Risks when applying for a work permit for foreign workers but not gaining income

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Question:

We have applied for a work permit for a foreigner.

Purpose: When necessary, you will go to Vietnam to work directly without any problems with work permits.

Ways of working: When you come to Vietnam to work, the Company will pay you a salary corresponding to your working time.

From the time of applying for a work permit (June 12, 2023) until now, you have not yet come to Vietnam, so you have no income, no insurance and tax declaration in Vietnam.

In the case of applying for a work permit for foreign workers but not incurring income payments, are there any risks?

Answer:

In case the employee does not earn any income, he/she will not have to declare insurance and taxes in Vietnam.

In case the employee comes to Vietnam to work and earns income, the Company needs to declare insurance and taxes on the actual days the foreign employee goes to work according to the provisions of law.

Besides, the Company needs to pay attention to fulfilling its obligation to report in the first six months of the year and annually on the situation of using foreign workers to the Department of Labor, Invalids and Social Affairs (Article 6, Decree No. 152/2020/ ND-CP).

“1. Prior to July 5 and January 5 of the following year, the employer of foreign workers shall send a first-half-year report and an annual report on employment of foreign workers, using Form No. 07/PLI Appendix I hereto appended. The reporting period of the first 6 months is from December 15 of the previous reporting year to June 14 of the reporting year, the reporting period of the annual report is from December 15 of the previous reporting year to December 14 of the reporting year.

  1. Prior to July 15 and January 15 of the following year or on ad-hoc basis, Department of Labor, War Invalids and Social Affairs shall send a report on employment of foreign workers in the province to the Ministry of Labor, War Invalids and Social Affairs, using Form No. 08/PLI Appendix I hereto appended The reporting period of the first 6 months and the whole year complies with regulations of the Government on reporting regime of regulatory agencies.”

If the employer does not make the report, he/she will be administratively fined from VND 5.000.000 to VND 10.000.000 according to the provisions of Clause 2, Article 8, Decree 12/2022/ND-CP). Secondly, the Company must send the labor contract with that foreign employee to the competent authority that issued that work permit. Labor contract must be original or certified copy. (Clause 3, Article 11 of Decree 152/2020/ND-CP).

Case summary:

A and B are two company members in a multi-member limited liability company. The Enterprise Registration Certificate shows: A contributes 80% of charter capital; B contributes 20% of charter capital.

Currently, A wants to have C’s name on the Enterprise Registration Certificate with a capital contribution of 20% to encourage C to work better, specifically, C has the right to vote in meetings of the Board of Members and get income when the Company distributes income and other rights equivalent to company members owning 20% ​​of contributed capital.

Therefore, A wants to authorize C 20% of his/her total capital contribution of 80% to do the above.

Question:

  1. Is A authorized to C so that C can be named as a company member in the Enterprise Registration Certificate with a capital contribution of 20%? Why?
  2. If A is not authorized, is there any way for A to do this?

Answer:

Question 1: According to Appendix IV-3 issued with Circular No. 01/2021/TT-BKHDT dated March 16, 2021 of the Minister of Planning and Investment, the form of the Enterprise Registration Certificate will show the content of capital contributing members is as follows:

  1. List of capital contributing members:

 

No. Member’s

name

Nationality Contact address for individuals; Head office address for the organization

 

Capital contribution (VND and equivalent value in foreign currency, if any) Rate (%) Number of personal legal documents for individual members; Number of legal documents of the organization for members who are organizations Notes
               

 

Thus, the Enterprise Registration Certificate only shows the name of the company member and not the name of the person authorized by the company member.

According to the provisions of Clause 29, Article 4 Law on Enterprises:Member” or “Partner” means the individual or organization that holds part or all of charter capital of a limited liability company or partnership.

Thus, if A wants C to have 20% of the charter capital on the Enterpris Registration Certificate, then C must own 20% of the charter capital. Therefore, A must transfer 20% of his/her capital contribution to C, not authorize 20% of his capital contribution to C.

Question 2:

In this case, to protect A’s rights, the following plan will be implemented:

Step 1: A and B sign a loan contract, in which A lends B an amount of money equivalent to 20% of the capital contribution to the Company without interest for a period of …. years and C mortgages 20% of the capital. That capital contribution serves as collateral to ensure the performance of the loan contract.

Step 2: A and B sign a contract to transfer 20% of A’s capital contribution to C;

Step 3: A and C sign a contract to transfer capital contribution equivalent to 20% of C to A and leave the date blank. At the same time, B signs a document refusing to buy 20% of C’s capital contribution and leave the date blank.

Step 4: Complete procedures to change capital contributing members with the Department of Planning and Investment, recording C as a member contributing 20% ​​of capital, A contributing 60%, B contributing 20%.

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