Transferring profits abroad is one of the top concerns of foreign investors when investing in Vietnam.
With the aim of creating a safe investment environment for foreign investors as well as enhancing a competitive advantage, Vietnamese Law guarantees foreign investors the right to legally transfer profits abroad after fulfilling all financial obligations. The following article will provide foreign investors with key notes on transferring profits abroad.
1. Conditions for transferring profits abroad
After ensuring full implementation of financial obligations, investors must also meet the conditions to be allowed to transfer profits abroad. However, it should be noted that the entity responsible for fulfilling all financial obligations is the enterprise in which the investor invests capital (not the investors themselves):
- Fulfill financial obligations to the Vietnamese state, including fully fulfilling obligations according to tax management regulations after the project ends.
- Have submitted audited financial statements and corporate income tax declarations.
- No accumulated losses remain after transferring losses according to regulations.
- Notify the tax authority before conducting profit transfer transactions.
2. Foreign investors are not subject to financial obligations for profits transferred abroad under Vietnamese law
When transferring profits abroad, investors are not obliged to pay taxes. This regulation is intended to avoid double taxation, as the profits transferred by investors are the after-tax profits of the enterprise where the investor participates in capital investment. Accordingly, the responsibility for paying taxes in this case belongs to the enterprise which is owned by investors.
3. Forms of transferring profits abroad
Vietnamese law allows the transfer of profits abroad in the following forms:
- Tangible asset: convert the value of tangible assets in compliance with the law on export of goods and relevant regulations;
- In VND or foreign currency: comply with the law on foreign exchange management.
Investors can choose the form of transfer and it must be specifically recorded in the Notice of Transfer of Profits Abroad – a document that must be submitted to the tax authority before the transaction is allowed to proceed.
4. When investors can transfer profits abroad
Foreign investors may choose to transfer profits during one of the two periods listed below:
- annual; or
- upon completion of investment activities in Vietnam.
The amount of profit transferred abroad is the net profit earned from the project.
Profit is determined based on the audited financial statements and corporate income tax finalization declaration of the enterprise.
Annual profit transferred abroad is:
[The foreign investor’s profit share or earnings for the financial year from direct investment activities] + [other profits (E.g. profits carried forward from previous years] – [(the amounts that foreign investors have used or committed to use for reinvestment in Vietnam)+ (the profits that foreign investors have used to cover their expenses and business activities or for personal needs in Vietnam)].
Profit transferred abroad at the end of the project is:
[The total profit earned by foreign investors after investment in Vietnam] – [(The profits that have been used for reinvestment) + (the profits that have been transferred abroad during the foreign investor’s activities in Vietnam) + (and other expenses incurred by foreign investors in Vietnam)].
5. Other key notes for investors and the enterprise when transferring profits abroad
- Check procedures for notifying the transfer of profits abroad
- Time limit: at least 7 working days before transferring profits abroad.
- Place of submission: tax authority directly managing the enterprise. Note: Tax officials will check the completeness and reasonableness of dossier and compare tax debt on the tax authority’s management system and have the right to request explanations from enterprises if tax obligations have not been fulfilled.
- The transfer of profits abroad should be carried out via a direct investment capital account. Enterprises should contact the commercial bank where they open the DICA for more specific information on the required documents.
In order to transfer profits abroad, the enterprises must meet certain financial obligations and administrative procedures. In addition, issues related to the form and timing of profit repatriation are also important considerations for the parties involved. The author hopes that this article has provided readers with a general overview of the issue of profit repatriation by foreign investors.