WHAT SHOULD ENTERPRISES DO WHEN OVERDUE FOR CAPITAL CONTRIBUTION UNDER THE IRC?

What should enterprises do when overdue for capital contribution under the IRC? is an urgent question that any foreign investor must face when failing to fulfill their capital contribution obligations in accordance with the committed schedule recorded in the Investment Registration Certificate (IRC). Being overdue for capital contribution under the IRC not only exposes enterprises to the risk of administrative sanctions, but also entails a series of legal risks that could threaten the viability of the entire project. So, what are the most necessary and effective steps that enterprises must take immediately upon falling into overdue status for capital contribution under the IRC? The article below provides a detailed analysis of this matter:

1. What Does Overdue Capital Contribution Under the IRC Mean?

Overdue capital contribution under the IRC refers to a situation where an investor fails to contribute full capital on or before the committed timeline specified in the Investment Registration Certificate (IRC). Upon the expiration of this deadline, if the actual contributed capital falls short of the committed amount, the enterprise officially falls into overdue status for capital contribution under the IRC.

The clearest indicator is the discrepancy between the balance in the direct investment capital account and the total charter capital registered in the IRC. This is not merely an administrative violation, but also leads to various other complex legal ramifications.

2. Legal Consequences of Overdue Capital Contribution Under the IRC

Before identifying solutions to handle overdue capital contribution under the IRC, investors need to clearly understand the resulting legal consequences to maintain necessary proactivity.

• First, risk of administrative sanctions: Pursuant to Point a, Clause 2, Article 19 of Decree No. 122/2021/ND-CP, foreign-invested enterprises (FIEs) may be subject to a fine ranging from VND 70,000,000 to VND 100,000,000 for failing to execute project contents in accordance with the recorded Investment Registration Certificate. Delay in contributing capital as per the committed schedule constitutes a typical violation, and this fine is fully applicable if discovered during regulatory inspections while overdue for capital contribution under the IRC.
• Second, obstacles in banking procedures: When falling into overdue status for capital contribution under the IRC, the enterprise’s direct investment capital account is usually subject to stricter control by commercial banks. Many banks require the presentation of a valid IRC and confirmation of on-time capital contribution progress prior to processing transactions such as loan disbursements, opening Letters of Credit (L/C), remitting profits abroad, or making payments to foreign partners. Once overdue capital contribution under the IRC is detected, banks reserve the right to refuse transactions, thereby stagnating corporate cash flow and severely impacting operational activities.
• Third, impediments to subsequent investment project amendments: In the course of operations, most foreign-invested enterprises face needs to amend their IRCs (e.g., capital expansion, adding business lines, changing project locations, or transferring capital contributions). Upon submission of amendment dossiers, the investment registration authority will review the enterprise’s overall regulatory compliance, including capital contribution progress. If the enterprise is found overdue for capital contribution under the IRC, processing of the amendment dossier will almost certainly be suspended until the violation is fully rectified. This can delay critical business plans and lead to lost investment opportunities.
• Finally, risks during regulatory inspections and audits: An enterprise recorded with violations regarding overdue capital contribution under the IRC is often placed under special monitoring. The risk of unannounced inspections or audits by state authorities is significantly higher compared to compliant enterprises. Each audit cycle not only disrupts business operations and consumes time and resources, but may also lead to the discovery of additional non-compliance issues, resulting in supplementary penalties or severe measures such as operational suspension or IRC revocation.

3. What Should Enterprises Do When Overdue for Capital Contribution Under the IRC?

When inadvertently falling into overdue status for capital contribution under the IRC, enterprises must take immediate action according to the following procedure:

Step 1: Pay Administrative Fines

Once state authorities issue a sanction decision, the enterprise must strictly comply by paying the full fine. This is a prerequisite for subsequent procedures to be considered and resolved. Wilful delay not only accrues interest on late payments but may also trigger coercive enforcement measures by authorities. Therefore, settle the fine immediately upon issuance of the decision while preparing documentation to remedy the overdue status.

Step 2: Amend the IRC to Extend Capital Contribution Schedule

This is the most critical step. Pursuant to Clause 2, Article 33 of the Law on Investment 2020, investors must carry out procedures to adjust the Investment Registration Certificate where project adjustments alter major contents of the IRC. Extending the capital contribution timeline alters recorded terms, making IRC amendment mandatory.

A typical dossier to amend the IRC for rectifying overdue capital contribution includes:

• Written request for amendment of the Investment Registration Certificate.
• Report on project execution status up to the time of amendment request.
• Investor’s decision regarding adjustment of the project’s capital contribution schedule.
• Owner’s / Board’s decision regarding adjustment of the capital contribution schedule.
• Power of Attorney (if submitted via an authorized representative).
• Decision on adjustment of Investment Guidelines Approval (if the project requires investment policy approval).

Important Note: Prior to submitting the IRC amendment dossier, foreign-invested enterprises must fully satisfy their statutory obligations regarding periodic investment monitoring reports and project evaluation/supervision reports. This requirement is frequently overlooked, leading to dossier rejections or requests for supplementation, which prolong processing times.

Under Article 15 of Decree No. 122/2021/ND-CP, failure to comply with reporting obligations not only stalls procedures but also subjects enterprises to substantial administrative fines:

• Fine of VND 20,000,000 to VND 30,000,000 for failing to submit investment evaluation/supervision reports on time, submitting incomplete contents, or failing to adhere to periodic reporting schemes.
• Fine of VND 30,000,000 to VND 50,000,000 for failing to perform periodic investment reporting or submitting late reports.

In addition to paying fines, enterprises are legally required to execute remedial measures by submitting missing reports and fulfilling all reporting obligations strictly under regulations. Review these reports thoroughly prior to submission to ensure seamless processing.

Upon issuance of the amended IRC, the new capital contribution schedule officially takes effect. At this point, the enterprise is no longer deemed overdue for capital contribution under the IRC, and all banking and partner transactions will normalize.

Conclusion

In summary, being overdue for capital contribution under the IRC is not the end of an FDI project, but it is certainly a legal challenge demanding prompt, precise, and legally sound execution. From paying fines responsibly and completing reporting obligations to preparing IRC amendment filings, every step must follow the proper sequence to restore regulatory compliance and safeguard overall investment efforts.

For in-depth legal advice and timely assistance, you may contact BKCLAW via:

• Phone: 0909 073 692
• Email: info@bkclaw.vn
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