On 18 November 2010, the Vietnamese Ministry of Finance issued Circular No. 186/2010/TT-BTC regarding remittance of profits overseas by foreign organisations or individuals that earn profit from their direct investment in Vietnam (Circular 186).
Circular 186 replaced Circular No. 124/2004/TT-BTC dated 23 December 2004 (Circular 124) and took effect on 3 January 2011.
There are both positive and negative aspects in Circular 186, as compared with Circular 124.
On the positive side, foreign investors are no longer required to obtain certification from the tax authorities that they have paid tax on the profits transferred abroad. Instead, they will only submit a notification of their intent to remit profits abroad, at least seven working days before proceeding with the transfer.
On the negative side, profit may only be transferred abroad annually, whilst previously it could be remitted on a quarterly or semi-annual basis. In addition, foreign investors are prohibited from transferring profits abroad when there have been accumulated losses under audited financial statements after losses have been carried forward from the previous year, even though they do make profits for the current year.
The salient provisions of Circular 186 are discussed below.
Scope of Application
Circular 186 updates and details the scope of application. Which complies with the 2005 Investment Law whereas Circular 124 was issued prior to the current law. Applicable entities are foreign organisations and individuals who directly invest in Vietnam pursuant to Article 21 (Forms of direct investment ), Article 22 (Investments to enable establishment of economic organisations), Article 23 (Investment in accordance with contract), Article 24 (Investment in business development) and Article 25 (Capital contribution, purchase of shareholding, merger and acquisition) of the Investment Law (foreign investors).
The forms of direct investment falling within the scope of Circular 186 comprise:
- Establishment of economic organisations in the form of 100% capital of domestic investors or 100% capital of foreign investors
- Establishment of joint venture economic organisations between domestic and foreign investors
- Investment in the contractual forms of: BCC (business cooperation contract), BO (build-operate), BTO (build-transfer-operate) and BT (build-transfer)
- Investment in business development
- Purchase of shares or contribution of capital in order to participate in management of investment activities
- Investment in the carrying out of a merger and acquisition of an enterprise
- Other forms of direct investment
Circular 186 does not govern the following forms of indirect investment in Vietnam:
- Purchase of shareholding, shares, bonds and other valuable papers
- Investment by way of securities investment funds
- Investment by way of other intermediary financial institutions
Profits Eligible for Remittance Overseas
Profits which foreign investors are permitted to remit overseas from Vietnam pursuant to the guidelines in Circular 186 are lawful profits distributed or received from direct investment activities in Vietnam pursuant to the Investment Law after complete discharge of the financial obligations to the State of Vietnam in accordance with relevant regulations.
Foreign investors may remit profits overseas from Vietnam (i) in cash under legislation on foreign exchange control or (ii) in kind which is converted into a value under legislation on import and export of goods and other relevant laws.
Point of Time for Remittance of Profits Overseas
- Annual remittance of profits overseas:
A foreign investor may remit overseas annually the amount of profits distributed or received from direct investment activities in Vietnam on termination of the financial year after the enterprise in which the foreign investor participated by investment has fully discharged its financial obligations to the State of Vietnam in accordance with law and has lodged audited financial statements and the corporate income tax (CIT) finalisation declaration for the financial year to the tax office directly managing it.
Profits eligible for remittance overseas annually mean profits distributed to or received by a foreign investor for the financial year from direct investment activities based on audited financial statements and the CIT finalisation declaration of the enterprise in which the foreign investor participated by investment, plus (+) other profit items such as profits carried forward from previous years and not yet fully remitted, less (-) items which the foreign investor has used or undertaken to use to re-invest in Vietnam and profit items which the foreign investor has used to pay its expenses for production and business activities or for its personal needs in Vietnam.
- Remittance of profits overseas on termination of direct
investment activity in Vietnam:
A foreign investor will be permitted to remit profit overseas on termination of its direct investment activity in Vietnam after the enterprise has fully discharged its financial obligations to the State of Vietnam and has lodged audited financial statements and the CIT finalisation declaration to the relevant tax office and at the same time has fully discharged its obligations under the Law on Tax Management.
Profits eligible for remittance overseas on termination of a direct investment activity in Vietnam mean the total amount of profits received by the foreign investor throughout the process of its direct investment in Vietnam, less (-) profit items used for re-investment and profit items already remitted overseas during the process of the activity by the foreign investor in Vietnam and less profit items used to pay its other disbursements in Vietnam.
Notification of Remittance of Profits Overseas
A foreign investor will personally complete, or may authorise to the enterprise in which the foreign investor participated by investment to complete, a notification of remittance of profits overseas on the standard form issued with Circular 186, and send it to the tax office directly managing such enterprise at least seven working days prior to actually conducting the remittance overseas.
Visit us at www.mayerbrown.com
Copyright 2010. JSM, Mayer Brown International LLP and/or Mayer Brown LLP. All rights reserved. Mayer Brown is a global legal services organization comprising legal practices that are separate entities ("Mayer Brown Practices"). The Mayer Brown Practices are: JSM, a Hong Kong partnership, and its associated entities in Asia; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and Mayer Brown LLP, a limited liability partnership established in the United States. The Mayer Brown Practices are known as Mayer Brown JSM in Asia.
This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.