In recent years, especially post-pandemic, Vietnam attracted significant amounts of investment from all over the world. With an increasingly dynamic market and a range of reasonable policies, many foreign investors choose Vietnam as a promising destination to establish, develop and expand their business, especially with the foreign direct investment model (“FDI”).
In relation to Foreign Direct Investments (FDI), capital contribution is an extremely important factor, and this article will provide readers with the necessary knowledge related to capital contributions when establishing an FDI enterprise in Vietnam.
How to Effectively Make Capital Contributions
Vietnamese law does not require a minimum amount of capital contribution to set up a company in Vietnam, except for some investment sectors or conditional business lines (e.g., the real estate industry requires a minimum charter capital contribution of VND 20 billion, around 815,000.00 euro). In fact, pre-investment, investors should consider a sufficient amount of capital to successfully implement the intended business objectives.
Capital contribution can be done in the form of local currency (Vietnamese Dong), freely convertible foreign currencies (such as USD or EUR), gold, land use rights, intellectual property rights, technologies, technical secrets, or other assets which value can be expressed in terms of money. Therefore, any kind of contribution made by something that cannot be considered as an asset, such as “efforts” or “wisdom”, should not be classified as a form of capital contribution. In addition, only individuals and organizations that are the legal owners of the asset or have the right to use it are allowed to contribute it as capital.
In general, the capital should be contributed based on the time limit specified in the Investment Registration Certificate (IRC) and the Enterprise Registration Certificate (ERC). For Charter Capital, investors must contribute sufficient capital within 90 days from the date of the issuance of the ERC, excluding the time needed for transportation/import (in case of fixed assets) and for carrying out administrative procedures for transferring ownership of the assets.
In case of violations, the investor may be inspected and fined by the competent authorities, and the IRC/ERC shall be adjusted with the updated capital amount.
Furthermore, when investors make contribution in a foreign currency, funds must be transferred to a Direct Investment Capital Account (DICA), to avoid administrative sanctions from 20 to 30 million VND (i.e.: from 813 to 1219 euro) for violation of this procedure.
If investors contribute capital by fixed assets, they need to specify the asset value, which must be given by the founding members (or the shareholders) according to the principle of consensus, or by an Appraisal Organization. In case the asset value is defined by an Appraisal Organization, the result must be approved by more than 50% of the founding members and shareholders and, if the contributed assets are valued higher than the actual value of such assets at the time of capital contribution, the founding members and shareholders must jointly add an amount equal to the difference between the appraised value and the actual value of the capital contributed asset at the time of the valuation.
Since appraisal organizations are responsible for damages caused by intentionally appraising an asset value higher than the actual value, it is highly suggested to seek reliable organizations for this activity in order to avoid future disputes.
Conclusion
As a matter of fact, understanding the Vietnamese regulations on capital contribution can bring great advantages to foreign investors looking for opportunities to diversify their portfolios in one of the most suitable and strategic countries of the Asia Pacific region, as well as getting more awareness about FDI-related processes in general.
To mitigate tax and compliance risks due to possible changes in legislation, it is suggested to perform business activities such as incorporation and investments with the support of specialized lawyers or specialists who are privy to the constantly updated legislation and administrative procedures of the country.
If you have any questions, we remain available upon your request. Please feel free to contact D’Andrea & Partners Legal Counsel for more information: info@dandreapartners.com
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