Vietnam’s International Financial Centre: A New Frontier for Mergers and Acquisitions

The establishment of Vietnam’s International Financial Centre (IFC) marks a significant milestone in the nation’s journey toward becoming a global financial hub. Operating across Ho Chi Minh City and Danang, this innovative financial centre aims to streamline the country’s regulatory framework, facilitating cross-border mergers and acquisitions (M&A) with unparalleled ease and clarity.

Legislative Framework: Lowering Barriers

At the core of the IFC is a dedicated legislative framework designed to remove long-standing barriers that have historically hindered cross-border capital movement. By creating a more predictable environment for foreign buyers, Vietnam aims to unlock opportunities for larger and more sophisticated M&A transactions. This strategic shift is evident in the recent actions taken by the government to position its financial markets competitively on a global scale.

A Unified Financial Centre

Vietnam’s IFC operates as a unified entity across two critical locations, fostering collaboration among global financial institutions. With regulations tailored to attract international players, the IFC facilitates not only capital movement but also promotes higher-value financial services. This twin focus on accessibility and excellence paves the way for Vietnam to strengthen its position in the global economy.

Enhanced Regulatory Environment

Historically, foreign investors have faced cumbersome approval procedures and uncertainties surrounding capital movement. The IFC aims to transform this landscape by streamlining these processes, thereby offering greater legal clarity. Notably, foreign investors can now wholly own companies that are members of the IFC, eliminating the previous foreign ownership cap. Additionally, they can establish new ventures without the need for conventional investment policy approvals.

Smoother Capital Mobility

Capital mobility is crucial in the M&A landscape, and the IFC framework positions itself as a facilitator of this essential component. With simplified cross-border fund transfer procedures and dedicated capital accounts for IFC members, the movement of investment funds, dividends, and transaction proceeds has become more efficient. This improved framework allows for more flexible deal structuring, particularly for transactions involving offshore holding companies.

Judicial Confidence: Addressing Disputes

A notable development within the IFC is the approval of the Law on Specialised Courts, which introduces an international arbitration centre. This shift addresses one of the most significant concerns among foreign investors: the resolution of complex financial disputes. The law enables parties to choose foreign governing law for disputes involving IFC members, significantly reducing the reliance on domestic judicial processes that have historically generated uncertainty.

Tax Incentives for Growth

One major attractor for businesses is the tax incentives available within the IFC. New investment projects in priority sectors, such as digital infrastructure and green finance, enjoy a reduced corporate income tax rate of 10% for 30 years. Other projects may benefit from a 15% rate for 15 years, both significantly lower than the standard 20% tax rate in Vietnam. While attractive tax rates are appealing, factors such as capital mobility and a transparent legal framework remain crucial for private enterprises.

Recognising M&A Advisory

In a significant development for the advisory landscape, M&A advisory has been officially recognised within Vietnam’s legal framework. This change elevates the role of advisors, positioning them as essential enablers of the IFC. Their involvement is crucial in facilitating cross-border transactions, ensuring compliance with local and international standards, and ultimately enhancing investor confidence.

Building a Competitive Edge

Vietnam is not stopping at policy issuance; ongoing collaboration with international partners and financial centres like Singapore and the UK aims to align its legal and regulatory architecture with global standards. This move is expected to catalyze further M&A activity, giving both buyers and sellers access to a broader array of transaction structures and more flexible financial arrangements.

Attention to Implementation

With the official launch of the IFC scheduled for February 9, the focus will soon shift from legislative design to practical execution. The real test will lie in whether the implementation meets the lofty intentions set forth by the government. If successful, the IFC could foster a more mature and competitive M&A market in Vietnam, instilling greater investor confidence and enhancing corporate governance practices.

As Vietnam ventures into this new financial landscape, the potential for dynamic growth in its M&A activities offers a promising horizon for businesses and investors alike. The IFC’s approach to modern regulatory frameworks, tax incentives, and enhanced dispute resolution mechanisms collectively signify a transformative period for Vietnam’s financial markets.