Using undistributed profits to increase FDI company capital

In the context of increasing global economic competition, attracting and increasing foreign direct investment (FDI) has become a necessity for sustainable development and improving the competitiveness of enterprises. In order to meet the demand for large investment in production expansion, technological innovation and maintaining financial stability in the face of market fluctuations, FDI companies need to constantly look for effective sources of investment capital. One of those measures is to take advantage of undistributed profits – instead of paying the full profits to shareholders, businesses may decide to reinvest some or all of this money into business activities. The reinvestment of profits not only helps to increase production scale, upgrade technology, but also minimizes financial risks, saves interest costs and preserves autonomy in business management. Viet An Law would like to guide customers in the preliminary procedures for increasing the investment capital of FDI companies by using undistributed profits to increase the capital of FDI companies through the article below.

What is undistributed profit?

Undistributed profit is the profit of the enterprise after deducting expenses, taxes and other payables, but has not been distributed to shareholders. In other words, this is the amount of money that the business retains to serve future business activities.

Why do businesses retain profits?

• Reinvestment: Most of the undistributed profits are used by enterprises to reinvest in production and business, such as:
  • Expansion of production scale
  • Technology upgrade
  • Research and development of new products
  • Procurement of equipment and machinery
  • Invest in new projects
• Risk provision: Businesses can retain part of their profits to deal with risks that may occur in the future, such as economic recession, market fluctuations, and fierce competition.
• Capital Increase: Undistributed profits can also be used to increase the company’s equity, which increases the ability to raise capital from investors.

Meaning of undistributed profits

Undistributed profit is an important metric to assess the financial situation and development ability of the business. An enterprise with a high undistributed profit ratio is often assessed as having good growth potential and high adaptability to market fluctuations.

Can undistributed profits be used to increase FDI company capital?

According to Clause 1, Article 28 of Decree 31/2021/ND-CP guiding the Law on Investment, the capital registered for implementation of investment projects is as follows:

“The registered capital for the implementation of an investment project is determined on the basis of:

a) The investor’s contributed capital in money, machinery, equipment, the value of intellectual property rights, technologies, technical know-how, the value of land use rights and other assets in accordance with the civil law and international treaties on investment;

b) Capital mobilized for the implementation of the investment project;

c) Profits left by investors for reinvestment (if any).”

IRC dossier to increase registered capital for investment in FDI companies using undistributed profits

• Written request for adjustment of the investment certificate;
• Report on the implementation of the investment project up to the time of adjustment;
• Report on supervision of investment projects up to the time of adjustment
• The investor’s decision on the adjustment of the investment project for institutional investors or equivalent documents for individual investors;
• Current investment registration certificate;
• Explain or provide documents related to the adjustment of the following contents:
  • Documents proving the investor’s financial capacity include at least one of the following documents: the investor’s financial statement for the last 01 year; commitment to financial support of the parent company; financial support commitments of financial institutions; guarantee of the investor’s financial capacity; other documents proving the financial capacity of the investor;
  • Other documents related to the investment project, requirements on conditions and capacity of investors in accordance with law (if any).

Processing time: 10-15 working days, after the dossier is approved, the investor shall contribute investment capital to the investment capital account within the prescribed time limit.

ERC dossier to increase the charter capital of FDI companies using undistributed profits

• Resolutions and decisions of the company owners for single-member limited liability companies; resolutions, decisions and minutes of meetings of the Board of members for limited liability companies with two or more members, partnerships, and the General Meeting of Shareholders for joint-stock companies on the change of charter capital.
• Notice of change of enterprise registration contents signed by the enterprise’s legal representative.
• List of members of a limited liability company with two or more members; the list of members of the partnership, which does not include the declaration of capital contributors. The lists must include the signatures of members whose contributed capital has changed, and it is not mandatory to have the signatures of members whose contributed capital has not changed.
• Investment registration certificate with new investment registered capital.

Processing time: 03-05 working days

Customers who need support with procedures for using undistributed profits to increase FDI company capital, please contact Viet An Law for the fastest guidance!