Foreign Ownership below 50% in Vietnamese Companies: Is M&A Approval Required and Does the Company Qualify as an FDI Enterprise?

In practice, one of the most frequently asked questions by foreign investors entering the Vietnamese market is whether a foreign investor acquiring less than 50% of the charter capital of a Vietnamese company must obtain approval for capital contribution or share acquisition (commonly referred to as M&A approval), and whether the company following such transaction would be considered a foreign-invested enterprise subject to the regulatory obligations applicable to FDI companies.

Although the question appears straightforward, it touches on several key aspects of Vietnam’s investment regulatory framework, including market access conditions for foreign investors, the approval mechanism for foreign M&A transactions, and the regulatory treatment of enterprises with foreign ownership. In light of the continued regulatory approach under the Investment Law 2025, which maintains the structure of the Investment Law 2020 while moving toward a reduced ex-ante approval regime and stronger ex-post supervision, understanding this issue is particularly important when structuring foreign investment transactions.

1. The legal nature of the M&A approval mechanism

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Vietnamese law does not formally use the term “M&A approval” in the same manner as it is commonly used in international transaction practice. Instead, the Investment Law refers to the procedure for registration of capital contribution, share purchase, or capital acquisition by foreign investors.

This mechanism functions as a regulatory screening tool used by Vietnamese authorities to review transactions in which foreign investors participate in Vietnamese enterprises. The purpose of this review is to ensure compliance with key regulatory considerations, including market access conditions for foreign investors, restrictions applicable to certain industries, land-related considerations, and national defense or security concerns.

Importantly, not every transaction involving foreign investment in a Vietnamese company requires this approval procedure. The requirement applies only to specific situations where the transaction may materially affect the ownership structure of the company or raise regulatory concerns under the investment framework.

2. Circumstances where M&A approval is required

Under the structure of the Investment Law (notably Article 26 of the Investment Law 2020, which continues to guide the regulatory approach under the Investment Law 2025), foreign investors must register their capital contribution or share acquisition prior to completing the transaction in the following circumstances.

The first situation arises where the target company operates in a sector subject to market access conditions for foreign investors. These are industries where Vietnamese law imposes specific conditions on foreign participation, such as ownership limits, licensing requirements, or restrictions on the investment structure. In such cases, the licensing authority must verify whether the proposed transaction complies with the applicable market access conditions. Notably, even if the foreign investor acquires only a small percentage of equity, the approval procedure may still be required if the company operates in a conditional sector.

The second situation concerns transactions that result in foreign ownership reaching or exceeding 50% of the company’s charter capital. This threshold is significant under Vietnamese investment law because once foreign ownership reaches this level, the enterprise is generally treated as a foreign-invested economic organization and becomes subject to a different regulatory framework.

The third situation arises when the target company holds land use rights in areas considered sensitive from a national defense or security perspective, such as border regions, coastal areas, or other strategically important locations. In these cases, regulatory authorities may review the transaction to ensure that the participation of foreign investors does not raise security concerns.

Therefore, whether M&A approval is required depends not only on the percentage of foreign ownership but also on the sector in which the company operates and whether the company holds land in sensitive locations.

3. Situations where M&A approval is not required

There are many situations where foreign investors may acquire shares or contribute capital to a Vietnamese company without triggering the approval requirement under the Investment Law.

This generally occurs where the target company operates in a sector that is not restricted for foreign investors, the transaction does not increase foreign ownership to 50% or more, and the company does not hold land use rights in sensitive areas.

In such cases, the transaction is treated as a standard corporate transaction under the Law on Enterprises. The parties are only required to carry out the necessary procedures to update the company’s shareholder or member information with the business registration authority.

In other words, no separate investment approval from the investment authority is required for the transaction.

4. Whether a company with foreign ownership below 50% qualifies as an FDI enterprise

Another issue that often causes confusion in practice is whether a company with less than 50% foreign ownership is considered a foreign-invested enterprise.

Vietnamese law does not use the term “FDI company” as a formal legal concept. Instead, the Investment Law refers to “economic organizations with foreign investment capital.” However, the regulatory framework distinguishes between enterprises that are effectively controlled by foreign investors and those that merely have minority foreign shareholders.

Where foreign investors hold less than 50% of the charter capital and do not exercise control over the enterprise, the company is generally treated as a domestic enterprise for most regulatory purposes.

As a result, the company is not required to obtain an Investment Registration Certificate (IRC) for its normal business operations, nor is it required to comply with the periodic investment reporting regime typically applicable to foreign-invested enterprises.

5. Reporting obligations applicable to foreign-invested enterprises

In contrast, where foreign investors hold 50% or more of the charter capital, or where the enterprise is controlled by another foreign-invested economic organization, the company may be treated as a foreign-invested enterprise under Vietnamese investment regulations.

In such cases, the enterprise may be required to obtain an Investment Registration Certificate for new investment projects and to comply with the investment reporting obligations prescribed by Vietnamese law, including periodic reports on the implementation of investment projects.

6. Practical considerations in structuring transactions

In practice, some investors deliberately structure transactions so that foreign ownership remains below 50% in order to avoid the M&A approval procedure or to maintain the company’s status as a domestic enterprise.

However, this approach must be considered carefully. Factors such as the company’s business sector, the actual control exercised by foreign investors, or specific regulatory requirements under specialized laws may still trigger investment review requirements.

Accordingly, before proceeding with a capital contribution or share acquisition transaction in Vietnam, foreign investors should conduct a comprehensive legal assessment of market access conditions, ownership structure, and regulatory obligations to ensure that the transaction complies with applicable laws.

Understanding the distinction between a Vietnamese company with minority foreign shareholders and a legally recognized foreign-invested enterprise is essential for structuring investments effectively and managing regulatory risks in Vietnam.

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