Vietnam: Transferring Profits To Vietnam And How To Handle Violations In Outward Investment Activities

Continuing our discussionin the previous article about outward investment activities of Vietnamese enterprises. In this article, we would like to draw your attention to the issues that can appear when Using profits, and the risks if you do not comply with legal regulations in outward investment. By clearly understanding the legal information on this topic, enterprises will be able to anticipate the work that needs to be done in the process of investing abroad, as well as develop plans to arrange the use of profits arising from outward investment activities.

1. How can enterprises in Vietnam use profits arising from outward investment activities?

Similar to investment activities of foreign enterprises in Vietnam,. When investing abroad, enterprises in Vietnam are allowed to use profits to reinvest in outward investment activities. Enterprises may also transfer profits to Vietnam depending on the needs of the particular enterprise. For each of these uses for profits there will be separate conditions to apply, specifically:

Using Profits to Reinvest in Projects Abroad

Accordingly, Vietnamese enterprises can use profits to reinvest through several forms, including:

• Continuing to contribute outward investment capital if capital has not yet been fully contributed as registered
• Increasing outward investment capital
• Executing a new investment project overseas

However, it should be noted that when Vietnamese enterprises use profits earned from outward investment to increase capital and expand outward investment activities, they must carry out procedures to adjust the Certificate of Outward Investment Registration, at the Vietnamese competent authority. These enterprises must also have a written report to the State Bank within 30 days from the date of issuance of the adjusted Certificate of Outward Investment Registration.

When using profits earned from an investment project abroad to execute another investment project abroad, the investor must carry out procedures for the issuance of a Certificate of Outward Investment Registration for the investment project. They must also register foreign exchange transactions related to outward investment activities with the State Bank.

Transferring Profits, Legal Income and Investment Capital to Vietnam

Unless the profit is retained, within 6 months from the date on which the tax declaration is made or an equivalent document is available as prescribed by the host country's law, the investor mustrepatriate all profit, and other income derived from the outward investment to Vietnam.

If all profit and other income is not repatriated within the time limit, the investor must send a written notification to the Ministry of Planning and Investment, and the State Bank of Vietnam. The time limit for repatriation of profit may be extended by no more than 12 months from the expiry of the time limit.

An Investor who fails to repatriate the profit, and to send notification of doing so within both the initial time limit, and the extended time limit will incur penalties according to relevant legal regulations.

2. Penalties for Violations when Enterprises do not comply with Regulations on Outward Investment

Depending on the Severity of a breach of outward investment regulations, enterprises Are liable to paycorresponding fines, and accompanying additional sanctions and remedial measures.

When an enterprise violates regulations on reporting outward investment activities

A fine ranging from VND 20,000,000 to VND 30,000,000 shall be imposed for any of the following violations:

• Failure to comply with regulations on reporting outward investment activities or submitting an inadequate report or a report without enclosing prescribed documents;
• Failure to update information or update information insufficiently, inaccurately, or behind prescribed schedule on the National Investment Information System;
• Making a report on investment supervision/assessment behind schedule or in an insufficient manner as prescribed;
• Failure to implement periodic investment monitoring and evaluation reports as prescribed.

The remedial measures that enterprises must take in addition to the above sanctions are: Enterprises are Forced to implement a reporting regime, update information, and forced to supplement missing content in the case of supervisory reports, and investment assessments with incomplete content...

When an enterprise Violates regulations on outward investment procedures

• A fine ranging from VND 20,000,000 to VND 30,000,000 shall be imposed for failure to update changes on the National Investment Information System within a period of 01 month from the date on which a content of the outward investment project is changed without resulting in the project being subject to the adjustment of the outward investment registration certificate.
• A fine ranging from VND 50,000,000 to VND 70,000,000 shall be imposed: Preparing documents that are illegal, dishonest, or inaccurate to be issued an Outward Investment Registration Certificate; Using the profits from an outward investment project to execute another outward investment project without following procedures for obtaining the outward investment registration certificate for such project; A Vietnamese investor uses their shares, stakes or investment project in Vietnam to pay for or swap the purchase of shares, stakes or investment project of a foreign business organization but fails to follow procedures for obtaining the outward investment registration certificate as prescribed...
• A fine ranging from VND 100,000,000 to VND 200,000,000 shall be imposed for failure to make outward investment before the outward investment registration certificate is issued as prescribed.
• A fine ranging from VND 200,000,000 to VND 300,000,000 shall be imposed for making outward investment in the business lines banned from outward investment.

At the same time, enterprises must also apply remedial measures so that outward investment activities can be carried out following regulations. In the case of investing abroad in a prohibited industry, the enterprise will be forced to terminate its outward investment activities and return the illegal profits obtained from that investment activity.

When an enterprise violates the regulations on proper conduct for engaging in overseas investment activities

• A fine ranging from VND 70,000,000 to VND 100,000,000 shall be imposed for failure to make outward investment according to the outward investment registration certificate.
• A fine ranging from VND 100,000,000 to VND 200,000,000 shall be imposed for any of the following violations: Failure to correctly comply with regulations on repatriation of profits and proceeds from outward investment as prescribed; Failure to correctly comply with regulations on repatriation of lawful capital and assets and all proceeds from the project liquidation after terminating outward investment activities.

Thus, it can be seen that currently, the management of enterprises investing abroad is quite strict, this also comes from allowing the investment activities of enterprises to be carried out with the true nature of investment, which is not a form to legalize the transfer of money abroad. Violations of these regulations by enterprises in their overseas investment activities also causes difficulties for enterprises, in obtaining approval for future investment projects abroad.