Payment Of Capital Transactions, How To Make It Right?11/03/2020 admin
Since July 1, 2015, when the Investment Law and the Enterprise Law came into effect, Vietnam’s investment environment has become more attractive to investors. At the same time, Vietnamese enterprises also are more favourable to attract investment capital when the conditions, order, and procedures for investment are clearly and transparently prescribed. Thereby, capital transfer, capital contribution transactions, also known collectively as capital transactions between investors, are conducted regularly.
In order to protect the interests of investors, the capital transactions need to comply with the provisions of law, including the conditions for the parties to conduct capital transactions and the regulations that the parties need to comply with in making payments. Investors and enterprises always comply most of the time, the conditions for capital transactions to be performed since this is the prerequisite of the transaction. However, both enterprises and investors often “forget” to follow the law when making payments for capital transactions, especially in small and medium enterprises due to the lack of knowledge. The consequences of non-compliance with the law on payment of capital transactions are: (i) enterprises are sanctioned due to law violations, (ii) enterprises and investors meet with difficulties in proving that investors have completed capital transactions, (iii) foreign investors are unable to transfer profits abroad because they cannot prove that the capital contributed capital flows are legally transferred.
Therefore, in order to comply with the law when making capital transaction payments, the parties need to identify the following factors: (i) capital transaction is a capital transfer or capital contribution transaction, (ii) Does capital transaction takes place with foreign direct investment enterprises? (iii) Are the parties involved in the transaction a resident or non-resident? (iv) Are the parties in the transaction an individual or an organization? Based on the identified factors, the specific capital transaction payment structure includes:
- In the case of capital contribution transactions at the direct foreign-invested enterprises, the capital contribution of investors shall be made by transferring money to the enterprises’ direct investment capital accounts strictly according to regulations of the law on foreign exchange;
- In case of capital contribution transactions at enterprises without foreign direct investment capital, then:
- Non-resident investors must open an indirect investment capital account at a commercial bank in Vietnam to transfer capital contribution to the enterprise’s account.
- Investors who are resident-organizations have to make the payment of capital contribution by bank transfer
- For resident – individual investors, there are no specific provisions in the law, so the payment can be made via bank accounts or cash.
- In case the capital transfer transaction takes place between individual investors being residents, the payment of capital transactions may be made in cash or by transfer between individual investors since the current laws do not provide detailed guidance on this issue;
- In case the capital transfer transaction takes place at an enterprise with foreign direct investment capital among non-resident investors (regardless of individuals or organizations), the payment between the investors can be made via overseas accounts of the investors. In this case, the law on foreign exchange only stipulates that the payments of investors are not made via the company’s direct investment capital account;
- In case a capital transfer transaction takes place between the resident investors and one of the parties being an organization, the payment must be made by bank transfer via the bank accounts of the parties;
- In case a capital transfer transaction takes place at a direct foreign-invested enterprise between the resident investor and the non-resident investor, the payment value must be transferred to the direct investment capital account by the buyer, and from here the payment value continues to be transferred to the seller’s bank account;
- In case the capital transfer transaction takes place at an enterprise, which is not direct foreign-invested enterprise, but one of the parties is a non-resident, the payment must be made via the indirect investment account of the investor(s) who are non-residents.
The above are issues that enterprises and investors should follow when making payment for capital transactions in order to limit the legal risks that may arise in the future.