VIETNAM: An Introduction to Corporate/M&A

Introduction to the Vietnamese Foreign Investment Regime

Vietnam has been a member of the WTO since 2007, under which it has opened specific sectors of the economy to foreign investment. WTO-committed sectors include business, communications, telecommunications, construction and engineering, distribution, education, finance, tourism and travel, and transportation services. The ability to invest in industries that are not committed to the WTO will depend on domestic laws. Significant sectors open to foreign investment under Vietnamese law include manufacturing and real estate development. While some industries are broadly available without restrictions, others are subject to foreign ownership restrictions or other conditions. To conduct foreign investment, investors must obtain foreign investment approval from relevant authorities in most instances.

Concerning recent changes to the foreign investment regime, the government has been gradually streamlining foreign investment procedures. Due to recent changes, government approval before making a contribution or acquiring equity is no longer required if the transaction does not increase the foreign investors’ ownership ratio in the target company. For example, suppose a company is 100% foreign-invested. In that case, a foreign investor wishing to purchase equity in such a company would not need investment approval.

As for Vietnam’s current economic trends, although the outbreak of the COVID-19 pandemic impacted its economy, it has made a remarkable recovery in 2022. Vietnam’s GDP growth rate in 2022 reached 8.02% and the amount of foreign direct investment was USD22.4 billion, 13.5% higher than in 2021. Meanwhile, the export turnover of goods was estimated to reach USD371.85 billion, an increasing of 10.6% over the previous year.

Overview of Foreign Investment Options 

Vietnam’s foreign investment regime recognises several forms of investment for foreign investors. The two most popular forms are establishing foreign-invested entities (FIEs) and purchasing equity in domestic entities. An FIE may be either a company with 100% foreign ownership or a company with both foreign and Vietnamese investors.

In terms of corporate entities, investors may establish a limited liability company (LLC) or a joint stock company (JSC). Critical differences between the two corporate forms include that an LLC may have up to 50 equity holders; in contrast, the number of equity holders in JSCs is unlimited, but it must have at least three shareholders.

How to Fund Investment and Move Funds Abroad 

There are two ways for investors to fund their Vietnam investment: capital contribution or loans.

Direct Investment Capital Account (DICA)

FIEs with Investment Registration Certificates or where the combined foreign ownership is 51% or more are required to open a DICA to carry out specific transactions. These transactions are (i) receipt of foreign capital contribution, transfer of capital contribution, or receipt of foreign loans; (ii) disbursement outside Vietnam of principle, interest, and fees on foreign medium or long-term loans; (iii) disbursement outside Vietnam of capital, profit, and other legal revenue from foreign investment; and (iv) other revenue and disbursement transactions relating to foreign direct investment activities. A DICA account can be in either foreign currency or Vietnamese dong. Each commercial bank may have different requirements for opening a DICA.

Foreign loan registration  

Foreign loans with terms of twelve months or more must be registered with the State Bank of Vietnam (SBV). The registration requirement also applies to renewed short-term loans and overdue short-term loans. The SBV in Hanoi will process registrations of foreign loans of USD10 million or more. The SBV branch in the province of the borrower’s head office handles lesser amounts.

Foreign remittances  

There are no significant restrictions under Vietnamese laws regarding the repatriation of investment capital and remittance of foreign investment projects’ profits. Foreign investors are entitled to repatriate their investment capital upon (i) the dissolution or termination of the operation of enterprises with foreign direct investment capital; (ii) reduction of investment capital; and (iii) liquidation or termination of the investment projects and business co-operation contracts as long as all financial obligations owed to the government of Vietnam have been satisfied.

Foreign investors can remit profits abroad after financial obligations to the State of Vietnam have been fulfilled (eg, tax). In most instances, the transfer of capital and profits abroad must be conducted via a DICA.

Merger Control Under the Law on Competition 2018

M&A activities in Vietnam are subject to merger control requirements under competition law. Accordingly, merger filings are required if the proposed M&A transactions trigger prescribed quantitative thresholds. In particular, compulsory merger notifications are necessary for all sectors (except insurance, securities, and credit institutions) when the merged entities’ combined share of the relevant market will be 20% or more. In addition, notifications are necessary if a party participating in the merger and its affiliated entities have a total asset value in Vietnam at or above USD127 million, or sale or purchase turnover in Vietnam at or above USD127 million, or the transaction value of the merger is at or above USD42 million. The “transaction value” criteria above do not apply to unions outside Vietnam. The insurance, securities, and credit institution sectors are subject to different thresholds. The merger filing process is conducted in two phases, a “preliminary review” of 30 days followed by an “official review” of 90 days if required. The official review can be extended for up to 60 days in complex cases. Taxable business entities in Vietnam, including FIEs, are subject to corporate income tax (CIT). The standard CIT rate is 20% of taxable income. Companies engaged in “encouraged” investment sectors or located in selected geographical areas are entitled to tax incentives, including tax exemption, tax reduction, or preferential tax.