Question: Our company is a limited liability company (LLC) with foreign investment participationCurrently, the company is operating profitably and wishes to distribute profits among its contributing members. Could you please advise if there are specific legal conditions or considerations we need to comply with when distributing profits?
Answer:
Pursuant to the Law on Enterprises 2020 of the Socialist Republic of Vietnam, the distribution of after-tax profits in limited liability companies with foreign investment shall comply with the following important conditions:
1. Conditions prior to profit distribution:
• The company must fully fulfill all financial obligations to the State, including Corporate Income Tax (CIT) and other relevant financial obligations
• The company must duly establish compulsory funds in accordance with applicable laws and the company’s Charter, including, for example, Financial Reserve Fund, Investment Development Fund, and other relevant funds (if applicable)
• The company must ensure that all debts and financial obligations which are due and payable prior to the profit distribution have been fully settled
2. Principles for determination of profit distribution ratios:
• Profits shall be distributed based on the actual capital contribution ratio of each member. However, the members may mutually agree on a different ratio specified in the company’s Charter
• Should the profit distribution to members violate the provisions set forth in Article 69 of this Law, members receiving profits improperly must return such received amount or assets to the company, and they shall jointly assume liability for the company’s debts and other property obligations corresponding to any unpaid amount or assets until full repayment.
3. Thẩm 3. Authority for profit distribution:
• The Members' Council is entitled to approve the annual financial statements, determine the total distributable profit, and decide on the profit distribution amount payable to each member.
4. Conditions for profit remittance abroad:
Foreign investors are allowed to remit their distributed profits out of Vietnam upon submission of the following documents to authorized banks:
- Independently audited financial statements;
- Minutes of Members’ Council meeting approving profit distribution;
- Validly signed and issued Resolution or Decision on profit distribution;
- Confirmation of completed tax obligations from competent tax authorities; and
- Supporting documents evidencing that the profits are eligible for distribution and remittance abroad in accordance with prevailing laws.
Ensuring compliance with the above conditions and relevant provisions of applicable law will assist the company in mitigating legal risks and smoothly executing profit distribution to foreign investors.