REGULATIONS ON INVESTMENT CAPITAL FOR FOREIGN COMPANIES ESTABLISHING BUSINESSES IN VIETNAM

Vietnam has emerged as an attractive destination for international investors, thanks to its rapid economic growth, political stability, and investment-friendly policies. However, when deciding to establish a business in Vietnam, foreign investors must thoroughly understand the regulations concerning investment capital to ensure compliance with local laws and foster sustainable business operations. Below is a comprehensive guide by LawPlus on the conditions, regulations, and procedures related to investment capital, as well as the responsibilities involved in capital changes.

1. Regulations on Capital When Establishing a Business

To establish a business, foreign investors need to clearly define the types of capital required, as stipulated in the Law on Enterprises 2020 and the Law on Investment 2020. Key concepts and legal provisions include:

Types of Capital

– Charter Capital:
This refers to the capital registered with the government upon establishment, which must be fully contributed within a prescribed timeframe. According to Article 47 of the Law on Enterprises 2020, charter capital can be contributed in cash or assets of equivalent value. It serves as the foundational financial resource to initiate and sustain business operations. Typically used to invest in machinery, equipment, or operational costs.

– Contributed Capital:
This represents the actual amount of money or assets contributed by members or shareholders to the company. It may be used to increase charter capital, acquire assets, or supplement working capital. Article 75 and Article 112 of the Law on Enterprises 2020 specify that contributed capital can come from various sources and must be accurately recorded based on registered ownership ratios.

– Mobilized Capital:
This refers to non-fixed working capital that companies may raise to strengthen their financial resources for business and investment activities. Mobilized capital often supplements contributed capital in investment projects.

– Investment Capital:
This is the total capital a foreign investor plans to invest in Vietnam, typically divided into specific investment phases. It includes contributed capital and mobilized capital. Article 4 of the Law on Enterprises 2020 and Article 3 of the Law on Investment 2020 outline that investment capital may include charter capital and supplementary loans from financial institutions or other sources.

>> More at PURCHASING SHARES, CAPITAL IN VIETNAM

2. Restrictions on Capital Ownership Ratios for Foreign Investors

The maximum ownership ratio for foreign investors depends on the business sector, as defined by Vietnam’s commitments under WTO agreements, the Law on Investment 2020, and related decrees. Certain sectors impose limits to manage and control foreign participation in strategic industries, protect key domestic sectors, and safeguard national interests.

For example, in the advertising sector (CPC 871, excluding tobacco advertising services), foreign investors are restricted in ownership and must form joint ventures to operate in Vietnam.

3. Responsibilities When Capital Changes Occur

When a foreign-invested enterprise seeks to adjust its capital, compliance with the Law on Investment 2020 and the Law on Enterprises 2020 is mandatory. Common capital adjustment scenarios include:

Capital Increase/Decrease:

– Businesses may increase their contributed capital or investment capital to expand operations or fund new projects. They may also reduce capital as allowed by law. Adjustments must be reported to relevant investment and business authorities. Updates must be reflected in the Enterprise Registration Certificate and Investment Registration Certificate.

Capital Transfer:

– Members or shareholders can transfer their contributed capital to other members or external parties. The process must adhere to Article 51 of the Law on Enterprises 2020, including conditions that protect existing members’ and shareholders’ interests and ensure the legality of the transfer.

Foreign Investor Contributions and Purchases:

– When foreign investors contribute capital, purchase shares, or acquire ownership stakes under Article 24 of the Law on Investment 2020, registration with competent authorities is required. Upon approval, the company must update the ownership status and member/shareholder details with the Business Registration Authority.