Capital Increase Without New Cash: A Common Strategy With a Hidden Documentation Trap
As Vietnam subsidiaries of foreign companies mature and accumulate profits, many parent groups choose to reinvest those profits by increasing the Vietnam entity’s charter capital — without injecting new foreign currency. The logic is straightforward: use accumulated after-tax profits that are already sitting in the Vietnam entity’s accounts to formally increase the registered charter capital, strengthening the entity’s balance sheet, improving its borrowing capacity, and potentially unlocking higher CIT incentive thresholds or expanded investment scope.
This capital increase method is legally permitted under Vietnam’s Law on Investment 2025 (Law No. 143/2025/QH15) and Law on Enterprises (as amended by Law No. 76/2025/QH15). But it has a documentation sequence that is consistently misunderstood — and a post-amendment step that is routinely skipped. The consequence of skipping that step is not a fine or a warning. It is the permanent loss of the ability to remit profits corresponding to the increased capital portion.
The Documentation Chain for a Retained-Earnings Capital Increase
When no new foreign cash is being injected, the investment registration authority requires the company to demonstrate that the capital increase is funded by genuine retained earnings — not borrowed funds or simulated profits. The required documentation package (what ECOVIS Vietnam Law calls the “defense file” for this transaction type) includes:
Audited financial statements for the two most recent financial years, prepared under Vietnamese Accounting Standards and audited by a qualified auditor. The statements must show a “undistributed after-tax profit” line item (lợi nhuận sau thuế chưa phân phối) that is equal to or greater than the proposed capital increase amount. An auditor’s confirmation that the retained earnings are available for capitalisation is commonly requested by the licensing authority alongside the formal accounts.
A member/shareholder resolution on profit distribution that formally resolves that the specified retained earnings amount is to be converted to charter capital rather than distributed as dividends. This resolution must conform to the voting procedures in the company’s charter and be signed by the authorised signatories.
A Corporate Income Tax settlement confirmation for the relevant periods — showing that the profits being capitalised have already had CIT paid, and that the company has no outstanding CIT obligations that would affect the validity of the retained earnings balance.
These three documents, together with the standard IRC/ERC amendment application, are submitted to the investment registration authority for the capital increase amendment. Once approved, the company receives an amended IRC and ERC reflecting the new charter capital amount.
The Step Almost Every Company Misses: DICA Registration Post-Amendment
Most companies — and many advisors — treat the IRC/ERC amendment as the completion of the capital increase process. It is not. There is a mandatory post-amendment step that must be completed at the company’s commercial bank before the capital increase is treated as legally valid under Vietnam’s foreign exchange management framework.
After the amended IRC and ERC are issued, the company must present the amended documents to the bank that holds its DICA (Direct Investment Capital Account) and formally register the capital movement — recording that the additional charter capital has been sourced from retained earnings held in the Vietnam entity, not from a new inward remittance. The bank processes this as an internal accounting adjustment on the DICA, updating the registered capital balance from the old figure to the new figure.
If this step is not completed, the DICA balance does not reflect the amended charter capital. The bank’s records still show the original capital figure. When the company later attempts to remit profits corresponding to the increased capital portion — which requires the DICA to reflect the relevant registered capital — the bank is unable to process the remittance because the records are inconsistent with the IRC/ERC amendment. The foreign exchange management records do not recognise the additional capital as having been properly registered.
Why This Creates a Permanent Problem
The inability to retrospectively correct a missed DICA registration step is not a procedural inconvenience — it creates a permanent structural deficiency in the company’s capital record. Profit remittance from Vietnam is calculated with reference to the registered and paid-up capital recorded in the DICA. Capital that is recorded in the IRC/ERC but not in the DICA is treated, for foreign exchange management purposes, as if it were not there.
Companies that discover this problem years after the capital increase — typically when attempting a large profit remittance or preparing for an M&A transaction or exit — face a retroactive correction exercise that requires the cooperation of the bank, the licensing authority, and potentially the State Bank of Vietnam’s foreign exchange management department. Some of these corrections can be made; others cannot, depending on the time elapsed and the completeness of the original documentation. In the worst cases, the additional capital simply cannot be repatriated — it is stranded in the Vietnam entity indefinitely.
A Related Trap: The 90-Day Capitalisation Window
Once the IRC/ERC amendment is issued reflecting the capital increase, the company has a statutory period within which the capital contribution must be completed and registered. For retained-earnings capitalisation, “completion” is the DICA registration step described above — not the IRC/ERC amendment date itself. Companies that obtain the amended IRC/ERC and then delay the bank registration step risk operating with an amended registration that shows a capital figure that has not yet been properly constituted, which creates a period of regulatory inconsistency and potential compliance exposure.
Frequently Asked Questions
How long does the DICA registration step take after the IRC/ERC amendment?
The DICA capital movement registration with the commercial bank typically takes three to seven business days once the bank receives the amended IRC, amended ERC, the member resolution on profit capitalisation, and the audited financial statements. Banks differ in their internal processing timelines and documentation requirements — confirming the bank’s specific requirements before submitting the IRC/ERC amendment application avoids surprises after the amendment is issued.
Can a company increase capital from retained earnings without completing a prior audit?
No. The investment registration authority requires audited financial statements showing the retained earnings balance. An unaudited management account or internally prepared balance sheet does not satisfy this requirement. If the company’s annual audit has not yet been completed for the relevant period, the capital increase timeline should be planned to allow for audit completion before the IRC/ERC amendment application is filed.
Is there a difference in procedure between increasing charter capital and increasing total investment capital?
Yes. Vietnam’s investment framework distinguishes between “charter capital” (vốn điều lệ — the amount the members have committed to contribute as equity) and “total investment capital” (tổng vốn đầu tư — which includes charter capital plus loans and other financing). A capital increase from retained earnings typically involves increasing charter capital, which requires both IRC and ERC amendment. Increasing only the total investment capital (to register additional loan facilities, for example) requires only IRC amendment and does not change the charter capital or trigger the same DICA registration mechanics. The retained-earnings capitalisation route specifically involves charter capital and the full documentation sequence described in this article.
What should companies do if they completed an IRC/ERC capital increase amendment but never completed the DICA bank registration step?
Act as soon as possible — before the next profit remittance attempt or M&A process. The longer the gap between the IRC/ERC amendment date and the DICA registration, the more complex the retrospective correction becomes. ECOVIS Vietnam Law has handled retrospective DICA registration exercises and can advise on the current feasibility and process based on the specific amendment date, documents available, and the company’s bank relationship.
Planning a charter capital increase from retained earnings, or concerned that a past capital increase may not have been fully registered? Contact Attorney Vu Manh Quynh at ECOVIS Vietnam Law for a capital structure and DICA compliance review. Email: vietnam@ecovislaw.vn | Website: www.ecovislaw.vn
This material is for general informational purposes only and does not constitute legal, tax or professional advice. Investors should seek specific advice based on their business sector, ownership structure and investment location in Vietnam. Legal and regulatory references reflect the position as of August 2026.
Attorney Vu Manh Quynh is the Managing Partner of ECOVIS Vietnam Law, advising international investors on Foreign Direct Investment (FDI), corporate governance, and regulatory compliance in Vietnam. Email: vietnam@ecovislaw.vn | Website: www.ecovislaw.vn
