The Need to Register an Employee Stock Ownership Plan in Vietnam

June 2nd, 2023
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ESOP – Employee Share Ownership Plans

Vietnamese employees of Vietnamese subsidiaries may hold shares of the foreign parent (“Parent”) under a share incentive plan.

However, to be effective in Vietnam, “An offshore share plan which makes awards (of the Parent’s shares) to Vietnamese employees may be employed by a local entity only after the plan has been registered with the State Bank of Vietnam[1] (“SBVN”). This requirement presents a challenge.  There is a path to registration, but to register, restrictions must be addressed and resolved.

It is important for an offshore Parent with a subsidiary in Vietnam to register and so to be compliant. If not, there is a risk that when the Parent is listed publicly offshore, there will be a compliance gap if its share plan extends to Vietnamese employees, but the plan has not been registered in Vietnam.

The SBVN is responsible to regulate participation in an employee stock ownership plan (“ESOP”) under which shares are awarded to Vietnamese employees of a Vietnamese entity (“Local Entity”).

The Local Entity can be a corporate entity/representative office/branch/management office, provided that it is the employer and is directly or indirectly owned by the Parent company whose shares will be awarded. If so, it can register its ESOP with the SBVN. Note many limitations do not apply to non-Vietnamese employees of the Local Entity. That is, offers made to foreign employees do not require SBVN’s approval. Moreover, non-Vietnamese employees are not subject to foreign exchange, personal income tax and some of the other requirements which Vietnamese employees are required to follow.

A Vietnamese employee may receive shares or purchase shares on preferential terms from the Parent. The law does not define “preferential terms”. However, practically, the SBVN applies an internal policy that restricts remittance of monies abroad even when a Vietnamese employee is, herself, prepared to pay for shares granted by the Parent.

If there are no restrictions in the country where the Parent is incorporated, the Parent may award shares to its selected employees worldwide, including Vietnam. However, again, it’s plan as it applies to Vietnam, must be registered in Vietnam. 

The Alternatives

(i)        Free shares or restricted stock units 

Under such a scheme, employees are given free shares or a conditional right to acquire free shares.

 (ii)      Stock options and stock appreciation rights (SARs) 

These awards are typically granted at an exercise price equal to or discounted from the fair market value of the Parent’s shares on the grant date. The benefit is realized when employees exercise the option or SARs; that is, all parties believe that the share price will increase in value over time. Options and SARs are deemed to be attractive to startups whose share price is fairly low when awards are granted. When the startup makes an initial public offering and becomes listed on a stock exchange, employees receiving options or SARs when the startup was private can, of course, realize a substantial benefit from these options or SARs. 

(iii)       Discounted share purchase price and/or matching shares

The Parent offers shares at a discounted rate to its employees. A participant-employee may purchase a certain number of shares at (or not at) a discounted subscription price, and will receive matching shares free of charge. For example, buy “one” get “two” or “four” free shares.

(iv)       Phantom shares 

Employees do not hold actual shares of the Parent. The shares are actually held offshore on behalf of the Parent in the form of a trust. The employee has a conditional right to cash in a sum linked to the value of the Parent’s shares. That is, upon exercise, the shares are sold and the proceeds paid to the employee. The share value moves up and down to reflect the accumulated valuation. 

Calculating the gain

Save for phantom share plans, any ESOP which permits Vietnamese employees to own shares of the Parent is subject to registration with SBVN. Subject to the SBVN’s internal rulings and policy since 2019, no matter how much the purchase price/exercise price/subscription price is discounted as compared to the fair market value, Vietnamese employees are not required to transfer any monies to pay for the shares/stock options/SARs. Instead, Vietnamese employees will be entitled to receive the gains derived from the sale of shares [(by offsetting the purchase price/exercise price/subscription price (as the case may be) against the sale price].  Such offsetting arrangement has been approved by the SBVN. When the shares are sold, the proceeds less the (discounted) purchase price are remitted to the local employees via the Local Entity. Personal income taxes are withheld by the Local Entity. 

The Approval Process

The SBVN will consider approval on a case-by-case basis. Much depends on whether or not the ESOP grants “obvious incentives” to local employees and even the extent of such incentives. That is, the SBVN sees itself as responsible to assist Vietnamese employees to receive shares at a very favorable price. The term “obvious incentives” is from Circular 10 and is not defined. From the SBVN’s perspective and practice, the incentives should be such that (1) the purchase price/exercise price/subscription price payable by local employees is a nominal amount and of course, is equal to or less than the par value of the share (eg, JPY1 per stock option/share) and in theory, that the total number of shares awarded to local employees should be capped to limit funds remitted offshore, or (2) the shares are given for free, or (3) there is no requirement for local employees to remit monies under the ESOP. (In practice, although the SBVN allows no payment to be remitted abroad, the SBVN will permit scenario (1) depending on a variety of factors, including an extremely low share price).  In its view, the SBVN is assuring that local employees benefit from acquiring shares of the Parent by limiting the purchase price…a practice obviously well beyond the normal responsibility of a state bank.

There is an issue of value when the SBVN tries to determine an appropriate discount.  Fixing value is relatively easy when the Parent’s shares are traded on a public exchange. If they are not, the SBVN will pay attention to the regularity of the accounting records–ie, audited statements–of the Parent to determine whether the price at which the shares are valued is appropriate.

There are other regulatory steps and requirements. After the SBVN has approved a Local Entity’s registration of the Plan, the Local Entity must open a foreign currency account in Vietnam to implement the ESOP.


If the ESOP is not registered with the SBVN, the Local Entity is subject to a fine from VND40 million to VND60[2] million. Participating Vietnamese employees themselves may also be fined from VND20 million to VND30 million.  In addition, the following possible penalties can be imposed upon the Local Entity and a Vietnamese employee respectively[3]:

  • A fine of VND60 million to VND100 million if the Local Entity fails to comply with the rules on opening, closing and using an account in Vietnam in order to conduct an offshore investment [related to Local Entity’s remittance of funds into and out of Vietnam for the purpose of the plan, eg, receipt of sale proceeds, dividends on behalf of its local employees without using the special account for implementation of the plan];
  • A fine of VND60 million to VND100 million if the Local Entity transfers funds for outward investment contrary to the law;
  • A fine of VND30 million to VND50 million on an unapproved transfer by a Vietnamese employee to make an outward investment contrary to the law. 

Reporting Requirements 

The Local Entity must file ongoing quarterly reports with the SBVN on implementation of the ESOP.  Reports are due by the 20th day of the first month of the following quarter. The report must include, among other things (i) list of Vietnamese employees who participate in the ESOP, (ii) the inbound remitted funds that the Local Entity has received under the ESOP to pay the Vietnamese employees, and (iii) the outbound [usually nominal] remitted funds that the Local Entity has remitted abroad on behalf of Vietnamese employees to purchase the awarded shares.

In case a report is filed after the deadline, the Local Entity may be fined from VND10 million to VND20 million. The Local Entity may also be subject to a fine of VND20 million to VND30 million if reports are inadequate. 

Tax withholding

In terms of tax compliance, the Local Entity is expected to withhold tax in connection with dividends paid and liquidation of shares of the ESOP. It will declare and pay personal income tax on its employees’ behalf upon their sale of shares or upon their receipt of dividends.


[1] Government’s Decree No. 135/2015/ND-CP dated December 31, 2015 and Circular No. 10/2016/TT-NHNN dated June 29, 2016 (“Circular 10”)

[2] US$1 – VND23,600

[3] Government’s Decree 88/2019/ND-CP dated November 14, 2019 (as amended by Decree 143/2021/ND-CP dated December 31, 2021)

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