The foreign investor who wishes to establish a direct presence in Vietnam, and does not desire to purchase an existing business, can set up a new company in Vietnam (VietCo), whether as a wholly owned company or as a joint venture with foreign or Vietnamese partners.  There are two types of capital that the foreign investor will need to consider and decide upon in order to establish a VietCo: 1) the charter capital of the VietCo and 2) investment capital for implementation of the investment project of the VietCo.  These two types of capital must be stipulated in the application documents for approval by the licensing authority and will also be specified in the enterprise registration certificate and investment registration certificate of VietCo.

This executive brief aims to assist foreign investors in understanding the key concepts of charter capital and investment capital for the establishment of a VietCo.

Charter capital

Charter capital is synonymous with “equity” in the legal terminology of other countries.  Subject to the nature of the VietCo’s business, the law may require a minimum charter capital for the VietCo or impose a foreign ownership limit on the VietCo.  Therefore, it is vital to assess the market entry regulations for the VietCo’s intended business activities.

Charter capital is defined as the capital contributed or undertaken to be contributed by the member/owner within a statutory period (usually 90 days from the issuance date of enterprise registration certificate).  The foreign investor is obliged to fully contribute the charter capital in accordance with this timeline, or the VietCo may be required to decrease its charter capital to reflect the actual capital contribution of the foreign investor, in addition to other administrative sanctions.

The VietCo may be allowed to increase or decrease its charter capital under the laws, but any change will be subject to approval of the licensing authority.

Investment capital

Investment capital is the capital for implementation of the investment project of the VietCo. This includes the capital contribution by the foreign investor and the loan capital that the VietCo borrows from a credit institution or other parties.  Investment capital provides the ability for the VietCo to obtain loans from other parties to implement the investment project. Further, the VietCo is not obliged to borrow the total amount of the loan capital.

In the application to obtain an investment registration certificate, the foreign investor will be required to set out the schedule for capital contribution and loan capital.  The investor is then obliged to make the capital contribution and loan capital in accordance with the schedule registered with, and approved by, the licensing authority.  If the foreign investor fails to comply with said schedule, an administrative fine may be imposed and the foreign investor may encounter difficulties with the bank where the capital contribution account was opened.  The bank may refuse to credit any capital contribution amount made behind schedule as stipulated in the investment registration certificate and may request the foreign investor obtain approval from the licensing authority for the late capital contribution.

Under the law, the foreign investor has the right to adjust the capital for its investment project or other contents related to the investment project.  However, any change of investment capital, either an increase or decrease, must be registered with the licensing authority.

If you have any questions or concerns regarding the establishment of a company in Vietnam, our experienced corporate attorneys are always available at letran@corporatecounsels.vn