The Ministry of Planning and Investment (MPI) has just released various draft amendments to the Investment Law 2014 (https://tinyurl.com/y8tnwkkt). Regarding deemed foreign investors,
· The MPI proposes that an economic organisation controlled by foreign investors (a Foreign Controlled Organisation) must comply with investment conditions applicable to foreign investors when the Foreign Controlled Organisation establishes a new company, or acquires equity interests in another company.
· A Foreign Controlled Organisation is a company in Vietnam of which foreign investors (1) own more than 50% charter capital or ordinary shares of such company; or (2) directly or indirectly have the right to appoint members of the Board[,] the legal representative of such company; or (3) have the right to decide to amend the charter of such company.
This approach is broader and more logical than the approach under the current Investment Law 2014. Under the Investment Law 2014, the following foreign invested companies will be subject to the investment conditions applicable to foreign investors when setting up a new company or acquiring equity interests in another company:
(a) Companies, 51% or more of its chapter capital is held by a foreign investor(s);
(b) Companies, 51% or more of its chapter capital is held by an economic organization(s) prescribed in paragraph (a); and
(c) Companies, 51% or more of its chapter capital is held by a foreign investor(s) and an economic organization(s) prescribed in paragraph (a).
The current approach may allow investors to use various structures to circumvent the restrictions (see https://tinyurl.com/ybyv49qf). If the new amendment is adopted then such structures may no longer work.