What is a capital contribution or a share purchase in Vietnam?
Contributing capital or purchasing shares in a company established in Vietnam is understood as an investment or an acquisition of capital or stocks.
This can be done by establishing a company by obtaining an Investment Registration Certificate (“IRC”) and an Enterprise Registration Certificate (“ERC”). If the foreign investors decide instead to acquire capital in an existing company, the capital contribution or share purchase transaction must obtain an approval from the Department of Planning and Investment (“DPI”) prior to the acquisition.
How to proceed?
Registering a 100% foreign-owned company in Vietnam is possible. However, foreign investment is subject to regulatory limitations applied on each specific business sector.
In most cases, investors shall implement the following steps to establish a company:
Step 1: Obtaining an Investment Registration Certificate, abbreviated IRC (if any non-Vietnamese investors).
Step 2: Obtaining an Enterprise Registration Certificate, abbreviated ERC or BRC for Business Registration Certificate.
The company is established but the following steps are required for regulatory compliance:
Step 3: Post establishment procedures.
Step 4: Obtaining sub-licenses (if any).
IRC stands for Investment Registration Certificate which shall be obtained (in most cases) when a foreign investor wants to set up a project (such as establishing a company) in Vietnam at the beginning.
ERC stands for the Enterprise Registration Certificate which every company in Vietnam must have. In other jurisdiction it is sometimes referred to as the “Incorporation Certificate” or “Company Certificate”.
Joint Stock Company (“JSC”) and Limited Liability Company (“LLC”) are the most common types of company in Vietnam since they offer the following advantages:
In general, there is no minimum capital required by law when registering a company in Vietnam. Only some conditional business sectors such as real estate trading, banking or education have specific capital requirements.
However, the capital shall be sufficient in light of the intended business sectors and scale of operation.
For non-conditional business sectors, we usually need from 6 to 8 weeks to setup a foreign-invested company and 1 week for a Vietnamese-invested one.
However, especially for foreign-owned companies, the time can be extended due to various reasons such as additional requirements from the licensing authorities.
Opening a branch is allowed by law for both domestic and foreign companies.
Although domestic companies (even foreign invested) can open a branch without issue, foreign companies usually face obstacles when trying to open their branch in Vietnam.
Vietnamese law provides for “leasehold” and not “freehold. Foreign individuals are not allowed to buy land, but they can buy apartments from the developer of the housing construction project or from another foreign individual. They are not allowed to purchase from Vietnamese owners.
A joint-venture company is a company established based on a joint-venture agreement among individuals and/or organizations. However, the Vietnamese law does not specifically provide for joint-venture companies. Hence, the type of the company established is usually a Limited Liability Company or a Joint Stock Company.
However, investors might consider entering into a Business Cooperation Contract instead of a joint-venture agreement.
A joint venture company involving foreign and Vietnamese partners should be set up by obtaining an Investment Registration Certificate (“IRC”) to register the project of establishing the joint venture company and then by obtaining the Enterprise Registration Certificate (“ERC”).
In some cases, the Vietnamese partner(s) will establish the company without the foreign partner(s) and later transfer part of the ownership to the foreign investor(s).
Direct and indirect investment are usually defined as follows:
Vietnam’s commitments to the WTO on the services detail each kind of service with specific schedules for accession to the local market by foreign investors.
The country is also member of free trade agreements and international treaties opening the market to foreign investments. Finally, the Vietnamese national regulations also open some sectors to foreign investment.
Foreigners can buy shares in Vietnamese companies. However, depending on each specific business sector of such company, foreign ownership might be capped, restricted or change the conditions under which the company operates.