Vietnam has rapidly become a popular destination for foreign investors seeking to expand their global business ventures and tap into the country’s growing economy. Foreign Direct Investment (FDI) is a crucial component of Vietnam’s economic growth, contributing significantly to job creation, technology transfer, and exports. However, navigating the legal framework and regulations surrounding the transfer of FDI can be a complex and challenging process, particularly with the potential legal consequences of unlawfully directly transferring investment capital to Vietnam. In this context, it is essential to understand the legal implications of FDI transfer and the penalties for violating Vietnamese law.
Form of FDI in Vietnam
According to Article 21 of the government’s regulations on investment forms, the Law on Investment 2020 will introduce new forms of investment and a new type of economic organization. Starting from January 1, 2021, foreign investors will be able to engage in direct investment in Vietnam using various methods. These methods include establishing economic organizations, making capital contributions, purchasing shares or capital contributions, implementing investment projects, and investing via BBC contracts. The new investment forms and economic organizations added to the aforementioned government regulations will also be applicable.
Objects of transferring investment capital to direct investment capital account
To open a direct investment account, the entities that are required to do so are foreign direct investment (FDI) enterprises.
In order for an enterprise with foreign investors as members or shareholders to be established, they must undergo the procedures required for the issuance of an Investment Registration Certificate as per the Law on Investment.
Enterprises which have foreign investors holding a majority (i.e. 51% or more) in the enterprise’s charter capital are also subject to the procedures mentioned above. These include enterprises in which foreign investors have contributed capital, bought shares or capital contributions in an enterprise operating in conditional business lines or a trade that does not have conditions applied to foreign investors, directly resulting in them holding a majority in the enterprise’s charter capital. Moreover, for newly established enterprises that fall under the provisions of specialized law, as well as those resulting from the split, merger, or consolidation resulting in foreign investors’ significant ownership of the enterprise, these procedures are also applicable.
For foreign investors directly engaging in public-private partnership (PPP) projects without establishing a project enterprise, or participating in the form of Build-Operate-Transfer (BOT) and Build-Transfer (BT) contracts, procedures pertaining to the Investment Registration Certificate are also applicable.
The documents required for opening a direct investment account
Vietnamese laws permit investors to fund their investments in Vietnam through wire transfers to the “direct investment capital account.” To facilitate legal revenue and expenditure transactions pertaining to direct investment activities, investors must open this account, denominated in either foreign currency or Vietnamese dong, with an authorized bank. Additionally, users can use this account to transfer capital, profits, and lawful income abroad, as well as transfer investment capital and projects.
The dossier to open a direct investment account consists of:
(i) The account opening organization’s legal representative must fill out an application form and attach samples of their registration seal and signature, which they have signed.
(ii) The organization must provide relevant documentation such as the charter, establishment decision, operational license, business registration certificate(s), or investment certificate to evidence its legal establishment and current operation when opening a payment account.
(iii) The legal representative’s identity must be verified by submitting appropriate documentation such as a citizen’s identity card or a valid passport to prove their status.
(iv) To prove the legitimacy of the Chief Accountant or the designated person in charge of accounting as well as the Controller for transactions with the State Bank, relevant documents or appointment decisions must be provided, along with their citizen identification card or a valid passport.
Regarding the documents required to open a payment account, please note that originals or copies of documents (ii), (iii), and (iv) are acceptable. In case these documents are in a foreign language, they must legally translate them into Vietnamese and have them notarized.
Once you prepare the application and necessary documents, you must send them to the State Bank through either the State Bank’s Transaction Center or a branch located in a province or city. The processing of the application and documents typically takes up to one working day.
Legal consequences when breaking the law by directly investment capital to Vietnam
Unlawfully transferring investment capital to Vietnam can have serious legal consequences for investors. They may face administrative sanctions, including fines, for not complying with regulations.
(i) If investors do not comply with legal regulations regarding opening, closing and using an account for foreign investment in Vietnam, authorities may fine them between VND 30 million to VND 50 million. Individuals violating this regulation will be fined, while organizations may face double the same penalty.
(ii) If authorities find investors directly involved in managing and administering capital contributions and shares, or investing without fulfilling conditions, they may fine them between VND80 million to VND100 million for capital contributions. The fine also applies to share purchases or purchasing capital contributions of enterprises.
Moreover, investors should be aware of the greater risk of being unable to transfer investment-related funds abroad, particularly when sharing revenues and wishing to transfer them overseas. It should be noted that Vietnamese law does not specify any procedures for dealing with the unlawful direct transfer of investment capital.
Conclusion
In summary, the transfer of foreign direct investment (FDI) to Vietnam can bring many economic benefits to investors. However, investors must ensure that they comply with all legal regulations to avoid facing serious legal consequences. Unlawful direct transfer of investment capital to Vietnam can result in significant fines and other administrative sanctions. Therefore, it is crucial for investors to understand and follow all relevant laws and regulations to conduct their investments legally, safely, and successfully in Vietnam.
HMLF is always available to offer assistance in understanding the procedures with authorities.
Harley Miller Law Firm “HMLF”
Head office: 14th floor, HM Town building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.
Phone number: +84 937215585
Website: hmlf.vn Email: miller@hmlf.vn
