Transferring Profits Abroad Regulations And Restrictions To Know

In the context of Vietnam increasingly attracting foreign direct investment (FDI), the transfer of profits abroad is one of the primary concerns of investors. Understanding these regulations not only ensures the legal rights of investors but also minimizes potential legal risks. The General Department of Taxation has issued specific regulations regarding the transfer of profits abroad.

Regulations on Transferring Profits Abroad

According to Article 2 of Circular No. 186/2010/TT-BTC dated November 18, 2010, the profits that foreign investors are permitted to transfer abroad are defined as follows:

“Profits from Vietnam are remitted abroad by foreign investors under this Circular are legal profits that they are shared or earn from direct investment activities in Vietnam under the Investment Law after finished fully financial obligations with the Vietnam State under regulations”

Thus, the profits transferred abroad are legal profits that foreign investors receive from direct investment activities in Vietnam, after fulfilling all financial obligations to the State of Vietnam.

Methods Of Transferring Profits Abroad

Vietnamese law allows profits to be transferred abroad through the following methods:

• In cash: Executed through the direct investment capital account and in compliance with the regulations on foreign exchange.
• In-kind: This can be in the form of goods, equipment, or other assets. The value of the in- kind transfer must be converted and appraised according to the regulations on import and export and related regulations.

Important Considerations When Transferring Profits Abroad

1. Timing of Profit Transfer

According to Article 3 of Circular No. 186/2010/TT-BTC dated November 18, 2010, foreign investors can transfer profits abroad:

• Annually: At the end of the financial year, after fulfilling financial obligations and submitting audited financial statements along with the corporate income tax finalization declaration to the tax authority.
• Upon completion of investment activities: After fulfilling financial obligations and submitting financial statements and tax finalization declarations as prescribed.

The enterprise where the foreign investor participates in capital investment is responsible for fully complying with financial obligations to the State of Vietnam according to the relevant income tax laws that form the profit that the foreign investor transfers abroad. This means that the business must fulfill its obligations regarding taxes, fees, and other financial responsibilities to the Vietnamese government related to the profits earned by foreign investors. Only after the business has fully met these financial obligations can the foreign investor be permitted to remit the profits abroad.

2. Conditions for Transferring Profits Abroad

Investors must meet the following conditions to be permitted to transfer profits abroad:

• Fulfillment of financial obligations to the State of Vietnam, including fully complying with obligations as prescribed by the Tax Management Law upon project completion.
• Submission of audited financial statements and corporate income tax finalization declarations for the financial year.
• No accumulated losses after transferring losses as prescribed.
• Completion of notification to the direct tax authority regarding the transfer of profits abroad as prescribed before executing the profit transfer transaction.

3.  Procedures for Transferring Profits Abroad

• Notification of Profit Transfer Abroad: (Article 5 of Circular No. 186/2010/TT-BTC dated November 18, 2010)

Foreign investors directly or authorize the enterprise in which the foreign investor participates in investment to notify the transfer of profits abroad using the form issued together with Circular No. 186/2010/TT-BTC sent to the direct tax authority managing the enterprise in which the foreign investor participates in investment, at least 7 working days before executing the profit transfer.

• Confirmation of Tax Obligations: (Article 70 of Circular No. 80/2021/TT-BTC dated September 29, 2021)

The taxpayer must send a written request for confirmation of tax obligations to the state budget using form No. 01/DNXN to the managing tax authority. For foreign contractors not directly declaring taxes, the Vietnamese side must withhold and pay taxes on their behalf and must also send a request for confirmation to the tax authority.

Within 10 working days from the date of receiving the request for confirmation of tax obligations from the taxpayer, the tax authority is responsible for issuing a notification confirming the fulfillment of tax obligations according to form No. 01/TB-XNNV attached to Appendix I of this Circular to confirm or not confirm for the taxpayer or a notification requesting additional information according to form No. 01/TB-BSTT-NNT for the taxpayer to explain or supplement information.

4. Compliance with Anti-Money Laundering Laws:

With the flexibility in foreign exchange laws to create conditions for enterprises to invest abroad, there may also arise situations of misuse of this flexibility for the purpose of transferring illegal funds, complicating anti-money laundering efforts.

Additionally, according to Circular No. 09/2023/TT-NHNN, financial institutions must report to the State Bank of Vietnam regarding:

• Electronic money transfer transactions within the country from 500 million VND or equivalent foreign currency value.
• Electronic money transfer transactions abroad from 1,000 USD or equivalent foreign currency value.

Transactions transferring money abroad must comply with regulations on anti-money laundering and ensure transparency of the source of funds.

5. Exchange rates

Profits transferred abroad in foreign currency must comply with the actual transaction exchange rates published by commercial banks.

Conclusion

Thus, foreign investors can transfer legal profits abroad after fulfilling all annual financial obligations or upon the conclusion of their investment activities, provided that the enterprise submits an audited financial report, has no accumulated losses, and notifies the tax authority. Additionally, investors must comply with regulations regarding anti-money laundering, exchange rates, and other legal requirements. Adhering to the correct procedures helps ensure legal rights and avoid legal risks.

Legal Basis:

• Circular No. 186/2010/TT-BTC of the Ministry of Finance: Guidance on the implementation of profit transfer abroad by organizations and individuals earning profits from direct investment in Vietnam according to the Investment Law.
• Circular No. 80/2021/TT-BTC dated September 29, 2021, guiding the implementation of certain provisions of the Tax Management Law and Decree No. 126/2020/ND-CP dated October 19, 2020, of the Government detailing certain provisions of the Tax Management Law.
• Official Letter No. 4480/TCT-CS regarding the transfer of profits abroad from the General Department of Taxation.
• Foreign Exchange Law No. 28/2005/PL-UBTVQH11 dated December 13, 2005, and Law No. 06/2013/PL-UBTVQH13 dated March 18, 2013, amending and supplementing certain provisions of Foreign Exchange Law No. 28/2005/PL-UBTVQH11 dated December 13, 2005.
• Circular No. 06/2019/TT-NHNN dated June 26, 2019, guiding the management of foreign exchange regarding direct foreign investment activities in Vietnam.
• Anti-Money Laundering Law 2022.