Investors will face issues related to business lines, capital, locations, and investment forms while planning business activities in Vietnam. As a result, what type of investment is allowed by Vietnamese law, as well as which type is suitable for the requirements of Investors, will be of primary concern to Investors.

The two main types of investment that Investors usually choose are direct investment by establishing a business in Vietnam and indirect investment by purchasing shares and contributing capital to a Vietnamese enterprise. In this article, we would like to share with Investors the necessary information related to indirect investment, with the hope that Investors can predict for themselves what they need to do when investing in Vietnam in the indirect form.

1. When is the indirect investment chosen by Investors?

The Investors will receive the transfer of capital and shares from any member or shareholder in the enterprise established in Vietnam for buying contributed capital and shares, resulting in the Investors becoming a member and shareholder of the enterprise in Vietnam.

Investors choose this form in some of the following cases:

– Investors receive a portion of their contributed capital and shares in the company in Vietnam, but not the entire amount. As a result, Investors can become shareholder and member of the company in Vietnam, they will operate and perform business activities alongside other shareholders and members of the company;

– Investors who re-purchase and receive the transfer of all shares and contributed capital in an enterprise in Vietnam. Thus, the Investors become the sole owner of the business in Vietnam, and all issues of the business plan, operation, and personnel…will be decided solely by the Investors;

– The direct investment process takes a long time, especially in industries that Vietnam has not committed. It will need to consult professional agencies, which leads to the completion of investment procedures, which can take more than 2-3 months. The extension will have a significant impact on the company’s other plans. As a result, some Investors choose the form of establishing the company with 100% Vietnamese capital by an investor’s partner or associate. The next step is to transfer all contributed capital and shares to Foreign Investors.

The question is whether or not, when selecting the form of indirect investment, the process of receiving the capital transfer and share repurchase requires professional agencies for industries that have not committed to the WTO schedule. The answer is that the process shall continue as before, with no exceptions.

However, some Investors continue to use this form because Investors need time to prepare some items in their business plan in Vietnam. As a result, they agree to let their partners form a company, in which they will participate after receiving approval from the appropriate authorities to contribute capital and purchase shares.

2. What Investors should be aware of?

Except in the case that the Foreign Investors approve partners to represent the establishment of the enterprise, the remaining cases include: receiving the transfer and re-purchasing a part or full of the contributed capital or shares in an enterprise that is currently present in Vietnam. Investors should be aware of the following:

Reviewing the business lines: this is a mandatory job that Investors need to perform in case Investors re-purchase shares and contributed capital in a company with 100% Vietnamese capital. When the enterprise has 100% Vietnamese capital which receives  Foreign Investors, this enterprise will be considered as an enterprise with foreign elements. Industry restrictions will still apply, so Investors need to determine which industries Vietnam has not committed to Foreign Investors, the conditions attached…and on that basis, the Investor assesses the ability to participate, the difficulty of the procedure as well as how long it takes to implement.

Evaluate the capital transferor’s status ,  the seller of shares to the Investor:

Investors who receive capital transfers or repurchases shares shall be the  inheritor of the rights and obligations of the capital and share transferor. Thus, to eliminate or reduce risks for the Investors, Investors shall review and check the compliance of the enterprise and the transferor.

This form of indirect investment is also one of the forms that many Investors choose; however, this is like other forms, Investors shall carefully consider partners, capital transferors, financial situation as well as the compliance of Vietnamese enterprises. Investors should create a detailed strategy to perform the steps of investment activities in Vietnam in the most detailed way.  Because of Investor’s overall evaluation about the investment process at the beginning of time, Investors will control implementation time, types of document to prepare, and corresponding costs…

Following up on the issue of indirect investment in Vietnam, CDLAF will share the necessary steps and attached list of documents for indirect investment procedures in Vietnam in the following article.

  Writing Time: 12/03/2023

The article contains general information with a reference value; if you want legal opinions on the issues you are facing, kindly inform our Lawyers via email at info@cdlaf.vn