Transferring Capital and Profit Into and Out of Vietnam

HCMC – Foreign exchange control is a paramount concern of all foreign investors entering into Vietnam, as regulations on capital inflows and outflows have a great influence on operations and profit.
 
Foreign exchange control includes transferring capital into and out of the country, opening and using bank accounts, borrowing foreign loans and paying foreign debts, dealing with currency exchanges, government reporting, and handling violations.
 
The processes involved with ensuring that your capital and profits are correctly transferred into and out of Vietnam can be confusing, therefore, it is strongly suggested that a professional services firm be consulted before moving ahead with your operations.
 
Transferring Capital into Vietnam
To transfer capital into Vietnam, foreign investors must first set up a foreign invested enterprise (FIE), and then open a capital bank account in a legally licensed and operating bank. For advice on the steps involved in setting up a business in Vietnam, please see here.
 
A capital bank account is a special-use foreign-currency account designed to enable tracking of 
the movement of capital flows in and out of the country. This type of account is required in order to transfer money into current accounts so that in-country payments and other current transactions can be made.
 
Investment capital contribution schedules are set out in joint venture contracts, FIE charters or articles of association, and/or business cooperation contracts, in addition to the FIE’s investment license. Foreign investors are required to strictly follow the committed contribution schedule to avoid fines.
 
Transferring Capital and Profit out of Vietnam
International transfers of capital and profit follow the procedure stipulated by the Law on Foreign Exchange Management. Foreign investors can transfer both capital and profit out of Vietnam as follows:
 
 - Capital that can be transferred includes legal capital, reinvestment capital, and capital for performance of business cooperation contracts (upon operation, termination or dissolution of enterprises or reduction in the legal capital amount of enterprises); and
 - Profits that can be distributed to foreign investors at the end of the fiscal year after fulfilling financial obligations to the State of Vietnam are calculated as follows:
    - Profits described in audited financial reports and corporate income tax declarations plus (+) other profits earned       in the year, minus (-) the amounts used or committed to be used for in-country reinvestment and profit amounts       used by foreign investors to cover the expenses for their production and business activities or personal needs in       Vietnam.
 
Transfer Procedure

In order to repatriate profits, a company must ensure that it has completed the declaration of corporate income tax of the relevant financial year and issued audited financial statements. The company must then report its intention to repatriate its profits to the tax bureau. If, within 7 days, there is no notice from the tax bureau, the profits may be remitted out.
 
Companies can expect it to be between the middle to the end of April before they are able 
to remit their profits out of the country. However, profit repatriation will not be allowed if the 
financial statements of the company show an accumulated loss.
 
Upon terminating their investment activities in Vietnam, foreign investors can remit both capital 
and profits abroad after fulfilling financial obligations to the State of Vietnam and submitting tax 
settlement reports to the tax offices.
 
Currency

Transferring capital and profit out of Vietnam must be done in foreign currency capital accounts in a freely convertible currency, most likely US dollars or euros. Lawful revenue in VND shall be permitted to be converted into foreign currency for remittance abroad via authorized credit institutions.
 
Tax withholding

Accordingly, after completing their tax obligations to the State of Vietnam, FIEs are free to transfer profit abroad and shall not be subjected to withholding tax. However, individual investors are still subject to tax.
 
Withholding tax
 
 - Dividends – No tax is imposed on dividends remitted overseas unless paid to individuals – who are then subject to a 5 percent withholding tax, unless the rate is reduced under a tax treaty.
 - Interest – interest paid to a non-resident is subject to a five percent withholding tax, unless the rate is reduced under a tax treaty.
 - Royalties – Royalties paid to a non-resident are subject to a 10 percent withholding tax, unless the rate is reduced under a tax treaty.
 - Technical service fees – A withholding tax of five percent (corporate tax) and five percent (VAT) generally applies to technical service fees paid to a non-resident. The corporate tax may be exempt under a tax treaty.
 
This article was first published on Vietnam Briefing.
 
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
 
For further details or to contact the firm, please email info@dezshira.com or visit www.dezshira.com.