Proof of the foreign investor’s financial capacity is required to ensure that the investor possesses sufficient financial resources to implement and maintain the project in accordance with the commitments made when applying for the Investment Registration Certificate (IRC). So, what conditions must investors satisfy? How are the dossier and procedures for proving financial capacity when establishing an FDI company carried out? In the article below, Siglaw provides detailed information in accordance with current legal regulations.
What is Proof of an Investor’s Financial Capacity?
Financial capacity refers to the ability to secure sufficient capital resources for the investment and business activities of an enterprise in order to achieve its intended objectives.
Proof of an investor’s financial capacity means providing documents and records demonstrating the investor’s ability to meet the financial requirements necessary to implement an investment project. This is an important appraisal criterion aimed at minimizing delays or suspension of projects due to insufficient funding.
Investors may demonstrate their financial capacity through their own capital, contributed capital, or financing and credit commitments from financial institutions or banks.
Conditions Regarding the Investor’s Financial Capacity
For Commercial Housing Construction Projects
Pursuant to Clause 2, Article 26 of the 2014 Law on Housing, investors of commercial housing projects must satisfy the financial capacity requirements prescribed by law.
According to Clause 2, Article 4 of Decree No. 02/2022/ND-CP, investors selected as project developers of real estate projects must satisfy the following conditions:
- Having the ability to mobilize capital from credit institutions, foreign bank branches, or other organizations and individuals to implement the project;
- For projects with a land area of less than 20 hectares, equity capital must account for at least 20% of the total investment capital;
- For projects with a land area of 20 hectares or more, equity capital must account for at least 15% of the total investment capital.
For Projects Requiring Land Allocation, Land Lease, or Change of Land Use Purpose
Under Clause 1, Article 43 of the 2020 Law on Investment and Clause 1, Article 25 of Decree No. 31/2021/ND-CP, investors are required to make a deposit or obtain a guarantee from a credit institution or foreign bank branch to secure project implementation.
The deposit amount is determined as follows:
- 3% for the portion of investment capital up to VND 300 billion;
- 2% for the portion from over VND 300 billion to VND 1,000 billion;
- 1% for the portion exceeding VND 1,000 billion.
Documents Proving the Investor’s Financial Capacity
Pursuant to Point c, Clause 1, Article 33 of the 2020 Law on Investment and Official Dispatch No. 2541/CV-TCT dated 2022, investors are required to provide at least one of the following documents:
Financial Statements
- Investors operating from 01 to 02 years: provide the most recent year’s financial statement;
- Investors operating for more than 02 years: provide financial statements for the most recent 02 years;
- Where required by law, the financial statements must be audited in accordance with regulations.
Financial Support Commitment from the Parent Company
This is a document issued by the parent company committing to provide financial support for its subsidiary’s investment and business activities.
Financial Support Commitment from a Financial Institution
This is usually a credit commitment letter or funding commitment letter issued by a bank or credit institution to support the investor in implementing the project.
Financial Capacity Guarantee
This is a guarantee commitment made by the guarantor to ensure the investor’s financial obligations during project implementation. If the investor fails to fulfill such obligations, the guarantor shall perform them on the investor’s behalf.
Other Documents
Depending on the specific project, the investment registration authority may request additional documents to prove the investor’s financial capacity.
Methods of Proving Financial Capacity When Establishing an FDI Company
Determining the Total Investment Capital and Capital Structure
- Total investment capital refers to all costs required to implement the project;
- The capital structure includes the investor’s equity capital and capital mobilized from other organizations and individuals.
Investors should establish a capital structure suitable for the scale and requirements of the project.
Proving the Investor’s Own Capital
Own capital should consist of highly liquid assets such as cash, bank deposits, securities, or assets that can easily be converted into cash within a short period.
For individual investors:
- A bank balance confirmation is required.
For corporate investors:
- Enterprises operating for less than 01 year: provide a bank balance confirmation;
- Enterprises operating for more than 01 year: provide financial statements for the most recent 02 years in accordance with accounting regulations;
- Foreign-invested enterprises, listed companies, or enterprises with over 50% state ownership: financial statements must be audited.
The remaining equity capital of the investor is determined after deducting financial obligations, other investment commitments, and mandatory reserves as prescribed by law.
Proving the Ability to Mobilize Capital
- Loan capital: through credit commitment letters or loan agreements from organizations or individuals;
- Contributed capital: through investment cooperation agreements, joint venture agreements, partnership agreements, or capital contribution confirmations from partners.
Explanatory Documents on Financial Capacity
Investors are required to prepare explanatory documents in accordance with the guidance of the investment registration authority, including:
- Information on the investment project;
- Information on the investor’s financial capacity;
- Charter capital contribution status;
- Summary of financial data for the most recent 02 years;
- Information on ongoing litigation cases (if any);
- Information on participation in other investment projects;
- Summary of financial capability for project implementation;
- Supporting documents attached thereto.
Within 15 days from the date of receipt of a complete and valid dossier, the investment registration authority shall consider issuing the Investment Registration Certificate (IRC). In case of refusal, the competent authority must provide a written response clearly stating the reasons.
For further details, please contact Siglaw Firm for comprehensive legal consultation:
Head Office – Hanoi: No. 44/A32 – NV13, Block A Geleximco, Le Trong Tan Street, Tay Mo Ward, Hanoi.
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