Solutions for cases where foreign investors contribute capital or pay for share transfers incorrectly

Foreign Investors are required to contribute capital or pay for share transfers through a direct investment capital account as prescribed in Circular 06/2019/TT-NHNN or an indirect investment capital account as prescribed in Circular 05/2014/TT-NHNN. However, many Foreign Investors have not fully complied with this regulation, contributing capital to the company’s payment account or in cash, which is not in accordance with the law. Accordingly, during annual audits, independent auditing firms often record that Foreign Investors have not complied with the prescribed form of capital contribution or share transfer payment.  Or, when receiving additional investment capital or transferring profits abroad, Commercial Banks may refuse to execute the transaction and require the Foreign-Invested Company to rectify the previous violation in accordance with the law. Therefore, Foreign-Invested Companies need to rectify the violation as soon as possible, and the resolution process should be carried out as follows:

1. Overall review of capital-related violations

The Company should review the capital contribution and transfer payment to determine whether any other regulations have been violated, in order to detect all violations that need to be addressed. Based on our experience, besides incorrect forms of capital contribution and share transfer, some common capital-related violations that Foreign-Invested Companies encounter are: 

– Failure to fully contribute the committed capital within 90 days from the date of the company’s establishment, without subsequently reducing the charter capital to reflect the actually contributed capital, or failure to fully contribute the full amount of capital while having declared an increase in charter capital on the enterprise registration certificate; 

– Failure to fully pay the share transfer price, or failure to fully declare and pay taxes on behalf of the share transferor.

2. Rectifying violations related to incorrect forms of capital contribution or share transfer payment

To provide a basis for state agencies to determine whether the Company has violated regulations, the Company should send a written document to the branch of the State Bank of Vietnam in the province/city where the Company’s head office is located, explaining its situation. the State Bank of Vietnam may forward the case to the Inspectorate and inspect the Foreign Investor’s compliance with foreign exchange regulations. If a violation is detected, a record will be made, and an administrative penalty will be imposed. The administrative penalty ranges from VND 30,000,000 to VND 50,000,000 (for individuals) and VND 60,000,000 to VND 100,000,000 (for organizations).

3. Rectifying other violations

Depending on the specific violation, the Company should determine different solutions. Based on our experience in similar cases, Companies often rectify the following violations: 

– Failure to carry out procedures for adjusting capital or changing members/founding shareholders at the business registration authority and the investment registration authority when the capital contribution period and the time limit for capital adjustment have expired due to members/founding shareholders not contributing the full amount capital. In this case, the Company may be subject to an administrative penalty of VND 30,000,000 to VND 50,000,000 and be required to change the capital, members, and shareholders according to the actual capital contribution on the ERC and IRC (if any). 

– Violation of falsely declaring charter capital, specifically, not fully contributing capital as registered when adjusting to increase charter capital at the business registration authority. In this case, the Company may be subject to an administrative penalty ranging from VND 20,000,000 to VND 100,000,000, depending on the amount of falsely declared capital, and be required to adjust the charter capital to match the actually contributed capital on the ERC and IRC (if any). 

– Failure to fully declare and pay taxes on share transfers. The Company must fully declare and pay taxes. Depending on whether the transferor is an individual or an organization, the Company may be penalized for failing to declare personal income tax or corporate income tax, and be required to fully pay the taxes and interest arising from late payment. 

In case where the Company resolves the issue of incorrect forms of capital contribution or share transfer at the request of a Bank or another third party, the Company should coordinate with the requesting party to ensure that the above resolution is carried out smoothly and meets the requirements. 

 See more:

1/ The use of shares in Vietnam to contribute capital to establish enterprises in foreign

2/ Noteable when carrying out the registration procedures for foreign investors to contribute capital/buy shares/buy contributed capital

3/ Payment Methods For Transfer Price Of Shares/Contribution Capital Amounts Of Foreign Investors In M&A Transactions

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