Liquidating a Local Company in Vietnam: Process, Points to Note, and a Guide to a Smooth Exit

A Vietnamese attorney provides a detailed, practice-oriented explanation of the legal procedures, tax treatment, employee handling, and filings with the authorities required when liquidating a locally incorporated entity in Vietnam. This article organizes the concrete process and points to watch for in order to avoid unexpected risks and trouble and to achieve a smooth exit. NEXORA LAWFIRM has an extensive track record supporting the liquidation of Japanese-affiliated local entities in Vietnam, and formulates optimal responses from the perspectives of corporate law, investment law, and tax law. It provides consistent support covering deregistration procedures, tax filings, liquidation announcements, and employee matters, to achieve a secure and reliable exit.

Where an exit via M&A does not succeed, it becomes necessary to carry out the company's liquidation procedure. While this involves time and cost, it is a more realistic exit method than putting the company into bankruptcy.

01 - Reasons Requiring Liquidation of a Company

To liquidate a company, one of the following grounds must apply.

(1) Compulsory liquidation

① Expiry of the business term set out in the charter (including where an extension is not possible).

② Where the company fails to maintain the statutory minimum number of members for six consecutive months or more and does not carry out the procedure to convert its corporate form.

③ Where the company's IRC (Investment Registration Certificate) or ERC (Enterprise Registration Certificate) has been revoked.

(2) Voluntary liquidation

① Liquidation by the company's own decision

To carry out a voluntary liquidation, the following conditions must be satisfied:

The company is able to fully settle its debts and other property obligations.
There is no dispute resolution proceeding pending before a court or arbitration institution.

02 - The Liquidation Procedure

*This article addresses only the latter case — voluntary liquidation.

(1) Preparation and steps prior to liquidation

Once the decision to liquidate has been made, the following preparation and steps are required.

Labor matters

To carry out the liquidation, the employment contracts with employees must be terminated. However, employment contracts cannot be terminated unilaterally, and consultation with the employees is essential (including arranging severance payments)

Tax matters

Before liquidating the company, the tax codes of the company and any dependent branches, representative offices, and business locations must be closed. Closing a tax code requires undergoing an inspection by the tax authority. During this inspection, the company's accounting and tax records and supporting documents will be strictly examined, and errors in tax filings may result in additional tax assessments, late-payment penalties, and administrative fines.

To prepare for these issues in advance, we recommend conducting an internal tax risk review before undergoing the tax authority's inspection.

Sale or disposal of assets

The company's assets should be listed, valued, and a decision made on whether to sell or dispose of them. Where unpaid debts exist, there may also be room to negotiate offsetting them with assets rather than cash payment.

Forming a liquidation team

Liquidating a company is not a matter of one or two tasks but involves a substantial volume of work and procedures. A team dedicated to the liquidation work is therefore needed. It is also advisable to obtain support from external professionals (lawyers, accountants, tax advisors) to carry out the process smoothly.

Settlement and adjustment of receivables and payables

One of the conditions for liquidating a company is being able to settle all debts and other property obligations fully and without dispute. This requires coordination and discussion with the company's creditors and debtors, and consideration of how to handle any unpaid debts.

(2) Closure of branches, representative offices, and business locations (Article 72 of Decree No. 01/2021/ND-CP on Enterprise Registration)

Before liquidating the company, the closure procedure must be carried out for any branches, representative offices, and business locations dependent on it. The following points must be observed:

All tax obligations must be fully performed at the location of the branch, representative office, or business location.
A resolution/decision on the closure of the branch, representative office, or business location is required. Notice of the resolution/decision must be given to the enterprise registration office at the location of the branch, representative office, or business location within 10 days of the date the resolution/decision is issued.
Closing the tax code of the branch, representative office, or business location is required for the closure procedure. This process is largely the same as closing the tax code of the legal entity itself, but if the type and amount of taxable items are smaller than at the head office, it can generally be completed in a relatively shorter time.

(3) Internal decision-making within the company (Article 208 of the Law on Enterprises)

The voting requirements for the company's decision on dissolution/liquidation, as set out in the Law on Enterprises and the company's charter, must be confirmed, and a resolution/decision of the company must be adopted. The dissolution/liquidation resolution/decision must set out the following:

The company's name and the address of its head office
The reason for dissolution/liquidation
The deadline for performance of contracts and settlement of debts, and the related procedure
The plan for handling obligations arising from labor contracts
The name and signature of the sole proprietor, the company owner, the chairman of the members' council, or the chairman of the board of directors

"Points to note"

Once the resolution/decision on the company's dissolution/liquidation takes effect, the company and its managers are strictly prohibited from engaging in the following activities. Violation of this prohibition may result in administrative sanctions or criminal liability, and where damage is caused, compensation must be paid.

① Concealing or dispersing assets

② Waiving or reducing the company's receivables

③ Converting unsecured debt into debt secured by the company's assets

④ Entering into new contracts, other than contracts aimed at the company's liquidation

⑤ Pledging, mortgaging, gifting, or lending out assets

⑥ Terminating the performance of contracts that remain in effect

⑦ Raising funds by any means

(4) Notice of commencement of the liquidation procedure (Article 208 of the Law on Enterprises)

The resolution, decision, and minutes of the meeting on the company's dissolution/liquidation must be sent to the enterprise registration authority, the tax authority, and employees within 7 business days of the date of adoption. In addition, the resolution/decision on the company's liquidation, along with the dissolution resolution/decision, must be posted on the National Business Registration Portal and publicly displayed at the company's head office, branches, and representative offices.
Where the company still has outstanding financial obligations, the resolution/decision on liquidation, together with a description of the method and plan for settlement, must be sent to all of the company's creditors and other interested parties.

(5) Disposal of assets, settlement with creditors, and distribution of remaining assets

In disposing of assets on dissolution of the company, the following liquidation steps are principally required. The company's asset disposal is an important process for properly settling the company's debts and distributing any remaining assets to the capital contributors and other interested parties.

Note ① The company's debts must be settled in the following order of priority:

① Unpaid wages, severance pay, social insurance, health insurance, unemployment benefits pursuant to law, and other rights and benefits owed to employees under the collective labor agreement and labor contracts

② Unpaid taxes

③ Other debts

Note ② To distribute the company's remaining assets, an international remittance must be made from a Vietnamese bank to, for example, the Japanese head office. In that case, documentation proving the purpose of the remittance is required for the Vietnamese bank. In principle, the resolution/decision on the company's liquidation and a certificate confirming settlement of the various debts should be sufficient to prove this. However, depending on the bank's internal regulations, a certificate confirming closure of the company's tax code may also be requested.

(6) Closure of the tax code

After the resolution/decision on the company's dissolution/liquidation has been sent to the enterprise registration authority, the enterprise registration authority notifies the tax authority. The tax authority then commences the procedure to close the company's tax code. While the specific procedure and response should be confirmed with a tax advisor, based on the author's experience, the following points require attention:

① Responding to the tax inspection: To close the tax code, the company must undergo a tax inspection. In that case, an inspection team from the tax authority will visit the company's premises and scrutinize the accounting and tax evidence.

② Arranging personnel to handle the tax inspection: The tax inspection must, in principle, be handled by the company's legal representative, but it is generally acceptable to delegate this to a professional or company staff member, responding personally only when necessary.

③ Duration of the tax inspection: It is best to think of the duration of the tax inspection in terms of years. Typically, for a company that has been established for less than five years, it takes roughly one to one and a half years.

④ Fulfilling tax obligations: Where additional tax assessments, late-payment penalties, or administrative fines arise, the company cannot be liquidated, and the legal representative is highly likely to be subject to an exit ban, unless those amounts are paid.

⑤ Once the tax inspection is complete and all additional tax assessments, late-payment penalties, and administrative fines have been paid, the tax authority will issue a document confirming closure of the tax code.

(7) Application for liquidation to the enterprise registration office, and other matters

Once settlement of debts is complete and the document confirming closure of the tax code has been received, the company's remaining assets can be distributed and the company's bank account can be closed. In parallel, the company's legal representative submits certain application documents to the enterprise registration office to apply for the company's dissolution.