Is the subsidiary of a foreign-invested company entitled to be named on the certificate of land use

My company is a Vietnamese company with foreign capital investment. We want to buy houses from individuals in Vietnam but we’re not allowed to buy them. Therefore, I intend to set up a subsidiary to carry out this procedure. I would like to ask FDVN’s Lawyers if my company is considered a company with 100% Vietnamese capital and is allowed to buy and be named in the “Pink book”.

Thank you.

FDVN’s opinions:

Thank you for concerning FDVN’s legal services. Base on your consulting requirements, after studying the legal documents, FDVN Law Firm offers the following opinions:

[1]. Provisions related to the establishment of subsidiaries:

According to Clause 1, Article 189 of Law on Enterprises 2014, the Parent Company and Subsidiaries are construed as follows:

“A company is considered the parent company of another company if the former company:

a) Owns more than 50% of charter capital or total ordinary shares of the other company;

b) Is entitled to directly or indirectly decide the designation of a majority of or all of the Members of the Board of Directors, the Director/General Director of the other company;

c) Is entitled to decide amendments to the other company’s charter.”

Accordingly, in order to become a parent company of another company, the parent company must fall into one of the above cases. Besides, because the Parent Company is a foreign-invested economic organization, its investment activities are also covered by Law on Investment. Specifically, according to Article 23 of Law on Investment 2014:

“Investments made by foreign-invested business organizations

1. When establishing business organizations, contributing capital, buying shares or capital contributions of business organizations; making investments under business cooperation contracts in one of the following cases, the foreign investor must satisfy the conditions and follow investment procedures applied to foreign investors:

a) 51% of charter capital or more is held by foreign investors, or the majority of the general partners are foreigners if the business organization is a partnership;

b) 51% of charter capital or more is held by the business organizations mentioned in Point a of this Clause;

c) 51% of charter capital or more is held foreign investors and the business organizations mentioned in Point a of this Clause.

2. Foreign-invested business organizations in other cases than those mentioned in Points a, b, and c of this Clause shall satisfy conditions and follow investment procedures applied to Vietnamese investors when establishing the business organization, when making an investment by contributing capital, buying shares, buying capital contribution of business organizations, when making investments under business cooperation contracts.”

Accordingly, the establishment of a subsidiary when the parent company is a foreign-invested company is applied in the following cases:

- Case 1: If an economic organization with 51% of charter capital or more is foreign capital, it must meet the conditions and carry out the investment procedures for foreign investors when establishing an economic organization in Vietnam; contribute the capital, buy shares or capital contributions of economic organizations or invest in Vietnam under BCC. This means it is mandatory to obtain the investment registration certificate when establishing a subsidiary in this case.

- Case 2: If a foreign-invested economic organization establishes a subsidiary but it holds less than 51% of charter capital, the regulations applicable to domestic investors will be applied in the process of investing and establishing the economic organizations; contributing capital buying shares or capital contributions or investing under a BCC. This means the procedures applied to domestic investors will be carried out when establishing a subsidiary in this case.

[2]. Is the subsidiary established by the foreign-invested parent company a  Vietnamese company?

According to Clause 9 Article 4 of Law on Enterprises 2014, “Vietnamese company means any enterprise that is established or registered under Vietnam’s law and has its headquarter located in Vietnam.”

According to Article 190 of Law on Enterprise 2014: “Depending on the type of business of the subsidiary, the parent company shall perform its rights and obligations as a member/partner, owner, or shareholder of the subsidiary in accordance with corresponding regulations of this Law and relevant regulations of law.”

According to Clause 17, Article 3 of Law on Investment 2014: “Foreign-invested business organization means a business whose members or shareholders are foreign investors.”

From the mentioned grounds, it is construed that a subsidiary established in Vietnam will be controlled by Vietnamese laws. After being established, the parent company performs the rights and obligations in the subsidiary as the owner, contribution member, or shareholder depending on the structure of the subsidiary.

The parent company is a foreign-invested economic organization establishing a subsidiary to become the capital-contributing member or the shareholder of the subsidiary. Therefore, the subsidiary is a company with foreign capital investment.

[3]. Subsidiary whose parent company is a foreign-invested organization purchase and owns the real estate in Vietnam

As analyzed above, the company whose mother company is a foreign-invested enterprise is a foreign-invested enterprise. The real-estate purchase and conveyance of this structure will be covered by the laws on foreign-invested enterprises.

According to Article 159 of  Law on Housing 2014:

“1. Foreign entities eligible for the homeownership in Vietnam include:

a) Foreign entities who invest in project-based housing construction in Vietnam as prescribed in this Law and corresponding regulations of law;

b) Foreign-invested enterprises, branches, representative offices of foreign enterprises, foreign-invested funds and branches of foreign banks operating in Vietnam (hereinafter referred to as foreign organization);

c) Foreign individuals who are allowed to enter Vietnam.

2. The foreign entities eligible for the homeownership in Vietnam if they:

a) Invest in project-based housing construction in Vietnam as prescribed in this Law and corresponding regulations of law;

b) Buy, rent and purchase, receive, or inherit commercial housing including apartments and separate houses in the project for housing construction, except for areas under management relating to national defense and security as prescribed in regulations of the Government.”

Clause 2, Article 160 of Law on Housing 2014 also provides for homeownership conditions in Vietnam:

“Article 160. Requirements pertaining foreign entities eligible for the homeownership in Vietnam

2. The foreign entity prescribed in Point b Clause 1 Article 159 of this Law is required to have an Investment certificate or a Permission to run business in Vietnam (hereinafter referred to as Certificate of investment) issued by the competent agency in Vietnam.”

Accordingly, the subsidiary of the parent company which is a foreign-invested company may purchase and own real estate when it meets the conditions in Articles 159 and 160 of the Law on Housing 2014. It is only allowed to buy houses and have ownership rights when investing in a construction project or buying commercial houses in a construction investment project, is not allowed to buy apartments from Vietnamese individuals.

Therefore, a subsidiary established by a foreign-invested parent company are not allowed to buy apartments from Vietnamese individuals and hold their name in the pink book.

Above is FDVN Law Firm's opinion for your request of a consultant based on studying the relevant legal provisions. Hopefully, FDVN's advice would be helpful to you.

Legal expert: Nguyen Thi Thanh Thanh Tra

FDVN Law Firm

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