The transfer of capital in a foreign-invested enterprise arises when an investor whose name is on the contributed capital of the enterprise demands to transfer part or all of their contributed capital to another investor. This transfer of capital will lead to a change in the name of the person named on the contributed capital or a change in the percentage of contributed capital in the enterprise, or both of the above.

In order to carry out a capital transfer transaction, in addition to signing a transfer agreement, the investor must also fulfill the conditions and procedures prescribed by the law on enterprises and investment. The following article will provide information and procedures to be followed when investors conduct capital transfer transactions.

I.    Some concepts

Foreign-invested enterprise means an enterprise established under Vietnamese law, established by investors being foreign individuals or organizations, or contributing capital to carry out business activities in Vietnam.

Direct investment capital account (DICA) is a payment account in foreign currency or Vietnamese Dong opened by a foreign direct investment enterprise or foreign investor at an authorized bank to carry out transactions related to foreign direct investment activities in Vietnam.

The transfer price is determined as the total actual value received by the transferor under the transfer agreement.

II.    Some notes on conditions for capital transfer

For investors performing the transfer

The capital transferor must ensure that they have fully contributed capital to the enterprise. The full performance of the capital contribution obligation is demonstrated through the written confirmation of capital contribution or the enterprise's financial statements.

The transferor must comply with the principle of transferring capital in a limited company, transferring shares in a joint-stock company in accordance with the provisions of the Law on Enterprises 2020. In particular, it is important to note the regulations on restrictions for founding shareholders in a joint-stock company. Specifically, within 03 years from the issuance date of the Enterprise Registration Certificate, the ordinary shares of founding shareholders may be freely transferred to other founding shareholders and may only be transferred to persons who are not founding shareholders if the transfer is approved by the General Meeting of Shareholders.

For investors receiving the transfer

In case the transferee is a foreign investor, it must meet the conditions in Article 24.2 of the Law on Investment 2020 including (i) Market access conditions applied to foreign investors; (ii) Ensuring national defense and security; and (iii) Regulations of the land law on conditions for receipts of land use rights and conditions for use of land in islands or border or coastal communes/ward/town.

In addition, a foreign investor shall follow procedures for registration of capital contribution or purchase of shares or stakes of an economic organization prior to the change of members or shareholders in one of the following cases:

-    The capital contribution or purchase of shares or stakes increases the ownership ratio by foreign investors in an economic organization conducting business in lines of conditional market access for foreign investors;

-    The capital contribution or purchase of shares or stakes lead to a foreign investor or economic organization specified in Article 23.1 of Law on Investment 2020 holding over 50% of the charter capital of the economic organization in the following cases: The holding of charter capital by the foreign investor is increased from less than or equal to 50% to over 50%; the holding of charter capital by the foreign investor is increased while such foreign investor is holding over 50% of the charter capital of the economic organization. 

-    The foreign investor contributes capital, purchases shares or stakes of an economic organization with certificates of rights to use land in an island; in border or coastal communes/ward/town; in another area that affects national defense and security.

III.    Capital transfer procedures

In order to transfer capital, investors must carry out capital transfer procedures as prescribed in Law on Enterprises and Law on Investment. The process of transferring capital in a foreign-invested enterprise normally takes place in 3 steps

Step 1: Register to contribute capital, buy shares, contributed capital

The transferee being a foreign investor must carry out the procedures for registration of capital contribution, purchase of shares/stakes if it falls into one of the above-mentioned cases in Section II.

For implementation, the investor prepares 01 application as prescribed in Point 3 of Section 1 of Official Dispatch No. 8909/BKHĐT-PC 2020 including: (i) A written registration for capital contribution or purchase of shares/stakes; (ii) Copies of legal documents of the individual or organization that contributes capital or purchases shares/stakes and of the business entity to which foreign investors contribute capital or whose shares/stakes are purchased by foreign investors; and (iii) A written agreement on the capital contribution or purchase of shares/stakes and submitted to the investment registration authority where the business organization’s head office is located. Normally, the application processing will be done within 15 working days after receiving the valid application.

Step 2: Adjust the business registration information

Because the transfer of capital leads to a change in member/shareholder information or the percentage of capital contribution in the enterprise, the enterprise must change the business registration information at the Business Registration Office where the enterprise’s head office is located. Accordingly, depending on the information changed after the capital transfer transaction, the enterprise shall submit the corresponding application specified in Decree No. 01/2021/ND-CP.

In case the investor is not a subject of registration for capital contribution or purchase of shares/stakes, this procedure will be carried out as soon as the capital transaction takes place.

Step 3: Adjust the investment registration certificates (IRC)

In case an investment project has been issued an investment registration certificate, the enterprise shall carry out the procedures for adjusting the investment registration certificate in accordance with the provisions of Decree No. 31/2021/ND-CP.

IV.    Price in the capital transfer transaction

Regarding the transfer price: Investors have the right to agree on the transfer price in the capital transfer contract, but it must be consistent with the market price. According to the provisions of Article 11.1.a of Circular No. 111/2013/TT-BTC, if the transfer agreement does not specify the price or the price stated in the agreement is not conformable with the market price, the tax authority may impose a transfer price in accordance with regulations of law on tax administration.

V.    Account used in the capital transfer transaction

For the transfer of capital between domestic investors, the payment of the transfer value is quite simple and can be done by many different methods. However, in order to manage investment activities from abroad, capital transfer transactions in foreign-invested enterprises must be done via bank accounts and must comply with the provisions of Circular No. 06/2019/TT-NHNN of the State Bank.

Accordingly, Article 10.1.a of this Circular clearly stipulates that the payment of transfer value of shares and contributed capital in enterprises with foreign direct investment capital (i) shall not be made through the direct investment capital account in the case of transfer between non-resident investors or resident investors; (ii) through the direct investment capital account in the case of a transfer between a non-resident investor and a resident investor. 

In addition, the Circular also stipulates the payment currency in capital transfer transactions. Specifically, the valuation and payment of the transfer of investment capital or investment projects (i) between non-residents may be done in foreign currency; (ii) between a resident and a non-resident or between residents must be done in Vietnamese Dong.

From the above-mentioned regulations, it can be seen that the valuation and payment of capital transfer value between resident and non-resident investors must be done in Vietnamese Dong and through a DICA account. For the remaining cases (between residents or non-residents) that are not done through a DICA account, investors can pay and receive the transfer value through the investor's current account opened in Vietnam as prescribed in Circular No. 16/2014/TT-NHNN of the State Bank.

Therefore, in order to accurately determine the account implementing payment in the capital transfer transaction, the investors need to understand and determine whether they are a resident or a non-resident according to the provisions of the Law on Residence and guiding circulars and decrees in advance.

Notes: In case a foreign investor transfers capital, resulting in the rate of share ownership or capital contribution of foreign investors in this enterprise falling below 51%, the enterprise must close the DICA after completing the payment of the transfer value (Article 5.6 of Circular 06/2019/TT-NHNN).