December, 2023
OPTION 2: LIQUIDATION
In this article, we will explore the option of liquidating the project company in Vietnam, along with its specific legal basis, benefits, tax implications, legal considerations, implementation time, risks, costs, and issues to consider.
Liquidation is the process of terminating the existence and operation of a project company, by selling all its assets, paying off all its liabilities, and distributing the remaining assets to the shareholders according to their ownership interests. Liquidation can be voluntary or involuntary, depending on whether the shareholders or the creditors initiate the process. Liquidation can also be solvent or insolvent, depending on whether the project company has enough assets to pay off all its debts.
Liquidation is a definitive exit strategy for foreign investors, who want to divest from a project company in Vietnam, especially when the project is not performing well or has no prospect of improvement. Liquidation allows foreign investors to recover some capital through the sale of assets, and releases them from legal and financial obligations associated with the project company. Liquidation also avoids the hassle and uncertainty of finding a suitable buyer for the shares or the assets of the project company.
To liquidate a project company in Vietnam, foreign investors need to follow the following steps:
Decide to liquidate. The shareholders of the project company need to make a decision to liquidate the project company, by passing a resolution at a general meeting of shareholders. The resolution needs to specify the reasons, the method, the time. if it is not provided otherwise in the charter (constitutional documents) of the project company, board of directors of the project company shall be in charge for conducting the liquidation.
Notify the local authorities, the stakeholders and creditors. The project company needs to notify the competent authorities and the relevant stakeholders, employees, creditors of its decision to liquidate. The authorities include the local Department of Planning and Investment, the tax office, the social insurance officeand others.
Conduct the liquidation. The liquidation committee needs to carry out the liquidation process, include generally:
Completion. The liquidation committee needs to complete the liquidation process, prepare and submit a liquidation report, which summarizes the results and the outcomes of the liquidation process, to the authoritiesin order that the local authority switched its operation status to “liquidated”.
The legal basis for liquidating a project company in Vietnam are the following laws and regulations:
The main tax consideration for liquidating a project company in Vietnam is the corporate income tax, which is the tax imposed on the income of the project company, such as revenue, interest, dividends, or royalties. The tax rate is 20% for most enterprises, but may vary for some sectors or regions. The project company needs to pay the corporate income tax on the final profit of the project company, as of the date of the resolution.
The project company may also face potential tax liabilities for unpaid taxes and penalties, which may arise from previous tax periods or from the liquidation process. The project company needs to settle these tax liabilities, before distributing the remaining assets to the shareholders.
Liquidation provides a definitive end to the project company’s operations: Liquidating a project company in Vietnam provides a definitive end to the project company’s existence and operation, and releases the foreign investors from legal and financial obligations associated with the project company. The foreign investors can exit the project entirely and receive the remaining assets in a due period of time.
The main legal disadvantages of liquidating a project company in Vietnam are:
The implementation time for liquidating may take up to 12 months or more, depending on the size and performance of the project company, and the complexity and difficulty of the liquidation.
The main issues to consider for liquidating a project company in Vietnam are:
In conclusion, liquidating a project company in Vietnam is an option for foreign investors to divest from a project company in Vietnam, by terminating the existence and operation of the project company, by selling all its assets, paying off all its liabilities, and distributing the remaining assets to the shareholders. Liquidation has its specific legal basis, benefits, tax implications, legal considerations, implementation time, risks, costs, and issues to consider. It should be considered as a last resort when other divestment options are not feasible, and requires careful planning and execution, and professional legal and financial advice.
Note: This article and information herein are intended for general reference only and does not constitute any type of advice and REISTRA shall not be, in any case, be responsible for your use of this article or information herein for any purpose.
For your specific case, please do not hesitate to contact REISTRA at info@reistra.com for advice.
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