In what cases must a foreign direct investment project be converted into a 100% Vietnamese capital investment project? What are the documents and procedures? See details.
Converting the investment form from a foreign-invested project to a 100% Vietnamese-invested project is an inevitable need of FDI enterprises in the process of international integration as well as development when there is a change in the capital structure of the enterprise.
So in which cases can a project with foreign direct investment be converted into a 100% Vietnamese investment project? What are the documents and procedures for transferring investment capital in this case? Let’s find out with Online Accounting in the article below.
When does the conversion of foreign capital projects into 100% Vietnamese capital happen?
For foreign-invested enterprises (FDI enterprises) in Vietnam, the conversion of foreign-invested projects into 100% Vietnamese-invested projects occurs in the following 3 cases:
- In case a member or shareholder who is a Vietnamese person buys back all the capital contributions and shares of a member or shareholder who is a foreign investor in the company;
- Foreign investors do not want to continue implementing investment projects in Vietnam or want to switch to investing in other projects, so they decide to withdraw their investment capital or transfer all their capital contributions/shares in their company to Vietnamese people (this person can be a member, shareholder of the company or someone outside the company);
- Vietnamese individuals and organizations buy back the entire 100% foreign-owned company for business operations.
Procedures for converting foreign capital investment projects into Vietnamese capital
According to the above conversion cases, the nature of converting a foreign-invested investment project into a 100% Vietnamese-invested investment project is to convert a foreign-invested company into a Vietnamese company (ie a company completely owned and controlled by a Vietnamese investor).
The process of converting capital from a foreign investment project to 100% Vietnamese capital is carried out in 3 steps as follows:
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Detailed implementation steps are as follows:
1. Transfer of capital from foreign investors to Vietnamese investors
Article 10 of Circular 06/2019/TT-NHNN on transfer of investment capital and investment projects stipulates and guides the following 2 cases:
➨ For companies with direct investment capital accounts
- Capital transfer transactions between non-resident investors or between resident investors shall not be conducted through direct investment capital accounts;
- Capital transfer transactions between non-resident investors and resident investors must be conducted through direct investment capital accounts.
After transferring capital to Vietnamese investors, the company will have to close the opened direct investment capital account.
For non-resident investors who own capital contributions or shares in an enterprise, they will open an indirect investment capital account, the purpose of which is to carry out revenue and expenditure transactions in accordance with the law, specifically: “After performing transactions to transfer shares, capital contributions or issue additional shares to increase charter capital at an enterprise with foreign direct investment, the foreign investor’s ownership ratio of shares or capital contributions in this enterprise falls below 51%”.
The next step is for foreign investors to declare and submit personal income tax returns due to capital transfer. For joint stock companies, there will be an additional personal income tax of 0.1% on the value of the transferred capital.
➨ For companies with indirect investment capital accounts
Enterprises must carry out the transfer and declare and pay personal income tax/corporate income tax in accordance with the law on personal income tax and corporate income tax.
2. Procedures for changing business registration certificate
After completing the capital transfer procedure, the company must carry out the procedure to change the owner, members, and shareholders of the company on the business license at the Department of Planning and Investment where the company has its headquarters.
The documents to change the business license of a single-member LLC are as follows:
- Notice of change of ownership of one-member company;
- Copy of legal documents of the individual receiving capital transfer from foreign individuals or organizations;
- Copy of the company’s charter approved with amendments and supplements;
- Contract for transfer of capital contribution or documents proving completion of transfer of capital contribution between individuals or organizations;
- Authorization letter for representative to carry out business registration procedures.
>> FREE DOWNLOAD: Application for changing business license of a single-member LLC.
The documents for changing the business license of a limited liability company with 2 or more members are as follows:
- Notice of change in business registration content (signed by legal representative);
- Transfer contract or documents proving completion of the transfer in case of a capital contribution transfer contract;
- List of members of LLC with 2 or more members (list must have full signatures of members);
- Documents confirming the capital contribution of the new member of the company;
- Notarized copy of legal documents of the individual in case the new member is an individual;
- Authorization letter for representative to carry out procedures.
>> FREE DOWNLOAD: Application for changing business license of 2-member LLC.
The documents for changing the business license of a joint stock company are as follows:
- Notice of change in business registration content (signed by legal representative);
- List of company shareholders;
- Share transfer contract or documents proving completion of capital contribution transfer;
- Authorization letter for representative to carry out procedures.
>> FREE DOWNLOAD: Application for changing business license of joint stock company.
After preparing all the above documents, the enterprise submits them to the business registration office where its head office is located.
The time to process the application is 3-5 working days from the date of receipt of valid application. In case the application has additional information, the business registration authority will issue a notice of additional information for the enterprise to know.
3. Termination of investment project
This step is only performed for companies with an investment registration certificate. According to Article 48 of the Investment Law 2020, after completing the capital transfer procedure to a Vietnamese investor, the termination of the investment project is carried out as follows:
➨ In case of self-decision to terminate the investment project
Required documents include:
- Send decision to terminate investment project activities;
- Investment registration certificate (if any).
Enterprises submit their application to the investment registration agency where the project is located.
Processing time is 15 days from the date of decision.
➨ In case of project termination according to contract, company charter, or expiration of investment project
Required documents include:
- Investment registration certificate (if any);
- Copy of document recording the termination of investment project activities.
Enterprises submit a set of documents including the above documents to the investment registration agency where the project is located.
The settlement period is 15 days from the date of termination of the investment project. The investment registration agency shall notify the relevant agencies of the termination of the investment project.
➨ In case of termination of investment project as prescribed in Clause 2, Article 48 of Investment Law 2020
The investment registration authority decides to terminate the investment project and at the same time revoke the investment registration certificate for the investment project that has been granted an investment registration certificate.
The investment registration certificate shall cease to be valid from the effective date of the decision to terminate the investment project.
>> Related article: Procedures for converting foreign-invested companies into Vietnamese companies.
Question about converting foreign capital investment projects to Vietnamese capital
1. When must a foreign direct investment project be converted to 100% Vietnamese capital?
The conversion from a foreign direct investment project to a 100% Vietnamese capital investment project must be carried out when:
- Vietnamese shareholders want to buy back capital contributions;
- Foreign investors do not want to carry out investment projects.
2. Does converting an investment project require changing the business license?
Yes. After transferring capital, the enterprise must carry out procedures to change the owner, members, and shareholders of the company on the business license at the Department of Planning and Investment where the company has its headquarters.
3. After transferring capital, does the individual transferring capital have to do any procedures with the tax authorities?
Yes. Individuals transferring capital must submit personal income declarations and pay personal income tax (if any).
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