|
Cap on foreign corporate stakes lifted
Decision No 88/2009/QD-TTg, recently issued by the Prime Minister, contains new regulations on foreign acquisitions, i.e., foreign investment in existing domestic companies.
The most significant change is that the decision removes the 30-per-cent cap on foreign ownership in a domestic company previously contained in Decision No 36/2003/QD-TTg.
Decision No 36 was earlier revoked by the passage of the 2005 Law on Investment and Viet Nam’s WTO commitments, but the cap has remained in place and in practice at many local-level licensing authorities, due to the absence of a new regulation replacing Decision No 36.
WTO commitments, confirmed by the Government in Decree 139/2007/ND-CP of September 2007, allow foreign investors to buy shares in domestic companies without limitation with four exceptions: foreign ownership in listed domestic companies; foreign ownership in domestic companies established in certain special sectors (e.g. banking, petroleum, education, etc.); foreign ownership in State-owned enterprises; and foreign ownership in domestic companies operating in service sectors regulated in the WTO Commitment Schedule on Services.
Meanwhile, the 30-per-cent cap provide for in Decision No 36 remained in place unless licensing authorities were to waive it on a case-by-case basis. This has caused uncertainty in a number of service sectors.
Decision No 88, therefore, formally replaces Decision No 36 and officially affirms that foreign investors now can purchase up to 100 per cent equity in a non-public company, so long as such investment is in accordance with regulations on securities; regulations governing the equitisation of State-owned enterprises; and international treaties to which Viet Nam has signed or acceded. The firm may not operate in a specially-regulated sector (e.g., banking, petroleum, aviation, publishing, education, securities, etc).
Decision No 88 also confirms WTO commitments that, in the case of Vietnamese companies operating in multiple sectors in which the regulated limitations on foreign investment vary, the strictest limitation shall be applied.
It should be noted that capital contributions to establish new companies in Viet Nam, as well as mergers and acquisitions of companies are not within the scope of Decision No 88. Although Decision 88 fails to define the term "acquisition" ("mua lai" in Vietnamese), the Law on Competition defines "acquisition" as buying the whole or part of property of another company sufficient to control or dominate all or one of the trades of the acquired company.
Decision No 88 does provide a specific definition of foreign investors, which includes foreign entities and their branches; individuals without Vietnamese nationality; entities established and operating in Viet Nam with foreign ownership of more than 49 per cent; and investment fund and securities companies with foreign ownership of more than 49 per cent.
Decision No 88 does not address, however, the impact of foreign ownership of a domestic company on the business organisation or legal status of that company. It is questionable whether, when a foreign investor purchases shares in a Vietnamese company, such company can retain its legal status as a domestic company or must be considered a foreign-invested company. This remains important as there continued to be a number of regulations imposed on foreign-invested companies that are different from those imposed on domestic companies in terms of licensing procedures, land use regulations, and so on.
This distinction is also important because, if such companies are considered "Vietnamese enterprises", they are not subject to any restrictions on foreign ownership.
Decision No 88, finally, steps back from the disclosure requirements of Decision No 36, no longer requiring Vietnamese companies to make public disclosure of all share purchases or capital contributions except when required by the Law on Securities or elsewhere.
This helps both Vietnamese companies and foreign investors in non-public companies to reduce administrative burdens and maintain business confidentiality to some extent.
Lawyers of Vilaf – Hong Duc
vietnamnet, vietnamnews
|
