There are many legal consequences associated with the omission of the establishment of investment projects while receiving foreign members/shareholders
Foreign investors who directly invest in Viet Nam for the first time by purchasing shares or capital contribution without setting up investment projects shall face administrative penalties and be imposed obligation to establish projects. The failure to set up investment projects may also result in numerous legal consequences that can affect investors' activities as well as enterprises in which investments takes place.
When members – non-native investors directly investing in an enterprise by purchasing contributed capital or shares – are received by an enterprise, not only should the transferor and transferee proceed to enter a share or capital transfer contract, it is also obligatory for the enterprise to update its foreign members or shareholders in compliance with the provisions of law. In addition, the enterprise must carry out procedures to apply for the establishment registration of investment projects (not associated with the establishment of the enterprise) at the Investment Registration Office of the provincial Department of Planning and Investment.
In this stage, the business sectors shall be remodelled appropriately to suit the corresponding CPC codes (if applicable). Depending on circumstances, information about an enterprise's foreign members will be updated in a Business Registration Certificate. Furthermore, after the business sectors are duly modified, the contents of a Business Registration Certificate shall generally include the following: "Foreign-invested enterprises are obliged to implement investment procedures in compliance with the regulations of the Investment Law and related legislation."
Administrative fines: Financial penalties ranging from VND50 million to VND70 million are likely to be imposed on enterprises that fail to conduct investment project establishment procedures in compliance with law.
Other procedures are affected: Business registration bodies often request enterprises and foreign investors to perform the procedures to set up investment projects before modifying any of the contents of a business registration. This shall help bind the liability of parties involved to establish investment projects.
Failure to send profits overseas: If foreign direct investment is conducted without investment projects, it is unfeasible for foreign members to transfer profits abroad when they are generated from investments as there is no evidence to prove that they have been involved in investment activities in Viet Nam.
It is essential to take into account that enterprises and foreign investors must proceed to set up investment projects after the business sectors in a Business Registration Certificate are properly altered. The establishment registration of investment projects is required to take place at certain competent authorities such as the Government, Department of Planning and Investment, provincial People's Committee or the Management Board of industrial parks, export-processing zones, high-tech zones, and economic zones. In some cases, approval from relevant ministries and bodies is also needed.
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