Factors affecting an acquisition of companies in Vietnam

Any acquisition will have its own details and structures. That being said, a foreign investor intending to do deal in Vietnam should take into account the following factors, among other things:

Corporate form of the target company

A target company in Vietnam may be:

  1. a limited liability company (LLC) (công ty trách nhiệm hữu hạn) incorporated under the Enterprise Law. A LLC may be a single-member LLC (One Member LLC), which is owned by a single member, or a two or more members LLC (Multiple Member LLC), which is owned by two or more members; or
  2. a joint stock company (JSC) (công ty cổ phần) incorporated under the Enterprise Law. A JSC can be a public JSC (which usually has 100 or more shareholders) or a private JSC. A public JSC may also be a “listed company” (công ty niêm yết) if the shares of the relevant company is listed on a stock exchange.

The corporate form of the target company may affect a transaction significantly. For example, a foreign investor may not be able to acquire more than 49% of a public JSC while it can acquire 100% of a LLC doing the same business. The selling shareholders in a public JSC can be subject to substantially lower capital gain tax than the selling shareholders in a private JSC.

Nature of the existing owner(s) of the target company:

A target company in Vietnam may be owned and controlled by:

  1. local private investors, in which case the target company is considered as a domestic company. Investing in a domestic company may or may not require an Investment Certificate;   
  2. foreign investor, in which case the target company is considered as a foreign invested enterprise. A foreign invested company incorporated on or after 1 July 2006 should operate either as a LLC or JSC under the Enterprise Law. However, a foreign invested company which was incorporated before 1 July 2006 and has not re-registered as a LLC under the Enterprise Law will operate in a legal vacuum and be subject to many uncertainties. Investing in a foreign invested company is usually subject to an Investment Certificate; or
  3. Vietnamese Government, in which case the target company is considered as a State-owned enterprise. Investing in a State-owned enterprise may be subject to separate rules on equitisation (or privatisation) of State-owned enterprises.

Nature of the business of the target company

Depending on the business of the target company, there may be specific restrictions on foreign investment or other special requirements applicable to the proposed acquisition or the target company.

Vietnam Business Law Blog

The new Anti-Corruption Law 2018 expands to regulate anti-corruption practices in private sectors and includes a new mechanism on controlling conflict of interests. For private sectors, the provisions on controlling of conflict of interest under Anti-Corruption Law 2018 apply to, among other things, public joint stock companies, and credit institutions. It appears that other private companies are not subject to the provisions on controlling of conflict of interest under Anti-Corruption Law 2018.

Under the Anti-Corruption Law 2018, conflict of interest means a situation where the interest of a company official or his/her relative have or likely to have an influence on performance of such official’s duties. Company officials who may be subject to the rules on conflict of interest under the Anti-Corruption Law 2019 include:

Article 14 of the Law on Real Estate Business 2014 has the title “Entities which can purchase, receive assignment, lease, hire-purchase (thuê mua) real esates from real estate companies”. Article 14.2 of the Law on Real Estate Business 2014 provides that a foreign-invested enterprise (FIE), as a customer of a real estate company, is allowed to “purchase, hire-purchase houses, construction works to use for offices or business facilities in accordance with use function of such houses, construction works”. Article 14.2 does not include “leasing from real estate companies” from the permitted scope of purchase by an FIE. Technically, this could mean that an FIE is not allowed to lease office from real estate developers in Vietnam.

After years of existence, it is still arguable whether e-cigarette (thuốc lá điện tử) should be regarded as actual tobacco (thuốc lá). Accordingly, it is not clear how e-cigarette business should be regulated under Vietnamese law.

Under the Law on Tobacco Prevention 2012, tobacco is defined to be “a product wholly or partly manufactured from tobacco ingredients, processed in the form of cigarettes, cigars, tobacco shreds, pipe tobacco and other forms”. The word “other forms” could broadly cover many forms of product. However, from the definition, the key when identifying whether a product is a tobacco product is not its form, but its ingredients.

In most cases, e-cigarettes are battery-operated devices that work by heating a liquid solution (e-liquid), from which vapor is then produced. This e-liquid usually contains nicotine – a stimulant typically made from tobacco plants. Meanwhile, the definition of tobacco ingredients under the Law on Tobacco Prevention 2012 includes multiple forms of tobacco leaves, tobacco shreds, tobacco stalks and other substitute ingredients used for tobacco production.

A notable change of the new Anti-Corruption Law 2018, among other things, is that the Anti-Corruption Law 2018 applies to not only State agencies, organizations, units and public officials, but also to non-state enterprises, organizations, and officials. However, a closer reading of Article 22 on the giving and receipt of gifts under Anti-Corruption Law 2018 may indicate otherwise. In particular,

(a)        Article 22.2 provides: “Agencies, organizations, units, and public officials are not allowed to directly or indirectly receive gifts in any form from agencies, organizations, units, individuals which are relating to the affair which they are handling or fall under their management”; and

(b)        Article 3.9 of the Anti-corruption Law 2018 defines “agencies, organizations, units” under the Anti-corruption Law 2018 as agencies, organizations, units of the State.

Based on the definition in Article 3.9 and the wording of Article 22.2, it is arguable that the regulations and restrictions regarding gifts-giving under the Anti-corruption Law 2018 only apply to State-owned enterprises, state agencies, organizations, units, and public officials but not to non-state enterprises, organizations, and officials.

Decree 40/2019 amending four separate decrees on environment protection takes effect from 1 July 2019. Below are some of the key amendments introduced by Decree 40/2019:

·        The term “Industrial zones” is expanded to include all kinds of zones, such as export processing zones, high-tech zones, or industrial areas.

·        “Main works or items of a project” is the main project component specified in the feasibility study of the project.

·        List of projects subject to environmental impact assessment (EIA) is adjusted. For example, investment in a golf course is now subject to EIA. Certain projects which do not have wastewater treatment work or waste treatment work are exempted from post-construction examination. Only residential projects with capacity of 2000 (instead of 500) or more inhabitants are subject to EIA. Only hotel projects with capacity of 200 rooms (instead of 50) are subject to EIA.

·        Industrial manufacturing is classified in various sectors with different level of risks to the environment. Development of manufacturing projects with very high risks to the environment is subject to consultancy with environmental experts and scientists, and appraisal of EIA reports of these projects must be conducted by an appraisal panel.