Korean investors need transparency in investment conditions

Korean investors expect transparency in investment conditions

According to the report of the Korea Chamber of Business in Vietnam (KoCham) at the Vietnam Business Forum (VBF 2024) earlier this month, numerous Korean companies in Vietnam face a disparate application of legal criteria for foreign ownership limit (FOL) across different cities and provinces.

For example, a Korean investor, with a capital investment exceeding VND500 billion, established a business in Vietnam and sought to acquire 100 per cent ownership of a Vietnamese company holding a Payment Intermediary Services licence from the State Bank of Vietnam.

However, despite confirmation from the bank that there were no restrictions on foreign investment companies holding shares in companies with such licences, the local Department of Planning and Investment (DPI) in that region demanded that the acquiring company must maintain a minimum of 35 per cent local (Vietnam) ownership in the target company, without any legal basis, the forum heard.

As a result, the transaction did not proceed, and the Korean company is currently considering withdrawing from Vietnam.

“Clear and fair criteria for the FOL of foreign companies are necessary, and in the case of issues arising, we would like to request that administrative procedures and guidelines for resolution based on consistent regulations and grounds be promptly established,” said Hong Sun, chairman of KoCham.

The DPI requires mergers and acquistions (M&A) approval when there is an increase in foreign ownership limit or for reasons related to national security under the legal framework.

However, according to Korean firms, in cases of M&A among Korean investors, the approval is frequently demanded by the DPI even when there is no increase in the FOL.

Additionally, in instances where two subsidiaries within the same Korean group in Vietnam are merging, the DPI's Enterprise Department responsible for amending the Enterprise Registration Certificate requests M&A approval from the Investment Department within the same DPI.

“Consequently, the Investment Department, upon receiving the M&A approval application, asserted that the approval was unnecessary as there were no good reasons, such as an increase in foreign ownership,” Hong Sun said.

“Therefore, due to the lack of coordination between internal departments within the same regional DPI, foreign-invested enterprises are spending unnecessary time and effort to resolve this issue. Hence, we would like to request the abolition of unnecessary approval procedures,” he said.

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