The State Securities Commission (SSC) seems to take the view that public companies involving real estate business are subject to a 50% foreign ownership limit. However, we think that the SSC’s view is not consistent with the law and the foreign ownership limit in a public company involving real estate business should be 100% not 50%.

Under various international treaty (CPTPP or AFAS), Vietnam does not undertake to impose any foreign ownership limit to real estate business. Vietnam only limits the scope of operation of foreign-invested companies involving in real estate business (e.g. limitation on the ability to purchase houses for lease). This means that under these treaties, the foreign ownership limit in real estate business in general is 100%.
Article 139.1(a) of Decree 155/2020 provides that In the case of a public company operating in a business investment industry or trade for which an international treaty of which Vietnam is a member regulates foreign ownership, the provisions of such treaty apply. Accordingly, the foreign ownership limit in a public company involving in real estate business is 100%.
Similarly, since the Law on Real Estate Business 2014 imposes no foreign ownership limit to foreign invested enterprises, under the Law on Real Estate Business 2014, the foreign ownership limit in real estate busienss is 100%. Article 139.1(b) of Decree 155/2020 provides that in the case of a public company operating in a business investment industry or trade for which the relevant law regulates foreign ownership, then the provisions of such law apply. Accordingly, the foreign ownership limit in a public company involving in real estate business is 100%.

However, Article 139.1(c) of Decree 155/2020 provides that in the case of an industry or trade for which market access is subject to conditions and the List does not specify the conditions on ownership ratio of charter capital by foreign investors in the economic organization, then the maximum foreign ownership ratio in the company is 50% of its charter capital. Based on our discussion with other practitioners, it appears that the SSC considers that if a law or a treaty does not provide any foreign ownership condition then it means that such law or treaty has no “specific foreign ownership condition” (không quy định cụ thể điều kiện tỷ lệ sở hữu vốn điều lệ của nhà đầu tư nước ngoài). Accordingly, the SSC considers that Article 139.1(c) of Decree 155/2020 will apply and the foreign ownership limit in a public company involving in real estate business is 50%.

In other words, the SSC seems to considers that having no foreign ownership limit is equivalent to having no specific foreign ownership limit. This is an unreasonable interpretation, since when a law or treaty does not provide for any foreign ownership condition, this usually means that the limit is 100%. The SSC should only apply Article 139.1(c) if a law or treaty provides for a foreign ownership condition but fails to specific the exact limit

The view of the SSC could have adverse impact on M&A transaction involving public real estate companies since without majority control, foreign investors may be reluctant to invest in a public real estate company.

This post is written by Nguyen Quang Vu.

Vietnam Business Law