Albeit the turbulent global situation, the opportunities for Vietnamese state-owned enterprises (SOEs) remain promising. Yet, the challenges exist when it comes to the regulations and legal procedures for outward foreign investment. The top questions have been frequently brought up by Vietnamese investors about “How can I successfully venture in a foreign country?” and “How can I do it the best?”. This article will provide you with the most important information you need to know.
The principles for Vietnamese SOEs to invest overseas
Based on Article 28 and Article 29 of the Law on management and use of state capital invested in production and business in enterprises (2014), SOEs are allowed to use assets and capital under their management and use to make offshore investments.
However, according to Point b, Clause 1, Article 21 of Decree 91/2015/ND-CP is amended by Clause 12, Article 2 of Decree 140/2020/ND-CP, SOEs with 100% charter capital by the Government must not use assets, capital, or land use rights that are assigned or leased to contribute capital or invest in real estate outside Vietnam. Yet, it is possible in case the enterprises’ main business is real estate in accordance with the Law on Real Estate Business.
At the same time, 100% government – held charter capital SOEs must not contribute capital, or purchase shares in banks, insurance companies, securities companies, VC funds, and the like. In case the enterprise has contributed capital or invested in the mentioned – above fields but is not allowed by the Prime Minister, it must implement a plan to restructure and transfer the entire invested capital.
As for the State Capital and Investment Corporation (SCIC), the outward investment is not limited to the fields of real estate, banking, insurance, securities, and investment funds.
Forms of offshore investment for Vietnamese SOEs
SOEs in Vietnam can venture into a foreign country through various methods. Article 52 of the Law on investment (2020) stipulates that one of the ways to do business with global partners is by establishing an economic organization in accordance with the law of the host country. Meanwhile, Vietnamese SOEs can enter the foreign markets through contributing capital, purchasing shares or purchasing capital contributions of a local enterprise.
Besides, buying and selling securities, or investing through securities investment funds and other intermediary financial institutions in foreign countries is another approach for the Vietnamese investors. In addition, other investment types have to follow the regulations and legal systems of the host country. Thus Vietnamese SOEs shall submit documents identifying that form of investment in accordance with the laws of the host country or territory.
Procedures for venturing into a foreign market
Vietnamese SOEs shall follow a 3-step procedure to invest overseas according to Article 56 – 68 of the Law on Investment (2020).
Step 1: Apply for approval of offshore investment policies
The Vietnamese investors shall only conduct step 1 if the projects fall into one of these categories
- Investment projects approved by the National Assembly for offshore investment have the investment capital of VND 20,000 billion or more, or require the application of special mechanisms and policies that need to be decided by the National Assembly.
- Except for the investment projects specified above, the Prime Minister approves offshore investment for the offshore investment projects in the fields of banking, insurance, securities, press, radio, television and telecommunications which are capitalized at 400 billion VND or more; and other Offshore investment projects which are capitalized at VND 800 billion or more.
If your offshore investments are subject to approval of offshore investment policy, you shall submit an offshore investment project dossier to the Ministry of Planning and Investment as specified as Article 57.1 of Law on investment.
Procedure for approval of offshore investment policy by the Prime Minister maybe take 30 days after receiving the investment project dossier or more for approval of offshore investment policy by the National Assembly
Step 2: Procedures for issuance of an offshore investment registration certificate
For investment projects subject to the approval of outward investment policies, the Ministry of Planning and Investment (MPI) shall issue the Certificate of offshore investment registration to the investor. The duration lasts within 05 working days from the date of receiving written approval of investment policy and decision on outward investment.
Otherwise, the investors submit an application for an outward investment registration certificate to the MPI as specified as Article 61.2 of Law on investment. In case a foreign currency amount to be transferred abroad which is equivalent to VND 20 billion or more, the MPI obtains written opinions from the State Bank of Vietnam.
Within 15 days from the date of receipt of the above dossier, theMPI shall issue the Certificate of outward investment registration. If the dossier is refused, the MPI must notify the investor in a written document with clearly-stated reasons.
Step 3: The implementation of investment activities overseas
In this step, Vietnamese SOEs shall open an offshore investment capital account at a licensed credit institution in Vietnam. Hence, all the transactions of offshore investment-related outbound and inbound transfer of money are made through this account. Then, the investors transfer the investment capital to the host country before doing business.
They can send Vietnamese labor off to work overseas in their projects.
Note: Obligation on Reporting on overseas investment activities according to Article 73 Law on investment
Annually, Ministries and ministerial-level agencies tasked to manage offshore investment activities shall, within the ambit of their functions and tasks, report on the management of offshore investment activities to the Ministry of Planning and Investment for summarizing and reporting to the Prime Minister. Annually, the Ministry of Planning and Investment shall report to the Prime Minister on offshore investment. The reports shall be made in written form and via the national investment information systems.
Pitfalls to avoid and Tips to invest overseas
With decades of experience in consultants, helping various clients successfully venture into new markets, Viettonkin has identified 3 major reasons behind any failure of Vietnamese SOEs’ outward investment projects. These include knowledge and understanding about the host country, legal compliance and stakeholder management.
We have adopted and modified the Global Business Expansion (GBE) approach in supporting new business to figure out the issues and establish, develop and grow in foreign countries.
In detail, before market entry, it is fundamental for any investors to do deep and thorough research about the overall environment and the industry. Though this step is significant, it is often done with the least effort. As a result, due to the lack of information of the host country, investors could not make it through the local market. Yet, there are solutions to this challenge, lying in what is called “Market Readiness Assistance”. Market Readiness Assistance can be understood as a comprehensive study conducted by seasoned experts and end-to-end support from insightful professionals. Thus, investors are able to see the specific situation of the host country while standing prepared for the market entry.
For SOEs in particular, with Market Readiness Assistance, Viettonkin provides prep-feasibility and feasibility study, especially in legal compliances, investment agreements and market. The studies will help SOEs with better perspectives on the host country, hence making wise and right decisions.
In addition, when initially setting up a new entity in the host country, investors might face several challenges as the legal procedure is sophisticated and daunting, especially with large-scale projects using a great deal of capital and natural resources. In this phase, Viettonkin supports SOEs through deeply researching labor market, labor law, tax accounting compliance obligations, auditing, and the procedure of capital transfer. Further, Viettonkin is made up of an ace team of professionals who can help SOEs in complying with the host country’s legislations.
If successfully establish a new business in the host country, and start operating, SOEs are advised to bear in mind the stakeholder management. From our experiences, stakeholder management seems trivial, yet plays a considerable role in the failure or success of a company. Hence, managing different stakeholders well will bring a positive impact on the whole business.
Venturing into a new country is not an easy task. But, the help and companion of a trustworthy partner will make it easier. With us by your side, you will always be supported!