Conditions and Procedures for Converting a Project to 100% Vietnamese Capital Contribution

Vietnam is currently an attractive destination for foreign investors, thanks to its open policies, profound international integration, and increasingly improved investment environment. However, during the investment and business operation process, due to various reasons such as restructuring, changes in business strategy, internal transfers, or market withdrawal, some foreign investors may wish to transfer their entire capital contribution to domestic investors.

Consequently, the foreign-invested project will be converted into a domestic-invested project (Vietnamese capital). This conversion is not merely a financial transaction but a legal procedure involving multiple critical steps that require strict compliance with Vietnamese law. The following article provides a comprehensive overview of the conditions, sequence, and procedures for converting a foreign-invested project to domestic capital.

Legal Basis

• Law on Investment 2020

• Law on Enterprises 2020

• Law on Tax Administration 2019

• Circular 03/2021/TT-BKHDT guiding the templates of documents and investment dossiers

• Circular 111/2013/TT-BTC guiding the implementation of the Law on Personal Income Tax

• Decree 31/2021/ND-CP guiding the implementation of the Law on Investment

• Guiding documents of the Ministry of Finance and local Departments of Finance (in the event of decentralization from the Department of Planning and Investment to the Department of Finance under the new model)

Conditions for Converting a Foreign-Invested Project to Vietnamese Capital

An investment project is considered convertible to domestic capital when it meets the following conditions:

• Complete Transfer: The foreign investor transfers their entire ownership stake (shares or capital contribution) in the enterprise to a domestic investor (a Vietnamese individual or organization).

• Wholly Domestic Status: Post-transfer, no foreign investors hold any capital in the enterprise. The enterprise becomes a wholly domestic company.

• Business Line Compliance: The project must not fall under conditional investment sectors applicable exclusively to foreign investors; if it does, the transferee must satisfy the corresponding conditions.

• Legal Recognition: The capital transfer activity must be clearly recorded in the legal dossier and registered for changes with the competent regulatory authority.

Sequence and Procedures for Project Conversion

The conversion involves several critical legal and administrative steps:

Step 1: Agree Upon and Execute the Transfer of Capital Contribution or Shares

The involved parties (the foreign investor and domestic investor) sign a Capital Transfer Agreement. This serves as the legal basis for subsequent steps.

• For a Limited Liability Company (LLC): Execute the capital contribution transfer and update the register of members.

• For a Joint Stock Company (JSC): Execute the share transfer according to the proper procedure and record it in the shareholder register.
  Note: The transfer agreement may require notarization/authentication (if applicable) and typically includes annexes related to enterprise valuation, financial confirmation, and tax commitments

Step 2: Declare and Pay Personal Income Tax (PIT) on the Transferred Capital

Pursuant to Circular 111/2013/TT-BTC, foreign investors transferring capital in Vietnam must fulfill tax obligations to the Vietnamese State.

• Tax rate: 0.1% on the transfer value (gross value, regardless of profit or loss).

• Declaration method: The investor can self-declare or authorize the enterprise to declare on their behalf.

• Submission: The dossier is submitted to the tax authority directly managing the enterprise.

Step 3: Submit the Updated Dossier to the Enterprise Registration Authority

The enterprise must carry out procedures to amend its enterprise registration at the Department of Finance (under the new decentralized model) or the Business Registration Office under the Department of Planning and Investment, depending on the locality.

The dossier includes:

• Notice of changes to enterprise registration contents;

• List of members/shareholders post-transfer;

• A notarized/certified copy of the Transfer Agreement;

• A document confirming the fulfillment of tax obligations (if available).

Step 4: Terminate the Operation of the Foreign-Invested Project

Under Article 48 of the Law on Investment 2020, a foreign-invested project will no longer be valid when no foreign investor holds ownership. Therefore, the enterprise must carry out procedures to terminate the investment project’s operation..

The dossier submitted to the Department of Finance (or relevant authority) includes:

• A written request for the termination of the investment project;

• The investor’s decision on the termination of operation;

• An asset liquidation report (if any);

• The original Investment Registration Certificate (IRC);

• Documents proving the fulfillment of financial obligations to the State.

Processing time: Typically 10 – 15 working days, depending on the locality.

Step 5: Acknowledge the Enterprise as a Domestic Enterprise

Upon completing the aforementioned procedures, the enterprise will no longer be governed by foreign investment regulations. At this point, it is officially recognized as a domestic enterprise and can operate under the general regulations applicable to other Vietnamese companies.

Important Legal Notes

• Mandatory IRC Termination: Do not skip the step of terminating the Investment Registration Certificate. This is a mandatory condition to successfully transition from a foreign-invested enterprise to a domestic enterprise.

• Strict Timing Control: The timing of the transfer and subsequent legal updates must be strictly controlled to avoid tax arrears or related liabilities.

• Re-evaluating Business Lines: Enterprises must re-evaluate the conditions for their business lines once the foreign element is removed, as some sectors have different ownership ratio regulations for domestic versus FDI enterprises.

• Confirming the Competent Authority: In some localities, the Department of Finance now receives and processes procedures related to investment projects instead of the Department of Planning and Investment. Enterprises should contact the relevant bodies beforehand to confirm the appropriate focal authority.

Professional Support Services at BKC Law

At BKC Law, we provide legal consulting and comprehensive package services for converting investment projects from foreign to domestic capital, including:

• Analyzing specific situations and advising on suitable solutions;

• Drafting capital transfer agreements and complete legal dossiers;

• Representing the enterprise in dealings with the Department of Finance, tax authorities, and related agencies;

• Assisting in declaring and fulfilling tax obligations;

• Monitoring, urging, and managing the entire conversion process until completion.

With a team of highly experienced lawyers well-versed in Vietnam’s investment processes, BKC Law is committed to accompanying investors throughout the legal journey, ensuring that capital withdrawal and enterprise conversion occur swiftly, efficiently, and in strict compliance with current legal regulations.

Contact Us

For legal consultation at BKC Law, please contact us via the following information: 

• Phone: 0901 3333 41

• Email: info@bkclaw.vn

• District 1 Office: 9th Floor, Diamond Plaza Building, 34 Le Duan Street, Sai Gon Ward, District 1, Ho Chi Minh City

• Binh Tan Office: 41 Ten Lua Street, An Lac Ward, Binh Tan District, Ho Chi Minh City

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