When a foreign investor fully contributes capital to establish a company in Vietnam, the distribution of dividends is not merely a financial matter but also a legal mechanism that links the investor’s rights with the host country’s legal framework. A thorough understanding of this mechanism not only ensures compliance with tax and foreign exchange laws but also lays a foundation for a stable, transparent, and sustainable investment environment.
1. Legal Conditions
Pursuant to Clause 2, Article 135 of the Law on Enterprises 2020, a joint stock company (including companies with foreign ownership) is allowed to distribute dividends only when the following conditions are met:
- Fulfillment of financial obligations: This includes completing obligations related to taxes, social insurance, and any other due debts.
- Distributed from post-tax profits or retained earnings: Net profit must be the remainder after deducting all expenses, corporate income tax, and mandatory fund appropriations.
- Appropriation of funds and offset of losses (if any): The company must appropriate funds such as the Financial Reserve Fund, Business Development Fund, and Bonus and Welfare Fund, as required by law. Any accumulated losses from previous years must be fully offset before dividends are paid.
- Solvency assurance after dividend payment: After paying dividends, the company must still be able to fully meet its due debts and other payable obligations.
2. Methods of Dividend Payment
2.1 Cash Dividend Payment
– Currency: Dividends must be paid in Vietnamese dong, in accordance with foreign exchange regulations.
– Payment method: Payment must be made via the shareholder’s lawful bank account in Vietnam.
– Remittance abroad: If the shareholder is a foreign organization or individual, the remittance of dividends abroad must comply with the following:
- Consolidated Circular No. 06/VBHN-NHNN, guiding foreign exchange management for foreign direct investment activities in Vietnam.
- Certification from the tax authority confirming the completion of tax obligations.
- Execution of the remittance through an investment capital account opened at a licensed bank.
2.2 Stock Dividend Payment
– Conditions: Must be provided for in the company’s Charter and approved by the General Meeting of Shareholders.
– Legal procedures:
- The company must register an increase in its charter capital equivalent to the amount of additional shares issued.
- The company must submit an application to amend its enterprise registration within 10 days from the date the share distribution is completed.
– Effect: Shareholders receiving dividends in the form of shares will increase their ownership ratio but will not receive cash.
2.3 Dividend Payment in the Form of Other Assets
- Conditions: Must be explicitly provided for in the company’s Charter and approved by the shareholders.
- Types of assets: May include goods, rights to use assets, or other financial rights.
- Valuation: An independent third-party valuation is required to ensure transparency and fairness.
Note: The dividend-receiving account of a foreign shareholder must be an investment capital account opened at a licensed bank authorized to conduct foreign exchange operations.
3. Dividend Distribution Procedure
The dividend distribution process consists of five main steps, as specifically provided in Articles 135 and 138 of the Law on Enterprises 2020, and applies to both Limited Liability Companies (LLCs) and Joint Stock Companies (JSCs) with foreign capital contributions.
Step 1: Verification of post-tax criteria
- Legal basis: Clause 2, Article 135 of the Law on Enterprises 2020.
- Ensure all legal conditions are met before dividend distribution.
- Review the company’s Charter to confirm whether dividend distribution is permitted and what forms of payment are allowed.
- Dividends must not be distributed from charter capital or borrowed funds.
Step 2: Proposal of dividend distribution plan by the Board of Directors/Members’ Council
– Legal basis: Clause 2, Article 135 and Clause 2, Article 138 of the Law on Enterprises 2020.
– Required contents of the plan:
- Dividend ratio (based on par value or profit percentage).
- Method of payment: cash, shares, or other assets.
- Timeline and procedures for payment.
Step 3: Approval of the dividend plan by the General Meeting of Shareholders / Members’ Council
– Legal basis: Article 138 of the Law on Enterprises 2020.
– Requirements:
- Hold an annual or extraordinary meeting to approve the dividend distribution plan. Meeting minutes must be signed by all attending members.
- Voting must follow the ratio stipulated in the Charter (commonly 51% or more).
- A resolution or decision on dividend distribution must be issued for both LLCs and JSCs (in accordance with Article 76).
Step 4: Preparation of the list of shareholders entitled to dividends and notification
- Legal basis: Clause 4, Article 135 of the Law on Enterprises 2020.
- The list of shareholders must be finalized no later than 30 days before the dividend payment date.
- Notification must be sent at least 15 days in advance and must include: Company name, shareholder information, number of shares held, dividend amount and payment date and method.
Step 5: Dividend payment execution
- Timeline: Dividends must be paid within 06 months from the date of the Annual General Meeting.
- Non-compliance with the payment deadline may result in administrative penalties or restitution obligations.
Note:
- Obligation to return dividends: If dividends are distributed in violation of the law, shareholders are required to return the improperly received amounts.
- If shareholders fail to return them, the Board of Directors or the company owner shall be jointly liable for equivalent debts.
Dividend distribution in a 100% foreign-owned company is not merely a financial transaction, but a reflection of legal compliance, transparency in corporate governance, and the investor’s long-term commitment to the Vietnamese market. When capital flows are distributed in accordance with the law, it protects investor rights and reinforces confidence in Vietnam’s legal and business 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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