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…

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This article provides general information and does not replace legal advice for a specific case.

At the first stage, the nominee establishes the local company in its own name. To give the nominee the funds to contribute capital to the company, the foreign investor lends the nominee an amount equal to the company's charter capital.

The process and cash flows below allow the parties to comply with Vietnamese law. They are set out for your reference.

1. First cash flow: when the nominee incorporates the local company in its own name

  • Step 1: The foreign investor lends the nominee an amount equal to the registered charter capital; and
  • Step 2: The nominee transfers the borrowed money into the bank account of the local company (which the foreign investor controls). In this way, the nominee fulfils its obligation to contribute capital as required by law.

2. Second cash flow: when the foreign investor buys the capital contribution from the nominee, becomes the sole owner and converts the company into a foreign-invested company

  • Step 1: After the foreign investor obtains approval to acquire the capital contribution from the nominee, the local company opens a direct investment capital account (DICA) at a bank licensed in Vietnam;
  • Step 2: The foreign investor pays the purchase price for the capital contribution (equal to the registered charter capital, and to the loan in the first cash flow) into the DICA that the company opened in Step 1;
  • Step 3: The company transfers the purchase price from the DICA to its current account. The company then declares the nominee's capital transfer tax to the tax authority on the nominee's behalf; and
  • Step 4: To repay the loan from the first cash flow, the company pays the purchase price held in its current account to the foreign investor, either in cash in Vietnam or by transfer to the foreign investor's bank account in Vietnam.
In short, the process has two cash flows: (i) the first is the loan that the nominee uses to contribute capital into the bank account of the local company (which the foreign investor controls); and (ii) the second is the purchase price for the capital contribution, which passes through the DICA to comply with Vietnamese law and is then paid back to the foreign investor in cash in Vietnam to settle the loan from the first cash flow. At a later stage, the foreign investor can remit profits or dividends from the Vietnamese company abroad.
Original content sourcehttps://tinpartners.vn/cash-flow-into-the-company-by-investment-trust-method/