Scenario: an FDI company in Hai Phong, profitable after three years, sits on VND 20 billion of undistributed after-tax profit. Instead of wiring another VND 20 billion from its overseas parent to increase charter capital, the CFO proposes: “Let’s just use the profit already inside the company to increase capital — faster and no international wire fees.” This proposal is entirely feasible in law — with one important caveat about its nature: it is not a “capital contribution” in the sense of the 90-day founding period, but a charter capital increase from internal sources, and it must follow the proper capital-increase procedure.
The legal basis: increasing capital from internal sources is the company’s right
The Law on Enterprises No. 59/2020/QH14 (effective 1 January 2021; amended by Law No. 76/2025/QH15, effective 1 July 2025) sets out the forms of charter capital increase. For multi-member LLCs, charter capital increases when members’ contributions increase (Point a, Clause 1, Article 68); for single-member LLCs, when the owner contributes additional capital (Clause 1, Article 87); for joint stock companies, when additional shares are issued (Article 112). The law does not require increase funding to come from outside — owner equity already inside the company, including undistributed after-tax profit, is a lawful source for capitalisation. The common practice for joint stock companies is issuing shares as stock dividends or bonus shares from undistributed after-tax profit to existing shareholders; for LLCs, a resolution increasing each member’s stake from retained earnings.
The key point to remember: no new cash flows into the company in this transaction. “Contributing profits” is in substance a capitalisation bookkeeping entry — decreasing undistributed after-tax profit and increasing owners’ contributed capital — followed by registration of the charter capital change with the business registration office under Decree No. 168/2025/ND-CP on enterprise registration.
Four conditions before capitalising
First, the profit must be real and determined: undistributed after-tax profit must appear in the financial statements — for an FDI enterprise, audited financial statements, since foreign-invested enterprises must have annual financial statements audited (Point a, Clause 1, Article 37 of the Law on Independent Audit No. 67/2011/QH12). “Projected” profit or profit of an unclosed accounting period may not be capitalised. Second, no uncovered accumulated losses: only positive undistributed after-tax profit, after appropriations to statutory and charter reserves, may be used to increase capital. Third, a resolution of the competent body: the Members’ Council (LLC) or General Meeting of Shareholders (joint stock company) must approve the profit-utilisation plan, stating the capitalised amount and allocation to each member or shareholder. Fourth, solvency must be preserved: after capitalisation the company must still be able to pay all debts and other asset obligations — capitalisation may not be used to “beautify” charter capital while the company is insolvent.
Personal income tax: the point many overlook
When profits are capitalised, individual members or shareholders effectively receive “income recorded as increased capital”. Under Clause 9, Article 26 of Circular No. 111/2013/TT-BTC (amended by Circular No. 25/2018/TT-BTC), an individual receiving stock dividends or income recorded as increased capital is not required to declare and pay personal income tax at the time of receipt; the declaration obligation arises upon capital transfer, capital withdrawal or enterprise dissolution — when transfer income and investment income are determined on the full capitalised value. In other words, capitalising profits only defers the tax obligation; it does not erase it. For organisational members, income from capitalised profits is handled under current corporate income tax law — this should be confirmed with a tax adviser before proceeding, as practical application may vary by tax department.
Practical action: the four-step process
Step 1: lock the figures — finalise the audited annual financial statements and determine the exact available undistributed after-tax profit after reserve appropriations. Step 2: pass the resolution — the Members’ Council or General Meeting of Shareholders approves the capitalisation plan and allocation ratios. Step 3: book it — decrease undistributed after-tax profit and increase owners’ contributed capital in accordance with accounting standards. Step 4: register the charter capital change with the business registration office and update the company charter, member register and shareholder register. Only when the new Enterprise Registration Certificate is issued is the increase legally complete — the accounting entry alone is not enough.
Frequently asked questions
Does capitalising profits require wiring money into the company?
No. The entire point of the transaction is that there is no new cash flow — the profit already sits within company assets. The “contribution” here is the bookkeeping conversion from retained earnings into charter capital, followed by registration of the change.
Can this year’s unaudited profit be capitalised?
It should not be, and is not accepted in practice. Profit must be determined in finalised financial statements — for FDI enterprises, audited statements under Point a, Clause 1, Article 37 of the Law on Independent Audit 67/2011/QH12. Capitalising “provisional” mid-year profit risks a lower year-end figure, leaving charter capital inflated.
Does capitalising profits increase corporate income tax payable?
No. Capitalisation merely reallocates owner equity within the balance sheet; it creates no new revenue or expense, so it does not affect the period’s taxable income. The tax impact sits with the individual receiving the capitalised income, as analysed above.
Can a company with accumulated losses capitalise this year’s profit?
No, if after offsetting accumulated losses no positive undistributed after-tax profit remains. The principle is that only genuinely positive profit after covering prior-year losses and mandatory reserve appropriations may be used to increase capital. Deliberately capitalising while losses remain is a mischaracterised entry that auditors will eliminate.
This article has been quality-reviewed by the FLAW AI Legal Council