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:
- 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.
Article 23.1 of Vietnam's 2023 Law on Real Estate Business explicitly allows real estate developers to sell future properties, such as houses, buildings, or floor areas within a building. However, the law is silent on the leasing of future properties (except for hire purchase transactions). This omission has led to uncertainty regarding the legality of such transactions.
On the one hand, leasing of future properties was clearly permitted in a similar Article of the Law on Real Estate Business 2014. Accordingly, one could argue that the omission of leasing from Article 23.1 of the Law on Real Estate Business 2023 indicates that a real estate developer cannot lease future properties.
Under Article 84.2 of the Civil Code 2015, a branch (chi nhánh) of a legal entity has the duties to perform all or parts of the legal entity’s functions. However, a branch is not allowed under the Civil Code 2015 to act as an authorized representative of a legal entity. Accordingly, it is not clear in what capacity a branch would perform the functions of a legal entity.
Logically, in order for a branch to perform all or parts of the legal entity’s functions, either
Option 1: a branch could be allowed to act as an authorized representative of a legal entity under another law; or
Option 2: a branch could perform the functions of a legal entity in its own name and capacity. In other words, a branch can perform the functions of a legal entity without needing an authorization from the parent entity and the action (or inaction) of a branch will be deemed an action or inaction of the parent entity.
The term “economic organisation” (tổ chức kinh tế) was first introduced under the Investment Law 2014 and refers to, among other things, any company or organisation incorporated in Vietnam. Over time, the term “economic organisation” has been used consistently in other legislations and allows for a consistent application of the law. However, the Land Law 2024 has introduced significant confusion as to the meaning of the term “economic organisation”. In particular, it is not clear under the Land Law 2024, if the term “economic organisation” only refers to companies or organisations, which are not controlled by foreign investors and do not include companies or organisations which are controlled by foreign investors. The lack of clarity has important implication on how the Land Law 2024 is implemented. For example, if the term “economic organisations” under the Land Law 2024 includes organisations which are controlled by foreign investors then a foreign bank branch could have a clear legal basis to take mortgage over land use rights and assets attached to land.
The corporate bond crisis in Vietnam started in 2022 during which many corporate bonds issued before September 2022 under Decree 153/2020 were defaulted by the issuers (Pre-2022 Bonds). To facilitate the potential restructuring of Pre-2022 Bonds, in 2023, the Government issued Decree 8/2023 which allows for the bond issuers and the bondholders to agree to amend the terms of a Pre-2022 Bonds including the extension of the duration for the Pre-2022 Bonds to up to two years. However, the rights of a bondholder who disagrees with a restructuring proposal for a Pre-2022 Bond are not clear.
Under Decree 8/2023, the duration and the repayment schedule of a Pre-2022 Bond could be extended if the proposed extension is approved by bondholders representing 65% or more of the total number of outstanding bonds. Decree 8/2023 further provides that for bondholders who do not agree to changes in the conditions and terms of a Pre-2022 Bond (dissenting bondholders), the issuer is required to negotiate with the dissenting bondholders. If a dissenting bondholder does not accept the proposed negotiation plan, the issuer must fully fulfill its obligations to that dissenting bondholder in accordance with the original bond issuance plan. This requirement holds even if the proposed changes have been approved by the other bondholders who hold 65% of the outstanding bonds.
Under anti-money laundering (AML) regulations, reporting entities (e.g., credit institutions) are required to be aware of several key watchlists, maintained by relevant Vietnamese authorities, to ensure compliance with their AML obligations. This blog will introduce those watchlists and discuss specific requirements related to them.
Essential watchlists under AML regulations
Under AML regulations, the Vietnamese Government maintains the following watchlists:
(1) A Blacklist (danh sách đen in Vietnamese): including (a) list of organizations and individuals involved in terrorism and terrorism financing compiled by the Ministry of Public Security (MPS), and (b) a list of organizations and individuals designated as being involved in the proliferation and financing of the proliferation of weapons of mass destruction, compiled by the Ministry of National Defense (MND);
(2) A warning list/Grey list (danh sách cảnh báo in Vietnamese): A list of organizations and individuals compiled by the State Bank of Vietnam (SBV) to warn about those with a high risk of money laundering; and
(3) A list of Foreign politically exposed person (PEP List) (danh sách cá nhân nước ngoài có ảnh hưởng chính trị in Vietnamese): A list of foreigners who hold a senior position in foreign agencies, organizations, and international organizations, notified by the SBV.
There are no specific guidelines on how to access these watchlists or the procedure for screening data against them. However, except for the Grey List, which has not yet been published by the SBV, the Blacklist ((1)(a) and (1)(b)) and PEP List can be found via the national portals of the MPS, MND, and SBV (see embedded links).