Following Company Law 2020, the capital contribution for establishing a company could be in a form of cash, gold, or other assets. In this article, we address the capital contribution in cash.
Having supported a variety of foreign-invested companies and entrepreneurs in Vietnam in establishing the business in terms of legal, accounting, and tax, we realize that there are quite a few common errors of capital injection.
Error 1 – Capital contribution not made to the capital account
When establishing an enterprise, after being granted a license, the enterprise must open a bank account to make a capital contribution as registered.
For FIEs (directly or indirectly), capital contribution in cash must be made through a direct investment capital account or an indirect investment capital account at an authorized bank (Circular 06, 2019 and Circular 05, 2014 of the State Bank of Vietnam).
Contributing capital to the wrong bank account, enterprise or foreign investor may be considered as not yet contributing capital.
|A direct investment capital account (capital account) is an account either in a foreign currency or in Vietnam dong opened by a foreign direct-invested enterprise or a foreign investor at an authorized bank to execute transactions related to foreign direct investment activities in Vietnam (Article 3, Circular 06, 2019 on foreign exchange management with foreign direct/indirect investment activities in Vietnam) |
An indirect investment capital account is an account in Vietnam dong opened by a foreign investor at an authorized bank to conduct authorized revenue and expenditure transactions related to foreign indirect investment activities in Viet Nam. (Article 3, Circular 05, 2014 on foreign exchange management with foreign indirect investment activities in Vietnam)
Error 2 – Capital contribution not in the registered currency
Enterprise and foreign investor contributes capital in a currency other than the one stipulated in the Investment Certificate (IC). Consequently, the enterprise and foreign investor may be considered as not yet contributing the charter capital in full.
Error 3 – Capital contribution overdue
Following Company Law 2020, the time limit for charter capital contribution applicable to newly established enterprises is 90 days from the establishment date.
FIEs should differentiate the timeline for the contribution of charter capital and investment capital.
Normally, the time limit for contributing charter capital and investment capital is specified on the IC.
|The time limit for capital contribution is 90 days. The time limit for contributing charter capital and investment capital is specified in the IC.|
Error 4 – Capital contribution exceeding the charter amount
Contributed capital greater than either the charter or investment amount stipulated on the BRC and IC leads to:
- Not complying with the Company Law 2020.
- Exceeding amount not registered with the State Bank of Vietnam properly
- Difficulty in transferring capital overseas.
|Charter capital is either the total value of assets contributed or committed to by the company’s members and owners when establishing a limited liability company or partnership; or the total par value of shares issued or registered upon the establishment of a joint-stock company (Article 4, Enterprise Law 2020) |
Investment capital is money and other assets as prescribed by civil law and international treaties to which Vietnam is a signatory to conduct business investment activities. (Article 3, Law on Investment 2020)
Error 5 – Capital contribution description on the bank documents not appropriate
There are quite many cases in which enterprises or individuals contribute capital via banks leaving the transaction content on the payment order either blank or inappropriate. The practice leads to:
- Difficulty in providing strong evidence on the capital contribution to the competent authority when requested
- Insufficient information for accounting records
- Difficulty in applying for investment visa for foreign investors if necessary.
Summary of key matters:
FIEs must open a capital account at a licensed commercial bank in Vietnam.
The capital injection made by foreign investors to Vietnamese companies should be to the designated capital account.
Capital injection in terms of amount, currencies, and transfer content should be in line with the ones stipulated in the IC.
Prior to the execution of the capital injection, the newly established FIEs should consult either the licensed commercial banks that the companies intend to open the bank account or the professionals such as lawyers, accountants, and auditors.
Please contact us for further information regarding this matter: firstname.lastname@example.org
Law and regulations reference
Company Law 2020 – Company Law no. 59/2020/QH14 dated 17 June 2020
Investment Law 2020 – Investment law no. 61/2020/QH14 dated 17 June 2020
Circular 06, 2019 – Circular 06/2019/TT-NHNN dated 26 June 2019 guiding on foreign currencies management for foreign direct investment in Vietnam issued by State Bank of Vietnam Circular 05, 2014 – Circular 05/2014/TT-NHNN dated 12 March 2014 guiding on opening and using of capital account for foreign indirect investment in Vietnam issued by the State Bank of Vietnam