In today’s globalized society, Vietnam is consistently considered as a country with an attractive business environment and great potential. A concrete indicator for this is the rapid increase of foreign-invested enterprises in Vietnam over the years. This has led to growth of inflow of foreign capital into Vietnam. However, it is not an easy task for investors to conduct transactions related to capital contribution from overseas into Vietnam in accordance with the law and to meet the requirements of the investment project. In this article, we provide readers with some legalities to be followed for contribution of investment capital when establishing a company in Vietnam.
The need to use investment capital may not only arise after the enterprise establishment, but also during the preparation of investment process. To help readers have a closer view of the regulations on this matter, this article will be divided into two parts – ‘capital transfer during investment preparation’ and ‘capital contribution after company establishment’.
1. Transfer and use of capital during investment preparation
Before a company is licensed to operate in Vietnam, there will be some expenses which must be borne to carry out procedures related to the preparation for the establishment of the company. These expenses include the deposit to rent the location of the investment project/company headquarters and the legal service fee incurred when applying for the investment project and company establishment.
The said deposits or legal service fee may be considered as a part of the registered investment capital. Firstly, the investor must only contribute the remaining investment capital (after deducting the above expenses) once the company has been established. Otherwise, a separate cost from the investment capital may be paid by the investor which is not related to the registered investment capital. Next, investors only need to pay these expenses as normal transactions in accordance with the bank’s policy and foreign exchange laws.
However, in order to record the above expenses, and the portion of the investment capital transferred and used during the investment preparation, some conditions specified in Article 8 of the Circular No. 06/2019/TT-NHNN must be met:
- There must be a written agreement between the relevant parties on the payment of these expenses by the investor on behalf of the enterprise to be established in Vietnam.
- The payment must be made through a bank account owned by the investor. Investors can pay through bank accounts at overseas banks or banks in Vietnam.
- Expenses paid for investment preparation must be legal expenses. Such expenses must be backed up with valid documents related to investment preparation to ensure compliance with regulations on foreign exchange management, provisions of investment law, accounting law and relevant legal regulations.
2. The contribution of investment capital after the company establishment
According to investment law, after the company is granted investment registration certificate and Enterprise Registration Certificate, the investor must contribute capital through the direct investment capital account of the enterprise. Besides, we would like to mention few important things based on practical operation:
- The direct investment capital account (“DICA”) of the enterprise must be opened only at a commercial bank permitted to carry out legal transactions in foreign currencies related to foreign direct investment in Vietnam.
- Investors can contribute capital through bank accounts owned by them opened at overseas banks or banks in Vietnam. In case the investor wishes to make such capital contribution using a bank account opened in Vietnam, the investor should pay attention to ensure that conditions of the bank are met (if any). The amount of capital contribution is the investor’s legal income or assets.
- The contribution of capital after the enterprise is established can be done several times through multiple transactions. However, please note that these transactions must be executed within the schedule of capital contribution specified in the investment registration certificate. The total capital recorded in the direct investment capital account, and the expenses for the investment preparation (if the above conditions are fully met) are equal to the registered investment capital of the company.
- Banking service fees when making capital contribution transactions in Vietnam: In many cases, although the investor has transferred the amount equal to the registered capital, the capital injected into DICA may be lower due to deduction of a banking service fee. The company/investor only realizes this problem after reviewing the bank statement of DICA, which may be considered the failure of the company in the full capital contribution. According to the regulations, this act will be sanctioned for administrative violations. To avoid this circumstance, investors should choose the “OUR” option in the banking service fee when making the contribution transaction and regularly work with the bank to ensure that the investment capital is contributed fully and timely in accordance with the provisions of law and the investment registration certificate.
To ensure compliance with Vietnamese law in the process of company establishment, investors in general, and foreign-invested enterprises in particular should pay attention to regulations related to the transfer and contribution of investment capital. The above article provides some legal factors and practical aspects in this regard to help investors and companies have a more comprehensive view to comply with the law and avoid possible sanctions for violations.