Currently, setting up a foreign investment company in Vietnam is no longer too difficult, but foreign investors (the “Investor”) should be aware of some important regulations regarding the establishment of the company to strictly follow. Regulations on capital injection is one of the important points that the investor should consider when forming a foreign investment company in Vietnam.
1. Deadline for making capital contributions
Depending on the types of companies that the investor registers to set up in Vietnam, the term for making capital contributions differs as follows:
- Limited Liability Company – LLC (consisting of multi-member LLC and singer-member LLC): the investor will contribute capital as committed within 90 days from the date of the Company Registration Certificate issued by the Vietnamese Competent Authority;
- Limited company: The investor will pay the subscribed shares in full within 90 days from the date of the company registration certificate issued by the Vietnamese competent authority, unless a shorter term is specified in the charter of the company.
Regardless of the type of business set up in Vietnam, the time required to transport or import the contributed assets and complete the transfer of ownership procedures does not include the above time limit.
For the foreign-invested company to carry out a newly established investment project, the time limit for the investment capital contribution is recorded on the investment registration certificate, which is usually similar to the above-mentioned capital contribution in the charter. The charter capital under the ERC and the contributed investment capital are two different concepts, but usually the same amount.
In our experience, many investors have problems not meeting the capital injection deadline above. The Investors may be subject to an administrative fine if they fail to bring in capital on time and must apply for an adjustment of the capital contribution period registered in the IRC before transferring funds to Vietnam. Therefore, the investors need to register the capital injected to suit their available financing capacity, registering capital above the actual financing capacity for ease of licensing procedures is not a wise choice.
2. Assets to be used for capital injection
The investor can only make a capital contribution through assets under his/her rightful ownership. Contributed assets include VND (Vietnamese Legal Currency), convertible foreign currency, gold, intellectual property rights, technologies, technical secrets and other assets convertible to VND. If the assets contributed are not VND, convertible foreign exchange or gold, they must be valued by members/partners/shareholders or a valuation organization and expressed as VND. In practice, VND and convertible foreign currencies are the most popular assets contributed by the investor due to their flexibility and convenience. Nevertheless, the incorporation of capital by machinery or equipment is usually also chosen by the investor in the manufacturing investment projects where the investor has to perform import procedures for such assets.
Suppose the investor contributes assets other than VND and convertible foreign currency as capital contributed to the company. In that case, the Investor must transfer his/her ownership of the contributed assets to the company in accordance with the following rules:
- For assets whose ownership must be registered with government entities (e.g., car, motorcycle, etc.), the investor must follow the procedures for transferring ownership of such assets to the company as required by law. This transfer is exempt from the registration fee;
- For assets whose ownership does not need to be registered, the contribution is recorded in writing with the company.
3. Direct Investment Capital Account
Under the Companies Act 2020 and the currency regulations of Vietnam, the incorporation of capital by VND or convertible foreign currency into the new company in which investment is made abroad must be made through a direct investment account (“DICA”). The DICA is opened under the name of the company invested in abroad. Only one DICA in convertible foreign currency can be opened at one authorized bank in Vietnam. In case of investing in VND, the Investor can only open one DICA in VND with the authorized bank where the DICA in foreign currency is opened.
From Investor Account => Direct Investment Capital Account => Business Account
In addition, the transfer abroad of profits earned from the company in which the foreign investment is made must also be made through the DICA. In practice, many investors cannot transfer their profits abroad from Vietnam, even though the process costs them a lot of time and money, because they have not opened the DICA in the past. Therefore, the investor should keep in mind and comply with the regulations on the DICA to avoid any awkwardness when investing in Vietnam.
Source: lexology.com library