Newest regulations on contributing capital of foreign organizations

Vietnam is in the process of integration and development, so the State attaches great importance to encouraging foreign investors to contribute capital to operate business activities in Vietnam. At the same time, more and more foreign organizations are contributing capital to economic institutions in Vietnam.

So how do foreign organizations contribute? What are the legal regulations for foreign organizations to contribute capital? What are the obstacles arising when participating in capital contributions?

I/ Concept of foreign organizations contributing capital

Current legislation does not specify a concept of foreign organizations contributing capital. On the basis of the regulations explaining contributions of capital in Clause 18, Article 4 of the Law on Enterprises 2020 and Clause 19 of Article 3 of the Law on Investment 2020 stipulating foreign investors, a foreign organization contributing capital is an organization established under foreign law that contribute its assets to form the charter capital of the company, including a contribution to establish a company or an additional charter capital contribution of a company established in Vietnam.

II/ Legal regulations on foreign organizations contributing capital

The current legal regulations on foreign organizations contributing capital are as follows:

1. In what form do foreign organizations contribute capital?

Foreign organizations are allowed to contribute capital to economic organizations in the following forms:

- Purchase of first-issue shares or additional-issued shares of the joint-stock company;

- Contribution of capital in the Limited Liability Company and Partnership;

- Contribution of capital in other economic institutions that do not fall under the above circumstances.

(According to Clause 1, Article 25 of the Law on Investment 2020.)

2. Conditions for foreign organizations to participate in contributing capital

Foreign organizations desire to contribute capital to economic organizations established in Vietnam, they must meet the conditions set out in Clause 2, Article 24 of the Law on Investment, including:

- The conditions about market access for foreign investors when contributing capital to economic institutions established in Vietnam according to regulation at Clause 3, Article 9 of the Law on Investment (conditions specified in the list of business lines, which restricts access to markets for foreign investors) include: (a) The ownership ratio of the charter capital of a foreign investor in an economic institution; b) Forms of investment; (c) Scope of investment activities; d) The competence of an investor or partners involved in performing the investment activities; (e) Other conditions according to the regulation of the law, resolution of Congress; ordinance, resolution of the Standing Committee; decree of the Government and international treaties to which the Socialist Republic of Vietnam is a member), and Articles 15, 16 and 17 of Decree No. 31/2021/ND-CP (the business lines which restricts market access for foreign investors.);

- Conditions on the guarantee of defense and security and conditions of land use for economic organizations with foreign investors contributing capital in the case that the economic organization has a certificate of land use rights in the island, commune, ward, border town and commune, ward, coastal town, or other areas that have an impact on defense and security, except economic organizations performing investment projects in industrial zones, export processing zones, Hi-tech zones and economic zones established in accordance with the regulations of the Government.

(According to Clause 4, Article 65 of Decree No. 31/2021/ND-CP)

3. Procedures for contributing capital of foreign organizations 

The procedures to participate in contributing capital of foreign organizations are as follows:

- Step 1: An economic organization in which a foreign investor contributes capital, purchases shares or purchases capital contributions regulated at Clause 2, Article 26 of the Law on Investment has to submit one set of dossiers of such contribution or purchase to the Department of Planning and Investment where the economic organization has its headquarters.

- Step 2: Within 15 days from the date of receipt of the valid dossiers according to legal regulations, the Department of Planning and Investment shall consider the fulfillment of the conditions for contribution of capital, purchase of shares or purchase of the capital contributions according to regulation at Clause 2, Article 24 of the Law on Investment and Clause 4, Article 65 of Decree No. 31/2021/ND-CP, and notify the investor, except in the cases according to regulation at Clause 4, Article 66 of the Decree No. 31/2021/ND-CP. The notice is sent to the foreign investor and the economic institution whose investor contributes capital, purchases shares or purchases capital contributions.

- Clause 4, Article 66 of Decree No. 31/2021/ND-CP stipulates the case where an economic organization with a foreign investor contributing capital, purchasing shares or purchasing capital contributions with a certificate of land use rights in an island, commune, ward, border town and commune, ward, coastal town or other areas that have an impact on defense and security, the Department of Planning and Investment shall implementing the following procedures:

- Step 3: Within 3 working days from the date of receipt of the valid documents according to the legal regulations, the Department of Planning and Investment shall obtain opinions of the Ministry of Defence and the Ministry of Public Security on the fulfillment of the conditions according to regulation at Point b, Clause 4, Article 65 of Decree No. 31/2021/ND-CP;

- Step 4: The Ministry of Defence and the Ministry of Public Security have opinions on the fulfillment of the conditions on ensuring the defense and security to the economic organization whose the foreign investor contributes capital, purchases shares or purchases capital contribution within 7 working days from the date of receipt of a written proposal (proposed text); when exceeding the deadline of the request without making any opinion shall be deemed to have agreed to the fulfillment of the conditions on the security and defense for the economic institution where the foreign investor contributes capital, purchases shares or purchases capital contribution;

- Step 5: Within 15 days from the date of receipt of the valid dossiers, the Department of Planning and Investment shall consider the fulfillment of the conditions for contributing capital, purchasing shares or purchasing capital contributions according to regulations at Clause 2, Article 24 of the Law on Investment and Clause 4, Article 65 of Decree No. 31/2021/ND-CP and according to opinions of the Ministry of Defence and the Ministry of Public Security to inform the investor. The notice is sent to the foreign investor and economic institution whose foreign investor contributes capital, purchases shares or purchases capital contribution.

(Article 66 of Decree No. 31/2021/ND-CP)

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III/ Questions about foreign organizations to participate in contributing capital

During the process of foreign organizations participating in contribution of capital, they will often encounter some questions as follows:

1. The business line is one of the important factors that influence the contribution of capital of foreign organizations.

The business line is one of the factors that influences the contribution of capital of foreign organizations. Depending on the business line of the economic institution to consider whether it is a business line that restricts market access for the foreign investor contributing capital or not, such economic organization needs to meet certain conditions in accordance with the provisions of the Law on Investment and other laws relevant to such business line so that it’s foreign investor can participate in contributing capital in Vietnam.

(According to Article 9 of the Law on Investment 2020; and Articles 15,16 and 17 of Decree No. 31/2021/ND-CP)

2. Is an foreign organization allowed to buy more than 50% of shares of a Vietnamese company?

It is not in all cases that a foreign organization is allowed to buy more than 50% of shares of a Vietnamese company. Depending on the business line of the Vietnamese company to which the foreign organization intends to purchase shares and the characteristics of such a Vietnamese company as well as the legal regulations and international treaties to which Vietnam is a member, it can consider the maximum share ownership rate that the foreign organization will be allowed to purchase shares.

For example, for business lines of banking and other financial services, pursuant to Clause(s) 2 and 3, Article 7 of Decree No. 01/2014/ND-CP stipulating the share ownership rate for foreign investors is as follows:

- The ownership rate of shares of a foreign organization may not exceed 15% of the charter capital of a Vietnamese credit organization, except in the case of foreign strategic investors.

- The ownership rate of shares of a foreign strategic investor must not exceed 20% of the charter capital of a Vietnamese credit organization.

3. What conditions must a foreign organization fulfill when contributing capital of 10% or more of the charter capital of an insurance brokerage enterprise?

A foreign organization participates in contributing capital of 10% or more of the charter capital of an insurance brokerage enterprise must meet the following conditions:

- As an organization established under foreign law that is directly operated or whose subsidiary has been operated in insurance brokerage activities for the most recent five consecutive years as at the time of filing the proposal dossiers for issuing licenses for establishment and operation;

- The organization is allowed by the competent foreign authority to establish an insurance brokerage enterprise in Vietnam and determine that said organization doesn’t seriously violate the legal regulations on insurance brokerage in the country in which the organization has its headquarters for the most recent three consecutive years from the time of filing the proposal dossiers for issuing licenses for establishment and operation.

(According to Clause 5, Article 133 of the Law on Insurance Business 2022)

IV/ Legal consultation services related to foreign organizations contributing capital in Vietnam

NGOC PHU LAW COMPANY LIMITED is an entity with experience in consulting and implementing procedures related to contributing capital of foreign organizations with the following scope of work:

- Receiving information that requires consultation and implementing procedures for foreign organizations to participate in contributing capital;

- Guiding enterprises in the preparation of documentation and the completion of procedures;

- Drafting, representing and supporting Clients in filing, adjusting applications and working with competent State agencies;

- Receiving the results of the Investment Registration Certificate and the Business Registration Certificates after completion of procedures for foreign organizations to contribute capital and deliver/ hand over the results to the Clients.

Above is the information to answer questions about foreign organizations contributing capital that NPLAW would like to send to fellow readers.

If readers have any concerns that need further answers, please contact NPLAW at the following contact details: