Mayer Brown has been operating in Asia for over 150 years. We have a strong footprint across Asia with offices in China, Hong Kong, Singapore, Thailand, Vietnam and Japan. In other countries in Southeast Asia, Mayer Brown has long experience in assisting clients with a wide variety of transactions and has close relationships with a number of well-established local firms. We regularly handle complex cross-border deals and, at the same time, use our local market knowledge and deep understanding of industry-specific issues to ensure we provide the best solutions for our clients. In addition to advising on the corporate, financial and structuring aspects of the transactions, our tax partner Pieter de Ridder based in our Singapore office is able to advise on various tax issues, tax planning opportunities and tax efficient structures for cross-border investments in each jurisdiction in Southeast Asia.
This publication is intended to give prospective investors an overview of the major legal and tax issues to consider when investing in Southeast Asian countries and India.
We hope you will find it useful in answering a number of frequently-asked questions regarding regulations on foreign investment, deal structures, corporate governance and tax.
1. The legal system
- Vietnam has a socialist legal system based on the French civil law system. Cases are decided based on statutory provisions. Decisions of courts are generally not considered to be binding legal precedents for future cases, although in 2016 the Supreme Court endorsed certain cases as having precedential value.
- M&A activities in Vietnam are primarily governed by the 2014 Enterprise Law, the 2014 Investment Law, the 2006 Securities Law (amended in 2010) and general legal principles set out in the 2015 Civil Code and the 2005 Commercial Law.
- International treaties to which Vietnam is a party are also relevant for any M&A transaction related to Vietnam, including, most notably, Vietnam's commitments for accession to the WTO in 2007 ("WTO Commitments").
2. Are there any restrictions on foreign investment ownership?
- Generally, a foreign investor is entitled to own an unlimited proportion of equity in a local entity, except for certain service sectors (such as banking) in which foreign ownership is restricted or conditional.
- Foreign investors may incorporate a local company in the form of either a wholly foreign-owned company or a joint venture with Vietnamese entities, subject to certain sector-specific restrictions (such as advertising, logistics, and tourism). Please refer to the Annex for a list of common sectors for which foreign investment remains conditional or restricted.
3. What are the options available for an overseas investor in terms of the purchasing entity?
- Overseas investors may choose to acquire equity and become shareholders of an existing local entity, or incorporate either a new joint venture with Vietnamese partners or a wholly foreign-owned entity. Unless investing in sectors that restrict or impose conditions on foreign ownership and require participation of a local partner (such as advertising), or in the case where a Vietnamese partner has a particular piece of land that is ideally suited for development of the project, most foreign investors prefer the operational flexibility of establishing their own entity.
- A limited liability company ("LLC") can have no more than 50 members. A joint stock company ("JSC") must have at least three shareholders and there is no limitation on the maximum number of shareholders. A JSC with 100 shareholders or more is a public company. An LLC has a simple corporate structure and therefore is preferable for foreign investors that intend to have complete control of a business. In the event there are multiple shareholders, a JSC may be preferable as a JSC may issue bonds and multiple classes of shares (whereas an LLC may not).
- Shareholders of a JSC are entitled to freely transfer their shares, except that founding shareholders are prohibited from transferring their shares within three years of incorporation unless approved by the general meeting of shareholders ("GMS"). In contrast, in an LLC, transfer of shares is subject to a mandatory right of first refusal by the other members. Equity transfers at prices lower than the market price are likely to be questioned by the tax authorities1.
- For the initial issuance of shares, the minimum par value is VND10,000 (approx. US$0.44).
4. Key corporate governance considerations for a local incorporated entity
- Investors in an LLC exercise their power to manage the company through the President for a single-member LLC if the owner elects to appoint only one representative, or a Members' Council for multi-member LLCs or single-member LLCs having three to seven representatives.
- In a JSC, the GMS is the highest management body. The Board of Management ("BOM") is responsible for overall management of a JSC. The BOM may have from three to 11 members, who are appointed by the GMS with a term of no more than five years. A shareholder or group of shareholders holding at least 10% of the shares in a JSC for six consecutive months is entitled to nominate a member for appointment to the BOM. Members of the BOM are elected in a cumulative voting process.
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This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.