Under Circular 6 of the State Bank of Vietnam dated 26 June 2019 guiding the forex management on direct foreign investment into Vietnam (Circular 6/2019), foreign and Vietnamese investors (Investors) of a foreign invested enterprise (FIE) are required to inject capital contributions to the FIE through its direct investment capital account (DICA) opened at a bank in Vietnam. This article will discuss whether the Investors can inject the increased charter capital (Increased Capital) into the DICA if the time limit for making the capital contribution under the IRC already expired.

Though the law is not entirely clear, there are some arguments under Vietnamese law to support that the Investors are still able to contribute the Increased Capital to the DICA, after the expiry of the capital contribution time limit specified in the IRC. Specifically,

Under Circular 6/2019

1.1. Article 4.1 of Circular 6/2019 expressly provides that “foreign investors and Vietnamese investors are permitted to contribute investment capital in foreign currency or VND at the capital contribution level of such investor prescribed in the investment registration certificate [or] licence for establishment and operation in accordance with specialized branch law (in the case of an FDI enterprise established and operating in accordance with specialized branch law), or in accordance with the Notice on satisfaction of conditions of the foreign investor to contribute capital or to purchase shares or acquire a capital contribution portion, or in accordance with the PPP contract entered into with the authorized State agency, or in accordance with other documents proving that the capital contribution by the foreign investor complies with provisions of law”.

The underlined wording suggests that the Investors are allowed to contribute capital within the recorded amount of capital contribution in the IRC. Nothing in Circular 6/2019 (including Article 4.1) requires that such contribution must be made within the capital contribution schedule specified in the IRC or prohibiting the Investor from contributing the missing capital after the expiry of such time limit.

Under the Enterprise Law 2020

1.2. While the Enterprise Law 2020 imposes a specific time limit for an investor to make the initial capital contribution and also sets out consequence if the investor fails to do so, it is silent on the time limit for making the Increased Capital as well as the consequence of breach (see details in table below). The Investors therefore can argue that they can contribute the Increased Capital even if the relevant time limit under the IRC already expired.

Item	Initial capital contribution	Increased Capital
1.2.1. Nature	The initial capital contribution is to incorporate a company.	The Increased Capital is to increase the charter capital of a company.
1.2.2. Time limit for contribution	Within 90 days from the date the company is issued with the enterprise registration certificate (ERC).	N/A
1.2.3. Consequence	(a) If there is a member who fails to contribute the initial capital contribution upon expiry of the time limit, the company must register to decrease its charter capital and to change contribution ratio within 30 days from the date the time limit expired. (b) The defaulting member is still liable for the company’s financial obligations arising before the date of the change above in proportion to its committed capital contribution ratio.	N/A

Under the Investment Law 2020

1.3. At law, the Investors have a general obligation to comply with the IRC (which may be interpreted to include the compliance with the capital contribution schedule prescribed in the IRC). Accordingly, if the Investors fail to contribute the capital on time, they may be subject to a monetary fine from VND 70 million to 100 million under Decree 122/2021. Decree 122/2021 however does not require that the Investors must amend the capital contribution schedule specified in the IRC. Further, under the Investment Law 2020, such breach will not immediately result in revocation of the IRC but the Investors will have a chance to remedy the breach. Logically, the appropriate remedy for the late capital contribution is to contribute the missing capital contribution as soon as possible.

As far as we are aware, in practice, various banks of Vietnam still allow investors to remit the increased capital to DICA after the expiry of the time limit without being subject to any penalty from the State Bank of Vietnam. The banks may need to conduct some measures to protect themselves.

This post is written by Nguyen Hoang Duy and edited by Hoang Thi Thanh Thuy.

Vietnam Business Law