Vietnam is increasingly affirming its position as an attractive investment destination in Asia, thanks to its stable economic growth, dynamic market, and numerous policies that are open to foreign investors. Many foreign investors have been planning and preparing to carry out investment and business activities in Vietnam. One of the key questions that foreign investors often consider before making an investment decision is how much capital should be committed to the investment project. This article by PLF aims to provide investors with an overview of the capital-related regulations applicable when establishing a company in Vietnam, thereby enabling foreign investors to better evaluate and consider their investment decisions.
1. Types of capital that investors need to determine when planning to establish a company in Vietnam
Foreign investors who intend to invest in Vietnam by establishing a company are required to complete at least two administrative procedures, namely obtaining an Investment Registration Certificate (IRC) and subsequently applying for an Enterprise Registration Certificate (ERC). It should be noted that, in certain cases where the investment project is of a large scale, investors are required to obtain an investment policy approval before applying for the IRC. Corresponding to these two procedural steps are two types of capital that investors should take into consideration:
(i) Investment Capital
Investment capital refers to the total amount of capital mobilized to implement an investment project, which is declared in the application dossier for the IRC. Investment capital includes the investor’s contributed capital (which is mandatory) and other mobilized capital (typically loans from the parent company, bank loans, or bond issuance, which may or may not be included).
The ratio between the investor’s contributed capital and the mobilized capital in an investment project plays an important role in determining the project’s financial stability. Vietnamese law does not prescribe a fixed ratio between borrowed capital and the investor’s equity contribution for investment projects in most business sectors. However, licensing authorities often carefully review this ratio in order to prevent situations of “thin capitalization,” where a company may operates primarily on borrowed funds to facilitate transfer pricing through interest expenses.
(ii) Charter Capital
Charter capital refers to the total value of assets contributed or committed to be contributed by the company’s members or owners upon the establishment of a limited liability company or a partnership, or the total par value of shares that have been sold or subscribed for upon the establishment of a joint-stock company. It is also regarded as the limit of the investor’s liability for the company’s debts and other financial obligations.
Charter capital is the mandatory amount of capital required when establishing an enterprise. In certain cases, investors must refer to the regulations on statutory capital to determine the charter capital of the company to be established – ensuring that the company’s charter capital is not lower than the required statutory capital. Statutory capital refers to the minimum level of capital that an enterprise must have in order to operate in certain conditional business sectors. This capital requirement is prescribed by the relevant specialized regulatory authorities, and investors must demonstrate their ability to meet this requirement before the business license is granted. Examples of business sectors with statutory capital requirements include: securities brokerage (VND 25 billion), employment brokerage services (VND 300 million), and labor outsourcing services (VND 2 billion), among others.
2. Some capital-related considerations for investors
(i) No minimum capital requirement
In principle, Vietnam’s Law on Enterprises and Law on Investment do not prescribe a general minimum capital requirement for all foreign-invested enterprises (except for sectors subject to statutory capital requirements). This has led to a common misconception that investors may establish a company in Vietnam with only a symbolic amount of capital (for example, USD 1,000).
However, the practice of application review at the Departments of Finance (DoFs) presents a very different picture. Regulatory authorities will take an assessment of the “feasibility of the investment project.” Accordingly, it can be understood that the registered capital must be commensurate with the scale, scope of activities, and business plan of the project (company). In practice, there have been numerous cases where local authorities request investors to provide further explanations if the registered capital is considered insufficient to support the proposed business activities (based on the subjective assessment of officials, often derived from their experience in supervising companies operating in the same sector). Therefore, in order to minimize legal risks and avoid additional clarification requests that may prolong the licensing process, the registered capital should be planned based on the actual working capital needs of the business. This ensures that the company has sufficient financial capacity to cover operational expenses during the initial period before generating revenue. PLF therefore recommends that investors allocate sufficient capital to cover operational costs until the company in Vietnam begins generating revenue,….
(ii) The timeline for completing the contribution of the project’s investment capital and the company’s charter capital
For the company’s charter capital: All owners (including foreign investors) must contribute the capital to the company in full and in the type of assets committed at the time of enterprise registration within 90 days from the issuance date of the Enterprise Registration Certificate. This period does not include the time required for transporting or importing contributed assets, or for completing administrative procedures to transfer ownership of such assets. Failure to contribute the committed capital within the prescribed time limit may result in administrative penalties and require the company to adjust and reduce its charter capital, which may negatively affect the company’s creditworthiness and business reputation.
For the investment capital of the investment project: The deadline for investors to complete their capital contribution to the investment project depends on the timeline registered with the competent authority during the application for the IRC. Vietnamese investment law does not prescribe a specific statutory deadline for this capital contribution. Instead, investors are allowed to determine the contribution schedule based on their financial capacity and the financial demand of the project. However, it should be noted that if foreign investors fail to contribute the investment capital in accordance with the registered timeline, they may be subject to administrative penalties under applicable regulations.
The amount of capital required to invest in Vietnam does not follow a fixed figure; rather, it depends on the industry, the scale of the project, and the investor’s business strategy. In addition to preparing adequate financial resources, foreign investors should pay particular attention to understanding the legal framework, selecting the most suitable investment structure, assessing market risks, and developing a well-structured long-term business plan. Thorough preparation and strict compliance with legal requirements will be key factors enabling investors to effectively take advantage of investment opportunities in Vietnam.
