Limits and regulations on foreign investors’ capital contribution ratio

Limits and regulations on the capital contribution ratio of foreign investors in Vietnamese companies and how to determine the capital ownership ratio will be shared by fdiinvietnam.com in this article, which will certainly help foreign investors get a lot of useful information when preparing to invest in Vietnam in the form of capital contribution, buying shares or buying capital contributions.

What is the capital contribution ratio (capital ownership ratio) of foreign investors?

When deciding to invest in a business, the capital ownership ratio is one of the top concerns for foreign investors. So what is the capital ownership ratio or capital contribution ratio of foreign investors in Vietnamese enterprises?

According to Article 4 of the Enterprise Law 2020, the capital contribution ratio or capital ownership ratio is the ratio between the capital contribution of a member and the charter capital of the company. For a joint stock company, the capital ownership ratio is understood as the ratio of shares owned by a shareholder in that company. 

For example: 

Mr. A, an American citizen, contributes 100 million VND to LLC B in Vietnam with a charter capital of 1 billion VND. At this time, foreign investor Mr. A will own 10% of the capital contribution at LLC B. 

Whether foreign investors have a high or low capital ownership ratio is extremely important to their business investment activities in Vietnam. Specifically:

• The higher the equity ratio means the greater the profit when the company does well;
• If foreign investors hold a high percentage of capital ownership, they will have the right to participate in the corporate management apparatus, potentially having a major impact on the business operations of the enterprise.

Forms of investment in Vietnamese enterprises by foreign investors

Currently, foreign investors can conduct investment activities in Vietnamese enterprises through the following forms:

1. Establishment of economic organizations;
2. Buy shares, contribute capital, buy capital contribution;
3. Investment project implementation;
4. Investment in the form of BCC contract;
5. Investment forms and new types of economic organizations according to regulations of the Vietnamese Government.

Among the above forms, the form of “buying shares, contributing capital, buying capital contributions” is chosen by most foreign investors when conducting business activities in Vietnam. 

For each form of investment, current laws have different regulations on the capital ownership ratio of foreign investors in Vietnamese enterprises. Therefore, understanding how foreign investors can invest in Vietnam is extremely important.

Regulations on foreign investors’ capital contribution ratio

According to the provisions of the Investment Law 2020, foreign investors when investing in Vietnam must satisfy the conditions on market access specified in Article 9 of this Law. In particular, the ratio of charter capital ownership of foreign investors in enterprises is one of the important conditions that must be met.

In principle, for industries not included in the list of restricted market access, foreign investors are subject to the same market access conditions as domestic investors. This means that foreign investors will not be limited in the capital ownership ratio in enterprises in industries not included in the list of restricted market access. 

For industries included in the list of restricted market access, the capital ownership ratio of foreign investors must comply with the provisions of relevant Vietnamese legal documents, the List of restricted market access of Vietnam and international investment treaties to which Vietnam is a signatory.

According to Article 139 of Decree 155/2020/ND-CP, the capital ownership ratio of foreign investors in public companies is prescribed as follows: 

• Foreign investors can own capital at a maximum rate of 50% if operating in a conditional business sector or industry without specific regulations on the conditions for the charter capital ownership rate of foreign investors;
• Foreign investors can own capital at a maximum rate of 100% if relevant legal documents and international treaties do not stipulate restrictions on the ownership rate of foreign investors;
• In case a foreign investor operates in an investment and business sector or profession that is regulated by an international treaty of which Vietnam is a member, it shall comply with that international treaty;
• In case a foreign investor operates in an investment and business sector or profession where relevant laws have provisions on foreign ownership, the provisions of such laws shall apply.

Example of foreign investor ownership ratio limit: 

If a foreign investor wants to invest in a Vietnamese credit institution, the capital ownership ratio will be determined according to Article 55 of the Law on Credit Institutions 2010, amended in 2017:

• The share ownership ratio of a foreign individual shall not exceed 5% of the charter capital of a Vietnamese credit institution;
• The shareholding ratio of a foreign organization shall not exceed 15% of the charter capital of a Vietnamese credit institution, except for the case specified in Clause 3 of this Article;
• The shareholding ratio of a foreign strategic investor shall not exceed 20% of the charter capital of a Vietnamese credit institution;
• The shareholding ratio of a foreign investor and a related person of that foreign investor shall not exceed 20% of the charter capital of a Vietnamese credit institution.

Investors can refer to the table of statistics on foreign investors’ capital ownership ratio in some industries based on Vietnam’s WTO Commitments on Services below:

Percentage of foreign investors’ capital ownership in Vietnamese enterprises
STT	Industry	Equity ratio
1	Insurance	No restrictions
2	Film production, film screening	Up to 51%
3	Transportation services	Up to 49%
4	Entertainment services	Up to 49%
5	Hotel services	No restrictions
6	Relating to agriculture, hunting, forestry	Up to 51%
7	Telecommunications without network infrastructure	Up to 65%
8	Telecommunications with network infrastructure	Up to 49%

In short:

For each different industry or field, the foreign investor’s capital ownership ratio in the enterprise will be regulated in different legal documents related to that industry or field. 

In addition, one of the important legal bases for determining the capital ownership ratio of foreign investors in enterprises is the international investment treaties that Vietnam has signed, in which it is necessary to pay attention to Vietnam’s WTO accession commitments in the field of trade in services.

How to determine the capital ownership ratio of foreign investors

If the above information is not the industry or field you are interested in, fdiinvietnam.com will provide detailed instructions on how to determine the foreign investor’s capital ownership ratio for a specific industry or field. 

Determining the capital ownership ratio of foreign investors in Vietnamese enterprises is carried out in 3 steps as follows:

➨ Step 1: Determine whether the investment sector is within the scope of the International Treaty.

• First of all, investors need to determine whether the business sector they are interested in is subject to the regulation of an international treaty of which Vietnam is a member regarding the ownership ratio of foreign investors. If such an international treaty exists, it is mandatory to comply with the provisions therein;
• Second, if the business sector in which a foreign investor intends to invest is not within the scope of international treaties to which Vietnam is a member, it is mandatory to determine whether the business sector is conditional or not.

For example:

If the area of ​​interest to investors is the entertainment sector, investors need to find out whether Vietnam has committed to the entertainment sector in any international treaties, such as reviewing Vietnam’s commitment schedule when joining the WTO, reviewing Vietnam’s international treaties with the country of which the foreign investor is a national.

According to the WTO commitment schedule, the maximum foreign ownership ratio for entertainment service businesses is 49%.

➨ Step 2: Determine the foreign investment ownership ratio limit according to Vietnamese law.

• If the industry in which foreign investors participate in activities is regulated by law for a maximum capital ownership ratio, it must first be based on that regulation;
• For conditional business lines, investors need to refer to the List of conditional business lines in Vietnam, which is regularly updated on the National Information Portal.

For example: Container loading and unloading services with the foreign investor’s charter capital ownership ratio in the economic organization not exceeding 50%);

• If the business line in which foreign investors participate in activities is on the List of conditional business lines and there are no specific regulations on the maximum ownership ratio for foreign investors of 49%;
• In case a foreign investor operates in multiple industries, it is necessary to determine which industries or occupations have regulations on foreign investor ownership ratios. In those industries or occupations, determine the foreign investor’s capital ownership ratio according to the industry or occupation with the highest capital ownership ratio.

For example: If a foreign investor wants to invest in 3 industries:

• Telecommunications without network infrastructure (up to 65%);
• Telecommunications with network infrastructure (up to 49%);
• Transport services (up to 49%).

=> At this time, foreign investors can own capital in enterprises with a maximum ratio of 65% (according to the industry with the highest % ratio). 

➨ Step 3: Determine the foreign investor’s capital ownership ratio according to the company’s charter.

• If it is not a case prescribed by relevant laws, and is not included in the List of conditional business lines, the foreign investor’s capital ownership ratio can be determined according to the company’s charter;
• In case the company charter is unlimited, foreign investors can own up to 100% of the company’s charter capital.

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