I am an American currently residing and working in Vietnam with a 2-year temporary residence card. I am planning to acquire the contributed capital of Mr. X (also an American) in Company A (a company with 100% foreign direct investment). I would like to inquire whether, when making the payment for the transfer of the capital contribution from Mr. X, it is necessary to do so through the company’s direct investment capital account or not?
Regarding this matter, SB Law would like to respond as follows:
Article 1, Article 10, Circular No. 06/2019/TT-NHNN stipulates:
“1. The payment of the value of the transfer of shares, capital contribution at enterprises with foreign direct investment as prescribed in Clause 2, Article 3 of this Circular shall be carried out as follows:
a) Among investors who are non-residents or among investors who are residents shall not be conducted through the direct investment capital account;
b) Between non-resident investors and resident investors must be conducted through the direct investment capital account.”
Point h, Clause 2, Article 4, the Foreign Exchange Ordinance 2005 as amended by the Foreign Exchange Ordinance 2013 stipulates:
“2. Residents include organizations and individuals belonging to the following subjects:
h) Foreigners allowed to reside in Vietnam for a period of 12 months or more…”
Therefore, according to the regulations, since you reside in Vietnam with a 2-year temporary residence card, you are considered a Resident. Since you did not provide information about the residence status of Mr. X, there are two possible cases:
1. Mr. X is allowed to reside in Vietnam for 12 months or more: the transaction should not be conducted through the direct investment capital account.
2. Mr. X is not allowed to reside in Vietnam or is allowed to reside for less than 12 months: the transaction should be conducted through the direct investment capital account
Therefore, you may obtain additional information from Mr. X to accurately determine whether the payment for the transfer of the capital contribution should be made through the direct investment capital account or not.”
TRANSFER OF SHARES PROCEDURE FOR FOREIGN INVESTORS
Our company in Ho Chi Minh City is a Joint Stock Company with 3 Vietnamese shareholders. The company does not own land, and currently, all shareholders want to sell all shares to three new shareholders (2 Vietnamese and 1 British). I would like to ask what procedures the company needs to follow?
According to the regulations in Clause 2, Article 26 of the Investment Law:
2. Foreign investors shall carry out procedures for capital contribution registration, share purchase, and purchase of capital contribution portions in economic organizations before changing members or shareholders in the following cases:
a) Capital contribution, share purchase, or capital contribution portion purchase increases the ownership ratio of foreign investors in economic organizations operating in sectors and trades accessing markets with conditions for foreign investors;
b) Capital contribution, share purchase, or capital contribution portion purchase leads to foreign investors, economic organizations stipulated in points a, b, and c of Clause 1, Article 23 of this Law holding over 50% of the charter capital of the economic organization in cases: increasing the ownership ratio of charter capital from below or equal to 50% to over 50%; increasing the ownership ratio of charter capital when foreign investors already hold over 50% of the charter capital in the economic organization;
c) Foreign investors contribute capital, purchase shares, or purchase capital contribution portions of economic organizations holding Certificates of land use rights on islands and communes, wards, border towns; communes, wards, border towns near the sea; other areas affecting national defense and security.”
Since the company did not specify its business sector and the capital ratio of each shareholder after the share transfer, it is divided into the following cases:
Case 1: Foreign shareholder owns over 50% of charter capital after the share transfer, and/or the company’s business falls within the list of sectors and trades accessing markets with conditions for foreign investors:
Step 1: Register share purchase at the Foreign Economic Department – Department of Planning and Investment of Ho Chi Minh City.
Step 2: Register the change of shareholders at the Business Registration Office – Department of Planning and Investment of Ho Chi Minh City.
Case 2: Foreign shareholder owns equal to or less than 50% of charter capital after the share transfer, and the company’s business does not fall within the list of sectors and trades accessing markets with conditions for foreign investors: The company conducts the registration of changing shareholders at the Business Registration Office – Department of Planning and Investment of Ho Chi Minh City.
The company can verify its business sector’s inclusion in the list of sectors and trades accessing markets with conditions for foreign investors in Appendix I attached to Decree No. 31/2021/ND-CP, Section B.
REGISTERING FOREIGN LOAN APPLICATION
Our company (100% Vietnamese capital) plans to obtain a long-term loan of $500,000 from another company in the Philippines for business purposes. I would like to inquire about the procedures that the company needs to follow before borrowing. Is there a need to open any specific accounts to receive the loan funds?
Firstly, regarding the registration of foreign loans:
Article 1, Article 11, Circular No. 12/2022/NHNN stipulates:
“Loans must be registered with the State Bank, including:
1. Medium and long-term foreign loans.”
Therefore, the company must register with the State Bank within 30 working days from the date of signing the loan agreement, as specified in point a, Clause 2, Article 15, Circular No. 12/2022/NHNN.
Article 20 of Circular No. 12/2022/NHNN stipulates:
“1. The competent authority to confirm the registration, registration of changes in foreign loans (referred to in this Circular as the competent authority) is:
a) The State Bank (Foreign Exchange Management Department): for loans with a loan amount exceeding 10 million USD (or equivalent in other currencies);
b) The State Bank branch in the province, city where the borrowing party has its main office: for loans with a loan amount up to 10 million USD (or equivalent in other currencies), except for foreign loans in Vietnamese dong, which must be reviewed and approved by the Governor of the State Bankt.”
As the company’s loan amount is $500,000, the registration should be carried out at the State Bank of Vietnam – Ho Chi Minh City Branch.
Secondly, regarding the account for receiving the loan funds:
Clause 3, Article 26 of Circular No. 12/2022/NHNN stipulates:
“The borrowing party, which is not an enterprise with direct foreign investment, must open a loan account, repay foreign debts at the bank providing account services to conduct transactions related to foreign loans (withdrawal of capital, repayment of principal, interest debt)…”
As the company has 100% Vietnamese investment capital, it is required to open a loan account, repay foreign debts to receive the loan funds, and conduct other transactions related to the loan, as per the above regulation.