B. Construction of a legal framework to better support the operations
In Vietnam, there is no centralised legislation regulating M&A activities. However, there are a number of laws that can have a strong influence on this market.
A major one is The Law on Enterprises (Law No. 68-2014-QH13), in particular, the rights of organisations and individuals to form businesses, buy stock, and provide capital are described in the Article 18. State officials, children, and anyone facing criminal charges are among those who are not permitted to participate. In addition, the guidelines for a merger are set out in Article 195, which states that a legal representative of the company must resolve any potential conflicts with the Competition Law with the administrative body responsible for competition. After the merger, the newly created company is required to inform the national business registration database.
The Law on Investment (Law No. 67-2014-QH13) also has to be taken into account as its Article 25 establishes the rights of the foreign investor in terms of capital contribution and purchase of capital or shares, as well as the procedure to be followed in Article 26. The Planning and Investment Department must be notified of the application for registration in order for it to be approved.
M&As are also subject to the Law on Competition and the Securities Law. The Competition Law, which came into force in July 2019, broadens the range of circumstances in which a merger is necessary to include total assets, revenue, transaction value, or market share of the participating party. The purchase of shares in a public business, including open tender offers, is governed by Security Law.
There are various restrictions for the M&A market in Vietnam, one of which is the complicated nature of Vietnam’s tax regimes. The primary impact taxes have during M&As in Vietnam is capital gains tax, which may be either corporate income tax (CIT) or personal income tax (PIT). It is applicable to the purchase of shares of stock or capital contributions in Vietnamese enterprises. If a favourable tax treaty does not provide an exemption, capital gains for foreign sellers are subject to a 20% capital gains tax. The amount of the sales proceeds less the investment cost and transfer costs is used to calculate the taxable gain.
For foreign investors, there are generally no restrictions on the ownership of charter capital by them in Vietnamese businesses. However, there are some exceptions that apply to businesses in certain service sectors, such as banking, education, distribution, etc., where foreign ownership is prohibited, restricted, or subject to conditions under WTO commitments. It should be noted that Vietnamese licensing authorities frequently exercise discretion in deciding whether or not to give appropriate regulatory licences for M&A transactions in industry sectors that are not explicitly listed in the WTO Commitments or otherwise formally specified.
Vietnam does have some more restrictions about foreign investment depending on the type of project, such as the Antitrust regulations, the labour law regulations, the national security review for instance.