3 capital contribution & share purchase options for foreign investors in Vietnam

Foreign investors can invest indirectly in Vietnam through capital contributions, share purchases, and capital contributions. When many businesses are facing many difficulties due to the economic recession after the Covid-19 pandemic, many investors want to take this opportunity to acquire complete ownership of Vietnamese businesses or purchase capital contributions in promising ventures. This article aims to provide investors with a comprehensive understanding of the constraints related to the capital contribution ratio and share purchase options available to them.

1. Capital contribution ratio of investors according to investment law

To contribute capital to Vietnamese enterprises, foreign investors must satisfy the charter capital ownership ratio specified for foreign investment in economic organizations, as outlined in Article 9 of the Investment Law 2020. This means that depending on the industry and business in which the investor wants to contribute capital and buy shares (target company), the Ratio condition will apply.

In principle, when the business line of the target enterprise is not listed under restricted market accessory pertaining to industries and occupations without established market access, investors will be treated as domestic. In such cases, identical market access conditions will be applicable, implying that investors face no restrictions on their capital ownership ratio in businesses operating in industries absent from the restricted market access list or those without established market access. 

However, for industries in the list of industries with conditional market access, the investor’s capital ownership ratio must adhere to the provisions of specific legal documents along with any relevant international investment treaties to which Vietnam is a signatory.

2. Capital contribution ratio in stock market share purchases

Foreign investors are allowed to contribute capital to establish, purchase shares, and contribute capital of securities companies and securities investment fund management companies as follows:

• If the investor is an organization or related entities:
  • Ownership ratio up to 100% of charter capital. Conditions:
    • Licensed and continuously operating in the fields of banking, securities, and insurance for the previous 2 years.
    • There is a cooperation agreement with the state licensing agency and the State Securities Commission.
    • Profitable business activities in the previous 02 years and the most recent year’s financial statements must be audited with an unqualified opinion.
  • Maximum 49% of charter capital if the above conditions are not met.
• Individual investors and related individuals:
  Maximum ownership is capped at 49% of charter capital. This is to limit the control of investors in securities companies and securities investment funds.

Regulations on share ownership by foreign investors and foreign organizations in securities companies and securities investment fund management companies are established to ensure transparency, fairness and balance in the stock market and stock investment fund operations. These regulations also contribute to the establishment and growth of a secure and sustainable securities business environment, particularly considering the comparatively weaker capital strength of domestic enterprises in comparison to their foreign counterparts.

For investors who want to invest in public companies (“PC”) on the stock market, the following issues should be noted:

• If the PC operates in an investment or business sector covered by an international treaty with Vietnam regulating foreign ownership, the ownership ratio complies with the terms of the international treaty.
• If the PC operates in a sector or business industry with relevant laws regulating foreign ownership, the ratio shall comply with that specific law.
• If the PC operates in a sector listed in industries and sectors with limited market access for foreign investors, it will adhere to the foreign ownership regulations outlined in the list. If the list does not expressly state a maximum rate, the default is set at 50%.
• If the PC’s operations do not fall under the aforementioned cases, there are no restrictions on the ownership ratio for investors.
• In cases where a resettlement company operates in multiple industries and occupations and has different regulations on foreign ownership ratio, the ownership ratio must not exceed the lowest level stipulated in the regulated industries and occupations.

Notes: The PC has the authority to set a maximum foreign ownership ratio lower than the regulations to align with the specific needs and business circumstances of each enterprise.

The legal framework regulating foreign ownership in the Vietnamese stock market has been formed since the opening of the market The process of modifying foreign ownership policies, particularly the foreign ownership ratio of public companies, is recognized for its agility and openness, albeit with certain limitations for investors. Currently, PC has the flexibility to raise the foreign ownership ratio to a maximum of 100%, provided the company does not operate in a business line or industry restricted to foreign investors. This policy is viewed as a groundbreaking initiative, fostering openness and reducing market barriers for foreign investors, in line with international best practices.

3. Capital contribution ratio of investors in specific industries

Vietnam, having become a member of the WTO, has eased restrictions on share ownership for foreign investors following its commitments in the WTO commitment schedule. While foreign investors are generally permitted 100% ownership in most business sectors, there are still specific conditional business lines that necessitate careful consideration of the Ownership Ratio. Investors need to pay attention to the conditions in the business industry and limit the ratio of charter capital in each specific industry to ensure a seamless investment process.