challenges or in need of consultation pertaining to the aforementioned topic, please contact us via the following information.
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