06 Apr Doing Business In Vietnam – Manage Your Capital And Money
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Regarding managing your capital in Vietnam, we would like to present the Six key points which you shall keep in mind to manage and optimize the investment in Vietnam:
- SOURCES OF CAPITAL.
- MANAGE CAPITAL ACCOUNTS.
- PAY UP THE CAPITAL.
- REMIT PROFITS FROM VIET NAM.
- TRANSFERRING CAPITAL.
- WITHDRAW YOUR CAPITAL FROM VIETNAM.
#001. MANAGE SOURCES OF CAPITAL
- Retained Earnings from overseas companies
- Personal accounts
- Equity Capital
Each kind of source may has its own advantages and potential risks depending on case by case.
#002. MANAGE CAPITAL ACCOUNTS
- You shall open one official direct investment account in Vietnam, this account will be monitored by the State Bank of Vietnam.
- This account for foreign direct investment activities including invested capital contribution; transfer of invested capital, profits and legal revenues to foreign countries; transmission of investments in the pre-investment stage.
- Fail to open and manage capital the direct investment account, you will not able to withdraw profits, manage capital from Vietnam and also have to face many serious issues accordingly.
#003 PAY UP THE CAPITAL
- Foreign and Vietnamese investors in an FDI enterprise are eligible to contribute their invested capital in foreign currency or Vietnamese dong with an amount specified in the Investment Certificate. Residents as Vietnamese investors in an FDI enterprise are allowed to contribute their invested capital by means of their legal sources of personal foreign currency.
- Every member, owner must contribute capital properly in terms of sufficiency and type of assets as agreed within 90 days from the day on which the Certificate of Business registration is issued. If sufficient charter capital is not fully contributed by the deadline, the owner shall register a change to the charter capital within 30 days from the deadline for fully contributing charter capital, each member has the rights and obligations proportional to their promised capital contribution.
- Charter capital of a multi-member limited liability company upon business registration is the total value of capital contribution to the company promised by the members. Charter capital of a single-member limited liability company on the business registration date is the total value of assets promised to be contributed by the owner, which is written in the company’s charter.
- Method of payment in manage capital contribution transactions and in the purchase, sale, and transfer of capital contributions at other enterprises
- Enterprises may not make cash payment (in banknotes and coins issued by the State Bank of Vietnam) in capital contribution transactions and in the purchase, sale, and transfer of capital contributions at other enterprises. When conducting capital contribution transactions and when purchasing, selling or transferring capital contributions at other enterprises, enterprises shall:
- Pay by check;
- Pay by payment order – money transfer; or
- Pay by other non-cash payment modes in accordance with current regulations.
It is very important to note that the foreign investors in an FDI enterprise are eligible to contribute their invested capital into the direct investment accounts only, shall not pay into the current accounts to avoid a lot of troubles in the following steps, especial in withdrawal capital, profit back to their home country.
#004 REMIT PROFITS FROM VIET NAM
Profits which are remitted abroad
- Profits from Vietnam are remitted abroad by foreign investors are legal profits that they are shared or earn from direct investment activities in Vietnam under the Investment Law after finished fully financial obligations with the Vietnam State under regulations.
- Profits from Vietnam may be remitted abroad in cash or in kind.
- Profits are remitted abroad in cash in accordance with the law on foreign exchange management. The investors shall use foreign currency accounts of direct investment for the transfer of profits and other legal receipts in foreign currency out of Vietnam.
- Profits are remitted abroad in kind and converted of objects’ value in accordance with the law on goods import and export and the provisions of relevant laws.
Determination of the number of profits remitted abroad
- Annual profits remitted abroad mean profits foreign investors are shared or earn in a financial year from their direct investment based on audited financial statements, enterprise income tax balance sheets in which foreign investors join investment plus (+) other profit items example as profit items have not remitted yet from previous years adding this year; minus (-) profit items foreign investors have used or committed using in order to reinvest in Vietnam, the profit items foreign investors have used to pay for expenditure items of foreign investors for production and business activities or for foreign investors’ personal demands in Vietnam.
- Profits are remitted abroad when investment activities in Vietnam are over shall be the total profits earned by foreign investors in the process of direct investment in Vietnam, minus (-) profit items have be used for reinvestment, the profit items were remitted abroad during foreign investors’ operation period in Vietnam and the items been used for other expenditures of foreign investors in Vietnam.
- Foreign investors shall not be allowed to remit abroad profits they are shared or earned from their direct investment in Vietnam in araised profit year, in case the year financial statements of enterprises in which they make investment and raise profits still contain accumulated losses after such losses have been carried forward under the law on enterprise income tax.
Time for profits remitted abroad
1. Annual profits remittance abroad
Foreign investors can annually remit abroad profits they are shared or earn from their direct investment in Vietnam when fiscal year is over after enterprises in which foreign investors join investment have completed financial obligations to the State of Vietnam under the provisions of law and submitted audited financial statements and enterprise income tax finalization declarations of that year to direct managing tax offices.
2. Profits remittance abroad when finished direct investment activities in Vietnam
Foreign investors can remit abroad profits when finished direct investment activities in Vietnam after enterprises in which foreign investors join investment have accomplished financial obligations towards the Vietnam State under law, submitted audited financial statements and enterprise income tax finalization declarations to direct managing tax offices and implement fully all the obligations under the Law on Tax Administration.
Notification of profits remitted abroad
- Foreign investors may directly make or authorize enterprises in which they joint investment to make notices on the profits remittance abroad according to the required forms to direct managing tax offices of the enterprise in which foreign investors join investment at least 7 working days before the profit remitted abroad.
- Profits remitted abroad in cash in accordance with the law on foreign exchange management. The investors shall use foreign currency accounts of direct investment for the transfer of profits and other legal receipts in foreign currency out of Vietnam.
Taxes when remit profits from Vietnam
The investors not only required to comply with all the local business regulations, pay for corporate income tax, but the investors shall also pay tax for incomes from capital investment, the tax rate on the income from capital investment is 5% according to the whole income tax table.
Incomes from capital investment are personal incomes in the form of:
- Interest on the loans given to other organizations, enterprises, business households, business individuals and groups of business individuals according to loan contracts or agreements, except for the interests paid by credit institutions and branches of foreign banks.
- The dividends earned from capital contribution to purchase of shares.
- Profits from capital contribution to limited liability companies, partnerships, cooperatives, joint-ventures, business cooperation contracts; profits from capital contribution in the establishment of credit institutions, manage capital contribution to securities investment fund and other investment funds that are established and operated within the law.
#005 TRANSFERRING THE CAPITAL AND INVESTMENT
- Capital transfer in the form of profits from transferring capital contributions to limited liability companies, partnerships, cooperatives, business cooperation contracts, people’s credit funds, economic organizations, and other organizations. And capital transfer in the form of incomes from securities transfer, including incomes from transferring shares, call options on shares, bonds, treasury bills, fund certificates…
- The basis for calculating tax on incomes from transferring contributed capital is assessable income and the tax rate.
- The assessable income from transferring contributed capital equals the transfer price minus the purchase price of the transferred capital and rational expenses related to the generation of the income from transferring capital.
- The rate of personal income tax on the income from transferring contributed capital is 20% according to the whole income tax table.
- The assessable income shall be calculated when the capital transfer contract takes effect. Where making contribution from another capital contribution, the assessable income from transferring capital shall be calculated when the person transfers or withdraws capital.
#006 WITHDRAW YOUR CAPITAL FROM VIET NAM
Transfer of invested capital, profits and legal receipts to foreign countries
- Foreign investors are allowed to move their direct investments overseas in case of dissolution, termination of FDI enterprises; reduction in invested capital or completion, liquidation and termination of investment projects and business cooperation agreement according to legal regulations on investment, principals, interests and expenses of overseas loans, profits and relevant legal receipts regarding the direct investment activities in Vietnam through their direct investment accounts.
- If FDI enterprises must close their direct investment accounts due to dissolution or termination, transfer of the ownership of invested capital which results to the change in initial legal status of these FDI enterprises, foreign investors have the right to use their foreign currency and Vietnamese dong accounts opened at authorized banks to purchase foreign currency, transfer their direct investments and legal earnings overseas.
- Foreign investors are entitled to use their legal revenues in Vietnamese dong generated from their foreign direct investment activities in Vietnam to purchase foreign currency at authorized credit institutions and move this foreign currency amount overseas within a period of 30 working days from the date on which foreign currency procurement is completed.
Invested capital transfer to foreign countries after obtaining the investment certificate
- After obtaining the Investment certificate issued by competent agencies, foreign and Vietnamese investors of foreign investment enterprises must complete all clearing and settlement activities on an amount of invested capital that has been transferred to Vietnam prior to the issuance of the investment certificate;
- Transforming an amount of investment which foreign investors have transferred to Vietnam to meet the relevant expenses for the pre-investment stage into foreign contributed or loan capital must be performed on the basis of mutual agreement amongst concerned parties and compliance with current legislation on investment, bookkeeping, accounting, and other relevant Vietnam laws. If the amount of investment that foreign investors have transferred to Vietnam and used to meet the expenses for the pre-investment stage is transformed into FDI enterprises’ foreign medium and long-term loans, these FDI enterprises must follow required procedures for the registration of such loans in accordance with current regulations of the State Bank;
- If the amount of invested capital of foreign investors that have been transferred to Vietnam to meet the expenses for the pre-investment stage has not been used up, they are allowed to move the remaining amount in foreign currency overseas or to purchase foreign currency to send abroad the amount of Vietnamese dong investments that have not been used up in Vietnam after providing legal records and proofs of their original amount and all expenses incurred by investment projects in Vietnam. Transferring invested capital overseas must be done within a period of 30 working days from the date on which the foreign currency procurement is complete.
Transferring invested capital overseas due to failure to obtain the Investment certificate or termination of investment projects in Vietnam:
- If foreign investors, after transferring their invested capital to Vietnam to meet the legal expenses for the pre-investment stage, have not been granted the Investment certificate by competent agencies or choose to terminate their investment projects in Vietnam, they are permitted to send abroad the amount that has been transferred to Vietnam and any interest on their demand deposit accounts (if any) after deducting relevant expenses incurred in the pre-investment stage, which must be endorsed by relevant records of the aforesaid investment amount and expenses;
- Foreign investors are eligible to purchase foreign currency and send abroad the amount of Vietnamese dong investment that has not been used up provided that they can provide relevant records of their investment amount and expenses incurred by the investment projects in Vietnam. Transferring invested capital overseas must be done within a period of 30 working days from the date on which foreign currency procurement is complete.
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