The transfer of capital in a FIE occurs when an investor whose name is on the enterprise’s contributed capital requests that part or all of their contributed capital be transferred to another investor. This capital transfer will result in a change in the name of the person identified on the contributed capital, as well as a change in the percentage of contributed capital in the firm, or both.
In order to complete a capital transfer transaction, the investor must, in addition to executing a transfer agreement, meet the requirements and procedures outlined in the legislation on businesses and investments.
Overview
Foreign-invested enterprise refers to a business created under Vietnamese law by foreign persons or organizations providing capital to carry out economic operations in Vietnam.
A direct investment capital account (DICA) is a payment account in foreign currency or Vietnamese Dong created at an approved bank by a foreign direct investment firm or foreign investor to carry out transactions linked to foreign direct investment operations in Vietnam.
The transferor uses the entire actual value obtained under the transfer agreement to determine the transfer price.
Conditions for capital transfer
For investors performing the transfer
The capital transferor must guarantee that they have committed all of their capital to the business. The written certification of investment or the enterprise’s financial records indicate complete fulfillment of the capital contribution requirement.
In line with the provisions of the Law on Enterprises 2020, the transferor must follow the concept of transferring capital in a limited company and transferring shares in a joint-stock company. It is especially crucial to recognize the constraints on initial stockholders in a joint-stock firm. Specifically, during the three years from the issuance date of the Enterprise Registration Certificate, founder shareholders are permitted to freely transfer their ordinary shares to other founder shareholders, provided that the General Meeting of Shareholders approves the transfer.
For investors receiving the transfer
If the transferee is a foreign investor, it must meet the conditions outlined in Article 24.2 of the Law on Investment 2020, which include (i) market access conditions for foreign investors; (ii) ensuring national defense and security; and (iii) Land law governing the conditions for receiving land use rights and using land in islands, border or coastal communes/wards/towns.
Moreover, a foreign investor must undertake the procedures for registering a capital contribution or the acquisition of shares or interests in an economic organization prior to a change in members or shareholders in one of the following cases:
– The share capital or acquisition of shares or interests by foreign investors raises their ownership percentage in an economic organization conducting business along the lines of conditional market access for foreign investors;
– In cases where a foreign investor or economic organization as defined in Article 23.1 of the 2020 Law on Investment contributes capital or acquires shares or interests resulting in ownership exceeding 50% of an economic organization’s charter capital, this occurs when the foreign investor increases their charter capital holdings from less than or equal to 50% to more than 50%, or when the foreign investor who already holds more than 50% of the economic organization’s charter capital increases their holdings.
– A foreign investor provides funds, buys shares or interests in an economic organization with certificates of right to use land on an island; in the border or coastal communes/wards/towns; or in another region affecting national defense and security.
Account investor using in the capital transfer transaction
Regulations on the account using in the capital transfer transaction
If both parties involved in the transaction are domestic investors, they can easily make the payment for the transfer value using various methods.
To handle the resources transfer transactions, FIEs must comply with the regulations outlined in State Bank Circular No. 06/2019/TT-NHNN and utilize bank accounts for executing foreign-sourced investment operations. Article 10.1(a) of this Circular unequivocally stipulates that for the payment of transfer value of shares and contributed capital in enterprises with foreign direct investment resources, (i) the direct investment resources account should not be used when making transfers between non-resident or resident investors, and (ii) the direct investment resources account should be used instead for transfers between a non-resident investor and a resident investor.
The payment currency in capital transfer operations
The Circular also specifies the payment currency in capital transfer operations. In particular, the appraisal and payment for the transfer of investment capital or investment projects:
(i) Non-residents can make transactions between themselves in foreign currency.
(ii) Transactions between a resident and a non-resident or between two residents must conduct in Vietnamese Dong.
The legislation mentioned above specifies that resident and non-resident investors must appraise and pay the resources transfer value in Vietnamese Dong, and they must use a DICA account. For the other circumstances (between residents or non-residents) that do not involve a DICA account, investors can pay and receive the transfer value using the investor’s Vietnamese current account.
Notes: Whenever a foreign investor transfers resources, the rate of foreign investor share ownership or capital contribution in this company falls below 51%, the enterprise shall shut the DICA after paying the transfer value (Article 5.6 of Circular 06/2019/TT-NHNN).
In order to appropriately determine the account implementing payment in the resources transfer transaction, investors must first comprehend and decide whether they are a resident or a non-resident under the terms of the Law on Residence and guiding circulars and decrees.
About us
Above, HMLF has shared some basic information and notice about regulations on capital transfer in FIE enterprises. In case you still have many questions or need assistance in terms of legal procedures, please contact HMLF to receive the most dedicated support!
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: 0937215585
Website: hmlf.vn
