In the context of investment in Vietnam, a significant number of foreign-invested enterprises (FDI), particularly those from Japan, have completed company establishment procedures but do not commence business operations immediately. This may be due to pending specialized licenses, project implementation delays, or simply a prudent strategy in the initial phase. Regardless of the reason, a key question remains: is it permissible to establish a company without commencing business operations? Is the company still required to fulfill any statutory obligations, and if not, will it be subject to administrative penalties?
The following article by KMC provides comprehensive clarification on cases where a company is established but does not conduct business operations, offering detailed analysis of each scenario and practical recommendations tailored for FDI enterprises.
Is it legally permissible to establish a company without commencing business operations?
After the establishment of a company, if the enterprise does not immediately generate production and business activities, it remains legally compliant. In this case, the law does not prohibit such circumstances, provided that the company continues to fulfill its basic statutory obligations.
Mandatory statutory obligations despite the absence of revenue
The establishment of a company without commencing business operations does not violate the law. However, the enterprise is still required to comply with fundamental statutory obligations to avoid serious legal consequences.
Under Vietnamese regulations, immediately after being granted the Enterprise Registration Certificate, the company incurs the following obligations:
- Declaration of Value Added Tax (VAT) and Corporate Income Tax (CIT): The company must submit periodic tax returns (monthly or quarterly). In cases where no revenue is generated, the enterprise shall file a “nil return.” Failure to submit tax returns, even nil returns, will result in administrative penalties.
- Report on invoice usage: If the company has registered the credit method and printed invoices, or purchased electronic invoices, it is still required to submit periodic reports on invoice usage.
- Personal Income Tax (PIT) reporting for employees: If employment contracts are executed and salaries are paid, even if only to the legal representative, the company is still obligated to declare and finalize PIT.
Failure to comply with the above obligations may result in significant monetary penalties for late filing of tax returns and late tax payments. If such non-compliance persists, the tax authority has the right to deactivate the tax identification number, preventing the company from conducting any legal transactions and ultimately leading to compulsory dissolution.
Analysis of causes and optimal solutions for each case of non-operating business activities
Establishing a company without commencing business operations while still ensuring legal compliance: below, KMC provides a detailed analysis for each specific case.
Case 1: Waiting for sub-licenses or specialized licenses (common in regulated industries)
Characteristics
The company has already been established but is not yet able to officially operate because it is in the process of obtaining conditional licenses such as food safety permits, healthcare licenses, education licenses, or other conditional investment-related permits. This is a common situation for newly established FDI enterprises.
Recommended solution
Maintain the company’s legal status and fully comply with tax filing obligations on a “nil activity” basis. Temporary suspension of business operations during this period may create unnecessary administrative complexity and could even affect the licensing process, as certain authorities may require the enterprise to remain in an “active operating status.”
Case 2: Delayed project implementation due to internal procedures or market conditions
Characteristics
The parent company in the home country (e.g., Japan) temporarily postpones its capital injection plan, technology transfer, or assignment of management personnel to Vietnam due to internal factors or market fluctuations. The waiting period may range from several months to over one year.
Recommended solution
It is necessary to assess the expected waiting period. If it is less than one year, the enterprise may consider temporary suspension of business operations. If the timeline is uncertain or likely to be prolonged, liquidation and re-establishment when needed may, in some cases, be a more cost-effective option, helping to avoid recurring fixed annual costs.
Case 3: Initial business idea is no longer feasible
Characteristics
After conducting more in-depth market research, investors determine that the intended business model is no longer suitable or carries a high level of risk. Although the company has already been established, it has virtually no operational activity.
Recommended solution
Company dissolution is the optimal option. Maintaining a legal entity without a concrete operational plan will only result in wasted management resources and potential legal risks arising from non-compliance due to oversight. The dissolution procedure should be properly executed to terminate all tax and insurance obligations.
Detailed guidance on business suspension and company dissolution
For a company that has been established but does not conduct business operations, the enterprise is required to choose one of two options: temporary suspension of business operations or company dissolution. What are the specific requirements of these two solutions? What obligations must the enterprise fulfill in each case?
Business suspension solution
Business suspension is a procedure of notifying the competent state authorities of the temporary cessation of operations for a specified period. This is a flexible solution for FDI enterprises awaiting more favorable business conditions.
- Suspension period: Each suspension period must not exceed one (01) year and may be extended for a maximum of two (02) consecutive times (in accordance with the Law on Enterprises 2020).
- Procedures: Submit a written notification to the Business Registration Office (Department of Planning and Investment) and the directly managing tax authority no later than 15 days prior to the intended suspension date.
- Tax obligations during the suspension period: This is a critical point that Japanese and other FDI enterprises should pay close attention to:
– License tax (business license fee): If the suspension period does not cover a full calendar year (i.e., it begins or ends mid-year), the company IS STILL REQUIRED to PAY the FULL annual license tax for that year. Exemption applies only if the suspension covers the entire calendar year and proper notification is submitted before January 30.
– VAT, CIT filings, invoice reports, etc.: These compliance obligations are generally suspended. However, if income is generated (e.g., bank interest income), the company is still required to declare and pay Corporate Income Tax (CIT).
Company dissolution solution
Dissolution is a definitive decision that terminates the legal existence of a company. This procedure is complex and requires absolute accuracy to avoid potential legal risks in the future.
- Conditions: The company must fully settle all outstanding tax liabilities, social insurance obligations, and other debts.
- Basic procedures:
1. Adopt a dissolution resolution by the Members’ Council or the company owner.
2. Publicly announce the dissolution on the National Business Registration Portal.
3. Liquidate assets and settle all outstanding liabilities.
4. Submit the dissolution dossier to the Business Registration Office and complete all procedures with the Tax Authority, Customs Authority, and Social Insurance Authority.
Note for FDI enterprises: The dissolution of a foreign-invested company requires close coordination with multiple authorities. All documentation, financial statements, and final tax finalization reports must be carefully prepared to avoid delays and unnecessary costs.
Specialized advisory for foreign direct investment (FDI) enterprises
As an FDI enterprise investing in the Vietnamese market, having a clear understanding of the legal framework and strictly complying with all applicable regulations is of critical importance. Investment aims to generate tangible value, and to achieve this—while also avoiding situations that may lead to business suspension or company dissolution, which could impact budgets and strategic direction—FDI enterprises should pay particular attention to the following:
- Establish a legal compliance plan from the outset: Upon company incorporation, proactively anticipate potential scenarios, including the possibility of not commencing operations immediately. This enables better planning of budget and human resources for compliance purposes.
- Do not “neglect” the company: A common and critical mistake is assuming that no operations mean no obligations. The cumulative consequences of failing to submit tax returns and statutory reports over multiple years can be extremely serious, potentially affecting the reputation of the parent company and its ability to reinvest in Vietnam.
- Leverage Double Taxation Avoidance Agreements (DTAAs): In certain cases, even if the company is not operational, income may still arise. It is essential to review the applicable DTAAs between Vietnam and the investor’s home country to determine the most tax-efficient treatment.
In addition, in order to avoid situations where a company is incorporated but not yet able to commence business operations, and to ensure continuous compliance with the latest legal regulations while mitigating future risks, it is highly recommended that FDI enterprise managers and executives consider engaging a professional partner specializing in legal and compliance advisory services.
A reputable advisory partner not only ensures accurate regulatory compliance but also provides strategic guidance, transforming compliance obligations into a competitive advantage and creating a strong sense of security for long-term investment activities in a highly promising market.
With leading expertise and a strong reputation in providing in-depth legal advisory services for FDI enterprises, particularly Japanese-invested companies in Vietnam, KMC is proud to deliver comprehensive consulting solutions, including legal, accounting, and human resource services. With the support of a highly experienced team of lawyers and experts, KMC assists FDI enterprises in optimizing operations and provides in-depth, end-to-end solutions tailored to the urgent needs of each business.
For quick consultation with our experts, please contact our hotline: 081 489 4789.
