A foreign-invested company newly established and operated in Vietnam typically needs to obtain two essential licenses: the Investment Registration Certificate (hereinafter referred to as “IRC”) and the Enterprise Registration Certificate (hereinafter referred to as “ERC”). After completing the procedures for obtaining the IRC and ERC, the foreign-invested company must carry out other necessary procedures and implement its operations by legal regulations. Among these, contributing charter capital on time is one of the prominent issues facilitating the commencement of the company’s operations in Vietnam.
1. Capital contribution time
The time for capital contribution is stipulated in the Law on Enterprises, which is a maximum of ninety (90) days from the date of issuance of the Enterprise Registration Certificate, excluding the time for transporting and importing contributed assets and the administrative procedures for transferring ownership of the assets.(1) However, in the case of joint-stock companies, founding shareholders may specify a shorter time in the company’s charter or the share purchase registration contract. This regulation on the time for capital contribution is a uniform provision for all companies established and operating in Vietnam, regardless of whether they have foreign investments.
However, in addition to the Law on Enterprises, foreign-invested companies are also subject to the provisions of the Law on Investment, the guiding documents of the Law on Investment, and specialized documents regarding foreign investment, along with the international commitments that Vietnam participates in. Accordingly, the contribution of capital by foreign investors must not only comply with the regulation of the contribution time of ninety (90) days from the date of issuance of the ERC but also depend on the capital contribution schedule stipulated in the IRC. In practice, most foreign-invested companies, when registering the capital contribution schedule in the application for the IRC, choose the common contribution time of ninety (90) days from the date of issuance of the ERC. However, the time may be extended depending on the nature, scale of the project, or specific characteristics of the industry. When the investors prepare the investment project and submit the application for approval, provided that the investors demonstrate the appropriateness, for example, in cases where the investment project has specific technical requirements, large capital scale, or objective obstacles in mobilizing capital… the investor can register a capital contribution schedule longer than ninety (90) days.
Thus, the time for capital contribution for foreign-invested companies will be stipulated in the Investment Registration Certificate, and may be extended beyond ninety (90) days if approved by the investment management authority based on the nature and specific requirements of the project. This adjustment must comply with the procedures and processes according to the Law on Investment and related guiding documents.
2. What happens if foreign investors do not contribute enough capital within the stipulated time?
Contributing sufficient capital on time as committed not only complies with legal regulations but also helps the enterprise to start with “a strong financial foundation”. In the event that a foreign investor is unable to contribute the full amount of capital within the specified time, depending on each stage, the foreign investor may apply different solutions.
Case 1: Before the time of capital contribution time specified in the IRC
Based on the financial plan, if the foreign investors realize that they cannot contribute the full amount of capital registered within the time specified in the IRC and ERC, the foreign investors need to have an appropriate financial plan and carry out the procedures to adjust the capital contribution schedule on the IRC at least thirty (30) days before the capital contribution time expires. Based on our experience, foreign investors may consider the following steps:
- Step 1: The foreign investors contribute the amount of capital they can afford according to the regulations of Vietnamese law.
- Step 2: Carry out the procedures to adjust the capital contribution schedule and the contributed capital on the IRC in accordance with the actual amount contributed in Step 1.
- Step 3: Carry out the procedures to adjust the reduction of charter capital on the ERC according to the actual amount contributed within the time stipulated by the Law on Enterprises.(2)
Under this approach, the failure of the foreign investor to contribute sufficient capital will not incur any other legal risks according to legal regulations.
Case 2: After the expiration of the time for capital contribution specified in the IRC but still during the time of adjusting to reduce the charter capital on the ERC according to legal regulations
In this case, the investors should promptly carry out the procedures to adjust the reduction of charter capital on the ERC according to the actual amount contributed within thirty (30) days from the last day by which the full capital contribution must be made according to the provisions of the Law on Enterprises to ensure legal risk mitigation.
Regarding the adjustment of the IRC, if the foreign investors have not yet completed the procedures to adjust the capital contribution schedule and the contributed capital to reflect the actual amount contributed after the time specified in the IRC expires. The investor may face a fine ranging from VND 70,000,000 to VND 100,000,000 for failing to carry out the adjustment procedures for the Investment Registration Certificate in cases where the adjustment of the investment project changes the contents of the Investment Registration Certificate(3).
Additionally, in some cases, the foreign investor may explain the use of expenses for establishing the company, such as office rental costs, legal fees, etc., as a contribution of the foreign investors if these expenses meet the conditions regarding invoices and documents.
Case 3: After the time for capital contribution specified in the IRC expires and After the time for adjusting to reduce capital on the ERC according to legal regulations
Similar to Case 2, the investor may face a fine ranging from VND 70,000,000 to VND 100,000,000 for failing to carry out the adjustment procedures for the IRC in cases where the adjustment of the investment project changes the contents of the IRC(4).
Additionally, the investor may be fined from VND 3,000,000 to VND 20,000,000 for violating the time for registering changes to the contents of the Enterprise Registration Certificate, with the specific fine depending on the number of days overdue(5), or fined from VND 30,000,000 to VND 50,000,000 for failing to carry out the procedures to adjust capital or change founding members or shareholders according to the regulations at the business registration authority after the capital contribution time has expired and the time for capital adjustment has ended due to founding members or shareholders not contributing sufficient capital, with no founding members or shareholders fulfilling their capital contribution commitments(6).
(1) Article 47.2, Article 75.2, and Article 113.1 Law on Enterprises 2020
(2) Article 47.4, Article 75.3, and Article 113.3.d Law on Enterprises 2020: In case which the investors have not contributed capital or contributed sufficient capital as commited, the company has to register for adjusting the capital contribution in accordance with the actual contributed capital within 30 days from the last day which the investors have to contribute the sufficient capital according to legal regulations.
(3) Article 17.2.b, and Article 4.2 Decree 122/2021/ND-CP
(4) Article 17.2.b, and Article 4.2 Decree 122/2021/ND-CP
(5) Article 44, and Article 4.2 Decree 122/2021/ND-CP
(6) Article 46.3.a, and Article 4.2 Decree 122/2021/ND-CP
See more:
2/ Consequences of not contributing full charter capital
3/ Some ways and conditions to decrease the company’s charter capital
Disclaimers:
This article is for general information purposes only and is not intended to provide any legal advice for any particular case. The legal provisions referenced in the content are in effect at the time of publication but may have expired at the time you read the content. We therefore advise that you always consult a professional consultant before applying any content.
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Apolat Legal is a law firm in Vietnam with experience and capacity to provide consulting services related to Business and Investment and contact our team of lawyers in Vietnam via email info@apolatlegal.com.
