Legal consequences for foreign-invested enterprises upon expiration of the investment project term

Foreign investment capital into Viet Nam is increasingly growing thanks to the State’s attractive policies, particularly in the fields of manufacturing, finance, and technology. However, alongside business opportunities, Foreign Investors also face numerous legal constraints. One of the issues often overlooked but posing significant risks is the expiration of the Investment Registration Certificate (“IRC”). The IRC is not only a “passport” for company establishment but also determines the operational term of the project and directly affects the operations of the Foreign-Invested Enterprise 

The operational term of an investment project, as recorded on the IRC, is a maximum of 70 years for projects in economic zones or in areas with difficult or especially difficult socio-economic conditions; and a maximum of 50 years for other projects. However, at the time of IRC issuance, the competent authority shall base itself on the objectives, scale, location, and operational requirements of the investment project to decide the specific term of the project (which could be 5 years, 10 years, or more). Before the term expires, the Foreign Investor has the right to register for an adjustment to extend or shorten the project’s operational term, but it must not exceed the aforementioned limits. 

According to the provisions of the Law on Investment 2020, before establishing a company, a Foreign Investor must have an investment project and must carry out the procedure for obtaining an IRC (Point c, Clause 1, Article 22) at the investment registration authority. Simultaneously, Clause 2, Article 22 stipulates that from the date of being granted the Enterprise Registration Certificate or other equivalent legal documents, the economic organization established by the foreign investor is the investor implementing the investment project according to the provisions in the IRC. It can be understood that the Foreign-Invested Enterprise is established to implement the granted investment project, or to conduct business operations within the term recorded on the IRC. 

Point c, Article 48 of the Law on Investment 2020 stipulates that the Investor must terminate operations when the project’s term expires. In this case, as the Investor is the Foreign-Invested Enterprise, it can be understood that when the term recorded on the IRC ends, the Foreign-Invested Enterprise must terminate operations, cease project implementation, and voluntarily carry out liquidation according to regulations on asset handling. Regarding this issue, there currently exist two viewpoints as follows: 

1. Viewpoint 1: The Foreign-Invested Enterprise is established to carry out investment activities. Therefore, when the investment activities cease, the company no longer has a purpose for existence and must proceed with dissolution according to the order and procedures stipulated in the Law on Enterprise 2020 and its guiding documents. Furthermore, the phrase “Investor must terminate operations” above can be understood as equivalent to “Foreign-Invested Enterprise must dissolve”. 
2. Viewpoint 2: Article 207 of the Law on Enterprise 2020 stipulates several cases requiring dissolution as follows: 

• The operational term recorded in the company’s charter has ended without a decision on extension; 

• Pursuant to a resolution or decision of the business owner for a private enterprise, of the Members’ Council for a partnership, of the Members’ Council or company owner for a limited liability company, of the General Meeting of Shareholders for a joint stock company; 

• The company no longer maintains the minimum number of members or shareholders as required by this Law for a consecutive period of 06 months without carrying out the procedure for conversion of its enterprise type; 

• The Enterprise Registration Certificate is revoked, unless otherwise provided by the Law on Tax Administration. 

Thus, the law does not stipulate that a Foreign-Invested Enterprise is forced to dissolve when its investment activities cease. Therefore, the Foreign-Invested Enterprise can continue to exist and operate without necessarily being tied to a specific investment project. 

Due to the aforementioned legal ambiguity, a Foreign-Invested Enterprise with an expired IRC faces several legal risks and operational obstacles as follows: 

• The Investor is responsible for notifying and returning the IRC to the Investment Registration Authority within 15 days from the date the investment project’s operational term expires. If the Investor fails to properly perform this obligation, the Investor may be subject to administrative penalties under Article 15 of Decree 122/2021/ND-CP with a fine ranging from VND 30,000,000 to VND 50,000,000.
• Foreign-Invested Enterprises holding an IRC open a Direct Investment Capital Account at a commercial bank in Viet Nam to conduct capital transactions, including receiving additional new investment capital, borrowing foreign loans, or repatriating profits. However, in case the IRC expires, commercial banks may not allow the continued use of the Direct Investment Capital Account. Activities related to this account, such as capital contribution or profit repatriation abroad, will be hindered.
• The Foreign-Invested Enterprise faces the risk of being forced to dissolve by the competent state authority due to the requirement to liquidate the project and terminate investment operations upon the expiration of the operational term. 

To resolve the aforementioned issues, the Foreign-Invested Enterprise should carry out the procedure to notify and return the IRC to the Investment Registration Authority, and concurrently pay the administrative fine (if any). Subsequently, the Company should proceed to apply for a new IRC to ensure it always maintains a valid project in Viet Nam, thereby facilitating explanations and dealings with third parties such as state authorities, banks, or partners when required. 

Related posts

1. Legal procedures for terminating an investment project by a foreign-invested enterprise (FDI) in Vietnam
2. Which investment projects must be granted environment license and environment registration?

Share: