Can a foreign-invested company in Vietnam buy shares in a Vietnamese company?

A company established and owned 100% of shares by a foreign investor in Ho Chi Minh City (the “Buyer”) has contacted us regarding the above issue. The Buyer plans to purchase a non-foreign-owned company in Vietnam (the “Target”).

The Buyer intends to purchase 51% of the Company’s share first. Then, after a while, it shall buy the rest of 49%.

Accordingly, BLawyers Vietnam  mentioned 04 main issues for the Buyer’s consideration:

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1. What conditions the Buyer must meet?

According to the Law on Investment 2020 (the “LOI 2020”), some conditions that the Buyer must meet when purchasing shares of the Target shall include:

  • Market access conditions applied to foreign investors according to commitments between Vietnam and the country of which the Buyer’s investor is a national. Also, the Buyer must meet the conditions related to the Target’s business lines;
  • Ensuring the national defense and security under the LOI 2020;
  • Regulations of laws on land and conditions for receipt of land use rights and conditions for use of land on islands or border or coastal communes.

With our experience in some recent cases, even though the target company has land use right in a major city in South Vietnam, the local licensing authority still consults with the Ministry of National Defense/ Ministry of Public Security on the transfer of shares between the buyer and the seller for compliance with the above provisions.

2. What licensing procedures the Target must conduct?

The Target must register with the following procedures at the competent State agency:

  • Registering for the Buyer buying the Target’s shares

Since the Buyer plans to purchase the shares in two phases, the Target shall have to conduct this procedure twice.

  • Noticing the change of the owner of the Target

Since the Buyer is the new owner of the Target, the Target must register to update this information with the competent authority.

In case the Buyer is the new owner of the Target may lead to a change in the type of business (for example, from a one-member LLC to a multiple-member LLC). After that, Target must change the type of business one more time.

  • Registering for additional sub-licenses

The sub-license means a type of license for an enterprise conducting its registered business line.

For example, the Target is in the business of retailing goods. After completing the share transfer, the Target must obtain a business license for retailing those goods.

One of the issues that must be noted in the application dossier for a business license is the tax agency’s confirmation on the Target has fulfilled its tax obligations to the State.

The Parties must review sub-licenses thoroughly under applicable law.

3. What documents do The Buyer and the Target need to sign for the transaction?

Some basic documents that both parties need to pay attention to:

  • Non-disclosure agreement;
  • Share subscription agreement/ Share sale and purchase agreement;
  • Shareholder agreement in the Target; and
  • The Target’s company charter.

4. What tax matters should the parties pay attention to?

Subject to whether the current owner of the Target is an individual or an organization when making a transaction, that party must declare and pay personal income tax or corporate income tax.

Note that the information we mentioned above is for a specific case. Therefore, it shall not apply to all similar cases.

The above is not official advice from BLawyers Vietnam. If you have any questions or suggestions about the above, please contact us at consult@blawyersvn.com. We would love to hear from you.

Date: 24 February 2023

Writers: Tinh Nguyen & Minh Ngo

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