Foreign investors’ ownership exceeding the prescribed limits in Vietnam has become increasingly common, particularly in listed companies and sectors with strong capital attraction. The following article analyzes the applicable legal regulations, conditions, notification procedures, as well as the legal impacts, benefits, and potential risks arising therefrom. Accordingly, it aims to help foreign investors clearly understand their rights and obligations in investment activities.

I. Current situation of foreign investors’s ownership exceeding the prescribed limits 

At present, cases in which foreign investors hold ownership exceeding the prescribed limits in Vietnamese enterprises are no longer uncommon, especially in sectors that are not subject to market access restrictions.

Some enterprises proactively expand their attraction of foreign capital, while in other cases, such situations arise due to insufficient legal awareness or failure to properly comply with notification procedures. It underscores the need for careful review of legal regulations to avoid violations and adverse impacts on business operations.

II. Legal regulations on foreign investors’s ownership exceeding the prescribed limits

1. In which cases may foreign investors hold ownership exceeding the prescribed limits? 

Foreign investors may hold ownership exceeding the prescribed limits in certain special cases permitted under Vietnamese law, specifically as follows:

  • Unrestricted business lines: For business lines that are not included in the list of sectors with restricted market access, foreign investors may own up to 100% of the charter capital.
  • Conditional business lines: In conditional sectors, the ownership ratio of foreign investors is specifically regulated. For example, in the banking sector, the total ownership of foreign investors may not exceed 30% of the charter capital of a Vietnamese commercial bank, except for special cases decided by the Prime Minister to ensure the safety of the credit institution system.
  • Special cases: In certain special circumstances, such as when a credit institution faces difficulties, the Prime Minister may decide to permit foreign investors to hold ownership exceeding the prescribed limits in order to ensure the stability of the financial system.

Ownership exceeding the prescribed limits must comply with applicable legal regulations and be approved by the competent authorities.

2. Is a notification procedure required when foreign investors hold ownership exceeding the prescribed limits? 

Foreign investors holding ownership exceeding the prescribed limits are required to implement notification procedures in accordance with Vietnamese law.

Pursuant to Clause 2, Article 26 of the Law on Investment 2020, foreign investors must complete procedures for registration of capital contribution, purchase of shares, or acquisition of capital contributions in an economic organization prior to any change in members or shareholders in the following cases:

  • The capital contribution, share purchase, or acquisition of capital contributions increases the ownership ratio of foreign investors in an economic organization operating in business lines subject to conditional market access for foreign investors.
  • The capital contribution, share purchase, or acquisition of capital contributions results in foreign investors and economic organizations with foreign investor ownership holding more than 50% of the charter capital of the economic organization.
  • Foreign investors contribute capital to, purchase shares in, or acquire capital contributions of an economic organization that holds land use right certificates in islands, border communes, wards or townships; coastal communes, wards or townships; or other areas affecting national defense and security.

Accordingly, if ownership exceeding the prescribed limits falls into any of the above cases, foreign investors must register with the investment registration authority prior to implementing the transaction. Failure to comply may result in administrative sanctions and may affect the legal validity of the transaction.

III. Common questions regarding foreign investors’s ownership exceeding the prescribed limits

1. What conditions must foreign investors satisfy to hold ownership exceeding the prescribed limits?

Foreign investors seeking to hold ownership exceeding the prescribed limits in Vietnamese enterprises must satisfy certain conditions under applicable laws, particularly the Law on Investment 2020, the Law on Securities 2019, and relevant guiding documents. Main conditions include:

  • Not operating in prohibited or restricted sectors: The intended business lines must not fall within the list of sectors prohibited from investment (as stipulated in Article 6 of the Law on Investment 2020). Where the business lines fall within the list of sectors with restricted market access for foreign investors, ownership exceeding the prescribed limit is permitted only if:
    + The specific conditions under WTO commitments, FTAs, or other international commitments are satisfied; or
    + There are clear provisions in specialized laws permitting such ownership.
  • Obtaining approval or completing prior registration with competent authorities: Where ownership exceeds 50% of the charter capital, or where investment is made in enterprises using land in areas sensitive to national defense and security, foreign investors must complete registration procedures for capital contribution, share purchase, or acquisition of capital contributions (Clause 2, Article 26 of the Law on Investment 2020). For listed companies, compliance with Decree No. 155/2020/ND-CP and the Law on Securities 2019 regarding foreign ownership ratios is required.
  • Compliance with national defense and security regulations: Where enterprises own land located in islands, border areas, coastal areas, or other areas affecting national defense and security, foreign investors may only hold ownership upon approval by competent state authorities.
  • No violation of competition or investment laws: Ownership exceeding the prescribed limits must not result in monopolistic practices, market manipulation, or violations of the Law on Competition.

Ownership exceeding the prescribed limit is not absolutely prohibited; however, it must fully satisfy conditions relating to business lines, national security, and mandatory legal procedures. Violations may result in measures such as withdrawal of capital, invalidation of transactions, or administrative sanctions.

2. Do sectors with restricted market access allow foreign investors to hold ownership exceeding the prescribed limits? 

Pursuant to Article 9 of the Law on Investment 2020, sectors with restricted market access impose maximum ownership ratios for foreign investors. However, in certain special cases, foreign investors may hold ownership exceeding such limits subject to approval by competent state authorities and compliance with specific conditions prescribed by law, such as international commitments to which Vietnam is a member. 

In addition, the permissibility of ownership exceeding the prescribed limit depends on the nature and characteristics of each sector. Certain sectors relating to national security, defense, or other sensitive areas may not permit ownership exceeding the prescribed limits, even with approval from competent authorities.

Accordingly, foreign investors must ensure compliance with legal regulations and notification procedures when seeking to hold ownership exceeding the prescribed limits in restricted sectors, and must carefully consider applicable conditions and licensing procedures, if required.

3. What are the benefits and risks of foreign investors holding ownership exceeding the prescribed limits? 

Benefits of holding ownership exceeding the prescribed limit:

  • Expanded investment opportunities: Ownership exceeding the prescribed limits enables investors to exercise greater control and fully capitalize on investment opportunities, particularly in sectors with high growth potential.
  • Enhanced influence and control: Foreign investors may gain stronger control over corporate governance and management, thereby reducing risks associated with decision-making.
  • Greater profit potential: Holding a majority stake may allow investors to receive higher returns if the enterprise operates effectively.

Risks of holding ownership exceeding the prescribed limit:

  • Legal non-compliance: Failure to comply with ownership ratio regulations may result in administrative sanctions or mandatory divestment, adversely affecting investment plans.
  • Restrictions in sensitive sectors: Certain sectors, particularly those involving national security or defense, may prohibit foreign ownership exceeding the prescribed limits, creating legal risks and disrupting business operations.
  • Increased regulatory scrutiny: Significant ownership stakes may subject foreign investors to closer supervision by state authorities, especially in sectors involving public interests and security concerns.

Accordingly, while ownership exceeding the prescribed limit presents significant growth opportunities, it also entails legal and commercial risks that investors must carefully evaluate prior to making investment decisions.

4. Does foreign ownership exceeding the prescribed limit affect the management of domestic enterprises?

Foreign ownership exceeding the prescribed limit may affect the management of domestic enterprises in several ways:

  • Changes in control rights: Where foreign investors hold ownership exceeding the prescribed limits, they may exercise greater control over management and operational decisions, potentially leading to changes in development strategies, business objectives, and management structures.
  • Increased dependence on foreign investor decisions: Enterprises may become dependent on decisions made by foreign investors, particularly where such investors hold a majority stake, potentially leading to conflicts between foreign investor interests and those of domestic shareholders or management.
  • Impact on state supervision: Excessive foreign ownership may pose challenges to maintaining effective supervision and control by state authorities, particularly in sectors related to national security or important political and social interests.
  • Effects on domestic partners and customers: Domestic partners and customers may be concerned about excessive foreign control, which could affect business relationships and undermine market confidence.

Thus, foreign ownership exceeding the prescribed limit may influence strategic decisions, internal control mechanisms, and stakeholder relationships, and may cause instability if not properly regulated by the state and relevant parties.

IV. Legal advisory services relating to foreign investors’s ownership exceeding the prescribed limits 

NP Law’s legal advisory services relating to foreign investors holding ownership exceeding the prescribed limits assist individuals and organizations in understanding Vietnamese legal regulations on ownership ratios, conditional business lines, and permitted cases of exceeding such limits. We provide advice on applicable conditions, legal compliance review, implementation of notification procedures, drafting of necessary documents, and resolution of legal issues to ensure that investment transactions are lawful, effective, and secure.