A new view on liquidation in Vietnam

Many firms in Vietnam fear dissolution, but with the right process, they don’t have to

Voluntary liquidation of a solvent company in Vietnam (technically known as a dissolution) is seen by many as a daunting process.  In particular, for foreign invested enterprises, terminating a current investment project can be a time consuming process.  From a tax and regulatory perspective, there are a number of required procedures and documents that an enterprise needs to comply with in a fairly rigid statutory timeframe, with such procedures typically lasting between six and 12 months.

However, entities should not be put off from such a course of action. The below article sets out the key issues and provides a checklist of the main procedures to ease the journey. The main thing to remember throughout the process is that the dissolving company (DC) should pay close attention to the involvement of all key stakeholders, i.e. the employees, customers, creditors, business partners and relevant authorities.

How to prepare for the dissolution process?

Upon the decision to “liquidate” a company, the DC will need to internally establish a statutory timeline to complete the dissolution together with an exhaustive checklist of all dissolution dossiers in accordance with the laws of Vietnam.  The company charter is important to note as it may include guidance on specific dissolution procedures.  All assets and liabilities should be reviewed so that the DC can produce an appropriate asset dissolution plan and liabilities settlement plan. 

In compiling these documents, the DC should pay attention to five main categories: (i) General (dissolution notice, subsidiaries and branches); (ii) Labour (headcount, severance allowances, insurance contributions); (iii) Contracts (suppliers, customers, utilities and land lease); (iv) Assets (fixed assets, inventories); (v) Tax (VAT, CIT, PIT, Custom duties and FCT). The tabulated exhibit below outlines these documents in more detail (See Table 1).

The board of management will need to prepare a resolution on dissolution, based on the aforementioned documents, and have it passed by the investors.  After that, the DC should send the approved resolution to all relevant stakeholders and announce it publicly before commencing the dissolution process.

What does the dissolution process involve?

The remaining procedures mostly deal with reporting and submitting the relevant documents to the various regulatory and tax authorities at each step of the process, terminating contracts, liquidating assets and settling liabilities, and general administrative work such as returning the corporate seal, registration certificates, and having the company’s name removed from the system of the licencing authority.  The key procedural objective of these steps is to obtain the dissolution certificate/approval from the licencing authority so that the investor can legally recoup the remaining funds after settling obligated liabilities. Below are the main procedures following the commencement of the dissolution (See Table 2).

In settling its obligations after liquidating its assets, the DC needs to adhere to the following order:

lWages, social insurance, unpaid allowances and benefits owed to the employees;

lTax liabilities and other financial obligations owed to the state; and

lDebts and interests owed to creditors.

It should also be noted that some of these procedures will involve legal and tax authorities while the rest will be done solely by the DC.  Specifically important for these authority-involved procedures is the statutory deadline according to the laws of Vietnam.  Below is the list of these procedures and their deadlines (See Table 3).

What are the major concerns that come with the dissolution process?

It is an open issue as to whether the DC will need verified certifications from an accredited auditor or a bank to prove the accuracy of its documents.  However, when considering the relevant regulatory authorities, which include the Social Insurance Department, Department of Labour, War Invalids and Social Welfare, Tax Department, Department of Planning and Investment, Statistics Department, and Police Department, it is crucial for the DC to carefully assess and examine the quality of its dossiers in order to avoid delays and further complications to this process. 

One final hurdle to note is that any company entering into a voluntary solvent dissolution in Vietnam will be subject to a final tax audit. This may result in queries from the local tax authority in terms of tax exposures and related party transaction issues. However, provided the board of management takes the necessary measures to ensure that all technical positions taken are valid and well supported this should not pose a major issue.

Conclusion

While the volume of documentation to be prepared and the number of procedures that must be followed within a strict timetable may be daunting, the dissolution of a solvent foreign invested enterprise in Vietnam is a formulaic process that is well understood by the authorities involved. As such, the usual complexities of doing business in Vietnam may actually be minimised during dissolution.

The views expressed by the author here do not necessarily represent the views and opinions of KPMG in Vietnam.