Awarding ESOPs from Foreign Companies to Vietnamese Employees in Vietnam: A Legal Guide

Awarding ESOPs to Vietnamese employees is becoming an increasingly popular way for companies to attract and retain talent. One common form of equity compensation is the Employee Stock Ownership Plan (ESOP). ESOPs allow employees to own a portion of the company they work for, which can provide a powerful incentive to work hard and contribute to the company’s success.

However, awarding ESOPs from foreign companies to Vietnamese employees in Vietnam can be a complex legal process and time-consuming. In this article, we will outline the key steps both local and foreign companies must take to award ESOPs to their Vietnamese employees.

Step 1: Understand Vietnamese Law Governing ESOPs to be issued by a foreign entity to their Vietnamese employees

The first step in issuing ESOPs to Vietnamese employees is to understand the relevant governing laws in Vietnam. The Labor Code of Vietnam governs all employment relationships in the country, including those between foreign companies and Vietnamese employees. In other words, the banking legislation of Vietnam shall guide how to issue and register the ESOP issued by the foreign entity to their Vietnamese employee working in Vietnam.

ESOPs issued by the foreign entity in Vietnam are solely for Vietnamese employees and shall be issued in the form of either (i) awarding actual shares, or (ii) awarding share options with special rights to the eligible employees.
This includes providing appropriate compensation and benefits and complying with any local regulations related to equity compensation.

Step 2: Eligible to award ESOPs

A foreign company wishing to issue the ESOPs to its Vietnam-based Vietnamese employee must have its legitimate registered commercial presence in Vietnam, subject to certain conditions as required by the legislation of Vietnam. That commercial presence in Vietnam can be their foreign-invested company, branch or representative office in Vietnam, or executive office of a foreign party in a business cooperation contract to which it is a part.

To satisfy certain conditions and requirements and be implemented legally, it is advised that the ESOP issued by the foreign entity must be registered with the State Bank of Vietnam through his/her commercial presence registered in accordance with the laws of Vietnam.

Step 3: Preparation of a Plan for Implementation of the ESOPs

Prior to submitting the application for registration of the ESOPs to the State Bank of Vietnam, the foreign entity must prepare an approved plan for implementation of the ESOPs which is in compliance with the laws of Vietnam and their applicable jurisdictional laws and approved by the competent management authority of them.

This plan should outline the terms and conditions of the ESOP, including the number of shares awarded to each employee, the vesting schedule, any restrictions on the transfer of shares, and other requisition terms and conditions. The foreign entity and its Vietnam-based commercial presence entity should explain the clearest way of terms and conditions thereof, as well as any risks or restrictions associated with owning shares in a foreign company to its Vietnamese employees before approval of the Plan of ESOPs and registering it at the State Bank of Vietnam.

Step 4: Awarded ESOP Registration Process

To register the ESOP awarded in Vietnam for Vietnamese employees, the foreign company must first have a commercial presence in Vietnam and obtain the must-have license and approval when doing business in Vietnam (such as an Investment Registration Certificate, Enterprise Registration Certificate, M&A Approval, License for establishment of a branch/ representative office of a foreign entity in Vietnam). Subject to each commercial presence said above, the ESOPs issued by a foreign entity must be conducted through an entity with a Vietnam-based commercial presence (the “Vietnam Presence Entity”) to submit an application for ESOP registration to the State Bank of Vietnam.

The State Bank of Vietnam shall within fifteen (15) working days from the receipt date of a complete and valid application grant written approval for implementing the offshore ESOP to Vietnamese employees.

Step 5 ESOP Banking Account Opening

Upon receipt of the written approval from the State Bank of Vietnam, the Vietnam Presence Entity shall come to a licensed commercial bank located in Vietnam to open a banking account for the implementation of ESOPs and all transactions in relation to the legitimate approved ESOPs must be carried out via the said banking account for overseas fund remittance or transfer of proceeds back to Vietnam.

Awarding Esops from foreign companies to Vietnamese employees in Vietnam

Conclusion

Awarding ESOPs from foreign companies to Vietnamese employees in Vietnam can be a complex legal process and time-consuming, given the statutory timing being 15 working days, yet the timing to be granted written approval by the State Bank of Vietnam is relatively long due to having to be explanatory to the officials of the State Bank of Vietnam. However, by possessing governing laws of Vietnam and guiding legislation of Vietnam, implementing the ESOPs in a compliant manner, companies can successfully award ESOPs to their Vietnamese employees and provide a powerful incentive for them to contribute to the company’s success.

For more information, please reach out to us at finnnguyen@ivlf-lawyer.com or find us at www.ivlf-lawyer.com