Currently, setting up a foreign-invested enterprise in Vietnam is no longer difficult too much, however, foreign investors (the “Investor”) should be aware of some key regulations related to the company establishment to strictly comply with. Regulation on capital contribution is one of the important points that the Investor should keep in mind when forming a foreign-invested enterprise in Vietnam.
1. Time limit for making capital contribution
Subject to the types of enterprise that the Investor registers to set up in Vietnam, the time limit for making capital contribution differ as follow:
- Limited liability company – LLC (comprising multiple-members LLC and singer-member LLC): the Investor shall contribute capital as committed within 90 days from the date of Enterprise Registration Certificate issued by the Vietnamese competent authority;
- Joint stock company: The Investor shall fully pay for the subscribed shares within 90 days from the date of the Enterprise Registration Certificate issued by the Vietnamese competent authority unless a shorter time limit is specified by the company’s charter.
Whatever types of enterprise set up in Vietnam, the time needed to transport or import the contributed assets and complete ownership transfer procedures shall be exclusive of the time limit above.
For the foreign-invested enterprise to implement a newly established investment project, the investment capital contribution time limit is recorded on the Investment Registration Certificate which is usually similar to the charter capital contribution mentioned above. The charter capital under the ERC and the contributed investment capital are two different concepts but usually the same amount.
From our experience, many Investors have trouble by failing to meet the deadline of the capital contribution above. The Investors may be administratively fined if they do not contribute capital on time and must apply for adjustment to the capital contribution period recorded on the IRC before transferring money into Vietnam. Therefore, the Investors should register the contributed capital appropriate with their available finance capacity, registering capital over the actual finance capacity for the ease of licensing procedures shall not be a wise choice.
2. Assets to be used for capital contribution
The Investor can only make a capital contribution by asset under his/her/its legitimate ownership. Contributed assets include VND (lawful Vietnamese currency), convertible foreign currencies, gold, intellectual property rights, technologies, technical secrets and other assets that can be converted into VND. In case the contributed assets are not VND, convertible foreign currencies or gold, they must be valued by members/partners/shareholders or a valuation organization and expressed as VND. In practice, VND and convertible foreign currencies are the most popular contributed assets by the Investor of their flexibility and convenience. Nevertheless, contributing capital by machinery or equipment is also usually chosen by the Investor in the manufacturing investment projects where the Investor must perform import procedures for such assets.
Suppose the Investor contributes assets other than VND and convertible foreign currencies as contributed capital to the company. In that case, the Investor must transfer his/her/its ownership of the contributed assets to the company in accordance with the following regulations:
- For assets whose ownership must be registered to state authorities (e.g.: car, motorbike, etc.), the Investor shall follow procedures for transfer the ownership of such assets to the company as prescribed by law. This transfer is exempt from the registration fee;
- For assets whose ownership is not required to register, the contribution shall be recorded in writing filed at the company.
3. Direct Investment Capital Account
Under the Law on Enterprise 2020 and foreign exchange regulations of Vietnam, contributing capital by VND or convertible foreign currencies to the new foreign-invested enterprise must be carried out through a direct investment account (“DICA”). The DICA shall be opened under the name of the foreign-invested enterprise. Only one DICA in a convertible foreign currency can be opened at one authorized bank in Vietnam. In the case of investing in VND, the Investor can only open one DICA in VND at the authorized bank where the DICA in foreign currency has been opened.
From Investors’s Account => Direct Investment Capital Account => Company Account
Moreover, remittance abroad of profits earned from the foreign-invested enterprise must be made through the DICA as well. In practice, many investors cannot transfer their profits abroad from Vietnam, even if the process costs them much time and money, as they did not open the DICA in the past. Therefore, the Investor should keep in mind and comply with regulations on the DICA for the avoidance of any awkwardness in the investment in Vietnam.
Source: lexology.com’s library