Conditions and Procedures for Implementing an Employee Stock Ownership Plan (ESOP) for Vietnamese Employees

This article outlines the key conditions and procedures required by Vietnamese law for an offshore entity to implement an Employee Stock Ownership Plan (“ESOP“) for employees working at its affiliate operating in Vietnam.

For the purpose of clarity, the offshore entity offering the ESOP to eligible employees will be referred to as the “ESOP Offeror” and the Vietnam-based affiliate will be referred to as the “ESOP-Executing Entity“

Conditions and Requirements for Implementing an ESOP

As per Article 3.1 of Decree 135/2015/NĐ-CP (“Decree 135”), purchasing and selling securities issued in foreign countries falls under the category of outward portfolio investment. Consequently, the law in Vietnam imposes strict requirements on outward portfolio investment activities, applying to both Vietnamese individuals and the ESOP Offeror. Furthermore, specific principles govern the implementation of share-awarding programs, including:

1. With regard to Vietnamese employees, current law allows Vietnamese workers in foreign organizations in Vietnam to make outward portfolio investments by participating in programs that award shares issued by foreign entities. This can take the form of either awarding actual shares or share options, with the latter providing special rights to eligible employees.

2. With regard to the ESOP Offeror, the ESOP must be implemented through the ESOP-Executing Entity, which is recognized as the commercial presence of the ESOP Offeror in Vietnam. This presence may include foreign investment in economic organizations such as a branch, representative office, or executive office of a foreign entity, or a business cooperation contract.

3. According to Article 8 of Circular No. 10/2016/TT-NHNN (“Circular 10/2016“), which was amended by Article 2.1 of Circular 23/2024/TT-NHNN (“Circular 23/2024“) issued by the State Bank of Vietnam, the implementation of ESOP must comply with the following requirements:

• The program must be conducted through ESOP-Executing Entity;
• Earnings from the sale of shares or share options, dividends, and other lawful incomes must be transferred to employees in Vietnam through an account opened by the ESOP-Executing Entity; and
• The ESOP must be executed in accordance with foreign exchange management regulations, personal income tax laws, and other applicable legal requirements.

Opening a Bank Account for ESOP Implementation

 The ESOP-Executing Entity must open a bank account exclusively for the ESOP program. All transactions related to the ESOP, including remittance of funds from overseas or transfers to Vietnamese employees, must be processed through this account.

Reporting on the Implementation of the ESOP

The ESOP-Executing Entity must submit a monthly report to the SBV on the progress of the ESOP program, due by the 12th of the next month following the reporting month.

In the event that the ESOP-Executing Entity terminates its operations in Vietnam, it must sell any awarded shares and/or share options and transfer the proceeds to the participating Vietnamese employees before officially suspending operations.

Employee Rights and Entitlements under the ESOP

Upon joining the ESOP, eligible Vietnamese employees will be entitled to the following rights:

• Receive and own shares, sell shares in foreign countries, and receive dividends and other lawful income through the ESOP-Executing Entity;
• Receive share options to purchase shares at a discounted price, exercise those options in foreign countries, and sell the options through the ESOP-Executing Entity;
• Employees may use their personal foreign currency accounts or withdraw from their salary and bonuses to purchase shares at a discounted price through licensed credit institutions in Vietnam; and
• Earnings from the sale of shares or share options must be transferred to Vietnamese employees through the ESOP-Executing Entity’s designated bank account in Vietnam.

It is important to note that all transactions regarding the awarded shares or share options must be conducted through the ESOP-Executing Entity. Employees cannot exercise their rights regarding the shares or options through any other entity.