Transferring vocational intermediate school to foreign investors

Vocational intermediate schools can be owned by the private sector, with domestic or foreign capital. What are the legal regulations if a foreign investor buys it?

If a foreign investor is planning to buy a vocational intermediate school in Hanoi and the seller asks for cash payment, what should the investor look out for and what are the risks. The investor needs to confirm these investment capital issues in terms of the law. At the same time, the problems of facilities, documents related to the training program, etc. What requirements must be satisfied? Beside that, this vocational intermediate school already has a license to operate a private school, so after purchasing the school, what will be the procedure to change the name of the license, and whether it is possible to immediately operate the school or not? How should changes in principals and directors be reported pursuant to the law? At the same time, is it risky if the school signs the payment agreement without obtaining the investment permit?

Answer.

Inteco – Legal Practice would like to sincerely thank for your cooperation. As a law firm with many years of experience in the field of consulting on mergers and acquisitions (M&A), we would like to offer our advice on the acquisition of vocational intermediate schools as follows:

About conducting payment in cash

According to the provisions of the Investment Law 2014 and its guiding documents, foreign investors investing in Vietnam need to carry out the procedures for establishing an enterprise. After establishing an enterprise, a foreign-invested enterprise needs to open a capital account for foreign investors to transfer capital contribution into. Then, all the money in the capital account shall be transferred to the management account to pay for purchases.

Therefore, if Korean investors want to buy a Vocational Intermediate School, they need to establish a company first, then transfer money from this foreign-invested company to the seller of the vocational intermediate school.

According to the provisions of Clause 1, Article 6 of Circular No. 78/2014/TT-BTC dated June 18, 2014 of the Ministry of Finance, which stipulates the deductible and non-deductible expenses when determining taxable income, the “For expenses with an invoice for buying goods and services each time with a value of VND 20 million or more (price includes VAT) there must be a non-cash payment voucher when making payment”.

Thus, the amount used to purchase the school must be transferred through a bank account to be considered a deductible expense when calculating corporate income tax.

If the transfer is in cash, the full amount paid will not be counted as an expense. This is a great risk for the buyer because of the possibility of being subject to corporate income tax, unless the Company has other larger expenses and/or is in a state of loss resulting in not having to pay corporate income tax.

However, in the case that foreign investors invest in the form of buying back contributed capital/shares in an enterprise that owns the vocational intermediate school, the entire purchase amount of capital contribution/shares must be transferred via bank account.

We will advise in more detail on solutions after receiving all school records. The acquisition options can only be provided when we fully understand and have enough information about the school, how it is organized and operated.

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Regarding facilities, curriculum, teachers

Some of the conditions prescribed by law for the establishment and operation of vocational intermediate schools are as follows:

Regarding investment capital:

The minimum investment capital for the establishment of a vocational intermediate school is VND 50 billion and is invested by lawful capital sources, excluding the value of land.

Regarding training fields:

The professions and occupations registered for vocational education activities are included in the list of vocational training courses at intermediate and college levels promulgated by the Minister of Labor, War Invalids and Social Affairs; consistent with the structure of industries, occupations, training levels and socio-economic development plannings of ministries, branches and localities.

Regarding facilities:

There must be a location for construction of physical facilities ensuring the minimum usable land area is 10,000 m2 for urban areas and 20,000 m2 for non-urban areas.

There must be classrooms; laboratory; rooms and workshops for practice; experimental production facilities that meet the requirements for teaching, learning and scientific research according to the training program and training scale of each industry or profession. Classroom area for teaching theories; rooms and workshops for practice used for learning and teaching must be at least 5.5 m2/classroom on average.

There must be enough training equipment of each training industry or profession to meet the list and minimum equipment standards prescribed by the Minister of Labor, War Invalids and Social Affairs.

There must be a library with software and equipment for borrowing, searching and researching documents; have enough information and materials sources such as books, textbooks, lectures of modules, credits, modules, subjects, related documents to meet teaching and learning requirements.

There must be enough working rooms, administrative areas and principal offices, ensuring the organizational structure of specialized departments, faculties and subjects, ensuring an area of at least 06 m2/person for intermediate-level training. and 08 m2/person for college level training.

There must be construction works for cultural, sports and entertainment activities and medical and service works to serve administrators, teachers, lecturers and students.

About the teaching staff:

To establish a vocational intermediate school, the teaching staff must meet the following requirements:

Having a contingent of teachers, lecturers and managers in sufficient quantity, suitable to the structure of industries, occupations and training levels; meet the standards, professional qualifications, vocational skills and pedagogical skills as prescribed by law; ensure the implementation of training objectives and programs, in which:

The maximum ratio of students/teachers and lecturers is 25. The number of permanent teachers and lecturers is guaranteed to be incharge of at least 60% of the program of each training profession.

Foreign teachers and lecturers teaching at intermediate schools, colleges, and higher education institutions with foreign investment capital must meet the regulations on foreign workers working in Vietnam according to regulations. provisions of Vietnamese law.

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Satisfying the requirements in the process of evaluating the school acquisition dossier.

In fact, a vocational secondary school that is already operating may not meet the above requirements, for a number of reasons such as: (i) The school was established at a time when Vietnamese law did not have strict regulations as mentioned above, or (ii) the establishment dossier did meet the requirements but then the facilities, capital, and teachers were adjusted and changed.

When foreign investors purchase and take over the school, the State agency will re-evaluate all facilities, capital, teachers, textbooks, curricula, etc., to determine eligibility. If the vocational intermediate school does not meet the conditions, the acquisition may face problems or may not even  be approved.

HOWEVER, the evaluation of specific requirements and procedures depends a lot on the form of acquisition.

There are many approaches to school acquisition, such as buying back all assets, buying back shares/contributing capital in the company …… and this completely depends on the current ownership and operating mechanism of the school.

To be able to come up with the most reasonable solution, we need to carry out a thorough due diligence on the vocational intermediate school.

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School operation after the acquisition of a vocational secondary school

The question of running the school after the acquisition, changing the principal, etc depends on the current operating model of the school, as well as the way in which the parties transact.

In case of buying back the capital contribution from the school owner, the legal status of the school will remain the same and all activities of the school will remain the same, without interruption.

In case of acquiring assets of the vocational intermediate school but not acquiring the legal entity status, the foreign investor must carry out procedures from the beginning, including applying for an investment project permit, establishing the school, etc. Consequently, school activities will be interrupted for a long time.

In principle, the License to operate is granted to the School and the School has a legal status independent of the owner. Therefore, changing the owner will not change the license. However, this depends on the content of the current operating license of the School, so advice will be given after completing the legal due diligence.

The assessment of the mode of acquisition and the possibility of disruption depends on the will of the parties and the current operating model of the School. We will advise in detail after performing due diligence.

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Assessing the burden and risks of acquiring a vocational intermediate school

Private vocational intermediate school has the nature of operating as a business, with revenue, profit, expenses, loans and other debts and financial responsibilities with third parties. As a result, the University may have debts and other financial burdens. In principle, after the acquisition, the new investor will have to inherit and bear all the debts and financial burdens left by the previous owner.

In addition, many other related issues such as the right to rent land, rent facilities, contract with lecturers, affiliated facilities, legitimacy in the school’s operation…… must be thoroughly checked to ensure that the new owner is not responsible for the legal risks and financial burden left by the previous owner.

THEREFORE, in our experience, it is absolutely necessary to carry out legal due diligence. From the due diligence results, the Korean investor could have enough grounds to decide whether to or not to purchase the school. In the case the investor decides to purchase the school, the responsibilities of the old owner need to be discussed and detailed in the repurchase contract.