Vietnam has become an attractive destination for foreign investors due to its favorable business environment, incentive policies, and competitive production costs. However, not all investment projects achieve their anticipated success, prompting some foreign direct investment (FDI) enterprises to terminate their operations in Vietnam. The termination of an investment project is not merely an internal corporate decision but a complex legal process requiring strict compliance with regulations governing investment, taxation, labor, land, and environmental matters. This article provides a comprehensive guide on the legal procedures for FDI enterprises to terminate their investment projects effectively, transparently, and in full compliance with Vietnamese law.
Mục lục bài viết
1. Legal Basis
The termination of an investment project is governed by the following legal instruments:
- Law on Investment No. 61/2020/QH14 (Law on Investment 2020);
- Decree No. 31/2021/ND-CP on detailing and guiding the implementation of the Law on Investment;
- Circular No. 03/2021/TT-BKHDT prescribing forms, documents, and reports related to investment activities in Vietnam;
- Circular No. 25/2023/TT-BKHDT amending and supplementing Circular No. 03/2021/TT-BKHDT.
2. Grounds for Termination of Investment Projects
Pursuant to Article 48 of the Law on Investment 2020, an investment project may be terminated under the following circumstances:
2.1. Termination Initiated by the Investor
- The investor voluntarily decides to terminate the investment project (Clause 1, Article 48).
- The project reaches the end of its operational duration as stipulated in Article 44 (up to 50 years for projects outside economic zones, 70 years for projects within economic zones or in areas with difficult or specially difficult socio-economic conditions).
- Termination in accordance with conditions specified in the investment contract or the enterprise’s charter.
2.2. Termination by the Investment Registration Authority
The Investment Registration Authority may terminate an investment project in the following cases (Clause 2, Article 48):
- The project violates laws on cultural heritage protection, environmental protection, occupational safety, or poses a threat to national defense or security.
- The investor fails to fulfill obligations outlined in the Investment Registration Certificate and persists in violations following administrative sanctions.
- The investor ceases operations at the registered investment location for six months without adjusting the location.
- The project remains inactive for over 12 months, and the Investment Registration Authority is unable to contact the investor or their legal representative.
- The project is subject to land revocation due to non-use or delayed use of allocated land in violation of land laws.
- The investor fails to provide a performance deposit or guarantee as required for projects subject to such obligations.
- The project is based on fraudulent civil transactions as defined by civil law.
- Termination pursuant to a court judgment, decision, or arbitral award.
3. Procedures for Terminating an Investment Project
3.1. Submission of the Termination Decision
- Timeframe: Within 15 days from the date of the decision to terminate, the investor must submit the termination decision to the Investment Registration Authority, accompanied by the Investment Registration Certificate (if issued).
- Compliance review: The Investment Registration Authority will review the investor’s compliance with obligations, including:
- Status of capital contribution and capital mobilization.
- Progress of construction and commissioning of the project.
- Fulfillment of project objectives.
- Payment or outstanding amounts of taxes, fees, and land rent.
- Financial obligations to third parties (e.g., employee salaries, debts to partners).
Note: Non-compliance with obligations, such as insufficient capital contribution, delayed progress, or failure to meet commitments, may result in administrative penalties or delays in the termination process. Enterprises must thoroughly review and fulfill all obligations prior to submission.
3.2. Liquidation of Assets and Settlement of Financial Obligations with Third Parties
- Asset liquidation: Conduct an inventory and liquidate fixed assets, inventory, and machinery in accordance with regulations on asset liquidation.
- Debt settlement: Settle all outstanding loans and obligations under valid contracts with partners.
- Tax finalization: Settle all outstanding tax liabilities and terminate the tax identification number with the tax authority.
3.3. Fulfillment of Labor Obligations
- Notification: Notify employees of the termination of labor contracts in accordance with the Labor Code No. 45/2019/QH14.
- Payments: Disburse salaries, severance allowances, social insurance (SI), health insurance (HI), unemployment insurance (UI), and occupational accident and disease insurance (OADI) contributions.
- Reporting: Notify the labor management authority of the termination of labor contracts and coordinate with the social insurance agency to finalize SI records and resolve employee insurance benefits.
3.4. Resolution of Land-Related Matters
- Termination of land lease contracts: Return leased land to the State or industrial park authority in compliance with land law regulations.
- Fee settlement: Settle any outstanding infrastructure usage fees (if applicable).
3.5. Fulfillment of Financial Obligations to State Authorities
- Customs reporting: Submit a final report on the use of imported raw materials, supplies, and exported goods to the Customs Authority.
- Social insurance: Complete contributions for SI, HI, UI, and OADI, and finalize SI records for employees.
- Tax finalization: Settle all outstanding tax liabilities and terminate the tax identification number.
3.6. Completion of Enterprise Dissolution Procedures (If Applicable)
- Submission of dissolution decision: Submit the dissolution decision to the Business Registration Office.
- Dissolution announcement: After terminating the tax identification number, submit a dissolution announcement to the Business Registration Office.
- Note: If the enterprise ceases all operations, dissolution must comply with the Law on Enterprises No. 59/2020/QH14.
3.7. Repatriation of Profits Abroad (If Applicable)
- Conditions: Investors may repatriate profits abroad only after fulfilling all financial obligations to the State, including submission of audited financial statements and corporate income tax finalization declarations as required by the Law on Tax Administration No. 38/2019/QH14.
- Procedure: Contact the commercial bank managing the investment capital account for guidance on the profit repatriation process, ensuring compliance with the bank’s internal regulations.
4. Key Considerations
- Legal risks: Failure to comply with legal obligations may lead to administrative penalties, prolonged termination processes, or legal disputes.
- Professional consultation: FDI enterprises are strongly advised to seek guidance from legal experts or professional consultants to ensure a transparent, efficient, and compliant termination process.
- Thorough preparation: Enterprises must comprehensively review all financial, labor, land, and tax obligations prior to termination to mitigate unnecessary risks.
The termination of an investment project is a complex process requiring strict adherence to Vietnamese legal regulations. Proper execution of the outlined procedures ensures that FDI enterprises can complete the termination process smoothly, safeguard their rights, and avoid legal risks. Enterprises are encouraged to proactively coordinate with relevant authorities and seek expert advice to ensure transparency and efficiency throughout the process.
Disclaimer:
This article is intended for informational purposes only and does not constitute legal advice from HTH & Partners. The content represents the views of HTH & Partners and is subject to change without prior notice.
The legal provisions referenced in this article were valid at the time of publication but may have been amended or repealed by the time of reading. We strongly recommend consulting a qualified legal professional before applying any information contained herein.
