The repatriation of profits through dividend payments is an important element to any foreign investment in Vietnam. The good news is that the process is not overly complicated, provided that the appropriate ongoing compliance procedures are undertaken by a company during their operations.
Background
Companies in Vietnam can declare and pay one dividend per year, provided the company has positive retained profits at the time and that they are not in a loss position for that year. This makes treasury planning important, to ensure that the requirements for retained (undistributed) profits are met, and that the company is profitable when declaring the dividend.
Taxation
There is no withholding taxes applicable to corporate shareholders/owners of Vietnamese companies. Therefore, where a Vietnamese company validly declares a dividend to a foreign corporate shareholder/owner, 100% of the dividend can be distributed abroad the foreign company.
However, individual (personal) ownership of a Vietnamese company will result in a 5% withholding tax (for Personal Income Tax) being applicable and which is generally the responsibility of the Vietnamese company to withhold prior to remittance.
Process & requirements
In order to repatriate a dividend to a foreign investor, a company needs to ensure that its financial statements have been audited and submitted to the authorities for that year. In addition, the company is required to have fulfilled all taxes and other financial obligations to the Government.
In practice, companies that are up to date with their tax payments, filings and annual audits/lodgements will face limited obstacles with repatriating dividends.
Once a dividend has been declared, the local tax authority needs to be notified, following which they have 7 days to object to the payment (ie, the tax authorities notifying that company has not fulfilled all tax obligations). Where an objection has not been received after 7 days, the company can continue with the payment process.
Dividend payments to foreign investors need to be paid out through a Capital Account – either the Direct Investment Capital Account (“DICA”) held by the company, or an Indirect Investment Capital Account (“IICA”) held by an individual. Most commonly a DICA is used, and discussions should be held with the company’s bank regarding documents required for the conversion from Vietnamese Dong to foreign currency and further documentation/forms (if any) to be completed for the remittance per State Bank procedures applicable at the time. The banking documents are usually completed during the 7 day period whilst waiting for the no-objection period from the tax authorities, so that when that period has expired, the dividends can be disbursed promptly.
Problems that arise?
Investors that have difficulty in finalising and completing dividend payments from Vietnam usually fall into three categories:
- Tax Issues (ie, the authorities don’t accept that all financial obligations are completed),
- Period issues (lack of retained profits from prior periods or current year losses, resulting in the inability to declare a dividend in that year), or
- Banking constraints (ie, not using the correct bank account or obtaining correct forms/documentation requirements from the bank prior to seeking to make the payment).
We encourage all companies in Vietnam to stay on top of their tax compliance obligations, and to review these obligations on an ongoing basis, so that unexpected objections are not received when seeking to declare and pay dividends. We also encourage companies to understand their payment “windows” so that (for example) a loss year does not block the ability to remit dividends where foreign investors are expected to receive dividends. These windows are essentially planning for periods where the requirements for dividends are met, and taking advantage of declarations at those times.
We also encourage companies to liaise with their bank prior to seeking to make any dividend payments, to ensure that their DICA (or respective IICA) is in order and that the process is clear for all for dividends payments.
Ultimately, foreign dividend remittance for most compliant and profitable companies in Vietnam is not a complicated process, but this does rely on companies being compliant and having clear awareness of their obligations in Vietnam.