As a business law firm which has advised numerous foreign investors doing business in Vietnam, we often receive the same question from the foreign investors on profit repatriation. Specifically, are they allowed to repatriate the profit to their home countries?
Currently, Vietnam has issued a number of key legislative documents to govern foreign investment in Vietnam, including the applicable Law on Investment 2020, Decree No. 31/2020/ND-CP on detailing some articles of the Law on Investment, Circular 01/2021/TT-BKHDT on guiding enterprise registration, etc. In general, the legal framework for foreign investment in Vietnam is quite extensive and in fact the laws of Vietnam have clear regulations that the foreign investors can repatriate the profit to their home countries after fulfilling all obligations with the state[1].
A question is that are the foreign investors allowed to repatriate profits before the end of financial year?
It is also a question which we met in a recent case where the foreign investor (“Investor”) made investment under the form of Business Co-operation Contract (“BCC”)[2], with a local company duly established in Vietnam (“Business partner”). The Investor has no commercial presence within Vietnamese territory.
Under the law of Vietnam, profits repatriation is governed by Circular No. 186/2010/TT-BTC on guiding the remittance abroad of profits earned by foreign organizations and individuals from their direct investment in Vietnam under the Law on Investment (“Circular 186/2010/TT-BTC”). In particular, the Investor may repatriate the profits annually or at the termination of investment in Vietnam. In any event, the Investor shall not be allowed to remit abroad profits he earned from the BCC in case there are still accumulated losses in the financial statements of Business partner after such losses has been carried forward in accordance with law on corporate income tax.
It can be seen that the Investor is only allowed to remit the profits abroad earned from investment in Vietnam after the financial year is over[3], which normally lasts from 1st January to 31st December except otherwise decided[4]. Additionally, the profits can be repatriated upon the submission of: (i) financial statement; (ii) corporate income tax declaration; and fulfillment of financial obligation to the state.
The reason behind the time bar provision is to ensure the truthfulness, accuracy of the fulfillment of financial obligation of the Investor to the state before profits remittance abroad as at the end of financial year, the corporate income tax declaration and the audited financial accounts must be lodged to the tax authority in order to determine turnover, cost, expense and relevant financial obligations. Upon such determination, the Investor shall fulfill its obligations to state agency.
Another question is how the Investor can repatriate the profit abroad when he does not have any commercial presence in Vietnamese?
To repatriate the profit abroad, the Investor must follow the steps described below[5]:
- 1st step: Submitting audited financial statement of Business partner to the tax authority.
- 2nd step: Lodging the corporate income tax declaration of Business partner to the tax authority.
- 3rd step: Fulfilling the financial obligation to the state (tax, charge, fee, etc)
- 4th step: Filing a notice complying with the form under Circular 186/2010/TT-BTC to tax authority at least 7 working days before profits remittance abroad
- 5th step: Bringing the mentioned-above papers to the bank and requesting the bank to perform abroad transaction.
During the above process, the Investor is required to take into account the following points:
Firstly, since the Investor does not have commercial presence in Vietnam, the 1st step to 4th step could be executed by his Business partner.
Secondly, the financial statement submitted to the tax authority under Circular 186/2010/TT-BTC must be audited.[6] As far as we know, in fact, the Business partner is required to submit audited financial statement, not just only to the tax authority, but also to the bank where the remittance occurs.
Thirdly, for the 5th step, the repatriation shall be made via the investment capital account, either direct investment capital account[7] or indirect investment capital account[8], as the case maybe.[9] For the investment under the form of BCC, the Investor is required to open direct investment capital account[10]. Therefore, the Investor shall enforce profits repatriation via direct investment capital account.
Fourthly, in practice, depending on the bank where the Investor carries out the procedure to remit the profit abroad, there may be some additional documents in accordance with their internal rules, including:
- Meeting minutes or resolution of BCC Board of Management on approval of profit sharing;
- Notice to the tax authority on the transfer of profits according to the form issued in Circular 186/2010/TT-BTC; and
- Confirmation of tax clearance issued by competent tax authority.
Please be noted that even though Circular No. 186/2010/TT-BTC guiding the Law on Investment 2005, Law on Tax administration 2006 and Law on Corporate income tax 2008 and two of them (the Law on Investment 2005 and Law on Tax administration 2006) were expired and repealed, is still enforceable by the tax authority.[11]
[1] Article 4 of Circular No. 186/2010/TT-BTC guiding the remittance abroad of profits earned by foreign organizations and individuals from their direct investment in Vietnam under the Law on Investment
[2] Paragraph 14, Article 3 of Law on Investment 2020: “BCC means is a contract signed between investors for business cooperation, profit sharing and product distribution without establishing an economic organization”
[3] Article 4 of Circular No. 186/2010/TT-BTC
[4] Article 12 of Law on Accounting 2015
[5] Article 4 of Circular 186/2010/TT-BTC
[6] Para 2 Article 15 of Decree 17/2012/ND-CP
[7] Paragraph 5 Article 3 of Circular No. 06/2019/TT-NHNN: DICA means foreign currency or Vietnamese dong bank accounts opened by foreign direct investment enterprises and foreign investors at authorized banks to perform transactions regarding the foreign direct investment in Vietnam
[8] Paragraph 4 Article 3 of Circular No. 05/2014/TT-NHNN: IICA means Vietnamese dong bank accounts opened by a foreign investor in authorized bank for implementation of permitted receipt and expense transactions relating to foreign indirect activities in Vietnam
[9] Article 9 of Circular No. 06/2019/TT-NHNN guiding the foreign exchange management for the foreign direct investment in Vietnam and Article 8 of Circular No. 05/2014/TT-NHNN guiding the opening and use of indirectly- invested capital accounts for implementation of foreign indirect investment activities in Vietnam
[10] Point b paragraph 1 Article 5 of Circular 06/2019/TT-NHNN
[11] Pursuant to paragraph 14 of the Law on Promulgation of statute 2015, the effectiveness of Circular 186/2010/TT-BTC shall be expired when the Law on Investment expired. Notwithstanding that, the provisions under Circular 186/2010/TT-BTC are still applicable and there is none statutory regulation substituting these provisions at the time of publishing this article.
