Closing A Company in Vietnam: A Comprehensive Guide for Market Exit

The first quarter of 2023 marked a remarkable milestone in the business sector in Vietnam when for the first time the number of businesses closing exceeded the number of newly registered businesses. According to the General Statistics Office, 60,241 businesses withdrew from the market, up 17.4% over the same period last year, while only 56,946 businesses entered and re-entered the market, down 5.4%. Specifically, the number of businesses temporarily suspending business was 42,858, up 20.1%; the number of businesses waiting to complete dissolution procedures was 12,766, up 13.1%; and the number of businesses that had dissolved was 4,617, up 6.5% over the same period in 2022.

Introduction

Exiting the market or dissolving a company in Vietnam is a significant decision that requires careful planning and adherence to legal procedures. Whether driven by financial considerations, changes in business strategy, or regulatory challenges, companies need to ensure they follow a structured approach to avoid potential liabilities and regulatory sanctions. This legal analysis outlines the steps, preparations, and key considerations for dissolving a company in Vietnam, in accordance with the Enterprise Law and other relevant legal frameworks.

Closing A Company in Vietnam

What Is Company Dissolution?

Company dissolution refers to the legal process of formally closing a business entity, terminating its legal existence. Under Vietnam's Enterprise Law, dissolution occurs when a company voluntarily ceases operations or is forced to shut down due to legal violations or other stipulated reasons.

Dissolution is subject to legal procedures involving the settlement of debts, tax finalization, liquidation of assets, and clearance of employee and social insurance obligations. Once these steps are complete and the dissolution is approved by the relevant authorities, the company’s registration is revoked, and it is officially removed from the national database. 

It is vital to emphasize that the dissolution procedure is distinguished from the bankruptcy which typically occurs in the case of insolvency. Companies may consider suspending their operations before officially filing for dissolution or bankruptcy process. We will separately discuss these matters in other legal articles.

Legal Grounds for Dissolution

There are several reasons that could trigger the dissolution of a company in Vietnam, including:

• Expiration of the company’s operational term (as defined in the company's charter, if applicable);

• Voluntary dissolution based on a decision by the owners, partners, or shareholders;

• The company fails to maintain the adequate number of members required by the Enterprise Law for 06 consecutive months without converting into another type of business;

• The Certificate of Enterprise Registration is revoked, unless otherwise prescribed by the Law on Tax Administration. 

  
  

Steps for Dissolution

Steps of Company Dissolution in Vietnam

Internal Decision-Making

• The process typically begins with a formal decision by the company's governing body. This can include the General Meeting of Shareholders (for a joint-stock company), the Members’ Council (for an LLC with multiple members), or the owner (for a single-member LLC).

• The decision must comply with the company’s charter and require a resolution with an appropriate majority as prescribed by law.

• The decision should specify the reasons for dissolution, the liquidation timeline, the appointment of a liquidation committee or trustee and plans to settle all outstanding debts, including the responsibility to the employees. 

Notice of Dissolution

• After the resolution is passed, the company must send a Notice of Dissolution to the Business Registration Office (BRO) within 7 working days from the date of passing the dissolution decision.

• A public announcement of dissolution must also be made on the National Business Registration Portal (NBP) and placed at the head office and branches of the company as well. 

Settlement of all Company's Contracts 

• The Company will then need to send a Termination Notice to other parties, including vendors, partners, lenders, and landlords notifying the dissolution status and the request to unilaterally terminate the on-going contracts with them. 

• This Termination Notice should serve as merely a notice which after that, the Company shall negotiate with each party regarding the consequence of contract termination. 

Settlement with employees

• The Company shall have internal communication with its employees to announce the dissolution process, whether before or after the official and public announcement. 

• Under Vietnam laws, the Company shall ensure to pay all unpaid salaries, severance pay or redundancy pay, social insurance, health insurance, unemployment insurance premiums and other benefits of employees.

Tax Finalization

• This step is the most important and time-consuming step of company dissolution. After filing to the BRO, the information will be synced to tax office and the company will then need to submit the Request for closing tax code to the local tax authority. 

• Within 45 days from the date of dissolution, the company is requested to submit its tax report to the tax office for further review and tax audit (if applicable).

• There is a tax audit to be imposed on the company upon tax office's decision. The competent authority will then assess company records and finalize all corporate income tax (CIT), value-added tax (VAT), and other tax obligations. 

• Once all obligations are settled, the tax authority shall issue a certificate confirming that the company has no outstanding tax obligations. Failure to resolve tax obligations can prevent the completion of the dissolution process.

Liquidation of Assets

• Company's remaining assets can be managed by the company itself or by a liquidator delegated by the company. In case the company decides to handle the assets directly, the accounting team should carefully consider the timeline for invoices and payments. 

Closure of Bank Accounts

• This step will be proceeded with the commercial banks where the company opens its bank accounts and follow the banks' procedures. 

• This step does not impact the dissolution process with other state authorities such as tax office or BRO, therefore, the company can close the accounts at any time as per its discretion as long as they have settled all financial obligations. 

• Nevertheless, for companies having a direct investment capital account (known as DICA), the time of closure can be at the last stage, even after the removal from the Business Registry if the company wishes to repatriate the cash once the dissolution is settled. 

Removal from the Business Registry

• The final step of dissolution process is submitting the dissolution dossier to the BRO to remove the company's registration number from NBP. The dossier typically includes:

  • Dissolution notice as templated by law;

  • The company’s dissolution resolution;

  • Reports of obligation settlement to other parties;

  • A tax finalization certificate from the tax authority

  • Confirmation that the company's seal has been destroyed or returned (if applicable);

  • After reviewing the dissolution dossier and ensuring all obligations have been met, the Business Registration Office will approve the dissolution and remove the company from the business registry. This marks the formal end of the company’s legal existence.

Key Considerations

A Quick Guide on closing a Company in Vietnam

Tax and Financial Audits

• Companies should be prepared for tax audits or inspections by the tax authority. It is common for the tax authority to request a detailed review of the company’s financial records during the dissolution process.

Investment Project Termination 

• For the company that has an Investment Registration Certificate, they are required to proceed additional steps before the dissolution, which include: 

• Filing all periodic reports; and 

• Submitting dossier to terminate the investment project, i.e. return of Investment Registration Certificate. 

• If the company fails to complete those steps, the BRO may refuse to accept its Dissolution Notice. 

Return of Sub-Licenses to Authority

• Upon the decision of dissolution, the company shall then contact with competent authorities issuing its sub-licenses to proceed the return of such licenses. The failure to return may have an impact in the final stage of removing the company's registration number on NBP. 

Voluntary vs. Forced Dissolution

• While voluntary dissolution is typically initiated by the company itself, forced dissolution occurs when a regulatory authority mandates the company’s closure due to violations of law. Forced dissolution may result in more stringent scrutiny and legal consequences for directors and owners.

Conclusion

Dissolving a company in Vietnam is a multi-step process that requires careful preparation, coordination with regulatory authorities, and thorough settlement of all legal obligations. Companies should seek professional legal and financial advice throughout the process to ensure compliance and mitigate potential risks, especially administrative sanctions and tax penalties.