Many Vietnamese Investors have successfully taken their business activities abroad and earned stable profits from foreign companies (“Foreign Company”). Upon achieving a certain level of growth, the Foreign Company may expand its scale by establishing or contributing capital to another company. This is a common activity and is in accordance with the laws of many countries, including Viet Nam. For example, if a Vietnamese Investor establishes a company in Singapore, this Singaporean Company has the right to establish or contribute capital to/purchase shares of other companies in accordance with Singaporean law. However, from the perspective of compliance with Vietnamese law, Vietnamese Investors may face risks if the Foreign Company does not operate in accordance with the Offshore Investment Registration Certificate (“OIRC”).
1. Case where Vietnamese Investors use the profits of the Foreign Company to invest in another company
Article 67 of the Law on Investment 2020 stipulates that a Vietnamese Investor has the right to use the profits of the Foreign Company to implement a new investment project abroad, but must carry out the procedures for grant of a new OIRC at the offshore investment registration authority in Viet Nam. The Vietnamese Investor does not need to carry out any procedures for modification of the old OIRC.
If the Vietnamese Investors do not comply with the above regulation, they may be subject to a fine from VND 50,000,000 to VND 70,000,000 according to Article 21.2.b of Decree 122/2021/ND-CP. Concurrently, the Vietnamese Investor is compelled to remedy the consequences by carrying out the procedures for issuance of an OIRC (Article 21.5.b).
2. Case where Vietnamese Investors transfer additional investment capital to the Foreign Company to invest in another company
According to current regulations, if a Vietnamese Investor transfers additional offshore investment capital, they must register an adjustment to increase the investment capital on the OIRC.
* In the case where the Vietnamese Investor explains that the capital increase is to invest in another company, the objective of the offshore investment project must be correspondingly supplemented to “invest in another company”. In principle, a Vietnamese Investor has the freedom to register business lines for the Foreign Company in accordance with the Law on Investment 2020, as long as those lines are not on the list of sectors banned from offshore investment (Article 53) or sectors subject to conditional offshore investment if the conditions have not been met (Article 54). Thus, from a legal perspective, a Vietnamese Investor can register the operational objective of the Foreign Company as “investing in another company”. On the other hand, the Vietnamese system of business lines does not have a business line for “investing in another company”. In practice, this is a basic financial activity that any Vietnamese enterprise can perform without needing to register with the competent state authority.
However, according to the viewpoint of the offshore investment registration authority, the objective of the investment project cannot be registered as “investing in another company”. If Vietnamese Investors want to invest in another company abroad, they must apply for a separate OIRC for each investment and transfer the capital directly from Viet Nam to the invested company, instead of investing through the previously established Foreign Company.
* In the case where the Vietnamese Investor explains the capital increase is to expand the scale, production, and business activities of the Foreign Company, but this capital is not used for its registered purpose, and is instead invested to establish or contribute capital to/purchase shares of other companies, the Vietnamese Investor may violate regulations on offshore investment and be subject to an administrative sanction according to Article 22.1 of Decree 122/2021/ND-CP, with a fine from VND 70,000,000 to VND 100,000,000 for the act of not complying with the contents regarding offshore investment activities stated in the OIRC, specifically, not adhering to the registered project objectives.
See more:
1/ Merger of foreign-invested companies with the same ownership
2/ Outbound investment activities of foreign-invested enterprises in Vietnam
3/ Share transfer to foreign investors: conditions and procedures to know
Disclaimers:
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