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The rate of charter capital owned by foreign investors in Vietnam

When foreign investors intend to invest in Vietnam, the first concern is whether the business they intend to do business in is allowed to do business in Vietnam? The Law on Investment (LOI) 2020 takes effect from 1 January 2021, but many provisions of this new law reflect the policy movements introduced one year earlier in the Resolution of the Politburo 50/NQ-TW dated 20 August 2019 on foreign investment policy.

1/ The changes of Law on Investment in 2020

The LOI 2020 now decreases the threshold from “51%” to “50%” only.

This is a strategic move of Vietnamese law makers, which makes it more difficult for foreign investors to take management control in a joint venture company for the purpose of enjoying investment conditions applicable to local investors.

To be clear, under the LOI 2014, and in line with the Law on Enterprises 2014, a company with a controlling foreign ownership of more than 50% but less than 51% charter capital is still treated as local investor. Now, with the change in threshold, foreign investors can no longer hold a controlling majority of “more than 50%” of charter capital in the investing company (while enjoying the local investor status). The maximum charter capital ratio foreign investors may hold in the investing company is 50%, a threshold that strategically enables the local partners holding the remaining 50% to gain more decision making power in the investing company.

Given this change, more sophisticated structures would be needed so that the investors holding not more than 50% charter capital in a Vietnam-based company may take control of decision-making power in the company, while enjoying the local investor status.

2/ How to determinate the rate of charter capital owned by foreign investors

Step 1: Identify your business:

Whether that business is subject to international treaties in which Vietnam is a member or not. If such an international treaty exists, it must comply with its provisions.

If the business field in which the foreign investor intends to invest is not included in the WTO commitments, it is mandatory to determine whether the business line is conditional or not.

Step 2: Determine the foreign investment ownership limit according to the law:

According to the provisions of specialized law or conditional business lines:

  • Regulations of specialized law: If that industry and the law stipulate the maximum ownership rate of foreign investors, it is compulsory to comply with such regulations.
  • Conditional business lines: The list of conditional business lines will be regularly updated on the National Portal on Foreign Investment. In this case, each industry regulations on foreign investment ownership limit must be complied with.
  • In case the company operates in multiple industries, foreign investors need to determine which industries or professions have regulations on the percentage of ownership foreign investors. Among those industries and occupations, the lowest level is selected.

If you are intending to invest in Vietnam but are still wondering and hesitating. Yo can contact Apolo Lawyers for legal advice  relating to conditions, procedures ang the rate of charter captital in Vietnamese companies. As a legal consultant, always accompanying investors in business activities in Vietnam, over the past year, Apolo Lawyers has continuously advised and supported foreign investors on the plan as well.

Apolo Lawyers also has many forms of consulting for clients including: direct law advice at the office, email counseling, telephone consultation and many other forms to create the best favorable conditions for clients. For customers who cannot directly meet the lawyers, you can choose to consult via Email, or WhatsApp. Our company will offer the most effective solutions for customers, consulting in writing to ensure high accuracy, with legal basis. With the enthusiastic support from the company, the customer will spend not only a lot of time but also travel expenses.

For further information, contact us:

Apolo Lawyers - Solicitors & Litigators

Address: 10th Floor, PaxSky Building, No. 51 Nguyen Cu Trinh Street, District 1, Ho Chi Minh City

Binh Thanh Branch        

Address: 9th/F, Tower K&M Building, 33 Ung Van Khiem St., Binh Thanh Dist., HCM City

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Tel: (028) 66.701.709 / (028) 35.059.349

Mobile 1/ Whatsapp 1: 0939.486.086 / Mobile 2/ Whatsapp 2: 0908.043.086

Email: contact@apolo.com.vn

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