On 6 September 2010 the Ministry of Finance (MOF) issued Circular No.131/2010/TT-BTC providing guidance to foreign investors contributing capital to or acquiring shares in Vietnamese enterprises (Circular 131).
Circular 131 guides Decision 88/2009/QD-TTg of the Prime Minister of the Government dated 18 June 2009 which issued regulations on capital contribution and purchase of shareholding by foreign investors in Vietnamese enterprises.
Salient provisions of Circular 131 are discussed below.
- Foreign organisations comprising:
- Organisations established and operating pursuant to foreign law, with branches in both overseas and Vietnam;
- Organisations established and operating in Vietnam, with a foreign party capital contribution ratio greater than 49%;
- Investment funds and securities investment companies with a foreign party capital contribution ratio greater than 49%.
- Foreign individuals being persons without Vietnamese nationality, residing overseas or in Vietnam.
- Representatives of foreign investors.
- Vietnamese enterprises conducting business in sectors and business lines in which the law does not prohibit investment, comprising 100% State-owned enterprises conducting equitisation or converting ownership by another form, shareholding companies, limited liability companies, partnerships and private enterprises.
- Shareholders owning shares in shareholding companies, capital contributing members in limited liability companies (LLCs), partners and capital contributing members of partnerships, and owners of private enterprises.
Circular 131 guides procedures for capital contribution and share purchase by foreign investors in Vietnamese enterprises.
- A foreign investor may acquire capital portions of members of an LLC or contribute capital to an LLC to become a new member of an LLC with two or more members, or acquire the whole charter capital of the owner of a single member LLC to become the new owner of this company.
- A foreign investor may acquire capital portions of capital contributors in a partnership or contribute capital to a partnership to become a new capital contributor.
- Foreign individual investors may acquire capital portions of partners of a partnership or contribute capital to a partnership to become new partners after getting approval of other partners.
- A foreign investor may acquire capital portion of the owner of a private enterprise or pool capital with the latter to transform the private enterprise into a multiple member LLC and become a member of such company.
- Foreign investors may purchase shares in the initial public offering (IPO) of a shareholding company under the Enterprise Law.
- Foreign individual investors may acquire capital portions of partners of a partnership or contribute capital to a partnership to become new partners after getting approval of other partners;
- Foreign investors may acquire shares from existing shareholders of shareholding companies, including also public companies listed or unlisted on the Stock Exchange.
Capital contribution and share purchase by foreign investors in Vietnamese enterprises conducting business in a number of sectors in which specialised branch laws or commitments in international treaties of which Vietnam is a member have provisions different from those in Circular 131 will be implemented in accordance with such specialised branch laws or international treaties.
Foreign investors purchasing shares in listed or unlisted public companies will do so in accordance with the current law on securities. In other words, Circular 131 does not apply to foreign investors in Vietnam’s securities market.
Foreign investors subscribing for IPO in equitising 100% State-owned enterprises will do so in accordance with the current law on conversion of 100% State-owned enterprises into shareholding companies.
Representatives of foreign investors and people directly implementing transactions of capital contribution and share purchase by foreign investors
Authorised representatives of a foreign organisation comprise:
- Chairman of the board of management or general director (director) of the foreign organisation.
- People authorised by the charter of the foreign organisation to sign application files and conduct procedures for capital contribution and share purchase and to implement relevant work within the scope and authority assigned to them.
- Proxies pursuant to written powers of attorney from the chairman of the board of management or general director (director) of the foreign organisation.
A foreign investor may grant authority to a trading representative in Vietnam via written authorisation to implement activities of capital contribution and share purchase in Vietnamese enterprises.
Trading representatives in Vietnam of a foreign investor comprise:
- An organisation with legal entity status established and operating under Vietnamese law and eligible to conduct professional activities being investment brokerage, investment consultancy, investment trust, securities brokerage or investment portfolio management; or
- An individual being a person with Vietnamese nationality or a foreigner residing in Vietnam, who satisfies these conditions: having full capacity for civil acts, not currently serving a prison sentence or prohibited by a court from practising business; having working experience in the financial investment and/or banking sector; having one of the practising certificates relevant to provision of services regarding capital contribution and/or share purchase (securities brokerage practising certificate, financial analysis practising certificate, fund management practising certificate and so forth); and not concurrently working in one of the representative institutions mentioned above.
People directly implementing transactions relevant to activities of capital contribution and share purchase by foreign investors in a Vietnamese enterprise (“direct traders”) are stipulated as follows:
- Direct trader of capital contribution or share purchase transactions by a foreign organisation in a Vietnamese enterprise must be an authorised representative of such foreign organisation; or the person whom the representative institution in Vietnam (if an institution is delegated with authority) assigns such task.
- Direct trader of capital contribution or share purchase transactions by a foreign individual in a Vietnamese enterprise must be such foreign individual; or the representative individual in Vietnam (if an individual is delegated with authority); or the person whom the representative institution in Vietnam (if an institution is delegated with authority) assigns such task.
Investment capital account
Foreign investors must open an investment capital account at a commercial bank in Vietnam. All activities of share purchase and sale, capital contribution assignment, receipt and use of distributed dividends and profit, remittance of money overseas and other activities relevant to investment in Vietnamese enterprises must all be conducted via such account.
Capital contributions to corporate forms
- Capital contribution to an LLC
A foreign investor may acquire the capital contribution portion and/or the right to contribute capital of a member of a multiple member LLC, or contribute capital to a multiple member LLC in order to become a new member of such company.
- Capital contribution to a partnership
A foreign investor (organisation or individual) may acquire a capital contribution portion or the right to contribute capital of a partner in a partnership, or may contribute capital to the partnership in order to become a new partner, after the other partners have provided their consent.
- Capital contribution to a private enterprise
A foreign investor may acquire capital from, or contribute capital with, the owner of a private enterprise in order to convert the private enterprise into a multiple member LLC and become a member of such company.
Forms of share purchase
- A foreign investor may subscribe for shares during the initial issue to shareholders not being founding shareholders of a shareholding company.
- A foreign investor may purchase shares available for sale, treasury shares, and additionally issued shares of a shareholding company.
- A foreign investor may acquire shares or share options of shareholders of a shareholding company, including acquiring ordinary shares of founding shareholders after the general meeting of shareholders has consented, in order to become a founding shareholder of the shareholding company.
- A foreign investor may purchase dividend preference shares, redeemable preference shares and other preference shares in a shareholding company when the company charter so stipulates or when the general meeting of shareholders issues a decision thereon.
- One foreign investor may acquire the entire shareholding from all shareholders in a shareholding company in order to convert such company into a single member LLC and to become the new owner of such LLC.
Receipt of capital contributions from and sale of shareholding to foreign investors
Vietnamese enterprises may receive capital contributions from, and sell shareholding to foreign investors in the following cases:
When the Vietnamese enterprise increases charter capital, expands operations and attracts foreign investors with financial capacity and enterprise management skills; when there is a transfer of new technology, procurement of raw materials, or development of its product sales markets; when there is close connection with the long-term interests of the enterprise in the foreign investor becoming a strategic investor of the enterprise.
Change in capital ownership structure
A change in capital ownership structure may be made via:
- Transfer (sale) of a capital contribution portion (applicable to LLCs, partnerships and private enterprises);
- Sale of shares on initial issue to shareholders not being founding shareholders, of shares from the number of shares available for sale, and treasury shares (applicable to shareholding companies);
- Sale of a capital portion in combination with an increase in charter capital;
- Capital contributing members and shareholders currently owning shares may sell their capital contribution portion in accordance with their own personal objectives and requirements, or pursuant to the decision of the enterprise.
Circular 131 becomes effective from 15 October 2010.