In Vietnam, closing a company can cost 20 times more than starting one
Starting a company in Vietnam can cost just VND3-5 million (US$114-190), but shutting down a dormant business can cost up to VND100 million ($3,800) after years of accumulated taxes, fees and penalties.
Some 292,000 business entities nationwide have ceased operations but have yet to complete dissolution, while more than 325,000 companies are no longer operating at their registered addresses. Photo: Cong Trieu / Tuoi Tre
What causes this seemingly paradoxical situation?
The dilemma of dormant companies
Speaking to Tuoi Tre (Youth) online newspaper, lawyer Nguyen Dang Tu of the Ho Chi Minh City Bar Association said he had encountered many business owners struggling to find a way out for companies that had long ceased operations.
In one case, a client in Ho Chi Minh City registered a company in 2020 with the intention of selling it.
The deal later fell through, leaving the company dormant ever since.
The owner did not file to extend the company's suspension after the registered suspension period expired.
Believing that the company had effectively been closed, the owner left the matter unattended, allowing tax and other obligations to accumulate.
"The resulting tax liabilities can amount to as much as VND100 million ($3,800)," Tu said.
Another case in Hanoi involved a company established in 2011 to operate in construction and trading.
After facing difficulties in 2019-20, the owner decided to suspend operations. The company generated no revenue and issued no invoices during the period.
When the owner recently sought to permanently dissolve the company, the estimated cost reached VND75 million ($2,850), and could approach VND100 million ($3,800).
Of that amount, accounting services alone cost VND35 million ($1,330), while backdated business license fees and penalties for late filings accounted for another VND30-40 million ($1,140-1,520).
Experts have proposed a streamlined online mechanism with simplified procedures to help businesses that have been inactive for years without generating additional invoices, documents or tax debts. Photo: Cong Trieu / Tuoi Tre
A smoother exit needed
Lawyer Ly Vinh Hoang of the Da Nang Bar Association told Tuoi Tre that the current business dissolution process remains complicated, reflecting the saying that it is easier to "give birth" to a company than to "kill" one off.
The main problem is not necessarily the cost but the number of procedures involved.
Even small businesses with little or no activity and no outstanding tax debt must go through a complicated process to prepare documents proving that they have fulfilled all their obligations.
For companies that stopped operating years ago, retrieving old records and documents for verification can be particularly difficult. Hoang said the dissolution process could even be more challenging now than it was several years ago.
To address the problem, relevant government agencies and departments should improve coordination, he said.
When a company submits an application for dissolution, authorities should identify its outstanding obligations within a specified period.
If no tax or financial obligations can be determined by the end of that period, authorities should temporarily settle the case based on the information declared by the business owner, Hoang proposed.
If additional financial obligations are discovered later, the owner would remain responsible for fulfilling them.
Such a mechanism would allow genuinely inactive companies to complete the dissolution process instead of leaving their records unresolved indefinitely.
Tu suggested that the government introduce a more flexible mechanism for companies that have actually been inactive for many years, allowing them to "die completely" without having to pay accumulated tax arrears or penalties.
Many such owners have abandoned their companies and lack the financial capacity to pay hundreds of millions of dong in accumulated penalties simply to close them, he said.
A special mechanism would both free business owners from dormant companies and help authorities clean up the national business database, Tu said.
Why is the exit so difficult?
According to Tu, companies in Vietnam are managed simultaneously by two authorities: business registration agencies and tax authorities.
When businesses encounter difficulties, many owners file for temporary suspension with the business registration authority.
The problem arises when owners fail to file a new suspension notice before their current registered period expires, or simply assume that temporary suspension means the company has effectively been dissolved.
Unless a business files a new suspension notice before its current registered period expires, its operating status will automatically be reactivated once the notice period ends.
Once the company is recorded as active again, it must fulfill its tax obligations, including filing tax returns, paying business license fees, reporting input and output documents, and submitting tax finalization documents.
But owners who believe their companies have effectively stopped operating often leave the paperwork unattended and fail to file tax returns or pay business license fees.
Tax authorities can then impose penalties for late filings and late tax payments.
Late-payment penalties also accumulate over time. If a company's records are left unresolved for more than a decade, a subsequent tax review can result in a total bill comprising the original tax liabilities, late-filing penalties and accumulated late-payment interest that runs into hundreds of millions of dong.
"This is a very common situation in practice," Tu said.
The Ky - Cong Trieu / Tuoi Tre News
Link nội dung: https://news.tuoitre.vn/in-vietnam-closing-a-company-can-cost-20-times-more-than-starting-one-103260902131710193.htm