3 common mistakes of foreign-invested enterprises
Setting up business in a new country is a complex process and can be subject to potential errors. The following article will describe 3 problems that FDI enterprises can often encounter and some ways to solve them.
Errors in business lines
Foreign-invested enterprises may conduct business according to the lines of business licensed for investment as shown in the Investment Registration Certificate. The following are some of the more commonly found errors related to business compliance:
1. The actual business of doing wholesale does not need to apply for a retail license, but a retail license is required.
Base Official Letter 4248/BCT-KH dated May 30, 05 of the Ministry of Industry and Trade guiding the determination of wholesale/retail for foreign-invested enterprises
- Wholesaling is the activity of selling goods to other traders and organizations, excluding direct sales to buyers for personal and family consumption purposes.
- Retailing is the activity of selling directly to the end consumer for personal and family use.
Accordingly, the regulations clearly distinguish the concept of the subject who buys goods as wholesale or retail.
Thus: The distribution of consumer goods (food, office equipment, stationery, workwear, etc.) to customers who are factories, businesses, and organizations. … to equip employees or to serve the activities of that organization, which is understood as exercising the right to wholesale distribution and in the case of not having to issue a retail business license.
2. Has retail activities but does not apply for a retail license at the Department of Industry and Trade
Error case 1:
Foreign-invested enterprises have registered the wholesale and retail industry and actually have retail activities but do not know the legal regulations, so they do not apply for a retail license at the Department of Industry and Trade.
Consequences:
- Enterprises caught in illegal business practices.
- Fine from 10.000.000 VND to 15.000.000 VND.
Error case 2:
The enterprise has a retail business but thinks that “Because the percentage of foreign investors is less than 51%, there is no need to apply for a retail business license” This is a misunderstanding.
Enterprises with foreign capital (any proportion of foreign capital) must also apply for a retail license.
Business Question:'
With the approval of Hanoi Department of Planning and Investment, foreign investors (100% foreign capital) invest in the form of capital contribution, purchase shares of Technology Joint Stock Company (100% Vietnamese capital). . Accordingly, the percentage of charter capital contribution of foreign investors in Technology Joint Stock Company is less than 51%.Technology Joint Stock Company currently plans to retail software manufactured by the Company itself, computers and peripheral devices right at the Company's head office without setting up a retail store.
Pursuant to Clause 5, Article 5 of Decree 09/2018/ND-CP dated January 15, 1 of the Government: “2018. Economic organizations with retail establishments in Vietnam, after receiving contributed capital, become foreign-invested economic organizations or economic organizations in the cases specified at Points b and c, Clause 6 of this Article. 1 Law on Investment, must carry out procedures for granting business licenses, licenses to set up retail establishments”.
Thus, the Company understands that the Company does not fall into the case specified at Points b and c, Clause 1, Article 23 of the Law on Investment:
“Article 23. Investment activities of foreign-invested economic organizations
1. Economic organizations must meet conditions and carry out investment procedures as prescribed for foreign investors when investing in the establishment of economic organizations; investment in capital contribution, purchase of shares or capital contributions of economic organizations; Investing under BCC in one of the following cases:
… b) Having an economic organization specified at Point a of this Clause holding 51% or more of the charter capital;
c) There are foreign investors and economic organizations specified at Point a of this Clause holding 51% or more of charter capital.
Therefore, the Company is not required to carry out procedures for granting a business license, a retail establishment license according to the provisions of Decree 09/2018/ND-CP and relevant laws.
Through the system of receiving and responding to enterprises' petitions, the Company asked, is the above understanding of the Company correct? In case the interpretation is correct, when exercising the right to retail software, computers and peripheral devices at the head office, the Company is not required to carry out procedures for granting a business license, a base license, or a business license. Retail establishments according to the provisions of Decree 09/2018/ND-CP correct?
In this regard, the Ministry of Industry and Trade has the following comments:
According to the provisions of Articles 2 and 5, Article 5 of Decree No. 09/2018/ND-CP, foreign-invested economic organizations, economic organizations falling into the cases specified at Points b and c, Clauses 1, Article 23 of the Law on Investment with goods trading and activities directly related to the purchase and sale of goods are subject to the application of Decree No. 09/2018/ND-CP of the Government.
According to the provisions of Clause 17, Article 3 of the Law on Investment: "Foreign-invested economic organization means an economic organization with a foreign investor as a member or shareholder".
The company is an economic organization with foreign investors as members/shareholders, so according to the above regulations, the Company is a foreign-invested economic organization. Therefore, the Company must meet the conditions and carry out procedures for granting a business license and a license to set up a retail establishment in accordance with the provisions of Decree No. 09/2018/ND-CP when carrying out retail activities. at the head office.
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Link to the original post: Do you have to apply for a license when you have foreign capital to retail?
3. Outsourcing software production but not knowing the relevant regulations should apply wrong tax incentives to the software industry
Error case 1:
Foreign-invested enterprises outsourcing software but fail to comply with requirements on software product production but still ｄｅｃｌａｒｅ for corporate income tax incentives.
See the tutorial Handbook | Guidance on determining software production activities to enjoy CIT incentives
Error case 2:
Foreign-invested enterprises do website design (art design - frontend) for customers but think that this is software production (website programming), so they still ｄｅｃｌａｒｅ to enjoy corporate income tax incentives.
Conclusion: Frontend website art design is not software production, so it is subject to 10% VAT and not entitled to CIT incentives.
Error case 3:
Online software rental, but thinking that this is a software sale, declares Not subject to VAT and still declares to enjoy corporate income tax incentives.
Conclusion: Using software online (cloud) is a product copyright leasing activity, not a software sale, so it is subject to 10% VAT and is not entitled to CIT incentives.
3. Operating outside the scope of being granted an investment registration certificate
Enterprises may only conduct business according to the lines of business licensed for investment as shown in the Investment Registration Certificate or the Business Registration Certificate.
For conditional business lines, business conditions must be met in order to operate.
Errors in investment capital contribution
1. Contributing investment capital late as committed
Investment capital contribution is overdue for more than 90 days from the date of issuance of the certificate of active investment registration.
Consequence: The bank will not allow contributions beyond the time limit specified in the investment registration certificate. Enterprises must pay a penalty and adjust the new capital contribution time limit.
2. Contributing capital to wrong account, wrong process
Investors contribute capital to the wrong account (usually to the enterprise's current account but not the direct investment capital account). Regulations on foreign investment capital contribution are as follows:
When contributing capital for direct investment: A registered investor's account (foreign individual or enterprise) must be used to contribute to a direct investment capital account opened at a bank under the name of an enterprise established in Vietnam.
When transferring shares or contributed capital in foreign-invested enterprises:
The payment of transfer value of shares and contributed capital in foreign-invested enterprises shall be made as follows:
- Between non-resident investors or between non-resident investors through a direct investment capital account.
- Between a non-resident investor and a resident investor must be done through a direct investment capital account.
Errors about foreign loans
1. Received loan from wrong account
Borrowing from abroad but receiving money in the wrong account (receiving into a regular current account but not a capital account or a loan account)
2. Having medium and long-term loans but not registered with the State Bank of Vietnam
Error case 1:
Having medium and long-term loans but not registered with the State Bank of Vietnam.
Error case 2:
Short-term foreign loans become medium-term and long-term loans but do not know and do not carry out registration procedures, including:
- Short-term loans are extended for which the total term of the loan is more than 01 (one) year
- Short-term loans without renewal contract but with outstanding principal balance at round 01 (one) year from the date of first capital withdrawal, unless the Borrower completes loan repayment within 10 (one) year period. ten) days from the round of 01 (one) year from the date of first capital withdrawal.
In case businesses encounter the above errors and need in-depth advice on handling solutions, please contact us!
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