CONTRIBUTE CAPITAL TO FDI ENTERPRISES IN VIETNAM

Legal grounds:

  • Law on Investment 2020
  • Circular No.06/2019/TT-NHNN dated June 26 2019 guiding the foreign exchange management for the foreign direct investment in Vietnam

FDI Enterprises in Vietnam 

An enterprise with foreign direct investment capital (FDI Enterprise) is an enterprise established in the territory of another country by an investor of one country with all or part of its capital in order to serve their own interests. The Law on Investment 2020 of Vietnam does not directly refer to this type of enterprise, but only broadly defines it as follows: “foreign-invested business organization” means an organization whose members or shareholders are foreign investors.

Thus, we can understand basically, FDI enterprises are enterprises with foreign direct investment capital, regardless of the percentage of capital contributed by foreign parties.

Besides, according to Clause 2, Article 3 of Circular 06/2019/TT-NHNN, enterprises with foreign direct investment are regulated to include:

– Any enterprise established in the form of investment of establishing a business organization whose members or shareholders are foreign investors and granted the investment registration certificate by law on investment;

– Any enterprises with foreign investors owning 51% or more of the enterprise’s charter capital;

– Project enterprises established by foreign investors to implement PPP projects following the law on investment.

General rules

For the capital contribution to establish an FDI enterprise, foreign investors often make mistakes during the capital contribution process, which is that the capital contribution is not under the provisions of law, leading to unsuccessful investment. Therefore, when contributing capital to Vietnam, foreign investors need to ensure some general principles as follows:

  1. Foreign and Vietnamese investors are allowed to contribute capital in foreign currencies and Vietnamese dong according to the registered amount in the investment registration certificate, notice of the foreign investor’s eligibility to contribute capital or purchase shares/stakes, license of establishment and operation by specialized law, signing of PPP contracts with competent authorities and other documents which can prove the compliance with law of capital contribution of foreign investors.
  2. The monetary capital contribution by foreign investors must be transferred to the direct investment account.
  3. Contents related to short, medium, and long-term foreign loans of FDI enterprises (transactions for collection of capital withdrawals, payment of principal, interest, and fees; loan and payment account foreign debt) comply with the law on borrowing and repayment of foreign debts.
  4. The use of foreign investors’ distributable profit in the territory of Vietnam must comply with current regulations on foreign exchange management and other related laws.

Thus, a newly established FDI enterprise in Vietnam when transferring capital contributions cannot be transferred directly to the Company’s current account. Foreign investors need to open a direct investment capital account in order to carry out activities such as: receiving capital, borrowing and repaying short, medium, and long-term foreign loans, and transferring profits abroad.

For foreign investors to buy back contributed capital, buy shares, and pay the transfer value of investment projects between investors in the BCC contract, between investors directly implementing PPP projects. In case a foreign individual investor proceeds to buy back the contributed capital of another FDI one-member limited liability company, the transfer payment here is a transfer between two individuals without residing in Vietnam, it will not be done through the Direct Investment Capital Account. In this case, the two investors will pay for each other’s transfer through their personal accounts. If the investor transfers the money to buy back the capital into the Corporate Bank Account, the process will be wrong, the bank will have to return the transfer payment, which will lead to the unsuccessful transfer payment and takes a long time plus the bank charges.