Legal questions

Conditions for starting business activities
Clause 8 Article 7 Decree No. 78/2015/NĐ-CP dated September 14, 2015 of the Government on business registration stipulates: “Enterprises are entitled to conduct conditional business lines and trades since the conditions prescribed by law are met and must be ensured to meet those conditions during the operation”.
Vietnamese law stipulates groups of business conditions including: Conditions for practice certificates, conditions for legal capital, conditions for business license.
Depending on different business field that applies different kind of business conditions.
For example:
The condition of business investment in the field of architectural design is that the company has architects with architectural design practice certificates
Conditions of business investment in the field of real estate business is a minimum legal capital of VND 20 billion.
Conditions for investment in the business of medical examination and treatment are required to have a facility license that is eligible for operation issued by a medical agency.
Law No. 03/2016/QH14 issued a list of 243 conditional business lines.
With long-term experience in consulting and supporting businesses, we understand the difficulties that businesses face when implementing administrative procedures related to the company's operations. In order to best support businesses, we are always ready to advise on the conditions applicable to each specific business, provide service to carry out the procedures for granting business licenses of all kinds (child licenses) and other types of licenses related to business operations.
EDCON provides you with the following services:

The biggest concern of individuals and organizations when planing to set up enterprises is the issue of charter capital. "How to register charter capital in accordance with the size of the company", "How much charter capital is enough", "The amount of charter capital is large or small" .... These are the questions customers often ask when starting a business.
Therefore, EDCON would like to give you some notes about the determination of charter capital in business registration activities.
The charter capital in the establishment and operation of the enterprise is the total amount and value of assets converted into money contributed or committed by the members of the limited liability company, shareholders of the joint-stock company, committing to pay when open a company.
Charter capital or equity is paid by the members / shareholders to the Company within 90 days from the date of establishment of the company. In the event of a 90-day period in which one of the members or all members has not yet contributed, the Company must make a notice to re-register the charter capital within 30 days or 60 days (depending on the type of business. ) from the end of the time limit for capital contribution. Members of limited liability companies, shareholders of joint stock companies are limited in their share / share contribution.
Whether a company registers high or low charter capital depends on the company's business plan and the will of its members / founding shareholders. In principle, the minimum amount of charter capital required is to cover all operating costs during the time when the Company has not had any revenue, and no financial loan has been arranged. This is to ensure that the operation of the Company does not fall into the state of unpaid debts, debt partners ....
In fact, some entrepreneur, when starting businesses, often raise their charter capital to a very high level, so much that they know that no members or shareholders can afford to pay. At the end of 90 days as stipulated by the Law, no one contributes the full amount of his / her registered money, there are even companies that has no one contributes money, so many in fact. The purpose of registering such a high charter capital is various, some people want others to look at their companies to see the magnificent scale, some people think that high surface capital will support them in terms of trust in business transactions, some others aim to participate in the bidding where the investor stipulates minimum capital, some others only register unconsciously ...
However, the consequences of registering chartered capital in excess of contribution and payment capacity are unforeseen because not everyone knows it well:
Firstly, the Company can completely be sanctioned for administrative violations in the field of planning and investment. The total fine can be up to tens of millions of VND;
Secondly, every year the company has to prepare financial statements to send to the tax authorities, the failure to contribute enough capital will lead to the Company having to make false financial statements with actual figures. This may also lead to consequences of sanctioning violations in the field of taxation;
Thirdly, when there is a transfer of charter capital, transfer members/ shareholders will face difficulties when deciding the transfer price. They will be stuck between how much money they get from transferring and paying taxes to the State. Here, the tax authority applies a share transfer tax of 0.1% of the share transfer price and 20% of the profit for the transfer of contributed capital.

Answer:
"Investment conditions for foreign investors" and "Business operation conditions" are two different conditions for both the subject and the time of application. As follows:

1. For "Investment conditions for foreign investors"

(i) According to Clause 6, Article 2 of Decree No. 118/2015 /NĐ-CP, the investment conditions for foreign investors shall apply to investment activities of foreign investors belonging to one of the following:

(ii) At the same time, according to the provisions of Clause 1, Article 23 of the Investment Law, economic organizations must meet the conditions and carry out investment procedures according to regulations for foreign investors when investing in the establishment of economic organizations. ; investment in capital contribution, purchase of shares, capital contributions of economic organizations; BCC contract investment falls into one of the following cases:

2. For "Conditions of business operation"

Clause 8 Article 7 Decree No. 78/2015 /NĐ-CP dated September 14, 2015 of the Government on business registration stipulates: “Enterprises are entitled to conduct conditional business lines and trades since the time when the conditions prescribed by law are met and must be ensured to meet those conditions during the whole operation time”.
Thus, the object of application of "Business operation conditions" includes enterprises established under the Enterprise Law and applied when enterprises proceed the right to conduct conditional business lines.
For example:

"Investment conditions for foreign investors" and "Business investment conditions" are two different concepts.

According to the provisions of Clause 6, Article 2 of Decree No. 118/2015/NĐ-CP, the investment conditions for foreign investors are conditions that foreign investors must meet when implementing investment activities in conditional investment industries and trades for foreign investors in accordance with investment laws, ordinances, decrees and international treaties.

As stipulated in Clause 7, Article 2 of Decree No. 118/2015/NĐ-CP, the condition of business investment is a condition that individuals and organizations (both local and foreign investors) must meet in accordance with provisions of laws, ordinances, decrees and international treaties on investment when conducting investment and business activities in the industries and trades prescribed in Appendix 4 of the Investment Law.

Question: I am a foreign investor who is planning to join my friend who is a Vietnamese to invest in establishing a company in Vietnam. I expected to contribute only 5% of the contribution capital. Do we need to carry out the investment registration procedure to be granted an Investment Registration Certificate before registering the company establishment?
Reply:
Under the provisions of Article 22 of the Investment Law, investors are allowed to establish economic organizations in accordance with the law. Before establishing an economic organization, foreign investors must have an investment project, and carry out procedures for issuance of an investment registration certificate.
Therefore, in case you participate in the 5% capital ratio to establish a company, you need to carry out procedures for granting investment registration certificate before establishing the company.
According to Clause 1, Clause 2, Article 23 of the Investment Law prescribes:
"1. Economic organizations must meet the conditions and carry out investment procedures according to regulations for foreign investors when investing in the establishment of economic organizations; investment in capital contribution, purchase of shares, capital contributions of economic organizations; investments according to the BCC contract falls into one of the following cases:
a) Having a foreign investor holding 51% or more of its charter capital or having a majority of partners being foreign individuals for economic organizations being partnerships;
b) Having an economic organization defined at Point a of this Clause holding 51% or more of its charter capital;
c) Having foreign investors and economic organizations defined at Point a of this Clause holding 51% or more of their charter capital ”.
"2. Foreign-invested economic organizations do not fall into the cases prescribed at Points a, b and c, Clause 1 of this Article, must implement investment conditions and procedures as prescribed for domestic investors when investing in establishment of economic organizations; investment in the form of capital contribution, purchase of shares or capital contributions of economic organizations; investment in the form of BCC contract ”.
Based on the above provisions, the cases that must carry out the procedures for investment registration to be granted an Investment Registration Certificate before registering a business establishment, including:
a) Foreign investors register to establish or participate in establishing enterprises in Vietnam.
b) Economic organizations having foreign investors holding 51% or more of their charter capital or having a majority of general partners being foreign individuals for economic organizations are partnership companies registered for establishment or participate in establishing businesses in Vietnam.
c) Economic organizations with economic organizations falling into the cases mentioned in Point b hold 51% or more of their charter capital and register for establishment or join in establishing enterprises in Vietnam.
d) Economic organizations with foreign investors and economic organizations falling into the cases stated at Point b, holding 51% or more of their charter capital or registering for establishment or participating in establishing enterprises in Vietnam.
After being granted an Investment Registration Certificate, the investor must carry out the procedures for registration of the establishment of an enterprise to be granted a business registration certificate as prescribed.
You can consider the case of acquiring 5% of the capital of the 100% Vietnamese economic organization. At that time, you only have to carry out the procedures for notifying capital contribution and buying shares at the Department of Planning and Investment if the company has a conditional business line for foreign investors.

Question 11: Regulations on minimum capital for foreign investment activities
Reply :
According to the provisions of Clause 15, Article 2 of Decree No. 118/2015/NĐ-CP : the investment capital of the project is the capital contributed by the investor and the loan capital mobilized by investor to implement the investment project recorded in the approval decision for the investment project  and investment registration certificate. Currently, Vietnamese law does not set the minimum capital requirement for foreign enterprises such as joint stock companies or limited liability companies. However, some industries have different regulations about the minimum capital depends on each industry such as:
- According to Article 35 of Decree No. 86/2018/NĐ-CP prescribing foreign investment capital:
"1. Investment projects for establishments of preschool educational institutions must have a minimum investment rate of VND 30 million/child (excluding land use costs). The minimum investment capital is calculated based on the time with the highest expected scale. The investment capital plan must be suitable to the expected scale of each stage.
2. Investment projects on establishments of general educational institutions must have a minimum investment rate of VND 50 million/student (excluding land use costs). The minimum investment capital is calculated based on the time with the highest expected scale, but not less than VND 50 billion.
3. Investment projects for establishing short-term training and educational institutions must have a minimum investment rate of VND 20 million/student (excluding land use costs). The minimum investment capital is calculated based on the time with the highest expected scale.
4. Investment projects on establishments of university educational institutions must have a minimum investment capital of VND 1,000 billion (excluding land use costs). Foreign-invested economic organizations who are investors of projects must prove the financial capability under the Investment Law. By the time of evaluation to permit the establishment of universities, the investment value must be over VND 500 billion.
5. Investment projects on establishments of a division of a foreign-invested University educational institutions in Vietnam must have a minimum investment capital of VND 250 billion (excluding land use costs). By the time of evaluation to allow the establishment of a university branch, the investment value must be over VND 150 billion.
6. For foreign-invested educational institutions that do not build new material facilities but only rent them or are contributed by Vietnamese parties with existing facilities for operation, the investment level must be at least 70% of the levels prescribed in Clauses 1, 2, 3 and 4 of this Article. "or
- According to Article 3 of Decree 76/2015/NĐ-CP, regulations for real estate business organizations and individuals:
"1. Real estate business organizations and individuals must establish enterprises in accordance with the law on enterprises or cooperatives in accordance with the law on cooperatives (hereinafter referred collectively to as enterprises) and must have legal capital not lower than VND 20 billion, except for the following cases:
a) Organizations, households and individuals that sell, transfer, lease or lease-purchase small-sized and irregular real estate specified in Article 5 of this Decree;
b) Real estate services organizations and individuals, prescribed in Chapter IV of the Law on Real Estate Business.
2. Enterprises conducting real estate business with legal capital prescribed in Clause 1 of this Article must l be responsible for the truthfulness and accuracy of the legal capital. "
Therefore, if a foreign investment company does not have a legal capital business, it shall have an explanation to meet the financial capacity to implement the actual project because when approving the investment project, the licensing authority in Vietnam will verify to determine with an investment capital as proposed by the investor, whether the investment project is feasible or not, sufficient capital to invest and operate the project or not.

Question: I am a foreign investor intending to invest in Company A with 100% capital belonged to Vietnamese investors. (The Company A is doing business without conditional business lines applied to foreign investors). My question is, if I invest in Company A in the form of buying 50% capital of Vietnamese investors, do I have to apply for procedures of capital contribution, share purchase and capital contribution?

Under the provisions of the Investment Law and Decree No. 118/2015 / ND-CP dated November 12, 2015 of the Government, providing detail guide about implementation of a number of clauses of the Investment Law, foreign investors go through procedures for registering capital contribution, buying shares, and contributing capital to economic organizations in the following cases:

a) Foreign investors contribute capital, buy shares, or contributed capital to economic organizations with conditional business lines applied for foreign investors;

b) Contribution of capital, purchase of shares or contributed capital of  foreign investors leading to holding 51% or more of the charter capital of economic organizations in the following cases: Increasing the percentage of foreign investors' ownership of charter capital from below 51% to above 51% and increase the percentage of foreign investors' ownership of charter capital when foreign investors have owned 51% or more in economic organizations.

Therefore, in the case of enterprises operating business without conditional business lines applied to for foreign investors, foreign investors only account for 50% of the percentage of owning charter capital in the Company, it is not required to apply for procedures for registration of capital contribution, share purchase or contributed capital  at the Department of Planning and Investment.