Closing Shop in Vietnam: The Why and the How

By Nguyen Huyen My & Le Thi Nhung

Posted: 31st July 2013 10:47

The global and local economic downturn has negatively impacted the health of the international business community, resulting in a number of bankrupted or liquidated companies or representative offices (ROs) throughout Vietnam. However, the closure of a RO may also arise from an entirely non-financial and positive set of reasons– for example, a foreign company may choose to close down its RO when looking to upgrade the structure into a foreign-owned enterprise in order to expand business activities.
 
Undoubtedly, most investors do not hope or expect to stop their business activities, but it may take time for executives to become fully aware of the responsibilities they can face in dissolving or liquidating a company.
 
Reasons for closure
 
A company may be dissolved under any of the following circumstances:
On the other hand, a RO may be dissolved for the following reasons:
  1.    It does not commence operations within six months of being granted a license;
2.    It does not operate for six consecutive months and does not report to the relevant licensing agency;
3.    It does not regularly report its operations for two consecutive years;
4.    It does not report any issued requirements to the relevant authorities within six months of receipt; and/or
5.    It operates outside of its specified scope and contrary to the law.
 
Dissolving a company normally takes around four to six months, while it typically takes around 30 days to close down an RO. Below, we look at the step-by-step procedures on how to close down a company.
 
What’s needed?
 
The owner of the company will need to issue a decision of dissolution statement that includes the following content when deciding to dissolve:
The document will need to be signed and sent to each relevant agency and individual (i.e., the business/investment registration agencies, creditors, individuals who have any relating rights, benefits and obligations and all employees).
 
After that, information on the company’s dissolution must be published in three consecutive issues of the same newspaper distributed throughout Vietnam, which must also be submitted to the business/investment registration agencies. The content to be published must contain:
Debt Resolution
A company will be allowed to dissolve after it ensures to discharge any and all debts and property obligations in the following order:

Unpaid Wages
 
Retrenchment allowances
 
Social insurance
 
Tax liabilities
 
Other debts
 
The company must also set up a meeting to liquidate its assets, and the subsequent meeting minutes should include the following information:
Tax and Customs
If the company registered an import-export tax code, the code will need to be closed when the company is dissolved. To do this, the company needs to send a letter to the General Department of Customs to certify that it does not owe any pending import-export taxes and to also request to close its import-export tax code.
 
The first step after that is to destroy any financial balance invoices (value-added tax and/or export invoices) that have not yet been issued. The next step is to finalize any overdue taxes, for which the following documents need to be submitted to the tax department:
Next, the company will need to finalize its personal income tax and corporate income tax requirements up until the actual date of the proposed dissolution.
 
The company’s tax code will be closed within 10 days of completing these steps, and a corresponding notification will be issued afterwards.
 
Audited Financial Reports
In the case of dissolution, a company must submit a financial report that covers the period from the beginning of the fiscal year in which dissolution is decided up until the actual date of dissolution. This report should be conducted and compiled by an independent auditing firm.
 
Bank Account Closure and Stamp Destruction
Each of the company’s bank accounts must be closed in compliance with the policies of the location in which the bank accounts were opened. After which, the company owner has to request that the bank issue a document to certify the closure of the accounts. If the company had never opened up any bank accounts, it must write a statement detailing as much.
 
Afterwards, the company will need to send a written request to the Police Administration on Social Security to destroy its company seal and to return its seal registration certificate.
 
Contract Settlement
A company must inform its employees of its dissolution within a certain time period before terminating the respective labor contracts as follows:
All rights and benefits enumerated by the labor contracts must be resolved in writing prior to the completion of any other company obligations. All pending contracts must also be liquidated.
 
Social Insurance Obligations
A company’s employee social insurance handbook obligations must be completed prior to its dissolution, and documented evidence must be submitted to the social insurance and business/investment registration agencies.
 
If for some reason the company never registered to pay social insurance contributions (for example, due to lack of employee demand), in accordance with the relevant laws and regulations it must obtain the proper documentation to verify that it never registered for these from the social insurance agency.
 
DPI Procedures
Finally, the company must submit a dossier to the Department of Planning and Investment (DPI) to notify them of its dissolution. The DPI is the organization that handles and issues the final certification of an enterprise’s dissolution in accordance with the law.
 
The dossier must include:
After these documents are submitted and confirmed, the company’s name will be deleted from the DPI’s list of enterprises.
 
Other Circumstances
If an enterprise’s investment certificate/business registration certificate is revoked, it must conduct the dissolution procedures within six months of the date of the certificate’s revocation. The procedures are the same as in the case of dissolution mentioned above.
 
If the business registration body does not receive the dissolution documents within the allotted six-month period, the enterprise will be deemed to have been dissolved, and the business registration body will remove the enterprise’s name from its business registry. In this case, the legal representatives, the members (in the case of a limited liability company), the company owner (in the case of a one-member limited liability company), the members of the Board of Management (in the case of a shareholding company) and any unlimited liability partners (in the case of a partnership) will be jointly responsible for the debts and any other outstanding property obligations.
 
This article was first published on Vietnam Briefing.
 
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
 
For further details or to contact the firm, please email info@dezshira.com or visit www.dezshira.com.

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