State Bank of Vietnam (“SBV”) recently came up with amendments to the structure of holding offshore indirect investment. This amendment has been issued vide circular number 23/2024/TT-NHNN (“Circular 23”) amending the current mandatory requirements under the rules and regime of the SBV which were creating hindrances for the offshore companies to award equity awards under Employee Share Ownerships Plans (“ESOP”) to their Vietnam employees and Vietnam employees from holding offshore investments.
These amendments will come into effect on August 12th, 2024. These amendments will not only make offshore investment less complex but will also attract the flow of foreign capital into the Vietnam economy, and potentially boost employee equity ownership in Vietnam
Listed below are the major amendments brought out by the Circular 23 of the SBV:
| Parameters |
Current Provision |
Amended Provision |
Qapita Analysis |
| 1. Expansion of the entities for ESOP implementation |
Previously definition only included “foreign organizations with a commercial presence in Vietnam, such as foreign-invested economic organizations, branches, representative offices, or operating offices of foreign parties to a business cooperation contract” |
The amended definition includes “economic organizations that have relationships with foreign organizations through ownership of shares, capital contributions, or other forms as specified by Vietnamese law”. |
This has expanded the coverage scope for Vietnamese employees. Now, employees of subsidiaries and associates of the organization can be included in offshore ESOP without requiring a commercial presence. This change has made coverage more accessible.
|
| 2. SBV Approval Requirement |
Earlier, offshore entities while implementing the ESOP which intends coverage from Vietnam as well, need to comply with the following requirements:
Approval from the SBV: Offshore entities need to submit ESOP-related documents and other documents to obtain the approval from SBV.
Opening of the Bank Account: Post receiving the approval of SBV, offshore entities to open a transaction account at a commercial licensed bank in Vietnam to conduct transactions as per regulations. |
Amended Regulations have removed the mandatory requirement of obtaining the approval from SBV.
However, offshore entities are still needed to get the transaction account opened with the licensed bank of the Vietnam for ease of administration of the transactions. |
This amendment is the major amendment from the point of view of the implementation of ESOP Plan for Vietnam employees. Obtaining approval from SBV has not been very easy – both in terms of effort, time required, as well as chances of success. In cases where SBV did not approve an ESOP, foreign companies would not be able to cover Vietnam employees.
However, it does not mean that supervision of SBV has been abolished, still, SBV can supervise all the transactions as these transactions are required to be done via a transaction account with a licensed bank in Vietnam.
In practice, while registration is not required, companies will still need to ensure they are able to open an appropriate bank account to facilitate administration of their ESOP. |
| 3. Monthly Reporting Regime |
Current Regulations require reporting every quarter to SBV with regards to the issuance of ESOPs within the terms of the Plan. |
Amended Regulations require reporting every month to SBV. Reporting should be done no later than the 12th of the following month. |
This has made SBV’s administration work easy to supervise the ESOP Plan by offshore entities, but will impose additional administrative burden on the companies.
|
| 4. A modified form of Stock Bonuses |
Earlier Circular 10 stipulated two forms of stock bonuses: (1) direct stock bonuses and (2) bonuses in the form of the right to buy shares on preferential terms. |
Amended Regulations to include forms of Stock Bonuses as (i) Direct stock bonuses; and (ii) Other forms of stock bonuses abroad do not generate cash flows abroad. |
Due to complexities in the cross border transfer of funds and securities in the case of offshore ESOP Plans for Vietnam employees, the types of equity-settled plans is limited in nature. Time will tell if creative ESOP design will allow for utilization of “Net settlement” method to cater for the requirements. In this case, the employee need not remit funds out of Vietnam, the exercise price and applicable taxes can be settled out of the total sales proceeds and the net amount can be passed on to the employees, thus preventing the the need of the transfer of funds offshore and allow .
for consistency and strict management of offshore indirect investments. |
This Circular 23 marks a significant milestone in Vietnam's regulatory landscape for ESOPs. By simplifying the registration process, expanding eligibility, and providing greater flexibility, these new regulations are likely to encourage more foreign entities to offer ESOPs, benefiting both companies and their Vietnamese employees. While the additional bank account requirements and revised monthly reporting may pose some challenges, this change is a positive step towards creating a more dynamic and supportive business environment in Vietnam. These measures aim to attract foreign capital, diversify foreign currency revenues, and mitigate risks associated with offshore indirect investments.
If you would like help in understanding how these changes will impact your existing equity plan in Vietnam, or to understand how to create and rollout a brand new ESOP Get In Touch with Advisory (qapita.com)
.svg)
.svg)
.svg)