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:
- 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
- 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:
- 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;
- 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
- 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.
Decree 163 of the Government on logistics services was issued on 30 December 2017 (Decree 163/2017). It is going to take effect on 20 February 2018 and replace Decree 140 of the Government on logistics services dated 5 September 2007 (Decree 140/2007). Below are salient changes in Decree 163/2017.
Decree 163/2017 no longer requires the logistics services providers to meet the condition of adequate equipment and personnel. That condition was applied to some logistics services, but under Decree 163/2017, the logistics services providers have only to meet conditions specific to the logistics service that they provide.
Decree 163/2017 allows foreign investors to apply, at their discretion, investment conditions regarding logistics services under an international treaty where multiple treaties are applicable.
Decree 163/2017 classifies logistics services in accordance with Vietnam’s commitments to the WTO. By contrast, Decree 140/2007 has its own classification of logistics services which is not consistent with the description of logistics services under the WTO Commitments. And the investment conditions and foreign ownership limit provided in Decree 163/2017 are generally consistent with the WTO Commitments. Therefore, it is easier to compare the Decree 163/2017 with the WTO Commitments.
The table below sets out the applicable foreign ownership limit under Decree 163/2017, to the extent possible, in comparison with Decree 140/2007:
On 15 January 2018, the Government issued Decree 9/2018 on sale and purchase of goods and other directly-related activities by FIEs. Decree 9/2018 took effect immediately and replaces the outdated Decree 23/2007. Several issues arise from this Decree 9/2018. Unfortunately, most of these issues will likely make the operation and investment by FIEs in the sectors covered by Decree 9/2018 more (sometimes much more) challenging. In particular,
In November 2017, the National Assembly passed various amendments to the Law on Credit Institutions 2010 (LCI Amendments). About two-thirds of the LCI Amendments focus on restructuring, rescue, and liquidation of a credit institution. This probably explains the relatively short period between the issuance of the LCI Amendment and its effective date. The LCI Amendments will take effect from 15 January 2018, less than two months after issuance. The National Assembly usually give a new law six months to one year to take effect. This seems to indicate a sense of urgency by the State Bank of Vietnam (SBV) in dealing with various banks which have been rescued by the SBV for the last couple of years.
In addition to the provisions on restructuring, rescue, and liquidation of a credit institution, the LCI Amendments contain a host of other amendments which aim to improve the governance and operation of a credit institution. These amendments include:
Decree 126/2017 replacing Decree 59/2011 on equitisation of State-owned enterprises introduces various new requirements for a strategic investor who invests during the equitisation of a State-owned enterprise (equitised SOE). These new requirements (especially the pricing requirement) are more difficult for a strategic investor to satisfy. In particular,
- The equitized SOE must decide to select the strategic investor and the strategic investor must commit to invest before publication of the public offering document for the public auction. Under Decree 59/2011, the strategic investor may decide to invest either before or after the public auction;
- Despite being required to commit to invest before the public auction, in most cases, the strategic investor must pay a price not lower than the average bidding price at the public auction. Under Decree 59/2011, there is no such requirement and the minimum price is the lowest successful bidding price. This requirement under Decree 126/201 seems to repeat the mistake under Decree 109/2007. There is unlikely any sensible investor who will commit to invest without knowing the price that it has to pay first;