Interim Dividends for Foreign Investors: Conditions, Authority and Tax
At the end of Q2, an FDI company reports strong half-year profits. The foreign investor wants part of the profits now, mid-year, rather than waiting until after next year's annual general meeting. It sounds simple — the company is profitable, so distribute — but mid-year dividends are among the most compliance-sensitive decisions: wrong conditions, wrong authority, wrong tax, wrong remittance procedure. This article covers the 6 key points.
1. Three mandatory conditions before paying (Article 135)
Clause 2, Article 135 of the Law on Enterprises provides that a joint-stock company may pay dividends on ordinary shares only when 3 conditions are met:
- (a) The company has completed its tax obligations and other financial obligations as prescribed by law;
- (b) It has appropriated company funds and covered prior losses as prescribed by law and the charter;
- (c) Immediately after paying all dividends, the company can still fully pay its debts and other asset obligations as they fall due.
These apply to every dividend payment, year-end or mid-year. The one companies overlook: condition (c) — after distribution, is remaining cash flow enough for debts falling due? Paying mid-year dividends then missing bank repayments three months later is exactly what tax authorities and auditors will question.
Dividends are determined on the basis of realized net profits and paid out of retained earnings. For a mid-year payment, reliable figures are essential — best practice is reviewed (not merely management) half-year financial statements.
2. Who decides: the GMS or the Board?
Authority is clearly split:
- The General Meeting of Shareholders decides the annual dividend rate for each share class (Point b, Clause 2, Article 138);
- The Board of Directors proposes the rate and decides the timing and procedures of payment.
The catch: the law has no dedicated "interim dividend" mechanism. Safe applied practice offers two routes:
- An extraordinary GMS to decide the interim dividend plan — strongest on authority;
- GMS authorization for the Board to declare interim dividends within charter limits — faster, but validity depends on the authorization clause in each company's charter.
The Board should not declare interim dividends on its own without charter authorization — the payment decision could be challenged on authority, with personal liability for the signatories.
On payment procedures (Clause 4, Article 135): the Board prepares the list of entitled shareholders and determines the per-share amount, timing and form no later than 30 days before each payment; the dividend notice must reach shareholders no later than 15 days before payment. Dividends may be paid in cash, in company shares, or in other assets (per the new definition in Law 76/2025/QH15).
3. Tax: institutions vs. individuals
This is the sharpest distinction for foreign investors:
- Foreign institutional shareholders: at the payment stage, the company withholds nothing in Vietnam. Profits used for dividends have already borne corporate income tax at company level; distribution to institutions triggers no further tax at payment.
- Individual shareholders (including foreign individuals): the company must withhold 5% personal income tax on capital-investment income at source before paying (Article 10, Circular 87/2026/TT-BTC, effective 1 July 2026). The 5% rate applies to both resident and non-resident individuals.
A common misfiling: dividends paid in shares — no tax is due when the individual receives them; the tax point is when the shares are transferred.
4. Remitting dividends abroad
A foreign investor's dividends leave Vietnam in three steps:
- Complete related tax obligations (withhold 5% PIT for individual shareholders; full declarations);
- Notify the directly managing tax authority at least 07 working days in advance on the prescribed form — the step most companies skip;
- Remit through the investment capital account at a licensed bank, in compliance with foreign-exchange regulations on foreign direct investment.
The order cannot be reversed: remitting before the 7-day notice is a procedural violation, punishable as an administrative offence.
5. What about LLCs?
LLCs do not use "dividends" but profit distribution, decided by the Members' Council (multi-member LLC) or the company owner (single-member LLC). The substance mirrors JSCs: distribute only after tax obligations, loss coverage and fund appropriations per the charter, while ensuring debts falling due can be paid.
Tax duties (5% PIT for individual members) and offshore remittance procedures (7-day notice, capital account) apply the same as for JSCs. Do not skip compliance steps just because it is an "internal" profit split.
6. The biggest mid-year risk
The risk is not procedure but figures: half-year profits are not fully audited. If year-end statements revise profits downward (provisions, revenue adjustments), the interim dividend may exceed actual profits — meaning the company distributed beyond what the conditions allowed.
Consequences: the payment may be treated as an unlawful distribution during tax finalization or audit; the company may have to claw it back; managers who decided a non-compliant payment are liable to the company and shareholders.
Prevention: declare interim dividends conservatively (e.g., capped at a prudent ratio of reviewed half-year profits), keep a buffer for year-end adjustments, and record an adjustment mechanism in the GMS resolution in case annual figures change.
Pre-payment checklist
- [ ] Reviewed half-year financial statements establishing realized net profits
- [ ] The 3 Article-135 conditions verified (tax, funds + loss coverage, post-payment solvency)
- [ ] Authority settled: extraordinary GMS or valid Board authorization
- [ ] Board prepares shareholder list; 15-day notice given
- [ ] 5% PIT withheld for individual shareholders
- [ ] 7-working-day notice to the tax authority before remittance
- [ ] Remittance via the investment capital account at a licensed bank
- [ ] Conservative interim amount with a year-end adjustment mechanism
When to work with a lawyer
Mid-year dividends for foreign investors touch company law, tax law and foreign-exchange management at once. Counsel helps review the charter on interim authority, test the 3 Article-135 conditions against actual figures, compute withholding correctly, and prepare the remittance notification — so the money goes home clean, with no retrospective risk.
FLAT LAW FIRM accompanies FDI companies on cross-border profit distributions. Call our hotline 0988424851 for advice on your specific case.
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References
- Law on Enterprises 2020; Law 76/2025/QH15 amending the Law on Enterprises (passed 17/6/2025) — Article 135 (dividends), Article 138 (GMS authority), Article 153 (Board authority).
- Circular 87/2026/TT-BTC (effective 1 July 2026, replacing Circular 111/2013/TT-BTC) on PIT (Article 10: 5% rate on capital-investment income).