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Employee Stock Ownership Plans For Multinationals In Vietnam –

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Many Vietnamese employees of multinational companies that
operate in Vietnam hold shares in the overseas parent by
participating in the parent’s employee stock ownership plan
(“ESOP“). The employee receives free or
discounted shares from the parent and has the opportunity to
participate in the increased value of the worldwide company. It is
generally believed that an ESOP motivates an employee in Vietnam
because she has a stake in the worldwide success of the

Ownership is subject to exchange control regulations. If the
ESOP is registered with the State Bank of Vietnam
(“SBVN“), a Vietnamese person can
legally own foreign shares and can legally remit monies out of
Vietnam to purchase them. The local employer (also known as the
Local Entity“) will file the ESOP with
the SBVN and then meet periodic post-registration reporting

The SBVN approval process

The ESOP is either an award of free shares or an offer to sell
shares on preferential terms. That is, an employee can receive
shares in the parent at no cost or the parent can give an option to
the employee to purchase shares at a discount. Some plans take the
form of a matching share award (ie, if a participant agrees to
purchase a certain number of shares, she will be granted matching
shares in the form of restricted stock — a conditional right to a
number of shares received free of charge).

The period within which to act is often tight. The parent
usually has a prefixed, world- wide grant date when ownership by
participating shareholders begins. Both the Local Entity and the
parent have to cooperate to prepare and submit documents at least
five months prior to the grant date or prior to the beginning of
the subscription period and to receive approval. Like the grant
date, the subscription period is fixed by the parent globally and
cannot be moved.

Under the statutes, the application must contain a registration
letter from the Local Entity to the SBVN, documentation describing
the employee rights and features of the plan (such as a vesting
period and conditions, subscription pool, payment method, early
redemption, and lock-up period), incorporation documents of the
parent and the Local Entity. It must describe any onshore/offshore
subsidiaries which directly or indirectly own the Local Entity. It
must also provide minutes and resolutions of the parent’s
shareholders and board of directors which approve the ESOP, and
provide a list of the participating Vietnamese employees. Many
foreign documents need to be notarized, authenticated and legalized
by a notary public, foreign government agency and/or Vietnamese
embassy or consulate. These may be procedural steps, but they add
to the time pressure.

To approve the ESOP, the SBVN will satisfy itself that the ESOP
grants obvious incentives to local employees, and that the purpose
of the ESOP is to provide benefits to employees rather than to
increase the capital of the parent.

All documents must be translated into Vietnamese. The approval
process can be lengthy and uneven. The SBVN often requests the
parent or the Local Entity to clarify the terms and conditions of
the ESOP or to adjust documents which have been submitted. There is
no government fee.

The SBVN has 15 working days to respond to the Local Entity
counting from receipt of a complete dossier. Despite this
requirement, SBVN takes more or less a month in a free share
offering and three to five months for a plan which gives
preferential treatment to employees to acquire shares. In our
experience, a share purchase plan is likely to be approved more
quickly if the share price is a nominal amount or is highly
discounted as compared to the market price or if at least
some free shares are given. The SBVN may refuse to approve a share
purchase plan if it concludes that an employee is not much
benefited from subscribing the shares.

Opening a local currency account

After the SBVN has approved the ESOP, the Local Entity must open
a foreign currency account (“Account“)
to transfer ESOP funds in and out of Vietnam. The Account is used
to (i) receive amounts from the qualified local employees to pay
for the shares, receive foreign currency from dividends and from
the sale of the shares, and (ii) pay other expenses, such as fees
or charges. All ESOP transactions must be conducted through the
Account. Use of the Account is largely problem-free.

The Local Entity can set up its Account as soon as practical in
order for qualified employees to remit monies to meet the
parent’s schedule to pay for shares, assuming they are not free

Reporting obligations

The Local Entity must file reports with the SBVN by the 20th day
of the first month of each quarter. The report includes the list of
Vietnamese participants, outbound funds the Local Entity has
remitted abroad on behalf of the local employees who purchase
shares; inbound remittances the Local Entity has received to pay
the local employees (say, dividends or proceeds from the sale of

If the Local Entity fails to meet the reporting requirements,
the SBVN will decide whether to impose monetary fines. The SBVN can
also challenge future share offerings.

Tax withholding

The Local Entity must declare, withhold and pay personal income
tax (“PIT“) on behalf of an employee
upon the employee’s sale of the shares. In other words, the
local employer will withhold PIT in favor of its employees when the
shares are sold irrespective of whether the shares are granted for
free or the shares are purchased by the employee. As all proceeds
of sale and dividends are repatriated through the Account, the
Local Entity withholds PIT and then transfers the balance to the
employees. The current tax regulations only regulate tax
declaration and payment in cases where an employee receives bonus
shares from the local employer. In this connection, the Local
Entity should obtain a tax ruling from the tax authorities to
ensure its compliance with tax withholding obligations, the taxable
amounts, and the applicable rates of tax.

Participation of an expatriate employee in an ESOP

While the SBVN only regulates an ESOP offering to Vietnamese
employees, an expatriate may participate in an ESOP and
participation is not subject to the SBVN’s approval. She may be
awarded free shares or she may purchase shares of the parent
individually or through the Local Entity. If she pays for the
shares, she may remit funds directly to the parent or to an
intermediary financial institution as designated by the parent
without going through the Account. In these circumstances, the
Local Entity will not withhold PIT in respect of income that an
expatriate will generate from the dividends and the sale proceeds
of ESOP shares. She is required to declare and pay PIT by herself
on each sale and on receipt of dividends.

In order for ESOPs to be successful, many offshore parents
strengthen their connection with the employees of their
subsidiaries by designing a long-term policy to encourage the
employees to become shareholders and in many cases, to increase
their shareholding. It means that local employees have both the
opportunity and motivation to be fully engaged in creating value
and achieving success for the group through their ownership of the
share capital of the parent.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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