At first, the local company was established by the trustee, so in order to have money for the trustee to contribute capital to the local company, the foreigner would lend the trustee an amount equivalent to the authorized capital of the local company rates.
Accordingly, please see the process and cash flow as below to comply with the provisions of Vietnamese law for your reference.
1. For the first cash flow at the time of incorporation of the local company in the name of the trustee
- Step 1: You lend the entrusting unit the amount of capital corresponding to the registered charter capital; and
- Step 2: The trustee uses the borrowed money into a bank account of a domestic company controlled by a foreigner so that the trustee can fulfill its obligation to contribute capital as prescribed by law.
2. For the 2nd cash flow when foreigners buy back the capital of the domestic company from the trustee to become the sole owner and convert it into a foreign invested company
- Step 1: After the foreigner receives the approval of the local company’s capital acquisition from the trustee, the local company opens its DICA at an authorized bank in Vietnam;
- Step 2: Foreigners transfer the purchase price of capital (equivalent to registered charter capital and loan) to the DICA of the domestic company opened in Step 1;
- Step 3: The purchase price of a local company’s capital contribution at DICA is transferred to the local company’s transaction account for the local company to declare on behalf of the trustee the capital transfer tax of the trustee with the tax authority. ; and
- Step 4: In order to repay the loan according to the first cash flow, the domestic company transfers the purchase price of the redeemed capital in the domestic company’s trading account in cash to the foreigner in Vietnam or transfers the amount to a bank account in Vietnam by foreigners.
As you can see above, there are 02 cash flows: (i) The first is a loan for the trustee to contribute to the bank account of a domestic company controlled by a foreigner; and (ii) the 2nd cash flow in the form of the purchase price of capital acquired through DICA to comply with Vietnamese law and then paid to foreigners in cash in Vietnam to write off the loan under the first cash flow, and, in a later period, foreigners can remit profits/dividends from the Vietnamese company abroad.
