December, 2023

 

Vietnam is an attractive destination for foreign investors, thanks to its stable political environment, fast-growing economy, abundant natural resources, and large consumer market. However, there may be situations where foreign investors want to divest from a project company in Vietnam, either to realize their profits, to exit a loss-making venture, or to pursue other opportunities.

This series of articles will explore the most feasible options for foreign investors to divest from a project company in Vietnam, along with their legal basis, benefits, tax implications, legal considerations, implementation time, risks, costs, and issues to consider.

 

OPTION 1: SHARE SALE

 

The first and most common option for foreign investors to divest from a project company in Vietnam is to sell their shares to a buyer through a private arrangement. A private arrangement means that the shares are sold to a specific buyer. The buyer can be other existing shareholders(s) or a partner thereof or even a new third party.

 

IMPLEMENTATION

To implement this option, the following steps shall be required to be in place:

  • Regulatory Approvals: Depending on the quantum, impact of the sale, the share purchase price, the nature of seller, buyers and project company, to activate or complete the sale of share, the foreign investor may need to obtain several regulatory approvals from the competent authorities, such as the Competition Management Department, the State Securities Commission, or the local Department of Planning and Investment.
  • Shareholder Resolutions:  Deponing on the nature of the project company and the sale of share, in some particular cases, the sale shall required  decisions made by the shareholders of the project company, approving the sale of the shares and authorizing the relevant parties to execute the share purchase agreement and other related documents.
  • Transaction Document: A share purchase agreement is required, which is a contract between the seller and the buyer, specifying the terms and conditions of the sale, such as the price, the payment method, the closing date, the representations and warranties, and the dispute resolution mechanism.
  • Post-Sale: Upon the completion of share sale, transfer of ownership documents shall be required to complete, that evidence the change of ownership of the shares, such as share certificates, share transfer forms, share registers, and notification letters.

 

BENEFITS

The main benefits of this option are:

  • Straightforwardness: This option is relatively easy and quick to implement, often with minimal legal and regulatory hurdles. The foreign investor can exit the project entirely and receive the sale proceeds in a short period of time.
  • Liquidity: This option provides the foreign investor with immediate liquidity and allows them to realize their profits from the investment. The foreign investor can potentially sell their shares at a higher price than their acquisition cost, depending on the performance and valuation of the project company.
  • Flexibility: This option gives the foreign investor the freedom and choice to select the most suitable buyer for their shares, based on their objectives and strategies. The foreign investor can choose a strategic partner or a financial investor, a foreign or a domestic buyer, a single or a multiple buyer, etc.

 

LEGAL BASIS

The material legal basis for this option are the following laws and regulations:

  • Law on Enterprises 2020, which is the main law governing the establishment, operation, and dissolution of enterprises in Vietnam, including the rights and obligations of shareholders, the procedures for share transfer, and the conditions for private arrangement.
  • Civil Code 2015, which is the general law governing the civil relations and transactions in Vietnam, including the principles and rules for contract formation, performance, and termination, and the remedies for breach of contract.
  • Investment Law 2020, which is the special law governing the investment activities of foreign investors in Vietnam, including the forms and sectors of investment, the procedures and conditions for investment registration and approval, and the rights and obligations of foreign investors.

 

TAX CONSIDERATIONS

The main tax consideration for this option is the capital gains tax, which is the tax levied on the difference between the sale price and the acquisition cost of the shares. The tax rate varies depending on the types of shares (shares or capital contribution) and the type of foreign investor (individual or corporate), the type of project company (joint stock company or limited liabilities company).

The foreign investor may also be eligible for tax exemptions or reductions under the applicable treaties that Vietnam has signed with other countries, such as the Double Taxation Avoidance Agreement or the Investment Protection Agreement.

 

LEGAL CONSIDERATION

The main legal advantages of this option are:

  • Clear legal framework: This option is supported by a clear and comprehensive legal framework and established procedures, which provide certainty and predictability for the foreign investor and the buyer. The foreign investor can rely on the legal documents and the regulatory approvals to protect their rights and interests in the sale of the shares.
  • Limited Regulatory Approvals: This option does not require many regulatory approvals if the shares are sold through a private arrangement, which is a sale of shares to a specific buyer without involving the public.

 

TIMELINE

The implementation time for this option depends on the time that the foreign investors spending to find a qualified buyers to proceed the sale. A minimal timeline to obtain relevant approvals from local authorities may also be required in some cases deponing on the quantum of the sale and the nature of the project company and relevant parties, in any case it may not take longer than 3 months.

In conclusion, there are several options for foreign investors to divest from a project company in Vietnam, each with its own legal basis, benefits, tax implications, legal considerations, implementation time, risks, costs, and issues to consider. The foreign investor should carefully weigh the pros and cons of each option, and seek professional advice from qualified advisor before making a final decision.

Read Part II

Note: This article and information herein are intended for general reference only and does not constitute any type of advice and REISTRAshall not be, in any case, be responsible for your use of this article or information herein for any purpose.

For your specific case, please do not hesitate to contact REISTRA at info@reistra.com for advice.

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