Foreign-Invested Enterprises (FIEs) operating in Vietnam must adhere to a strict legal process when ceasing operations, whether due to a shift in business strategy, market difficulties, or regulatory breaches. This procedure is governed primarily by the Law on Investment 2020 and the Law on Enterprises 2020 (amended in 2025). A thorough understanding of this framework is critical for investors seeking a smooth, liability-free exit.
1. Grounds for Investment Project Termination
Under Article 48 of the Law on Investment 2020, an investment project (and thus the FIE associated with it) can be terminated under two distinct sets of circumstances:
A. Termination Based on Investor’s Decision or Contractual Term (Clause 1)
These cases are initiated or governed by the investor or the project’s inherent conditions:
- Investor’s Decision: The investor voluntarily decides to cease the project’s operation.
- Contractual/Charter Conditions: The project is terminated according to the specific conditions for cessation stipulated in the investment contract or the enterprise’s charter.
- Expiry of Term: The operating term stated in the Investment Registration Certificate (IRC) has expired.
Investor Action: If termination is voluntary (Investor’s Decision), the investor must notify the Investment Registration Authority (IRA) within 15 days of the decision.
B. Termination Decided by the State (IRA) (Clause 2)
The Investment Registration Authority (IRA) will decide to terminate (in full or in part) the project in the following cases, often due to non-compliance or failure to execute the project:
- Failure to Remedy Suspension: The investor fails to overcome the difficulties that led to the project’s suspension (e.g., environmental damage, financial issues) as mandated by the law.
- Loss of Land/Location: The investor is no longer permitted to use the investment location (e.g., land is repossessed) and fails to complete procedures for changing the location within 06 months.
- Non-Contact: The project has ceased operations, and the IRA cannot contact the investor or their legal representative after 12 months from the date of cessation.
- Land Expropriation: The land associated with the project is officially expropriated by the State due to failure to use the land or delaying its use as prescribed by the Law on Land.
- Failure to Provide Security: The investor fails to pay the deposit or provide a bank guarantee for project execution security when required.
- Sham Transaction: The investment activities were conducted on the basis of a sham civil transaction (e.g., using a nominee to bypass foreign ownership restrictions).
- Court/Arbitral Award: Termination is mandated by a judgment or decision of a Vietnamese Court or an arbitral award.
This corrected list ensures all mandatory and discretionary grounds for termination under the Investment Law are accurately represented before the dissolution process under the Law on Enterprises begins.
2. The Corporate Dissolution Procedure
Once the investment project is terminated, the FIE must legally dissolve under the Law on Enterprises 2020 (Articles 207–210). This involves a phased process:
- Authorization: The investor or governing body (e.g., Members’ Council, Board of Directors) must approve a dissolution resolution.
- Notification: The FIE must formally inform the business registration office, the tax authority, and its employees.
- Liability Settlement: All financial obligations must be cleared in the statutory order of priority. This includes:
- Employee Rights (salaries, social insurance).
- Tax liabilities.
- Loans and other commercial debts.
- Tax Clearance: Obtain final confirmation of tax obligation closure from the tax authority.
- Final Deletion: Return the Enterprise Registration Certificate (ERC) and request removal from the National Enterprise Database.
Key Responsibility: The FIE’s legal representative remains personally responsible for the company’s obligations until the dissolution process is finalized.
3. Asset and Land-Use Rights Liquidation
The FIE must liquidate all corporate assets (machinery, inventory, etc.) in accordance with Vietnamese civil and commercial laws.
- Land: If the FIE leased land from the State, the lease contract automatically ends upon termination. Any unused land must be returned to the State.
- Industrial Zones: If the enterprise sub-leased land within an industrial zone, it must comply with the specific management regulations of that zone when transferring or returning the premises.
4. Protection of Employee Rights
Employee entitlements are a high priority. Before final dissolution, the FIE must comply with the Labor Code 2019 by settling all rights, including:
- Payment of outstanding wages and social insurance contributions.
- Payment of severance allowance (if applicable).
- Compensation for any premature contract termination.
Priority: Employee entitlements hold priority in payment over unsecured creditors.
5. Involuntary Termination: The Bankruptcy Process
If the FIE is insolvent (unable to pay its debts as they fall due), the voluntary dissolution process is replaced by the Law on Bankruptcy 2014. This is a court-driven procedure involving the appointment of an asset administrator to manage the company’s remaining assets and ensure their equitable distribution among creditors.
💡 Practical Considerations for a Clean Exit
Investors should be mindful of several practical issues to prevent costly delays and penalties:
- Early Planning: Start preparing well in advance, especially concerning outstanding loans, land-clearance issues, and anticipating a full tax audit.
- Documentation: All official documents submitted to the authorities should be prepared in bilingual format.
- Compliance Risk: Failure to adhere to notification requirements or document submissions can lead to administrative penalties and, in some cases, personal liability for the enterprise’s managers.
A compliant, well-executed exit strategy protects the investor from sanctions, secures employee rights, and preserves the integrity of Vietnam’s legal environment.
📞 CONTACT LEGAL CONSULTANT:
TLA Law is a leading law firm with a team of highly experienced lawyers specializing in criminal, civil, corporate, marriage and family law, and more. We are committed to providing comprehensive legal support and answering all your legal questions. If you have any further questions, please do not hesitate to contact us.
1. Lawyer Vu Thi Phuong Thanh, Ha Noi Bar Association
Email: vtpthanh@tlalaw.vn
2. Lawyer Tran My Le, Ha Noi Bar Association
Email: tmle@tlalaw.vn
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