What Is the Capital Contribution Ratio of a Foreign Investor in an Existing Enterprise in Vietnam?
Question:
I’m a foreign investor and I intend to invest in an enterprise in Vietnam. Therefore, I would like to know what percentage of capital a foreign investor may contribute to an enterprise that is already operating in Vietnam.
Lawyer’s Answer:
Legal grounds applicable to this matter
- Point a, Clause 3, Article 9 of the 2020 Law on Investment;
- Appendix IV of the 2020 Law on Investment;
- Sections A and B of Appendix I to Decree No. 31/2021/ND-CP; and
- International treaties and commitments to which Vietnam is a signatory or a member.
Regulations on the capital contribution ratio of foreign investors
Under Clause 3, Article 9 of the 2020 Law on Investment, one of the market access conditions applicable to foreign investors contributing capital in Vietnam is the condition on the ownership ratio of charter capital held by foreign investors, together with the conditions set out at Points b, c, d and dd of this clause. Accordingly, one of the conditions that a foreign investor must satisfy when contributing capital in Vietnam is the condition relating to the percentage of charter capital ownership.
In principle, for business lines that are not included in the List of sectors and trades with restricted market access for foreign investors, foreign investors may own up to 100% of the charter capital of the enterprise.
For business lines that are included in the list of restricted market access sectors, the foreign investor’s ownership ratio must comply with:
- the relevant provisions of Vietnamese law;
- Vietnam’s List of sectors and trades with restricted market access for foreign investors; and
- international investment treaties to which Vietnam is a contracting party or member.
Sectors and trades with restricted market access for foreign investors
Currently, under Decree No. 31/2021/ND-CP, there are 84 sectors and trades with restricted market access for foreign investors, including:
1. Sectors and trades not yet open to market access for foreign investors
Under Section A of Appendix I to Decree No. 31/2021/ND-CP, there are 25 sectors and trades that are not yet open to market access. Foreign investors are not permitted to invest in these sectors and trades.
2. Sectors and trades with conditional market access for foreign investors
Under Section B of Appendix I to Decree No. 31/2021/ND-CP, there are 59 sectors and trades subject to conditional market access.
Example: Capital contribution ratio in the film industry
Pursuant to Point a, Clause 1, Article 8 of the 2022 Law on Cinema:
“Establishing economic organizations with foreign investment capital; investing through capital contribution, purchase of shares, or purchase of capital contributions, in which the capital portion of foreign investors must not exceed 51% of the charter capital.”
Accordingly, under current law, the capital contribution ratio of foreign investors in Vietnamese film establishments engaged in film production, distribution and exhibition must not exceed 51% of the charter capital, in order to ensure compliance with international commitments and the specific characteristics of the film industry.
How to determine the foreign ownership ratio in a Vietnamese enterprise
To determine the foreign ownership ratio in a Vietnamese enterprise, you may follow these steps:
Step 1:
Check whether the business line in which you intend to invest falls under the List of sectors and trades with conditional market access for foreign investors as provided in Section B of Appendix I to Decree No. 31/2021/ND-CP.
Step 2:
Consider the nationality of the investor and the relevant treaty commitments. If both your country and Vietnam are members of, or parties to, the WTO or another relevant treaty, then the investment may be subject to the applicable international commitments and treaties. Accordingly, you should review whether the business line you intend to invest in is subject to a foreign ownership cap under those international commitments.
Example:
The United States and Vietnam are both WTO members. Therefore, if an American investor invests in Vietnam, it is necessary to review Vietnam’s WTO accession commitments. Vietnam’s WTO commitments contain specific commitments for each service sector, and depending on the sector, there may be specific limitations on the foreign ownership ratio.
Step 3:
If the business sector in which you intend to invest does not fall within the scope of an international treaty to which Vietnam is a party, you must determine whether that business line is a conditional business line. The list of conditional business lines is provided in Appendix IV of the 2020 Law on Investment.
Important note:
If the relevant laws do not impose any restriction, and the business line is not subject to conditional market access, then you must check whether the company charter provides any restriction on the ownership ratio of foreign investors. If not, then the foreign investor’s capital contribution ratio is not restricted, meaning that the foreign investor may contribute up to 100% of the capital.
What is the capital contribution ratio of a foreign investor in an existing enterprise in Vietnam?
The answer depends on the specific business line or sector of the enterprise in which the foreign investor intends to invest. The foreign ownership ratio varies depending on the legal regulations applicable to that particular industry or business sector.
In addition, one of the most important legal bases for determining the capital contribution ratio of a foreign investor in a Vietnamese enterprise is the set of international investment treaties to which Vietnam is a party, especially Vietnam’s WTO commitments in the field of trade in services.
Then what percentage may you contribute to a Vietnamese enterprise?
As we do not yet know the exact business line or sector in which you intend to invest, we are unable to provide a definitive answer to your question at this stage.
However, based on the legal provisions and the method of determining the ownership ratio analyzed above, you will be able to identify the applicable foreign ownership cap for your investment in a Vietnamese enterprise.
Contact us for further legal advice and assistance
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