Refund of capital contributions in limited liability companies

Whether it is a single-member limited liability company or a multiple-member limited liability company, charter capital can be reduced through the form of returning capital contributions to members/owners of the company. In order for customers to have more information about Refund of capital contributions in limited liability companies, the article below from Viet An Law Firm will summarize information related to this issue.

Legal basis

• Law on Enterprise 2020;
• Law on Investment 2020;
• Decree 01/2021/ND-CP dated January 4, 2021;
• Circular 02/2023/TT-BKHDT dated April 18, 2023;
• Circular 01/2021/TT-BKHDT dated March 16, 2021;
• Circular 105/2020/TT-BTC dated December 3, 2020;
• Circular 111/2013/TT-BTC dated August 15, 2013.

What is the capital return?

Pursuant to Point a, Clause 3, Article 68 and Point a, Clause 3, Article 87 of Vietnam Enterprise Law 2020, the return of contributed capital can be understood as the company returning capital to the company owner/its members in accordance with the proportion of their capital contribution in the company’s charter capital.

The consequence of returning capital contributions to members of the company is that the limited liability company’s charter capital will decrease. Therefore, the limited liability company will have to notify the competent authorities about the reduction of capital, as well as any arising issues related to tax payment.

Conditions for refund of capital contributions in limited liability companies

To repay contributed capital, a limited liability company must ensure two conditions stated in Article 68.3 and Article 87.3 of the Enterprise Law 2020. Specifically:

• Since the date of business registration, the company has operated continuously for 2 years or more;
• The company guarantees payment of all debts and other property obligations after returning the capital contribution to the company members/owners.

Procedures for refunding capital contributions to members in multiple-member limited liability companies

Steps to take to repay member capital

• Step 1 (Members’ Council Meeting): The Members’ Council of a limited liability company with two or more members conducts a meeting related to the return of capital contributions to members of the company.
• Step 2 (Adopt resolutions, decisions, and minutes): After the meeting, the Board of Members issues resolutions, decisions, and minutes on the issue of reducing charter capital in the form of returning capital contributions.
• Step 3 (Refund of capital contribution): The company refunds the member’s capital contribution, in accordance with the proportion of the member’s capital contribution in the company’s charter capital.
• Step 4 (Notification of reduction of charter capital): After completing the repayment of members’ capital contributions, the company’s charter capital is reduced, and the company must register a change in charter capital with the Agency. Business registration within 10 days from the date of completion of charter capital reduction through the return of contributed capital (According to the provisions of Clause 4, Article 68 of Vietnam Enterprise Law 2020).
• Step 5 (Business registration agency updates information): Within 03 working days from the date of receiving notice of registration to change the enterprise’s charter capital by returning contributed capital, the business registration agency updates information on reducing charter capital of limited liability companies with two or more members.
• Step 6 (Implement tax declaration procedures): When the company’s charter capital decreases, it will reduce the license tax rate that the company must pay. At that time, the company needs to carry out the following procedures:
• Declare and submit a declaration to adjust and supplement registration information according to form 08-MST issued with Circular 105/2020/TT-BTC.
• Submit additional license tax declaration in the adjacent tax period.

Some notes on procedures for reducing charter capital of multiple-member limited liability companies

Content of Notice of Reduction of charter capital of multiple-member limited liability company.

According to Clause 4, Article 68 of the Law on Enterprise, the content of the Notice of charter capital reduction for multiple-member limited liability companies includes:

• Name, head office address, business code, tax code, or Enterprise Registration Certificate number (in case the enterprise does not have a business code or tax code);
• Full name, address, nationality, ID card number, passport or legal personal identification number, or establishment decision number, business code of each member of a multiple-member limited liability company tablets, or more.
• Proportion of capital contribution of each member.
• Registered Charter capital and changed Charter capital; time and form of capital reduction.
• Full name, nationality, ID card or passport number or legal personal identification, permanent address, and signature of the company’s legal representative.

Documents accompanying the Notice of Reduction of charter capital of a limited liability company with two or more members

Types of documents accompanying the Notice of reduction of charter capital of a multiple-member limited liability company are specified in Clause 5, Article 68 of the Law on Enterprises 2020 and Clause 4 of Decree 01/2021/ND-CP dated January 4, 2021. Specifically, the attached documents include:

• Resolutions, decisions, minutes, and valid copies of meeting minutes of the Board of Members of a multiple-member limited liability company (Decisions and meeting minutes must clearly state the amendments in Article company rules);
• The company’s most recent financial statements;
• Document from the Department of Planning and Investment approving the capital contribution, share purchase, and stakes of foreign investors in accordance with the provisions of the Investment Law 2020.

Procedures for returning capital contributions to the owner of a single-member limited liability company

Steps to take to return capital contributions to owners

Step 1 (Prepare documents): A single-member limited liability company needs to prepare documents to return capital contributions to the owner, including:

• Notice of change in business registration content (signed by legal representative.
• Resolutions and decisions of the company owner on changing charter capital.
• Copy of Enterprise Registration Certificate.
• Commitment of the company owner to ensure payment of all debts and fulfillment of other property obligations after returning the capital contribution.
• Power of attorney for individuals and organizations to perform work with competent state agencies.

Step 2 (Submit application): The company submits the application at the Business Registration Office:

• If the company owner transfers part of the capital contribution to another individual or organization, the business type must be converted (to a limited liability company with two or more members or a joint stock company).
• If the company owner transfers the entire capital contribution to another individual or organization, the owner must be changed.
• Within 10 days from the date of signing the transfer contract, the individual or company must submit a personal income tax declaration to the transferor at the management tax agency.

Step 3 (Disclosure of charter capital reduction information):

• Within 30 days from the date of charter capital reduction, the company must announce the change information on the National Business Registration Portal.
• After announcing the changed information, the Business Registration Office under the Provincial Department of Planning and Investment will issue the company a Receipt announcing the business registration content.

Step 4 (Implement tax declaration procedures): In the case of reducing the charter capital of a single-member limited liability company, it will reduce the license tax the company must pay. At that time, the company needs to carry out the following procedures:

• Declare and submit a declaration to adjust and supplement registration information according to form 08-MST issued with Circular 105/2020/TT-BTC.
• Submit additional license tax declaration in the adjacent tax period.

Personal income tax when repurchasing capital contributions

When transferring capital in a limited liability company, income from capital transfer is taxable income according to Article 2.4 of Circular 111/2013/TT-BTC (amended and supplemented from time to time). Specifically:

• For the above two cases of capital reduction of two types of limited liability companies, when the capital transfer is not at par, the person who is entitled to the income arising from the capital transfer (the owner of the capital contribution) will have to pay tax. Personal income is based on the difference in interest received.
• For both single-member limited liability companies and multiple-member limited liability companies, whether the transfer is equal to or less than the charter capital if the preceding fiscal year is profitable, the trader still needs to pay personal income tax due to capital transfer.

If you have any questions about refund of capital contributions in limited liability companies, please contact Viet An Law Firm for our best support!