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NEWS & LEGAL UPDATES

[News] Apolat Legal_Year End Party 2020 & 5 years anniversary

From January 7th, 2021 to January 9th, 2021, Apolat Legal organized the company retreat for all members at Vung Tau City. This is the time for all to look back on the year over and enjoy the holiday after the hard-working days.

Especially, on January 7th, 2021, the 5th anniversary of the establishment of Apolat Legal (January 1st, 2016 to January 1st, 2021) was also held. The year 2020 is an important milestone marking the constantly evolving 5-year journey of Apolat Legal.

Over the years, Apolat Legal has supported domestic and foreign clients to address business issues and settle complex legal risks. We have been efforts to expand international cooperation, connected with the organization, associations, with the belief that the industry of legal services must always change to adapt to the wave of globalization and the digital economy.

Building a system with its headquarters in Ho Chi Minh City, Apolat Legal also expands its scope of operations in Hanoi.

The 5th anniversary of Apolat Legal and preparing for the 2nd 5-year plan, the year 2021, and the following years will mark further innovation and development.

Apolat Legal, with enthusiastic, responsible and aspiring people. Youthful, dynamic and friendly working environment; reasonable and attractive facilities, recruitment and treatment for talents… Apolat Legal aims to be in the top 20 leading law firms in Vietnam by 2025.

Finally, we would like to express our sincere thanks to the people who have contributed to Apolat Legal. Apolat Legal in the present, all thanks to the efforts, dedication of all of you. Apolat Legal is honored that you have been a part of our 5-year journey.

Some images at YEP night:

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[News] Apolat Legal-Time to travel

[TIME TO TRAVEL]

Apolat Legal would like to inform you that all Apolat Legal’s members will participate in our annual company retreat:

From Thursday, January 7th, 2021 to Saturday, January 9th, 2021.

We will back to work as usual from Monday, January 11th, 2021.

Please contact us before or after this time.

Best regards,
Apolat Legal.

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[Legal Updates] Letter of quick legal updates 202012

1. On December 18th, 2020, The Supreme People’s Court issued Official Dispatch No. 199/TANDTC-PC announces the results of online answers to some problems in bankruptcy settlement 

According to the Official Dispatch, the Supreme People’s Court has answered the issues that the courts need to pay attention when settling the bankruptcy procedure as follows: 

Firstly, the status of an insolvency enterprise or cooperative must fully satisfy the following conditions:

  • Have a specific, clear debt recognized, agreed upon by the parties or determined through a legally effective judgment or decision of a court, ruling of commercial arbitration, or determined in a decision of the competent authority, and the parties don’t have any dispute over this debt.
  • The debt is due for payment. Maturity debt means a debt with a clearly defined payment term, by which time the enterprise or cooperative must be obliged to repay the debt. This payment time limit is acknowledged, agreed upon by the parties or determined by a legally effective judgment or decision of a court, a judgment of a commercial arbitration or decision of a competent authority.
  • The enterprise or cooperative fails to fulfill the debt payment obligation within 3 months from the due date, because it has no assets to pay the debt or has assets but does not pay the debts.

Secondly, if the Court issues the decision to open the bankruptcy proceedings, the deposit of bankruptcy expenses paid by the applicant is not enough. The court can request the applicant to continue to submit the deposit. Suppose the applicant does not pay the supplement deposit of bankruptcy expense as requested, the Judge, at his discretion or according to the request of asset administrators, can decide on the sale of assets of the enterprise or cooperative after opening the bankruptcy procedure to ensure the payment of bankruptcy expense; the selling of assets is assigned to the asset administrators or the asset administration enterprises to ensure the bankruptcy expenses is paid in full.

Thirdly, in case the “Decision to open bankruptcy proceedings” is canceled by a superior court, the deposit of bankruptcy expense shall be refunded to the applicant, except for the case the applicant submits the dishonest bankruptcy claims.

2. The Ministry of Justice issued Circular No. 06/2020/TT-BTP dated December 17th, 2020, amending and supplementing a number of articles of Circular No. 08/2018/TT-BTP dated June 20th, 2018 guiding a number of issues on registration, providing information on security, contracts and information exchange on registered security, which comes into effects on January 01st, 2021 

According to the Circular, collateral registered at the Asset Trading Registration Center as required from February 1st, 2021, has the following changes:

Firstly, separating the registration of security and the registration of contract at the registration center. Accordingly, the registration of contract is intended to publicize information and it does not give effect to the contract.

Secondly, supplementing provisions on online registration in case of not requiring a code to use the datebase of security measures.

Thirdly, amending, supplementing, and abolishing provisions on property which must be registered the security transaction, including:

  • Supplementing objects of property rights with respect to objects of copyright, industrial property rights, rights to plant varieties; Property rights arising from results of scientific research, technological development, technology transfer or other property rights of monetary value in the fields of science, technology, and information technology; the right to exploit natural resources.
  • Cancellation of “Property rights arising from shipbuilding leases; the right to compensate for damage arising from the contract of purchase and sale of aircraft or seagoing ships; the right to enjoy insurance under the insurance contract for aircraft and ships”.
  • Supplementing property rights arising from a contract include the right to collect debt, the right to demand payment, the right to enjoy the benefits formed from the contract, the right to exploit, manage the project, the right to compensate for damage under the contract. or other property rights of monetary value arising from the contract (except for land use rights, ownership of property on land, ownership or other rights which must be registered with respect to aircraft or seagoing ships according to regulations. regulations of the law on aviation and maritime).

The Circular No. 06/2020 / TT-BTP takes effect from February 01st, 2021.

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ARTICLES

Common questions related to establishment and operation of foreign-invested company in Vietnam (Part 2)

When establishing a foreign-invested company in Vietnam (“Foreign Invested Company“), Foreign Investors realize the difference between the laws of Vietnam and the laws of their countries while they are running a business. Thus, there are numerous questions have taken into account and need to be analyzed in order to make Foreign Investors to be clear on Vietnamese legislation before investing.

Over the operation process, Apolat Legal has consulted a lot of Foreign Investors on relevant matters, we have listed the following questions on the matters which Foreign Investor should pay attention to implement a duly process, starting from the period of decision on establishing Foreign Invested Company to stable operation. In which, the following notable matters are: (i) Investment project and establishing a company; (ii) Investment Capital; (iii) Tax; (iv) Labor.

III. Tax

1. Is there a difference in tax obligations between the Foreign Invested Company and the Vietnamese Company? 

Foreign Invested Company and Vietnamese Company are both registered enterprises and operate under the laws of Vietnam. Therefore, both the Foreign Invested Company and the Vietnamese Company must fulfill their tax obligations accurately in accordance with the law, with no difference in tax obligations between the Companies. However, the Foreign Invested Company annual financial statements must be audited by an independent auditor authorized to operate in Vietnam.

2. What are the basic tax obligations that the Foreign Invested Company needs to fulfill? 

Foreign Invested Companies are obliged to comply with all basic taxes such as License Tax, Company Income Tax, Value Added Tax. In addition, for specific business activities, Foreign Invested Companies may be subject to Excise Tax, Export Tax, Import Tax, …

In case the Foreign Invested Company pays the salary to the Employee, it is obliged to declare and pay Personal Income Tax (PIT) on behalf of the Employee on a monthly, quarterly or each time basis.

3. What types of tax reports need to be filed and reporting terms?

The types of tax reports and reporting terms are as follows:

No. Declarations

/Reports

Reporting terms
Monthly Quarterly Annually
1 License Tax Jan 30th
2 Value Added Tax 20nd next month. Applied to Company has income in previous year over VND 50 billion. 30nd or 31st of the first month of next quarter. Applied to Company has income in previous year lower VND 50 billion and new established Company.
3 Personal Income Taxi 20nd next month. Applied to the Company paying income with the deductible Personal Income Tax amount in the month from VND 50 million or more. 30nd or 31st of the first month of next quarter. Applied to the Company that is not subject to monthly reporting.
4 Company Income Tax Temporarily calculate and pay Company Income Tax in the quarter. Finalize within 03 months from the end of the fiscal year.
5 Report on the use of invoices 20nd next month. Applied to the Company that uses self-printed or pre-printed invoices with acts of violation not to use self-printed or ordered invoices, Company is subject to high tax risks and is eligible to buy invoices from tax authorities. 30nd or 31st of the first month of next quarter. Applied to the Company selling goods and services (except for those who are issued invoices by tax authorities and those who report monthly).
6 Financial Report

Company Income Tax, Personal Income Tax finalization

30nd or 31st of last month of the quater of the following year

4. Is a Foreign Invested Company entitled to tax incentives? What tax incentives are available? 

In order to attract Foreign Investors to invest in Vietnam, investment incentives in general and tax incentives in particular are constantly being updated from time to time, creating favorable conditions for Foreign Investors with different investment fields. Preferential taxes include Company Income Tax, Value Added Tax, Import Tax, and some others.

For example, for the CIT incentive, Companies, including Foreign Invested Company and Vietnamese Company, that meet the conditions for CIT incentives will be entitled to a lower tax rate. Usually, for a limited time or the entire implementation period of an investment project. Even CIT exemption or reduction is reduced to 10% for newly established Companies from investment projects in areas with extremely difficult socio-economic conditions, economic zones, hi-tech zones, newly established Company from investment projects in the fields of high technology, scientific research and technology development, investment in infrastructure development of special importance of the State, production software products or the Company operates in the fields of education – training, vocational training, health, culture, sports and environment, within 15 years from the first year of having taxable income from the project invest. However, in order for a Foreign Invested Company to be entitled to tax incentives, it must comply with all the procedures for investment registration, tax registration, … in accordance with the law.

In addition, Foreign Invested Companies are also exempt from import tax on imported goods to create fixed assets, raw materials, supplies and components to carry out investment projects. At the same time, exemption or reduction of land rent, land use fee, land use tax.

5. What are the requirements for tax incentives?

In order to be entitled to the incentives, the Foreign Invested Company must meet the conditions prescribed by law. Specifically, implementing investment projects in Vietnam in industries and areas with difficult socio-economic conditions or areas with extremely difficult socio-economic conditions. Investment projects capitalized at VND 6,000 billion or more, with a minimum disbursement of VND 6,000 billion within 3 years from the date on which investment policy is issued for projects that are not required an Investment Registration Certificate.  Investment projects in a rural area that employs 500 employee or more. High-tech Companies, Science and technology Companies, science and technology Organizations.

In addition, when qualified for investment tax incentives for foreign investment projects in Vietnam in accordance with the law, the Foreign Invested Company is required to comply with the following procedures to be applied tax incentives:

  • For an investment project which required an Investment Registration Certificate or investment policy decision, the Foreign Invested Company shall base on the investment incentives specified in the Investment Registration Certificate or the investment policy decision before applying investment incentives. The basis for applying investment incentives to a science and technology company is the Certificate of a science and technology enterprise.
  • For projects that not required to apply for an Investment Registration Certificate, the Foreign Invested Company shall base on the subject of investment incentives to determine investment incentives and procedures for enjoying investment incentives at the competent authority in applying investment incentives.

6. When transferring capital /shares, do Foreign Investors have any tax obligations? 

When transferring capital/shares, the Foreign Investor being an organization or individual will have to fulfill different tax obligations:

  • For Foreign Investors who are organizations that are obliged to pay Contractor tax on income arising from the transfer of capital/shares in Foreign Invested Company.
  • For Foreign Investor being an individual, when transferring capital/shares in a Foreign Invested Company, PIT must be paid.

In case of transferring the contributed capital in the limited company, the applicable tax rate is 20%, the tax calculation method is: “PIT payable = Taxable income x Tax rate of 20%” and ” Taxable income = Transfer price – Purchase price of the capital transferred – transfer cost“.

In case of transferring shares in a joint stock company / shares under the securities law, collectively referred to as securities transfer, the applicable tax rate is 0.1%, the tax calculation method is: “PIT payable = Stock transfer price for each installment x Tax rate of 0.1%

IV. LABOR 

1. What are the labor regulations that the Foreign Invested Company needs to comply? 

The Foreign Invested Company should note and strictly comply with the following labor laws:

First, the general labor regulations in Vietnam, the Company needs to determine the use of employee of appropriate age according to the law. Strictly complying with the regulations on recruitment procedures, duration and salary for probation, signing labor contracts. Regulations on termination of labor contracts are also an important point that the Company should strictly comply with, especially in cases where the Company’s right to unilaterally terminate labor contracts and the order procedures for unilateral termination of labor contracts. In addition, the regulations on social insurance, the minimum salary and the working and rest regime of employee are also clearly defined by law, the Company should check and comply with the regulations.

Secondly, for the employment of foreign employee in particular, the Foreign Invested Company needs to comply with the regulations on recruitment conditions of Foreign Employee in Vietnam, procedures at the competent authorities for the use of foreign employee and to issue work permits to foreigners working at the Company. If the Company’s employment of foreign employee in accordance with the law, it will be punished for violations.

2. What are the conditions for foreigners to work in Vietnam? 

Foreigners wishing to work in Vietnam need to meet the following conditions:

– Having full civil act capacity;

– Having professional qualifications, skills and health suitable to the job requirements;

– Not being a criminal or prosecuted for criminal liability in accordance with the law of Vietnam and foreign law;

– Having a Work Permit issued by a competent authority of Vietnam, except cases in which the work permit is not required in accordance with the law.

In addition, Foreign Employee work in Vietnam must comply with Vietnamese labor law, international conventions to which Vietnam is a member have different provisions and are protected by Vietnamese law.

3. What procedures should a Foreign Invested Company want to recruit Foreign Workers follow? 

Foreign Invested Company is entitled to recruit Foreign Employee to work as manager, executive director, expert and technical worker that Vietnamese employee cannot meet according to production and business needs.

In order to recruit foreign employee, the Foreign Invested Company must carry out the procedures for explaining labor demand at least 30 days in advance from the expected date of employment of the Foreign Employee and obtain the written approval from a competent authority.

After obtaining the approval of the employment of the foreign employee from the competent authority, the Foreign Invested Company shall carry out the procedures for the new work permit or the procedure for the exemption of the work permit for the Foreign Employee at a competent authority.

Finally, after obtaining a work permit or the decision to exempt the work permit for the foreign employee, the Foreign Invested Company and the Foreign Employee enter into a Labor Contract and submit this Contract to the agency issuing the work permit for management.

4. How to sign a labor contract?

When employing employee, the Company needs to comply with the law on signing labor contracts with the Employee. The Company may enter into a probationary contract with the Employee before entering into a labor contract but must comply with the law on probationary contract on term, salary ….

First, the conclusion of a labor contract must be based on the principles of voluntariness, equality, goodwill, cooperation and honesty, freedom but not against the law, collective labor agreement and communal morality. Then, the parties have the obligation to provide honest information to enter into a contract, the enterprise provides information about the job, location and working conditions, working hours, and rest time, occupational safety and health, salary, form of payment, social insurance, health insurance, unemployment insurance, … employee provide information about identity, education level, health status, …

After that, the parties choose the form of the contract and the type of labor contract and enter into it with the content of the contract that is not contrary to law and social ethics.

Finally, the authority to enter into a contract is also an important point to note in order for the employment contract to take effect, the Company may enter into a labor contract by either a legal representative or an authorized person according to the law.

5. After terminating contracts with employee, what procedures should the Company perform? 

After terminating the labor contract with the foreign worker, the Company should:

  • Firstly, pay full amount of salary, benefits (if any) in accordance with the law or agreement within 7 days from the date of contract termination or another term as agreed by the parties.
  • Secondly, complete the procedure to confirm and return the social insurance book and other related documents to the employee.

6. How to pay social insurance for the Employee? 

Employers are responsible for paying social insurance, health insurance, compulsory unemployment insurance for Employees in accordance with the law with the following rate:

For Vietnamese Employee:

Insurance deducted from salary Social insurance Medical insurance Accident insurance Total
Deducted from Company’s expenditure 17.5% 3% 1% 21.5%
Deducted from Employee’s salary 8% 1.5% 1% 10.5%
Total 22.5% 4.5% 2% 32%

For Foreign Employee:

Insurance deducted from salary Sickness, maternity fund Occupational accident and disease insurance fund Retirement and death fund Total
Deducted from Company’s expenditure 3% 0.5% 3.5%
Deducted from Employee’s salary
Total 3% 0.5% 3.5%

7. Does the Company have to establish labor union and how do we pay labor union fee?

According to the law, labor union is a socio-political organization of employees established on a voluntary basis. Therefore, the Company is not required to establish an union.

However, the Company has to pay labor union fee in accordance with the law, regardless of whether the Company has or has not had a labor union. The rate of payment of the labor union fee is equal to 2% of the salary fund as a basis for paying social insurance premiums for the employees. The Company pays labor union fee once a month at the same time as payment for compulsory social insurance for employees.

8. Is it difficult to dismiss employees? What will be the liability if doing it wrongly?

To dismiss an Employee, the Company should meet the following factors and conditions:

  • The Company is required to have a legally effective Labor Code that specifies violations that will result in disciplinary action;
  • The employee violates one of the acts that is subject to the dismissal in accordance with the law and the Labor Code of the Company, and the Company is responsible for proving the fault of the employee;
  • The labor discipline must comply with the principles and procedures of the law:
    • The Company proves the fault of the employee and conducts the notice of a disciplinary meeting to dismiss the employee within the statute of limitations.
    • Disciplinary dismissal must have the participation of the representative organization of the Employee, the employee and the parent, or the legal representative if the employee is under 18 years old, in case of one of these people does not attend the meeting must state the reason.
    • The meeting to handle the labor discipline must be notified in advance to all participants, and made in minutes.
    • Dismissal decisions must be issued by an authorized person of the Company, within the period of the statute of limitations for disciplinary action or an extended period of time for disciplinary action and must be sent to the employee, parent or legal representative of the person under 18 years old and the organization representing the labor at the grassroots level.

In case the Company dismiss or unilaterally terminat the labor contract with the employee against the law, it shall:

  • Reinstating the employee to work under the signed labor contract and paying the salary, social insurance, health insurance for the days the employee is not working plus at least 02 months salary under the labor contract;
  • In case the employee does not want to continue working, in addition to the compensation specified in point (i), the Company must pay the severance allowance in accordance with the law;
  • In case the Company does not want to continuosly hire the employee and the employee agrees, in addition to the compensation specified in point (i) and the severance allowance, the two parties agree to the additional compensation but at least equal to 02 months salary under the labor contract to terminate the labor contract;
  • In case the employee no longer has the position or job specified in the labor contract but the employee still wants to work, in addition to the compensation amount specified in point (i), the two parties negotiate to amend, additional labor contracts.

The above contents are the questions that Apolat Legal often answers to Clients to resolve problems in the process of researching investment into Vietnam, Foreign Investors can refer to when meeting the similar cases. However, for each specific case, there will be the most suitable and effective solutions for application, Apolat Legal recommends the Foreign Investors should consult lawyers in such cases to best protect their legal rights and interests.

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Common questions related to establishment and operation of Foreign-invested company in Vietnam (Part 1)

When establishing a foreign-invested company in Vietnam (“Foreign Invested Company“), Foreign Investors realize the difference between the laws of Vietnam and the laws of their countries while they are running a business. Thus, there are numerous questions have taken into account and need to be analyzed in order to make Foreign Investors to be clear on Vietnamese legislation before investing.

Over the operation process, Apolat Legal has consulted a lot of Foreign Investors on relevant matters, we have listed the following questions on the matters which Foreign Investor should pay attention to implement a duly process, starting from the period of decision on establishing Foreign Invested Company to stable operation. In which, the following notable matters are: (i) Investment project and establishing a company; (ii) Investment Capital; (iii) Tax; (iv) Labor.

I. Investment project and establishing a company

1. Can Foreign Investors set up a company with 100% foreign-invested capital in Vietnam? 

Foreign Investors may establish a 100% foreign-invested capital in Vietnam to conduct business activities such as manufacturing, import-export, wholesale trade and retail of goods, business management consultancy services, … However, in cases where the Foreign Invested Company operates in areas where the law requires a joint venture with a Vietnamese Investor, the Foreign Investor is limited in the rate of capital contribution in the Foreign Invested Company. Depending on lines of business that this limit may change, for instance, with advertising that the ownership limit is 99.99% while for the waterway transport, the ownership limit is 49%. In case the Foreign Invested Company has many lines of business, the limit of the capital contribution ratio of the lowest line of business will be applied to Foreign Investors.

2. What type of enterprise can Foreign Investors choose? 

Under Vietnamese law, Foreign Investors may choose to establish any type of enterprise such as a private enterprise, limited liability company, joint-stock company, partnership. However, due to the advantages of limited liability company and joint-stock company, Foreign Investors frequently choose between limited liability company and joint-stock company.

3. Business Line that Foreign Invested Company is allowed to operate? 

Foreign Invested Company is allowed to operate in most business lines not banned from business investment in Vietnam. However, for business lines that Vietnam has not committed to opening markets or allowing Foreign Investors to invest in business such as machinery and equipment leasing services; labor subleasing service, etc., the licensing agency will consult the relevant Ministries to get approval for each specific case, if the Ministries approved, the licensing agency would issue a license/certificate of permission for the Foreign Invested Company to operate. 

4. Must a Foreign Invested Company have a Legal Representative or a Director who is Vietnamese? 

Foreign Invested Company do not need to have a Legal Representative or Director to be Vietnamese. However, it should be noted that the Foreign Invested Company must have at least one Legal Representative who is residing in Vietnam (could be a foreigner). If the Foreign Invested Company has only one legal representative, that person must reside in Vietnam and must authorize in writing another person to perform the legal representative’s rights and obligations upon exit from Vietnam.

5. What licenses does a Foreign Invested Company need to do business in Vietnam? 

Unless the Foreign Investor contributes capital, purchases shares/stakes of an existing and operating Vietnamese Company, the Foreign Invested Company normally must have two basic licenses: Investment Registration Certificate and Enterprise Registration Certificate. Depending on the lines of the business investment sector, the Foreign Invested Company must apply for one or several other licenses as prescribed by Vietnamese law. For example, if the Foreign Invested Company operates an e-commerce trading floor, the Foreign Invested Company must apply for a Business License issued by the Department of Industry and Trade and register website/mobile app operating e-commerce trading floor at Ministry of Industry and Trade. Please note that many licenses/certificates only apply to Foreign Invested Company and do not apply to Vietnamese Companies (according to the example above, Vietnamese Companies do not need to apply for Business Licenses issue by the Department of Industry and Trade, instead of that, Vietnamese Company shall register on the website/app on e-commerce exchange ).

6. How long does it take to establish a Foreign Invested Company? 

In case of setting up a company doing business and investment activities in the field of market opening by Vietnam and the Foreign Investor meeting all the legal requirements, the lead time to set up an ordinary Foreign Invested Company is 18 working days (excluding weekends and holidays) from the date of submitting complete dossiers to licensing agencies. However, in case of establishment of a Foreign Invested Company doing business and investment activities in the field of market opening by Vietnam but the Foreign Investor does not meet the conditions or the business investment industry has not been market opening, the time to establish a Foreign Invested Company can be extended from 30 to 45 working days ).

7. What should be paid attention to the operational address of the Foreign Invested Company? 

Vietnamese Companies are registered to establishment according to their self-declaration information and self-responsibility, the licensing agency does not request to provide documents proving the right to use/own the address for the headquarters of the Vietnamese Company (except for the case that this address is an apartment building, or a place where business activities are not permitted). This is different from the Foreign Invested Company that they must prove the address is legally rented/owned and suitable lines of the business investment sector, the licensing agency may consult with some competent state agencies about the use of this place for establishment. For example, when a Foreign Invested Company invests in a restaurant, they will ask the District People’s Committee where the Foreign Invested Company is located to seek approval before granting the certificate.

8. What type and term of investment project report?

Foreign Invested Company implements the investment project shall report on the implementation of the submitting all types of reports in light of table below to the Register Office and the Local Statistical agencies, the reporting is implemented via National Investment Database.

No.

Types Contents Terms 
1 Monthly

Report

The implementation of capital in case of raising the capital in the month. 12 days from the end of the reporting month.

 

2 Quarterly

Report

Capital, net revenue, exports, imports, labor, taxes, and payment to government budget, land and water using process.

 

Prior to the 12th of the first month of the quarter following the quarterly report. 

 

3 Annually

Report

The content of quarterly report and the target of revenue, employee’s incomes, expenditures and investments in scientific research and technological development, environmental protection and treatment, and the technological using origins. Prior to the 31th March of the following year of the annual report.

II. Investment capital

1. What is the difference between charter capital and project invested capital?

The company’s charter capital (shown on the Enterprise Registration Certificate – ERC) is understood as the total value of assets contributed or committed to contributing by members or shareholders in a certain period when the company is established, it is recorded in the company charter. And the maximum time for charter capital contribution is within ninety (90) days from the date of issuance of the Enterprise Registration Certificate under Law on Enterprises.

Project investment capital (shown on the Investment Registration Certificate – IRC) is understood as total capital contributed to an investment project to implement the project. Investment capital can include contributed capital, a loan, and mobilized capital …

So the question is whether the capital contribution to implementing the project is the company’s charter capital?

For the first project, when Foreign Investors establish a Foreign Invested Company, the Foreign Investors’ capital contribution will be equal to the charter capital. Thus, it can be generally understood that the company’s charter capital is also the contributed capital to implement the project. However, for the second and separated project Foreign Investors can also increase its charter capital to implement the new project without increasing the Foreign Investors’ capital contribution to the project implemented before.

2. What is the minimum charter capital required to establish the Foreign Invested Company? 

Currently, There  is no regulation on  the minimum charter capital required by Foreign Investors to contribute to the establishment of the Foreign Invested Company, nor does it require a maximum charter capital, except for the business lines that must meet the legal capital requirements such as real estate business of 20 billion VND, multi-level sales of 10 billion VND, international travel of 500 million VND, … the minimum charter capital must be equal to the legal capital required.

However, in fact, depending on the field that Foreign Investors invest in Vietnam, the licensing authority will consider financial capacity conditions to approve Foreign Investors to do business. Besides, Foreign Investors depend on the business strategy, target customers and strategic partners to determine the amount of appropriate charter capital for the company’s operations after its establishment.

3. How long the Duration for charter capital contribution? 

Depending on the type of enterprise that the Foreign Investors are expected to establish in Vietnam, the duration for charter capital contribution varies as follows:

  • For the type of limited liability company: Within 90 days from the date of issuance of Enterprise Registration Certificate, the capital contributor in a limited liability company with two or more members or the owner in a single-member limited liability company must make a contribution of capital to the company in full and in the type of assets as undertaken. After the members of a limited liability company with two or more members contribute their capital fully as committed, the Company must issue a Certificate of capital contribution corresponding to the contributed capital’s value.
  • For Joint Stock Company: Shareholders must pay in full for the number of shares that have been registered for subscription within ninety (90) days from the date of issuance of the Enterprise Registration Certificate, except where the company’s charter or share subscription agreement stipulates a shorter time-limit. The Board of Management is responsible for supervising, and monitoring to ensure that shares that have been registered for subscription shall be paid in full and on time by the shareholders.

Note: The term of capital contribution of Foreign Investors is usually recorded in the Investment Registration Certificate. For a newly established project, this period is ordinarily equal to the charter capital contribution period of 90 days to the date of the Enterprise Registration Certificate issue as mentioned above.

4. What assets can be used for capital contribution? 

Under the Law on Enterprises, assets contributed as capital include the following assets:

  • Vietnamese Dong;
  • Freely convertible foreign currencies;
  • Gold;
  • The value of land use right, the value of intellectual property rights (include copyrights and relevant rights, industrial property rights, plant variety rights, and other intellectual property rights prescribed by regulations of law on intellectual property);
  • Technologies, technical know-how, and other assets can be assessed in Vietnamese Dong.

5. How can Foreign Investors contribute to capital? 

Foreign Investors contribute capital in Vietnamese Dong or freely convertible foreign currency to establishing the Foreign Invested Company in Vietnam, which must be performed through the investment capital account opened at an eligible bank in Viet Nam. Such a capital account could be a direct or indirect investment capital account because it depends on the Foreign Invested Company’s proportion of Foreign Investors’ charter capital. As follows:

  • If the Foreign Invested Company opens the direct investment capital account: The contribution of charter capital through a direct capital account might be implemented in foreign currencies or Vietnamese Dong. And the ratio of charter capital to be contributed, and owned by the Foreign Investor shall be indicated in documents proving the invertor’s right to contribute capital such as Investment Registration Certificate; Enterprise Registration Certificate; Notice of applying the conditions for capital contribution, buy shares, repurchase stakes… For each type of currency to be contributed (Vietnamese Dong, foreign currencies), the Foreign Invested Company must open a direct investment capital account for the corresponding type of currency and can open only one direct investment capital account for a type of currency, except for the case the Foreign Investors joined many BCC Agreements or directly executed many PPP Agreements, such Investor has to open separate direct investment capital accounts for each BCC and PPP Agreement.
  • If the Foreign Invested Company opens to the indirect investment capital account: All the indirect investment activities of Foreign Investors in Viet Nam must be executed in Vietnamese Dong and through the indirect investment capital account. Transactions relating to foreign indirect investment activities in Viet Nam must be conducted through 01 (one) indirect investment capital account opened at authorized banks.

6. Which cases the Foreign Invested Company must open a Direct Investment Capital Account?

The Foreign Invested Company has to open a Direct Investment Capital Account in the following cases:

  • To be established in the form of establishing an economic organization, in which the Foreign Investor is a member or shareholder and must carry out the procedure for issuance of an Investment Registration Certificate under the law on investment;
  • Foreign Investor contributing capital, buying shares or capital contributions to Company (operating in a conditional business lines or unconditional ones applied for Foreign Investors) resulting in foreign investors owning 51% or more of the Company’s charter capital but being not required to carry out the procedures for issuance of an Investment Registration Certificate under the law on investment;
  • Being established after the split, merger, consolidation results in Foreign Investors holding 51% or more of the charter capital of the Company and is not required to carry out the procedures for issuance of an Investment Registration Certificate under the law on investment;
  • Newly established in accordance with the specific law having Foreign Investors owning 51% or more of the charter capital of the Company and is not required to carry out the procedures for issuance of an Investment Registration Certificate under the law on investment.

In case the Foreign Invested Company and Foreign Investors fail to comply with the law relating to the capital transaction conducted via the Direct Investment Capital Account, Foreign Investors can find it difficult to remit profits and be pay sanction administrative violations.

For Foreign Invested Company is not required to open a Direct Investment Capital Account, foreign investors shall open an Indirect Investment Capital Account to perform capital transactions.

 

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Some notable issues for enterprises when becoming an enterprise with foreign investment capital

Post-COVID 19 and the context of increasingly stressful trade warfare between the US and China, as well as the signing of the EVFTA agreement between Vietnam and the European Union “EU,” Vietnam promises to be “The Promised Land” absorbing foreign investment. According to the Foreign Investment Agency report, up to May 20th, 2020, the total newly registered capital, adjusted and contributing capital, buying shares of foreign investors reached $13.89 billion – an optimistic statistic in the problematic situation of the current world economy. To promptly access the Vietnamese market, foreign investors usually carry out M&A transactions over Vietnamese enterprises (“Target Company“). By this way, foreign investors may own the total or a part of share/equity capital to gain the right to manage all operations of the Target Company. Thereby, the Target Company becomes the foreign-invested enterprise (FIE). Hence, this article provides material legal issues that foreign investors need to consider when making M&A transactions.

First, referring to the business lines of the Target Company. When the Target Company remains by Vietnamese organizations and/or individuals as owners, the business lines are not restricted except for those that are conditional or prohibited. However, in the event a foreign investor performs M&A transaction to possess of a share/equity capital in the Target Company, it should be aware of the business lines of the Target Company which have not been committed by the Government of Vietnam to open market for foreign investors or there is a commitment in international treaties to which Vietnam is a membership but limiting the charter capital ownership ratio of foreign investors.

  • If the Target Company has any business line that has not yet been committed to market opening in international treaties to which Vietnam is a member when foreign investors and the Target Company register the procedure in contributing capital, purchasing shares/equity capital; the Department of Planning and Investment where the Target Company is located will consult with specialized management ministries leading to the prolonged execution time of administrative procedures and foreign investors will not be able to make transactions if specialized management departments refuse. For example, for the current Vietnam container repair service has not committed in market opening for foreign investors; therefore, it is necessary to get the opinion of the specialized management ministries such as Ministry of Planning and Investment, Ministry of Transport, Ministry of Industry and Trade.
  • In case the Target Company has any business line that Vietnam has committed to open the market for foreign investors; still, there is a restriction on the capital ownership rate, the proportion of foreign investor’s contribution in the Target Company is not allowed to exceed the maximum committed. For example, for goods transport of inland waterway transport services, the Schedule of Specific Commitments in Services of Vietnam in WTO has demonstrated that the capital ownership ratio of foreign investors must not exceed 49%. Hence, foreign investors may only hold a maximum of 49% of the equity in the Target Company in this case.

Second, if the M&A transaction leads to the event that foreign investors own 51% or more the Target Company’s charter capital, companies that the Target Company holding charter capital will compulsory to meet requirements and procedures applied for foreign investors in case (i) the Target Company owns 51% of the charter capital or more; or (ii) there are foreign investors and the Target Company hold 51% or more of charter capital. For example, for the retail distribution of goods, companies by the Target Company holding the charter capital under the mentioned cases shall have to carry out procedures in obtaining the business registration certificate and setting up retail outlet which is similar to conditions in which foreign-invested enterprises have to fulfill.

If the proportion of ownership of foreign investors’ equity/shares in the Target Company is less than 51%, the companies that the Target Company holding charter capital are treated with investment conditions and procedures prescribed for domestic investors.

The third, in regard to the Target Company’s land use rights after completing the M&A transaction. According to Law on Land, in case the Target Company is converted into an FIE following the acquisition, the Target Company must register for the amendment of land or land- attached assets due to land-user change. Besides, it should be noted that land use term must not exceed 50 years for FIE. In fact, the Target Company faces in a lot of troubles in implementing procedures for amendment registration of land or land- attached assets due to incomplete framework for this issue and different requirements of various local authorities.

The fourth, in compliance with foreign exchange legislation, when making payments in the M&A transaction. We have encountered cases where non-resident foreign investors make payments in the M&A transaction to the Target Company’s current bank account. As a result, the Target Company having been sanctioned administratively due to violations of the law, and foreign investors could not transfer profits abroad due to unproven cash flows in legally transferable transactions. In order to avoid the stated risks, payments in M&A deals by non-resident foreign investors must be made via (i) the Target Company’s direct investment capital account, if the Target Company has a foreign capital ratio of 51% or more; or (ii) indirect investment capital account of foreign investors is opened at a licensed commercial bank in Vietnam.

Finally, regards to the Target Company’s financial statements after becoming a FIE. When the Target Company is not foreign-invested organization, an annual financial report is not required to be audited. However, for foreign-invested enterprises, following Independent Audit Law, FIE is one of the subjects that annual financial statements must be audited.

The above are some common issues that foreign investors usually face in the M&A transactions over Vietnamese companies. We hope that through this article, investors can have a glance in investing in Vietnam to avoid legal risks during the process of business investment.

If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.

This article is for general information only and is not a substitute for legal advice.

 

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