How Investors Can Avoid the Trapped Money Problem in Vietnam | Acclime
At our offices, a common scenario is that a foreign individual comes to see us to help with their company/investment in Vietnam. They tell us that they have established a company in Vietnam using a Vietnamese friend’s name as the investor (nominee), they have personally invested a large amount of money from abroad into the company by way of cash, and they are now stuck as they can’t work out how to get the funds out of Vietnam.
The trapped money dilemma usually arises in these situations due to:
- Not using the structure right in the first instance
- Using a nominee, when there is no formal recognition of nominees in Vietnam
- Bringing funds in to Vietnam through the incorrect channels/processes, and
- Not getting professional advice before starting the business.
In Vietnam, most business sectors allow for foreign ownership. If the company is established by, or transferred to, a foreign owner correctly, the foreign party will be entitled to bring their investment capital into the country through a “Capital” bank account. Where investment capital is brought in through the Capital bank account, upon sale or wind-up of the company the funds can be sent back out of the country (provided correct taxes are paid on any profits).
Loans from abroad should also be brought into the company through a Capital bank account, or a dedicated Overseas Loan Account established at a local bank. Documented correctly, loans can be repatriated abroad back through this bank accounts to where the funds came from, and interest can also be paid and repatriated on the loans.
Funds can also be sent abroad for payment of foreign services, provided that Withholding Taxes are paid on the services (usually a 10% withholding/payment – but the actual amount varies depending on the specifics). Once taxes are paid, and where the services have appropriate supporting documents to evidence the service provided, the company can remit the payment abroad. The payment will also be tax deductible in Vietnam to the Vietnamese company if the correct steps are followed.
For investors that didn’t undertake their structure correctly at the start, there are corrective actions that can often be done to fix elements of the trapped cash, however the common result is that there is still trapped cash in Vietnam. If the business is really successful, there is often significant trapped funds in Vietnam – which can be truly a frustrating exercise for a foreign investor in Vietnam.
Investors, or potential investors, in Vietnam should get appropriate structural and planning advice and arrange investment actions correctly from the start. There may appear to be upfront savings and shortcuts in the short term when setting up a company or business in Vietnam by not following advice, but however beneficial it may appear at the start, the benefits should be seriously considered against the long-term impact of funds being trapped in Vietnam.
