In practice, a common legal issue arises in foreign investment activities in Vietnam where foreign investors adopt a structure involving Vietnamese individuals acting as nominee shareholders to initially establish the company. Subsequently, the capital contribution is transferred back to the foreign investor; however, no actual payment is made, or the payment is not conducted in compliance with legal requirements. Despite the transaction not being financially completed, the company still proceeds with amending the Enterprise Registration Certificate (ERC) to reflect the foreign investor as the new owner, or even increases its charter capital without fully contributing the registered capital.
This raises a critical legal question as to whether such arrangements are legally recognized, and what the consequences are of a “record first – perform later” approach. This issue becomes particularly significant in the context of Vietnam’s increasingly stringent foreign exchange control regime, which places strong emphasis on transparency and traceability of investment capital flows.
Pursuant to Article 10 of Circular No. 06/2019/TT-NHNN, Vietnamese law imposes a mandatory requirement on the payment method for capital transfer transactions between foreign investors and domestic investors. Specifically, such transactions must be conducted through a Direct Investment Capital Account (DICA). In addition, for transactions between residents and non-residents, both the valuation and payment must be made in Vietnamese Dong (VND). These requirements are designed to ensure proper control of cross-border capital flows and to enable competent authorities to monitor, inspect, and manage foreign exchange activities effectively.
In practice, however, it is not uncommon for investors to bypass these requirements by making payments through personal accounts or, in some cases, not making any actual payment at all. Such practices constitute a direct violation of foreign exchange regulations. The act of “formalizing” a transaction on paper without any corresponding cash flow not only undermines the substance of the capital transfer but also exposes the transaction to the risk of being deemed legally invalid. Therefore, it can be concluded that compliance with the prescribed payment method is not merely a procedural requirement, but a fundamental condition for the legal validity of a capital transfer transaction.
From an enforcement perspective, pursuant to Article 27.5 and Article 5.3 of Decree No. 340/2025/ND-CP, effective from 09 February 2026 clearly stipulates penalties for violations related to foreign exchange activities, including improper payment methods in foreign investment transactions. Accordingly, individuals may be subject to fines ranging from VND 80 million to VND 100 million, while organizations may face doubled penalties of up to VND 160 million to VND 200 million.
In practice, the failure to use a Direct Investment Capital Account (DICA) or to carry out payments in accordance with regulatory requirements may be deemed as conducting capital transactions in violation of foreign exchange laws. As a result, not only is the transaction exposed to legal risks, but the enterprise may also be subject to significant financial penalties imposed by the State Bank of Vietnam’s inspection authorities. It can therefore be concluded that non-compliance with prescribed payment methods is not merely a technical oversight, but a regulatory breach that may trigger substantial administrative sanctions.
In addition to foreign exchange violations, another significant legal issue arises in relation to the accuracy and truthfulness of enterprise registration filings, particularly in the context of the current regulatory approach of business registration authorities, which is largely based on the principle of “self-declaration and self-responsibility.” Pursuant to Article 30 of the Law on Enterprises, any changes to enterprise registration contents may only be made once such changes have actually occurred in practice. This implies that investors must complete the payment for capital transfers or fully contribute the charter capital before proceeding with amendments to the Enterprise Registration Certificate (ERC).
However, in practice, the business registration authority does not require enterprises to submit definitive evidence proving that the transfer price has been fully paid or that capital contribution has been completed when processing such amendments. Instead, enterprises are only required to provide one of the following supporting documents:[1]
11. Documents evidencing completion of capital transfer may include one of the following:
a) A copy or extract of the members’ register or shareholders’ register;
b) A copy or original of the liquidation minutes of the transfer agreement;
c) A bank confirmation evidencing completion of payment;
d) Other documents having legal validity to prove completion of the transfer of shares or capital contributions in accordance with the law.
12. Documents evidencing capital contribution may include one of the following:
a) A copy or extract of the members’ register or shareholders’ register;
b) A copy of the capital contribution certificate;
c) A bank confirmation evidencing the transfer of funds into the company’s account;
d) Other documents having legal validity to prove completion of capital contribution in accordance with the law.
In practice, the issuance of the Enterprise Registration Certificate in such cases is primarily based on the enterprise’s declarations and undertakings. This mechanism creates a “regulatory gap,” allowing many investors to complete licensing amendments quickly, even where the underlying transaction has not actually been performed.
This gives rise to a fundamental inconsistency: from a formal perspective, the enterprise is legally recognized with a new ownership structure; however, in substance, the transfer transaction remains incomplete and no actual cash flow exists. When subject to inspection or when subsequent transactions arise (such as profit remittance, capital increase, or further transfers), the discrepancy between legal records and financial reality may be identified and treated as misrepresentation in enterprise registration filings. Under Article 43 of Decree No. 122/2021/ND-CP, such conduct may be subject to administrative fines ranging from VND 20 million to VND 30 million.
More importantly, the risk extends beyond administrative sanctions. The validity of the entire ownership structure may be called into question, thereby affecting subsequent transactions based on that structure, which may be rejected by competent authorities or financial institutions. It can therefore be concluded that the “loophole” in the control mechanism of the business registration system does not reduce the enterprise’s compliance obligations; rather, it effectively shifts the legal risk onto the investor if they choose to take advantage of this procedural convenience.
From an operational perspective, the above violations extend far beyond administrative penalties and may lead to significant practical consequences for FDI enterprises. Where investment capital is not contributed in compliance with regulatory requirements, the enterprise may face substantial difficulties in substantiating the legality of its capital sources with banks. This, in turn, directly affects its ability to carry out key financial transactions, including profit remittance abroad, capital increases, or access to financing. At the same time, competent authorities may refuse to process amendments to investment licenses if the submitted records do not accurately reflect the actual status of capital contribution.
In the context of increasingly stringent post-licensing inspections in Vietnam, irregularities in investment capital flows are more likely to be detected and subject to strict scrutiny, particularly for foreign-invested enterprises. As a result, the most critical risk does not lie in the monetary penalties themselves, but in the possibility that the enterprise’s operations may be effectively “frozen,” thereby hindering its ability to operate, expand, or execute exit strategies in the long term.
For cases where violations have already occurred, the typical approach is for the enterprise to proactively engage with the State Bank of Vietnam to provide explanations and seek guidance on handling the irregular capital flows. This may include options to regularize past transactions or to re-perform capital contribution or transfer transactions in compliance with applicable regulations. Once the foreign exchange issues have been addressed, the enterprise should then proceed to work with the Department of Finance to resolve any violations related to inaccurate or untruthful enterprise registration filings.
The remediation process should be carried out in a logical sequence, with priority given to resolving foreign exchange issues, as these are fundamental to the legality of the investment capital. However, it should be noted that the appropriate course of action will depend heavily on the specific circumstances of each case, including the available documentation, evidence of fund transfers, and the regulatory perspective of the competent authorities. Accordingly, there is no one-size-fits-all solution, and enterprises are strongly advised to obtain tailored legal advice before taking corrective actions.
From the above analysis, it is evident that improper capital contribution and capital transfer structures are not merely procedural irregularities, but legal issues that may have far-reaching implications for the overall operations of FDI enterprises. In the context of Vietnam’s increasingly stringent foreign exchange regulations and heightened emphasis on transparency of capital flows, strict compliance from the outset is a fundamental prerequisite to ensure the stability and sustainability of investment activities.
For cases where non-compliance has already occurred, enterprises should proactively conduct a thorough review and take corrective actions at an early stage to prevent legal risks from accumulating and escalating over time. Taking the right approach from the beginning not only helps minimize remediation costs but also safeguards the long-term interests of investors.
If your business is facing issues related to improper capital contribution, capital transfers without actual payment, or inconsistencies between legal records and the actual flow of investment funds, conducting an early legal review is essential to mitigate potential risks. With extensive experience advising foreign-invested enterprises, Lexsol’s legal team can assist in reviewing ownership structures, assessing the legality of capital flows, and proposing tailored solutions to regularize investment arrangements. Taking the right approach from the outset will not only minimize remediation costs but also ensure that your investment operations remain compliant, stable, and sustainable in the long term.
Lexsol is a team of young, dynamic lawyers with over 10 years of experience in advising and resolving legal matters for both domestic and international businesses.
152-154 Vo Van Kiet Street, Ben Thanh Ward, Ho Chi Minh City, Vietnam
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