Are foreign investors in Vietnam limited in capital contribution? Let’s find out with LSX Law firm through the article below.
Investment Law 2020
Forms for foreign investors to invest in Vietnam
Accordingly Investment Law 2020 , investors are individuals with foreign nationality or organizations established under foreign laws that conduct business investment activities in Vietnam.
Pursuant to Article 21 of the Investment Law 2020, foreign investors conduct investment activities in Vietnam in the following forms:
- Invest in the establishment of economic organizations
- Investment to contribute capital, buy shares, buy capital contribution.
- Implementation of investment projects.
- Investment in the form of BCC contract.
- New forms of investment and economic organizations accordingly the Government’s regulations.
Investment in the form of capital contribution, share purchase, purchase of capital contribution from foreign investors
Forms of capital contribution, share purchase, and capital contribution purchase are the common forms detailed in Article 25 of the Law on Investment 2020 as follows:
Investors may contribute capital to economic organizations in the following forms:
- Buy shares issued for the first time or additionally issued shares of a joint-stock company;
- Contribute capital to limited liability companies, partnerships;
- Contributing capital to other economic organizations other than those specified at points a and b of this Clause.
Investors purchase shares or capital contributions from economic organizations in the following forms:
- Firstly, purchasing shares of a joint stock company from the company or shareholders;
- Secondly, purchasing of contributed capital of a member of a limited liability company to become a member of a limited liability company;
- Thirdly, purchasing capital contributions of capital-contributing members in a partnership to become a capital-contributing member of a partnership;
- Lastly, purchasing of capital contributions from members of other economic organizations other than those specified at Points a, b and c, Clause 2, Article 25 of the Law on Investment 2020.
Limits on capital contribution of foreign investors to Vietnam
Point a, Clause 3, Article 9 of the Law on Investment 2020 stipulates:
“3. Market access conditions for foreign investors specified in the List of industries and trades restricted from market access for foreign investors include:
a) Rate of ownership of charter capital of foreign investors in economic organizations;”
Therefore, one of the conditions for foreign investors to contribute capital to Vietnamese enterprises is to meet the charter capital ownership ratio.
Clause 10, Article 17 of Decree 31/2020/ND-CP stipulating the restriction on the percentage of foreign investors’ ownership; accordingly the provisions of international treaties on investment shall apply as follows:
In case many foreign investors contribute capital, purchase shares or purchase capital contributions to an economic organization and are subject to one or more international treaties on investment
The total ownership ratio of all foreign investors shall be determined. All foreign investors in that economic organization must not exceed the highest ratio; prescribed by an international treaty that provides for the foreign investor’s ownership ratio in an industry or profession.
Where many foreign investors from the same country or territory contribute capital, purchase shares or purchase capital contributions to an economic organization
The total ownership ratio of all such investors shall not be exceeding the ownership ratio specified in an international treaty on investment applicable to such investors;
For public companies, securities companies, securities investment fund management companies or securities investment funds, securities investment companies
Accordingly the law on securities, the law on securities For securities with other regulations on the foreign investor’s ownership ratio, the provisions of the law on securities shall apply:
+ Firstly, for public companies, the capital ownership ratio for foreign investors is 50%.
+ Secondly, for securities companies, securities investment companies, securities investment funds, the capital ownership ratio for foreign investors is up to 100%; (according to Article 77 of the Law on Securities 2019 ).
In case an economic organization has many lines of business and the international treaty on investment has different provisions on the percentage of foreign investors’ ownership
The foreign investor’s percentage of ownership in Vietnam shall be the same economic organization must not exceed the restriction on the foreign ownership ratio for the industry or profession with the lowest foreign ownership restriction.
Individuals and organizations must fully contribute capital within 90 days from the date of issuance of the Certificate of Business Registration. If the enterprise fails to contribute enough capital; the enterprise must carry out procedures to reduce its charter capital.
In case foreign investors fail to comply with regulations on the form of capital contribution, namely capital contribution in cash; they may be subject to a fine of between VND 30 and 40 million.