“Business sectors and charter capital frequent issues that investors should consider when planning to invest in Vietnam. Especially when the investment is for establishing enterprises. Information related to business sectors and charter capital is required for carrying out the establishment procedure at the business registration authority. As a result, the law specifies how to select a business sector and the appropriate amount of business investment capital. This article shall give investors an overview of these regulations.“
Industries opened to foreign investors by international commitments, or domestic laws and government policies of Vietnam are permitted for investment by foreigners.
There are separate regulations on operating conditions for investors corresponding to each industry. Thus, when selecting a business sector, the investor must
(1) Determine the actual needs,
(2) Select the correct sector name based on the name of the industry in which the business will be registered. The business registration agency will not consider approval if investors choose incorrect name of the industry from the list of business sectors.
(3) Check the separate conditions for the selected business sector.
According to regulations for conditional business sectors, in some cases investors are required to meet this condition at the time of establishment of the enterprise. However, in other cases the business registration agency still records the registered industry, but whether the business can actually operate in the business sectors is dependent on the approval of a specialized agency.
(For specific regulations on conditional business sectors, please refer to the article Should register multiple business lines?)
Corporate law does not have restrictions on industries that are allowed to register. However, enterprises that wish to operate in more business sectors but have not previously registered such sectors in the enterprise establishment dossier must notify the business registration agency to update information about the new industry.
Enterprises should avoid investing in prohibited business sectors. Prohibited business sectors are usually prohibited from investment for reasons of national defense, security, social order, safety, ethics, and public health.
Industries prohibited from investment are:
(a) Trading in narcotics.
(b) Trading in chemicals and minerals.
(c) Trading specimens of plants and wildlife.
(d) Trading in prostitution.
(e) Buying and selling people, tissues, bodies, human body parts, or human fetuses.
(f) Business activities related to asexual reproduction in humans.
(g) Trading in Firecrackers.
(h) Trading in debt collection services.
Definition: According to the provisions of ‘Law on Enterprises 2020’, charter is the total value of assets contributed or committed by company members and owners when establishing a limited liability company or partnership. It is the total face value of shares sold or registered to buy when establishing a joint stock company.
Capital-contributing assets: Enterprises can contribute capital in the following types of assets: Vietnamese dong, convertible foreign currency, gold, land use rights, intellectual property rights, technology, technical know-how, other assets that can be valued in Vietnamese Dong.
Amount of the charter capital: The amount of capital will be decided by the investor based on the financial situation of the business. If a company with many members or shareholders is being established, investors must agree on the proportion of capital contributed. The exception to this rule is industries where the capital contribution rate of foreign investors is limited, where such investors must acknowledge compliance.
Deadline for capital contributions: The enterprise registration certificate will include information about charter capital. The enterprise must complete the capital contribution as mentioned within 90 days of the date of issuance of the enterprise registration certificate. If the enterprise’s capital increases or decreases during operation, it must carry out procedures for amending the enterprise registration certificate at the business registration agency as soon as possible.
Form of capital contribution: In terms of capital contribution, investors who establish enterprise are not allowed to contribute capital in cash and must contribute capital through the following forms: (1) payment in check, (2) money transfer, (3) Other forms of non-cash payment in accordance with current regulations. If it does not comply, the enterprise may face administrative sanctions for violating the regulations on cash payment.
Business sectors that are now allowed to operate are very diverse. At the same time, conditional business lines and prohibited business lines are scattered in different legal documents. Hence, enterprises must do thorough research to ensure compliance with the law. In addition, compliance with the regulation on charter capital contribution is critical as businesses will face administrative penalties if they do not comply with the regulation.
Writing time: October 4,2021.
The article is based on applicable law at the time noted as above and may no longer be appropriate at the time the reader approaches this article as the applicable law has changed and the specific case that the reader wishes to apply. Therefore, the article is only for reference.