Legal regulations on restrictions on foreign ownership

I. The role of restrictions on foreign ownership in Viet Nam

Restrictions on capital ownership by foreign investors are specifically prescribed by law when foreign investors seek to conduct investment and business activities in Viet Nam in certain regulated sectors.

Limiting the participation of foreign investors in specific industries and sectors through restrictions on ownership ratios is a common measure adopted by many countries to protect the domestic economy or to safeguard national defense and security, public order and safety, social ethics, public health, as well as to maintain economic stability. So how are restrictions on foreign ownership regulated under Vietnamese law? Let us explore such an issue together with NPLaw in the article below.

II. Legal regulations on restrictions on foreign ownership in Viet Nam

1. Do restrictions on foreign ownership apply to all foreign investors in Viet Nam?

Pursuant to Article 9 of the Law on Investment 2020, as a general principle, foreign investors are entitled to market access conditions applicable to domestic investors, except where foreign investors invest in sectors included in the List of business lines subject to restricted market access promulgated by the Government under Appendix I of Decree No. 31/2021/ND-CP. The ratio of charter capital ownership by foreign investors in an economic organization is one of the market access conditions stipulated in this List applicable to foreign investors.

For business lines subject to restricted market access, the ownership ratio of foreign investors must comply with relevant Vietnamese legal instruments, Viet Nam’s List of restricted market access, and international investment treaties to which Viet Nam is a member.

Accordingly, restrictions on ownership ratios apply to all foreign investors in Viet Nam when they invest in sectors or industries subject to restricted market access under applicable regulations.

2. Business lines subject to conditions on restrictions on foreign ownership in Viet Nam

Pursuant to Clause 3 Article 17 of the Law on Investment 2020, business lines subject to conditional market access for foreign investors are specified in Section B, Appendix I of Decree No. 31/2021/ND-CP, comprising 59 business lines. Among these, certain sectors impose restrictions on foreign ownership ratios, such as:

• Banking sector: Foreign investors may not own more than 30% of the charter capital of a domestic commercial bank.
• Telecommunications sector: The maximum capital contribution ratio of foreign investors in telecommunications enterprises may be limited to 49%.
• Wholesale trading sector: In Viet Nam, foreign investors may hold up to 49% of the capital contribution in a wholesale trading enterprise.
• Passenger transportation business: Foreign investors may own up to 49% of the charter capital.
• Along with several other industries and sectors specified in the above-mentioned List.

3. Capital contribution dossiers of foreign investors and regulations on restrictions on foreign ownership

Pursuant to Clause 2 Article 66 of Decree No. 31/2021/ND-CP, the registration procedure is prescribed as follows:

Registration dossier: Including one (01) set of documents comprising:

• A written registration for capital contribution, share purchase, or capital contribution purchase (in accordance with Form A.I.7 issued together with Circular No. 25/2023/TT-BKHDT), specifying:
  + Enterprise registration information of the economic organization;
  + Business lines;
  + List of owners, members, and founding shareholders;
  + List of owners, members, or shareholders who are foreign investors (if any).
• The foreign investor’s charter capital ownership ratio before and after the capital contribution, share purchase, or capital contribution purchase.
• The expected transaction value under the capital contribution, share purchase, or capital contribution purchase agreement.
• Information on the investment project of the economic organization (if any).
• Copies of legal documents of the individual or organization contributing capital, purchasing shares, or purchasing capital contributions, and of the economic organization in which foreign investors contribute capital, purchase shares, or purchase capital contributions.
• A principle agreement on capital contribution, share purchase, or capital contribution purchase between the foreign investor and the economic organization, or between the foreign investor and the shareholder or member of such economic organization.
• A copy of the land use right certificate of the economic organization in which foreign investors contribute capital, purchase shares, or purchase capital contributions.

Pursuant to Clause 10 Article 17 of Decree No. 31/2021/ND-CP, restrictions on foreign ownership ratios under international investment treaties are applied as follows:

• Where multiple foreign investors contribute capital, purchase shares, or purchase capital contributions in an economic organization and fall within the scope of one or more international investment treaties, the total ownership ratio of all foreign investors in such an economic organization must not exceed the highest ownership ratio stipulated in any applicable treaty for a specific business line.
• Where multiple foreign investors from the same country or territory contribute capital, purchase shares, or purchase capital contributions in an economic organization, the total ownership ratio of such investors must not exceed the ownership ratio prescribed in the applicable international investment treaty.
• For public companies, securities companies, fund management companies, securities investment funds, or securities investment companies regulated by securities law, where securities legislation provides otherwise on foreign ownership ratios, such provisions of securities law shall prevail.
• Where an economic organization engages in multiple business lines for which international investment treaties prescribe different foreign ownership ratios, the foreign ownership ratio in such organization must not exceed the lowest restricted ownership ratio applicable to the relevant business lines.

III. Certain questions regarding restrictions on foreign ownership

1. What is the foreign ownership restriction in the hotel services business?

Under Viet Nam’s WTO accession commitments on trade in services, foreign investors engaging in hotel services are not subject to restrictions on ownership ratios and may own up to 100% of the charter capital.

2. Forms of foreign investment in Vietnamese enterprises and the application of foreign ownership restrictions

Pursuant to Article 21 of the Law on Investment 2020, forms of investment include:

• Investment in establishing an economic organization;
• Investment through capital contribution, share purchase, or capital contribution purchase;
• Implementation of investment projects;
• Investment in the form of BCC contracts;
• Other forms of investment and new types of economic organizations as prescribed by the Government.

Foreign investors investing in the form of establishing an economic organization are regulated under Article 22 of the Law on Investment 2020 as follows:

• Domestic investors establish economic organizations in accordance with enterprise law and laws applicable to each type of economic organization;
• Foreign investors establishing economic organizations must satisfy market access conditions applicable to foreign investors;
• Prior to establishing an economic organization, foreign investors must have an investment project and implement procedures for issuance or amendment of the Investment Registration Certificate, except for the establishment of innovative start-up small and medium-sized enterprises and innovative start-up investment funds in accordance with the law on support for small and medium-sized enterprises.

Investment in the form of capital contribution, share purchase, or capital contribution purchase is regulated under Article 24 of the Law on Investment 2020 as follows:

• Investors have the right to contribute capital, purchase shares, or purchase capital contributions in economic organizations.
• Foreign investors contributing capital, purchasing shares, or purchasing capital contributions in economic organizations must satisfy the following conditions:
  + Market access conditions applicable to foreign investors;
  + Assurance of national defense and security in accordance with the Law on Investment 2020;
  + Compliance with land law provisions on conditions for acquiring land use rights and land use in islands, border communes, wards, and townships, and coastal communes, wards, and townships.

For these two forms of investment, restrictions on ownership ratios constitute one of the market access conditions applicable to foreign investors, requiring compliance with the prescribed ownership ratios set out in the List of industries and trades subject to restricted market access under Appendix I of Decree No. 31/2021/ND-CP when investing in regulated sectors.

3. What is the foreign ownership restriction in road passenger transportation services?

Under Viet Nam’s WTO accession commitments on trade in services, foreign investors engaging in passenger transportation services may own up to 49% of the charter capital.

4. In which cases may foreign investors exceed foreign ownership restrictions?

Current law does not provide for specific cases in which foreign investors may exceed foreign ownership restrictions. Compliance with market access conditions applicable to foreign investors, including maximum ownership ratios, is a mandatory criterion for foreign investors to conduct investment and business activities in Viet Nam.

5. How do restrictions on foreign ownership affect the control rights and interests of foreign investors in Viet Nam?

Restrictions on foreign ownership have significant impacts on the control rights and interests of foreign investors in Viet Nam, including:

• Corporate control: Ownership ratios prevent foreign investors from fully controlling business operations and strategies, thereby limiting their decision-making authority and ability to adjust business models as desired.
• Capital mobilization: Foreign-invested enterprises may have difficulties in raising capital and expanding investments due to ownership limitations. In sectors such as finance, banking, or real estate, foreign enterprises may be disadvantaged in attracting major investors if they lack sufficient control rights.
• Long-term business strategy: Ownership restrictions may reduce flexibility in long-term strategic planning and lead to adjustments in investment plans due to capital ownership constraints.

IV. Legal consultancy services on restrictions on foreign ownership

The above information addresses key issues regarding restrictions on foreign ownership as provided by NPLaw to our valued readers. Should you have any questions or require further clarification, please do not hesitate to contact NPLaw using the following details: