Clearer But Stricter Rules On Transfer Of Profits Abroad

07 - 04 - 2011
By Bui Ngoc Hong and Tran Thi Bich Ngoc*

On 18 November 2010 Vietnamese Ministry of Finance issued Circular No. 186/2010/TT-BTC providing the guidelines on transfer profits abroad by foreign investors ("Circular 186"). Taking effect from 3 January 2011, Circular 186 replaces Circular No. 124/2004/ND-CP dated 23 December 2004 ("Circular 124").

Circular 186 covers transfer of profits abroad for all forms of direct investment provided in the 2005 Investment Law. Those forms of indirect investment being (i) purchase of equity, shares, bonds and other valuable papers, (ii) investment through securities investment funds, and (ii) investment through other intermediary financial institutions are not subject to the regulation of this Circular.

Under Circular 186, besides in-cash profits, foreign investors now have a new option to transfer, which is in-kind profit. In addition, procedurally Circular 186 makes it easier to transfer profits abroad. That is, the tax authority's certification required under Circular 124 is now replaced by a notification, in prescribed form, by the investor to the tax authority, at least 7 working days prior to conducting the remittance abroad.

However, under Circular 186, a foreign investor has fewer timings to transfer abroad the profits earned. With Circular 186, those chances for a foreign investor to transfer abroad the profits (temporarily) earned for a quarter or for a semi-annual basis under Circular 124 have been removed. A foreign investor now has only two points of time to transfer profits abroad: one for the annual transfer, and the other upon termination of the investment activities in Vietnam.

Further, foreign investors are now strictly prohibited from transferring profits abroad when their investment in Vietnam still bears accumulative losses after the loss carried forward from the previous year still exists. This means, for a given year when an investment generates profits, before any remittance abroad, that year's profits have to be offset with the loss carried from previous year.

It appears that Circular 186 leaves foreign investors to a position to continually keep the investment making profits, so as to meet the conditions for profits remittance abroad. Also, in theory, the profits not allowed to be transferred abroad quarterly or semi-annually may help to temporarily depress the need of the country's foreign currency. But in practice, given the recent continued devaluation of Vietnamese dong, it would be uncomfortable for many foreign investors to wait for a new year to begin so as to get their financial reports finalized, before transferring the profits earned. Circular 186 might therefore trigger the use of other methods for a foreign investor to get their earnings home earlier.

(*) Please contact the authors at and  or our partners if you wish to have more information or specific advice for the topic of this article.

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