Written By PLF Law Firm

Foreign investors directly investing in Viet Nam for the first time through the purchase of shares or capital contribution without setting up investment projects shall face administrative penalties and obligation to establish said projects. Such failure to set up investment projects may also result in numerous legal consequences affecting the investors’ activities and the enterprises in which the investment takes place.

When members – being non-native investors directly investing in an enterprise by purchasing contributed capital or shares – are received into such enterprise, not only should the transferor and transferee proceed to enter into a share or capital transfer contract, but it is also obligatory for said enterprise to update its foreign members or shareholders in compliance with provisions of law. In addition, the enterprise must carry out procedures to apply for establishment registration of investment projects (not associated with the establishment of enterprise) at the Investment Registration Office of the provincial Department of Planning and Investment.     

During this stage, business sectors shall be adjusted appropriately to suit the corresponding CPC codes (if applicable). Depending on the circumstances, information of an enterprise’s foreign members will be updated in the Business Registration Certificate. Furthermore, after the business sectors are duly modified, the contents of a Business Registration Certificate shall generally include the following: “Foreign-invested enterprises are obliged to implement investment procedures in compliance with the regulations of Investment Law and related legislation.”

Legal consequences

Administrative fines: Financial penalties ranging from 50 million VND to 70 million VND are likely to be imposed on enterprises that fail to conduct investment project establishment procedures in compliance with law.

Other procedures are affected: At present, business registration bodies often request enterprises and foreign investors to perform the procedures to set up investment projects before having any content of business registration modified. This shall help bind the liability of the parties involved to establish investment projects.

Failure to send profits overseas: If foreign direct investment is conducted without investment projects, it is unfeasible for foreign members to transfer profits abroad when they are generated from investment since there is no evidence to prove that they have been implementing investment activities in Viet Nam. 

Solutions

It is essential to take into account that enterprises and foreign investors must proceed to set up investment projects after the business sectors in the Business Registration Certificate are properly altered. The establishment registration of investment projects is required to take place at certain competent authorities, which are: the Government, Department of Planning and Investment, provincial People’s Committee or the Management Board of industrial parks, export-processing zones, high-tech zones, and economic zones. In some cases, approval from relevant ministries and bodies is also needed. With years of experience in implementing investment procedures for foreign firms, PLF are inclined to aid businesses in said procedures when requested.  

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