In the context of increasing international economic integration and foreign investment attraction, foreign-invested companies (FDI enterprises) play an important role in Vietnam’s economy. One of the key concerns of foreign investors is the transfer of profits back to their countries. However, the profit transfer by foreign-invested companies must comply with the current legal regulations to ensure the legitimate rights and interests of the parties involved and to avoid legal risks.
So, how does Vietnamese law regulate profit transfer by foreign-invested companies? The article below by NPLAW will address this issue.
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In the context of increasing international economic integration and foreign investment attraction, foreign-invested companies (FDI enterprises) play an important role in Vietnam’s economy. One of the key concerns of foreign investors is the transfer of profits back to their countries. However, the profit transfer by foreign-invested companies must comply with the current legal regulations to ensure the legitimate rights and interests of the parties involved and to avoid legal risks.
So, how does Vietnamese law regulate profit transfer by foreign-invested companies? The article below by NPLAW will address this issue.
I. Understanding on transferring profits by foreign-invested companies
When operating in Vietnam, foreign-invested companies often generate profits and seek to transfer these profits to their shareholders or investors overseas. Profit transfer is an important and legitimate need of foreign-invested companies to reinvest or use such profits for business activities in the investors’ countries or for other financial purposes.
II. Legal regulations on transferring profits by foreign-invested companies
1. What is profit transfer by foreign-invested companies?
According to Clause 17, Article 3 of the Law on Investment 2020:
- An economic organization with foreign investment capital is an economic organization with foreign investors being its members or shareholders.
Pursuant to Article 2 of Circular No. 186/2010/TT-BTC, profits transferred from Vietnam to abroad may be in cash or in kind:
- Profits transferred abroad in cash shall comply with the laws on foreign exchange management;
- Profits transferred abroad in kind shall be converted into value according to the laws on import and export of goods and other relevant regulations.
Thus, the profit transfer by foreign-invested companies is understood as the act of a company with foreign investors as members or shareholders transferring lawful profits distributed or earned from direct investment activities in Vietnam under the Law on Investment, after fully fulfilling financial obligations to the Vietnamese State as prescribed.
2. Conditions for transferring profits by foreign-invested companies
According to Clause 1, Article 2 of Circular No. 186/2010/TT-BTC, profits transferred by foreign investors from Vietnam under this Circular are lawful profits distributed or earned from direct investment activities in Vietnam under the Law on Investment, after fulfilling all financial obligations to the Vietnamese State.
Therefore, a foreign-invested company is allowed to transfer profits abroad only after fulfilling its tax obligations to the Vietnamese State.
3. Notes on transferring profits by foreign-invested companies
According to Articles 3 and 4 of Circular No. 186/2010/TT-BTC, it is necessary to note the timing and determination of transferred profits as follows:
Annual profit transfer:
- Foreign investors are allowed to annually transfer profits distributed or earned from direct investment activities in Vietnam abroad upon the end of the fiscal year, after the enterprise in which the foreign investor has invested has fulfilled its financial obligations to the Vietnamese State, submitted audited financial statements, and annual corporate income tax finalization returns to the competent tax authority.
- Annual profits transferrable abroad include profits distributed or earned by the foreign investor during the fiscal year from direct investment activities based on the audited financial statements and tax finalization returns of the invested enterprise, plus (+) other profits such as undistributed profits carried forward from previous years, minus (-) profits committed or used by the foreign investor for reinvestment in Vietnam, or profits used to cover expenses for business activities or personal needs of the foreign investor in Vietnam.
Profit transfer upon termination of direct investment activities in Vietnam:
- Foreign investors are allowed to transfer profits abroad upon terminating direct investment activities in Vietnam after the invested enterprise has fulfilled its financial obligations to the Vietnamese State, submitted audited financial statements, and corporate income tax finalization returns to the competent tax authority, and completed all obligations under the Law on Tax Administration.
- The profits transferrable abroad in this case are the total profits earned by the foreign investor during the direct investment period in Vietnam, minus (-) profits already reinvested, profits already transferred abroad during the operation in Vietnam, and profits used for other expenditures in Vietnam.
III. Questions on transferring profits by foreign-invested companies
1. Forms of profit transfer by foreign-invested companies
According to Article 4 of Circular No. 186/2010/TT-BTC, foreign-invested companies may transfer profits in the following forms:
- Annual profit transfer;
- Profit transfer upon termination of direct investment activities in Vietnam.
2. Can foreign-invested companies transfer profits of their branches abroad?
According to Clause 5, Article 19 of the Commercial Law 2005, branches of foreign traders are allowed to transfer profits abroad but must comply with the laws of Vietnam.
Accordingly, the timing of transferring profits abroad is strictly regulated under Article 4 of Circular No. 186/2010/TT-BTC, including annual profit transfer and profit transfer upon termination of direct investment, provided that all financial obligations related to the income forming such profits to be transferred abroad have been fulfilled.
Thus, if a branch wishes to transfer profits to its parent company on a monthly or quarterly basis from training activities, it cannot do so but can only transfer profits annually. According to Clause 1, Article 11 of the Ordinance on Foreign Exchange 2005, such transfer must be made via foreign currency accounts opened at licensed credit institutions.
3. Can foreign-invested companies transfer profits abroad into the investor’s account in Vietnam?
According to Clause 1, Article 9 of Circular No. 06/2019/TT-NHNN, profits transferred abroad in cash must be made through direct investment capital accounts as prescribed. This means such profits must be transferred abroad, not transferred into the investor’s account in Vietnam.
4. When a foreign-invested company transfers profits abroad, which State agency does the company need to report to?
According to Article 4 of Circular No. 186/2010/TT-BTC, foreign investors must notify the transfer of profits abroad using the form issued together with this Circular, submitted to the tax authority directly managing the enterprise in which the foreign investor has invested, at least 7 working days before the transfer .
IV. Legal consultancy services related to transferring profits by foreign-invested companies
The above is all the detailed information provided by NPLaw to assist our valued clients regarding transferring profits by foreign-invested companies. If you have any further questions on this issue or other legal matters, please contact NPLaw directly for consultation and support.
