Foreign companies and the issue of “trapped cash” in Vietnam

In the last years, a common issue has affected foreign companies operating in Vietnam through a local entity (often LLCs owned by a foreign mother company). This article will briefly describe the most common mistakes of foreign entrepreneurs when it come to funds moving inbound and outbound from a Vietnamese point of view.

Incoming funds from abroad:

Payments received in Vietnam by a foreign owned entity can be categorized as:

  • Capitalization
  • Foreign loans
  • Payment for services or goods provided by the Vietnamese company

As shown in the chart below, payments related to capital or loans, should always transit through a capital account or a dedicated overseas loan account, maintained at a local institution in Vietnam.

Funds leaving Vietnam:

Once dividends or loans repayment are due from the controlled entities in Vietnam to the foreign mother company, capital or loan accounts shall be used for such transfers. If the transaction is properly supported by the relevant documents, the transfers will be authorized by the State Bank of Vietnam.

Processing the above payments from the current account of the company in Vietnam may trigger the controls of the regulator, who will freeze the funds if noncompliance is ascertained.

On the other hand, payments for goods or services can be performed by the current account of the company, with no concerns, if the relevant tax obligations (such as 10% withholding tax payment) have been met.

Fidinam (HCMC) can support its clients for the structuring and execution of compliant cross border payments and to identify effective solutions for ongoing “trapped cash” issues arising from non compliant transfer.

Filippo Buzzi, Head of the Italian Desk of Fidinam (Hong Kong) Limited

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