Post-COVID 19 and the context of increasingly stressful trade warfare between the US and China, as well as the signing of the EVFTA agreement between Vietnam and the European Union “EU,” Vietnam promises to be “The Promised Land” absorbing foreign investment. According to the Foreign Investment Agency report, up to May 20th, 2020, the total newly registered capital, adjusted and contributing capital, buying shares of foreign investors reached $13.89 billion – an optimistic statistic in the problematic situation of the current world economy. To promptly access the Vietnamese market, foreign investors usually carry out M&A transactions over Vietnamese enterprises (“Target Company“). By this way, foreign investors may own the total or a part of share/equity capital to gain the right to manage all operations of the Target Company. Thereby, the Target Company becomes the foreign-invested enterprise (FIE). Hence, this article provides material legal issues that foreign investors need to consider when making M&A transactions.
First, referring to the business lines of the Target Company. When the Target Company remains by Vietnamese organizations and/or individuals as owners, the business lines are not restricted except for those that are conditional or prohibited. However, in the event a foreign investor performs M&A transaction to possess of a share/equity capital in the Target Company, it should be aware of the business lines of the Target Company which have not been committed by the Government of Vietnam to open market for foreign investors or there is a commitment in international treaties to which Vietnam is a membership but limiting the charter capital ownership ratio of foreign investors.
- If the Target Company has any business line that has not yet been committed to market opening in international treaties to which Vietnam is a member when foreign investors and the Target Company register the procedure in contributing capital, purchasing shares/equity capital; the Department of Planning and Investment where the Target Company is located will consult with specialized management ministries leading to the prolonged execution time of administrative procedures and foreign investors will not be able to make transactions if specialized management departments refuse. For example, for the current Vietnam container repair service has not committed in market opening for foreign investors; therefore, it is necessary to get the opinion of the specialized management ministries such as Ministry of Planning and Investment, Ministry of Transport, Ministry of Industry and Trade.
- In case the Target Company has any business line that Vietnam has committed to open the market for foreign investors; still, there is a restriction on the capital ownership rate, the proportion of foreign investor’s contribution in the Target Company is not allowed to exceed the maximum committed. For example, for goods transport of inland waterway transport services, the Schedule of Specific Commitments in Services of Vietnam in WTO has demonstrated that the capital ownership ratio of foreign investors must not exceed 49%. Hence, foreign investors may only hold a maximum of 49% of the equity in the Target Company in this case.
Second, if the M&A transaction leads to the event that foreign investors own 51% or more the Target Company’s charter capital, companies that the Target Company holding charter capital will compulsory to meet requirements and procedures applied for foreign investors in case (i) the Target Company owns 51% of the charter capital or more; or (ii) there are foreign investors and the Target Company hold 51% or more of charter capital. For example, for the retail distribution of goods, companies by the Target Company holding the charter capital under the mentioned cases shall have to carry out procedures in obtaining the business registration certificate and setting up retail outlet which is similar to conditions in which foreign-invested enterprises have to fulfill.
If the proportion of ownership of foreign investors’ equity/shares in the Target Company is less than 51%, the companies that the Target Company holding charter capital are treated with investment conditions and procedures prescribed for domestic investors.
The third, in regard to the Target Company’s land use rights after completing the M&A transaction. According to Law on Land, in case the Target Company is converted into an FIE following the acquisition, the Target Company must register for the amendment of land or land- attached assets due to land-user change. Besides, it should be noted that land use term must not exceed 50 years for FIE. In fact, the Target Company faces in a lot of troubles in implementing procedures for amendment registration of land or land- attached assets due to incomplete framework for this issue and different requirements of various local authorities.
The fourth, in compliance with foreign exchange legislation, when making payments in the M&A transaction. We have encountered cases where non-resident foreign investors make payments in the M&A transaction to the Target Company’s current bank account. As a result, the Target Company having been sanctioned administratively due to violations of the law, and foreign investors could not transfer profits abroad due to unproven cash flows in legally transferable transactions. In order to avoid the stated risks, payments in M&A deals by non-resident foreign investors must be made via (i) the Target Company’s direct investment capital account, if the Target Company has a foreign capital ratio of 51% or more; or (ii) indirect investment capital account of foreign investors is opened at a licensed commercial bank in Vietnam.
Finally, regards to the Target Company’s financial statements after becoming a FIE. When the Target Company is not foreign-invested organization, an annual financial report is not required to be audited. However, for foreign-invested enterprises, following Independent Audit Law, FIE is one of the subjects that annual financial statements must be audited.
The above are some common issues that foreign investors usually face in the M&A transactions over Vietnamese companies. We hope that through this article, investors can have a glance in investing in Vietnam to avoid legal risks during the process of business investment.
Germany's Short-Lived Rebound Driven by Consumption, Investment – BNN
(Bloomberg) — German consumers and companies ramped up spending before a resurgence in coronavirus cases forced authorities to reintroduce restrictions, putting a halt to the recovery in Europe’s largest economy.
Figures from the statistics office show private consumption rose 10.8% in the three months through September with investment up 3.6%, contributing to an overall quarterly expansion of 8.5% — stronger than initially reported. Since then, temporary business closures and rules affecting social activities have plunged parts of the economy back into a slump.
Output is likely to stagnate or even shrink in the final three months of the year, the Bundesbank said last week. While domestic restrictions are weaker and more focused on hospitality and leisure activities than during the first wave, exports are suffering from a resurgence of the virus across Europe, it said.
Sales abroad jumped more than 18% in the third quarter, with imports up some 9%.
A business confidence gauge due later on Tuesday is expected to deteriorate, mirroring trends from across the euro area. Lockdowns have put the 19-nation economy on track for another contraction, according to a survey published Monday.
Germany’s outlook could take a turn for the worse on Wednesday when Chancellor Angela Merkel and the country’s regional leaders will decide on whether to tighten and extend virus curbs through much of the upcoming holiday season.
©2020 Bloomberg L.P.
Without investment, universities and colleges heading for a crisis – Toronto Star
Universities and colleges employ hundreds of thousands of people, educate and train over two million students annually and drive research that improves the lives of all Canadians. In cities and communities across the country, they are regional economic drivers and social and cultural centres. Our world-class post-secondary education system is critical to our prosperity, underpins our democracy and finds solutions to key challenges, be it COVID or climate change.
All of this is in peril — and not just because of the COVID-19 pandemic.
Public funding for post-secondary education has been stagnant for more than a decade. COVID-19 has brought the system closer to the edge. Strategic investments in universities and colleges must be made now to ensure a strong economic recovery and a more resilient future for Canadians.
COVID-19 has strained resources and reduced revenues, especially from international student fees. For decades, in the absence of sustainable government funding, students and their families have been asked to pay more. Private sources of funding now make up over half of university revenues, up from just 20 per cent when the parents of students may have once been on campus.
Since the last recession in 2008, provincial government spending in the sector has decreased by one per cent in real terms. Meanwhile, student enrolment has grown by more than 20 per cent over the same time, and income from tuition by nearly 70 per cent. With more than half of all university students already taking on an average of $28,000 of debt to get an education, reliance on student fees to solve the funding crisis simply isn’t sustainable.
There are three areas that need immediate action from the federal government to put post-secondary education on stable footing and improve quality, affordability and accessibility.
First, we need a national strategy for post-secondary education with goals to tackle education inequality, enhance affordability and strengthen research capacity. The last time the federal government increased the base funding to the provinces and territories for post-secondary education was in 2008 under Stephen Harper and this came with no plan of action to address key challenges.
Secondly, we need to accelerate research through enhanced investments in fundamental research. The government’s own advisory panel recommended funding levels 40 per cent higher than what we are investing today to keep Canada competitive.
The pandemic has also put much research on hold. In a survey of Canadian Association of University Teachers (CAUT) members, two out of three have seen their research stop or stall as a result of the pandemic. This hiatus in research will have a significant downstream impact on the innovation and knowledge that supports Canada’s economy.
Finally, we need to secure opportunities for youth and the unemployed by decreasing upfront costs and moving to a free tuition model for working- and middle-class Canadians. The government’s temporary doubling of the Canada Student Grant this year will help students cover costs this term, however it is still less than the average tuition.
It is also an unsustainable approach.
While we have seen increases in student financial assistance, we have also seen increases in tuition. As some provincial officials half-joke, the best way to leverage federal funding for post-secondary education is to raise tuition, as this will increase demands for federally funded student financial assistance.
Some of the necessary changes to the funding model for post-secondary education could be met by redirecting the $900 million in unused federal funding from the failed Canada Student Service Grant program. The government could also repurpose the Canada Training Benefit to ensure that Canadians have more meaningful and timely access to educational opportunities.
There are many public services and sectors that need strengthening to get us out of the current crisis and be better for it. Post-secondary education is an essential foundation for social cohesion, science, innovation and economic success in Canada, and must not be taken for granted. We cannot let it languish now, when it is so critical to the well-being of our country.
Glimmer of hope for investment in Europe: EY survey – The Journal Pioneer
By Mark John
LONDON (Reuters) – Global executives see a smaller hit to their investment plans for Europe than they did earlier this year and are somewhat more upbeat about the continent’s future appeal, a questionnaire by professional services group EY found.
The survey, conducted in October before a series of COVID-19 vaccine trial breakthroughs, showed that 42% of executives now expect a decrease in their 2020 investment plans and 31% plan to delay them to 2021.
That compared with 66% who expected decreases and 23% who saw delays when asked the same question back in April. This time around, a small number – 10% – even saw an increase to their 2020 investments, something no one did in April.
While that still means a big overall hit to foreign direct investment after 2019’s record year, EY noted that 21% of those surveyed believed Europe would be more attractive for investment post-Covid compared to just 8% in April.
“It is promising that investors believe that over the next three years, Europe will become a much more attractive destination for investments than before pandemic,” EY Area Managing Partner Julie Teigland said.
The findings were based on interviews with 109 global executives across 14 industries in October.
Upbeat news from vaccine trials are starting to support economic sentiment. The monthly eurozone Purchase Managers Index (PMI) for November saw a rise in its “future output” component in November to its highest level since February.
Among the other takeaways from the EY survey, 63% expected faster roll-out of digital customer access to surveys in the next three years (versus 55% in April) but only 37% now saw a reversal of globalisation (versus 56%).
(Reporting by Mark John, editing by Ed Osmond)
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