Foreign direct investment (FDI) capital contribution is a crucial legal obligation that investors must strictly comply with. Failure to contribute the full FDI capital may lead to severe legal consequences, affecting business operations and the legal status of the enterprise.
I. Introduction
Foreign direct investment (FDI) capital contribution is a crucial legal obligation that investors must strictly comply with. Failure to contribute the full FDI capital may lead to severe legal consequences, affecting business operations and the legal status of the enterprise.
An example of capital contribution issues can be seen in the case of Auto Investment Group Joint Stock Company, established in May 2021, which registered a charter capital of VND 500,000 trillion (approximately USD 21.7 billion). According to Vnexpress, the capital structure included Mr. Nguyễn Vũ Quốc Anh contributing VND 499,998 trillion, accounting for 99.996% of the charter capital, while two other individuals, Ms. Nguyễn Thị Diễm Hằng and Mr. Lưu Hữu Thiện, each contributed VND 1 trillion, equivalent to 0.002% of the charter capital.
However, Tuoitre Newspaper stated that after six months of operation, the shareholders did not fulfill their capital contribution commitments. As a result, on December 31, 2021, the company decided to dissolve, citing the reason that "the shareholders did not pay for the shares they had registered to purchase as declared in the initial registration file."
Regarding this case, on the People's Court Journal, lawyer Trương Thanh Đức commented: "If raising capital from domestic investors without reputation, fame, or a brand is difficult even for a few billion dong, then raising funds from foreign investors is even more impossible from zero, not to mention the complex procedures for foreign investment registration and foreign exchange flows."
The Law on Investment 2020 does not specify a deadline for completing the registered investment capital nor a maximum time limit for capital contribution. Depending on the form of investment, the capital contribution deadline is regulated as follows:
For capital contribution to establish a company: 90 days from the date of issuance of the Enterprise Registration Certificate (Clause 2, Article 47; Clause 2, Article 75; Clause 1, Article 113 of the Law on Enterprises). Investors may also request an extension from the investment management authority, provided that it aligns with the registered project implementation schedule.
For investment through contracts: The timeline is mutually agreed upon by the parties.
For capital contribution and share acquisition: The time of capital contribution and transfer of capital ownership coincides with the time of contribution. Enterprises may allow shareholders or members to delay capital contribution or swap capital contribution obligations, but such arrangements must be documented in signed agreements for accounting record-keeping purposes.
Cases where capital contribution extensions are allowed: If investors cannot complete their capital contribution within the prescribed timeframe, they must apply for an extension before the deadline. This extension requires an amendment to the Investment Registration Certificate and approval from the competent authority (Clause 2, Article 41 of the Law on Investment).
III. Common Violations and Causes
1. Violations of Foreign Investment Procedures (Article 21 of Decree 122/2021)
Submitting untruthful or inaccurate documents: Investors prepare documents with incorrect or incomplete information to obtain the Investment Registration Certificate for foreign investment.
Failing to amend the Investment Registration Certificate: When there are changes in investment capital or other regulated aspects, investors do not carry out the necessary procedures to adjust the Investment Registration Certificate.
2. Violations in Foreign Investment Activities (Article 22 of Decree 122/2021)
Non-compliance with the investment activities stated in the Investment Registration Certificate: Investors fail to adhere to commitments on capital contribution, project implementation progress, or other approved contents in the Investment Registration Certificate for foreign investment.
3. Violations in Enterprise Establishment (Article 46 of Decree 122/2021)
Failing to adjust capital or change founding members/shareholders as required by the business registration authority: This occurs when the capital contribution deadline has passed, and the period for capital adjustment has expired, yet founding members or shareholders have not fully contributed capital, and no founding members or shareholders fulfill the capital contribution commitment.
IV. Legal Consequences
Administrative Penalties (Articles 21, 22, 46 of Decree 122/2021)
Violation of foreign investment procedures: Fine ranging from VND 50,000,000 to VND 70,000,000.
Violation of foreign investment activities: Fine ranging from VND 70,000,000 to VND 100,000,000.
Violation of enterprise establishment regulations: Fine ranging from VND 30,000,000 to VND 50,000,000.
Remedial Measures: Required to carry out procedures for amending the Investment Registration Certificate for foreign investment. Required to adjust capital contribution procedures or change founding members or shareholders.
V. Remedial Measures
1. Procedures for Extending Capital Contribution (Articles 77, 79 of Decree 31/2021/ND-CP)
1.1 Amendment of Certificates for Projects Not Requiring Foreign Investment Policy Approval
Submission of documents: The investor declares information and submits 03 sets of documents (01 original) to the Ministry of Planning and Investment (MPI) within 15 days.
Validity check: The MPI reviews the documents; if they are invalid or need supplements, the investor is notified within 05 working days.
Consultation with the State Bank of Vietnam: If the foreign capital transfer exceeds VND 20 billion, the MPI seeks opinions from the State Bank, which responds within 07 working days.
Projects involving lending/guarantees: Investors must apply for approval per foreign exchange regulations.
Specialized industries: If the project falls under the fields of journalism, radio, or television, the MPI consults the Ministry of Information and Communications, which responds within 07 working days.
Certificate amendment: Within 15 days of receiving a valid application, the MPI amends the certificate and notifies relevant agencies.
Denial of amendment: If the application is invalid or does not meet conditions, the MPI notifies the investor with a clear explanation.
1.2 Amendment of Certificates for Projects Requiring Foreign Investment Policy Approval
Submission of documents: The investor declares information on the national system and submits 08 sets of documents (01 original) to the MPI within 15 days.
Consultation feedback: Within 15 days, consulted agencies must provide written responses.
Document appraisal: Within 30 days, the MPI prepares an appraisal report and submits it to the Prime Minister for approval or rejection. If additional information is required, the MPI requests investor clarification.
Prime Minister's decision: Within 10 days of receiving the appraisal report, the Prime Minister issues a decision to approve or reject the investment policy amendment.
Amendments for state-owned enterprises: If the project involves a state-owned enterprise, after approval, the competent authority decides on investment activity adjustments.
Certificate amendment: Within 05 working days of the approval decision, the MPI amends the Investment Registration Certificate and notifies relevant agencies.
Rejection: If the Prime Minister does not approve, the MPI issues a written rejection within 03 working days, stating the reasons.
2. Required Documents (Clause 1, Articles 77, 79 of Decree 31/2021/ND-CP, Article 63 of the Law on Investment 2020)
Application for amendment of the Investment Registration Certificate.
Documents proving the investor's legal status.
Report on the project's operational status up to the time of submission.
Decision on adjustments to foreign investment activities.
Copy of the Investment Registration Certificate for foreign investment.
Tax authority certification confirming the investor's tax obligations if increasing foreign investment capital (certification must be issued within 03 months before submission).
Documents related to the amendment content.
Other relevant documents.
3. Restructuring Plan
Adjusting charter capital: If the investor fails to contribute the required capital within the deadline, the enterprise must reduce its charter capital to match the actual contribution. This must be completed within 30 days from the final deadline for capital contribution.
Changing members or shareholders: The enterprise may offer unfulfilled capital contributions to existing members or new investors to compensate for the shortfall. This process must comply with regulations on capital transfer and shareholder changes.
Converting investment forms: Consider switching from direct to indirect investment (e.g., portfolio investment) or other forms to optimize capital structure.
VI. Preventive Strategies
1. Developing a Detailed Capital Contribution Plan
Setting a reasonable contribution schedule: Divide capital contributions into specific phases in line with project progress and financial capacity.
Monitoring and periodic reporting: Establish a tracking system to monitor capital contributions and ensure timely adjustments when necessary.
2. Professional Legal Consultation
Seeking expert legal advice: Collaborate with experienced lawyers or consulting firms specializing in FDI compliance.
Establishing compliance procedures: Develop internal procedures to ensure adherence to capital contribution and investment regulations.
Regularly updating regulations: Continuously monitor and update policies and legal regulations related to FDI to adjust strategies accordingly.
VII. Conclusion
Compliance with FDI capital contribution obligations is essential for legal and sustainable business operations. Enterprises must fulfil their capital commitments while implementing preventive and remedial measures when issues arise.
Note: This article is for reference purposes only. Please consult Harley Miller Law Firm for specific legal advice tailored to your business.
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