Dissolving a business is a complex process that requires strict adherence to legal regulations, especially financial obligations.
Below is a basic guide to help you properly and fully handle your financial obligations when dissolving a business in Vietnam:
1. Instructions for settling tax obligations
The goal of tax payment processing is to obtain confirmation from the tax authorities that there are no outstanding tax debts. To obtain this confirmation, businesses should follow the guidelines below.
In which cases is tax settlement not required upon dissolution?
The following cases do not require tax settlement upon dissolution:
➡️ Pay corporate income tax at a percentage rate on revenue.
Businesses and organizations subject to corporate income tax at a percentage rate on revenue from the sale of goods and services as stipulated by the law on corporate income tax are undergoing dissolution or cessation of operations.
➡️ Businesses that have not generated revenue and have not used invoices
A business is dissolved or ceases operations, but from the time it was granted a Business Registration Certificate or Enterprise Registration Certificate until the time of dissolution or cessation of operations, the business has not generated any revenue and has not used any invoices.
➡️ Revenue has been generated, invoices have been issued, but the following conditions must be met:
Businesses subject to corporate income tax based on self-declaration may dissolve or cease operations if they meet the following conditions:
- The average annual revenue (calculated from the year before tax settlement or audit to the time the business is dissolved or ceases operations) does not exceed 1 billion VND/year.
- From the time a business has not yet undergone tax settlement or inspection until the time of its dissolution or cessation of operations, it has not been penalized for violating the law regarding tax evasion.
- The amount of corporate income tax paid from the year not yet settled or audited until the time of dissolution or cessation of operations is higher than the corporate income tax if calculated as a percentage of revenue from the sale of goods and services, as stipulated in the regulations on percentage of revenue.
- For services (including interest on deposits and loans): 5%.
- Specifically for education, healthcare, and performing arts: 2%.
- For goods trading: 1%.
- For other activities: 2%.”
For the cases mentioned in points 1, 2, and 3 above, no later than 05 (five) working days from the date of receiving the dossier submitted by the taxpayer (including the dissolution or cessation of operations decision; documents proving that the taxpayer falls under the above-mentioned cases and has paid all applicable taxes, if any), the tax authority shall confirm that the enterprise has fulfilled its tax obligations.
2. Cases requiring tax settlement when dissolving a business.
For cases where a business dissolves or ceases operations and does not fall under the exemptions mentioned above, based on actual needs, the tax authority directly managing the taxpayer will conduct tax finalization according to the plan issued by the tax authority.
➡️ In order for the tax authorities to plan the tax settlement for the dissolution of the business, the company needs to complete and submit the following procedures:
- Minutes of asset liquidation (if any assets are to be liquidated).
- Notification of invoice cancellation results and report on invoice usage up to the time of filing the dissolution application.
- Corporate Income Tax (CIT) settlement report up to the time of dissolution.
- Personal income tax (PIT) report up to the time of submitting the dissolution application.
- Submit Value Added Tax (VAT) returns up to the time of submitting the business dissolution documents.
- Financial statements are prepared up to the settlement date.
Time limit for processing dissolution documents at the tax authority.
For businesses with foreign investment, including indirect investment (FII) and direct investment (FDI), audited financial statements up to the time of dissolution must be submitted.
➡️ After submitting all the above-listed documents, within forty-five (45) days from the date of submitting the dissolution decision, the enterprise monitors the tax settlement plan of the tax authority to provide the required documents.
During this time, businesses need to prepare thoroughly, finalize their accounting records, and appoint personnel to handle explanations and liaise with representatives from the tax authorities.
3. Guidelines for settling social insurance obligations when dissolving a business.
The goal of settling social insurance obligations is to obtain confirmation from the social insurance agency that there are no outstanding social insurance debts. To obtain this confirmation, businesses should follow the guidelines below:
In addition to fulfilling its obligations to employees, businesses are also responsible for confirming the completion of their financial obligations to the social insurance management agency as follows:
➡️ The employee's insurance record is finalized as follows:
According to Article 47 of the Labor Code, the following is stipulated: “Article 47. Responsibilities of the employer upon termination of a labor contract: Within 07 working days from the date of termination of the labor contract, both parties are responsible for fully settling all amounts related to the rights and benefits of each party; in special cases, this period may be extended but not exceeding 30 days.”
The employer is responsible for completing the verification procedures and returning the social insurance book and other documents that the employer has retained from the employee.
➡️ Please confirm that you do not owe any mandatory insurance premiums:
- Conduct a reconciliation of mandatory social insurance contributions up to the time of dissolution.
- Please confirm that you have no outstanding social insurance debts (if any).
4. Guidance on settling other related obligations when dissolving a business.
The Enterprise Law stipulates who organizes the liquidation of assets and the order of debt payment. Accordingly, the owner of a private enterprise, the Board of Members or the owner of a company, or the Board of Directors directly organizes the liquidation of the enterprise's assets, except in cases where the company's charter stipulates the establishment of a separate liquidation organization.
The company's debts are paid in the following order:
- Wage arrears, severance pay, social insurance contributions as stipulated by law, and other employee benefits as per collective bargaining agreements and signed employment contracts.
- Tax debt.
- Other debts.
- After all debts and expenses have been paid, the remaining assets will be distributed to the private business owner, members, shareholders, or company owners in proportion to their ownership of capital contributions or shares.
According to the Enterprise Law, the contract liquidation period is as follows: It must not exceed 06 months., starting from the date the dissolution decision was approved. This timeframe is only suitable for small businesses with no complex transactional relationships and highly liquid assets.
For large businesses or those with numerous assets, the time required for liquidation and debt repayment may not be sufficient to settle all contracts and outstanding debts. Therefore, businesses need to review and plan their liquidation process appropriately.