Two Common Mistakes Made by FDI Enterprises When Investing in Vietnam

Vietnam remains an attractive destination for foreign investors thanks to its stable political environment, abundant labor force, and an open-door policy for international economic integration. However, during the investment and business process, many foreign-invested enterprises (FDI enterprises) have encountered legal and administrative risks due to a lack of understanding or incomplete assessment of Vietnam’s legal system and procedures.

With practical experience in legal consulting and support for various foreign investment projects, TNTP presents the article “Two Common Mistakes Made by FDI Enterprises When Investing in Vietnam” to help investors proactively avoid risks and ensure compliance with Vietnamese laws.

1.What is an FDI enterprise?

FDI stands for Foreign Direct Investment. According to the Law on Investment 2020, an FDI enterprise is a company with foreign capital, established by foreign investors or foreign-invested enterprises through capital contribution, share purchase, or direct investment in Vietnam.

Depending on the ownership ratio of foreign investors, the enterprise may be categorized as: A 100% foreign-owned enterprise; A joint venture enterprise (with capital contributed by both foreign and Vietnamese investors); or A Vietnamese enterprise with foreign ownership below 50%.

2.Two Common Mistakes after Establishing an FDI Enterprise in Vietnam

a.First mistake: Failure to fully contribute capital within the committed time frame stated in the Investment Registration Certificate.

(i) One of the most common mistakes made by FDI enterprises after being granted the Investment Registration Certificate is failing to contribute the full amount of registered capital within the committed period.

According to Vietnamese law, foreign investors must fully contribute the registered capital within the period stated in the Investment Registration Certificate (typically 90 days from the date of issuance of the Enterprise Registration Certificate, or as specified in the capital contribution schedule for each project). However, in practice, many FDI enterprises either: (1) Contribute capital later than the deadline stated in the Investment Registration Certificate; or (2) Fail to contribute the full registered amount.

(ii) Legal consequences of late or insufficient capital contribution

Failing to contribute capital on time or in full may lead to serious legal consequences for FDI enterprises, including administrative fines and remedial measures:

• Administrative fines:
• Under Point a, Clause 2, Article 19 of Decree No. 122/2021/ND-CP, a fine from VND 70,000,000 to VND 100,000,000 shall be imposed for failing to comply with the contents of the investment policy approval, the combined approval of the investment policy and investor, or the Investment Registration Certificate.”
• In case the investor fails to adjust the Investment Registration Certificate, an additional fine may be imposed under Point a, Clause 3, Article 46 of Decree No. 122/2021/ND-CP, ranging from VND 30,000,000 to VND 50,000,000.
• Remedial measures: Based on Point b, Clause 5, Article 46 of Decree No. 122/2021/ND-CP, the investor must carry out procedures to adjust the investment capital (specifically, to amend the Investment Registration Certificate).
• In cases of serious, prolonged violations or failure to comply with the authorities’ requirements, the Investment Registration Certificate may be revoked, resulting in the project being unable to continue in Vietnam.

b.Second mistake: Improper opening and use of the Direct Investment Capital Account (DICA)

A common mistake with foreign investors when contributing capital to establish an FDI enterprise in Vietnam is failing to comply with the legal requirements for opening and using bank accounts—specifically, the Direct Investment Capital Account (DICA).

(i) Regulations on the Direct Investment Capital Account (DICA):

• According to Vietnamese law, foreign investors contributing capital to enterprises in Vietnam must open a Direct Investment Capital Account (DICA) at a bank licensed to conduct foreign exchange operations in Vietnam. This account is mandatory for conducting investment-related transactions, such : Transferring capital contributions, increasing charter capital; Repatriating investment capital; Remitting profits abroad; and Other financial transactions related to the foreign investor’s equity.

Note: Each investment project may only have one DICA opened at one bank chosen by the investor. Changing banks or opening multiple DICAs for the same project is not permitted unless approved and done by legal procedures.

• Payment account: After opening the DICA, the foreign investor will also open a payment account for day-to-day operational expenses of the business such as operating costs, salaries, and payments to domestic partners. Any transfer of funds from the DICA to the payment account must comply with proper procedures and regulations.

(ii) Common mistakes in opening and using the DICA

In practice, many FDI enterprises do not open a DICA for capital contribution but instead, transfer funds directly into the company’s payment account. This violates foreign exchange control regulations and may lead to consequences such as:

• Invalid capital contribution, resulting in the business registration authority not recognizing the contributed capital;
• Administrative penalties under the Decree on sanctions in the field of monetary and banking activities;
• Difficulties in profit remittance, capital repatriation, or making future investment registration adjustments.

(iii) Failure to open and properly use the DICA may result in administrative penalties:

• According to Point d, Clause 4, Article 23 of Decree No. 88/2019/ND-CP, individuals who violate regulations on opening, closing, or using accounts for foreign investment activities in Vietnam shall be fined from VND 30,000,000 to VND 50,000,000 (fines applicable to individuals).
• Under Point b, Clause 2, Article 3 of Decree No. 88/2019/ND-CP, fines for organizations are double those for individuals, ranging from VND 60,000,000 to VND 100,000,000.

Thus, failure to open a DICA by law may lead to administrative penalties of up to VND 100,000,000, not to mention other legal consequences related to the failure to legitimize investment capital flows.

The above is an article by TNTP titled “Two Common Mistakes Made by FDI Enterprises When Investing in Vietnam.” We hope this article will be helpful to our valued readers.

Sincerely.