Exercising voting rights and receiving dividends corresponding to the number of shares held are basic rights of shareholders as recorded in the Enterprise Law 2020 (Article 115.1) and the charter of the joint stock company (“Charter”). Information on dividend payments shows the company’s development potential and creates shareholder trust in the company, so it often has a positive impact on the company’s stock price when this information is released to the market. Dividend payments can be seen as a factor in attracting new shareholders or retaining current shareholders.

Dividends paid on common shares are determined based on the net profit realized and the dividend payment is deducted from the company’s retained earnings. Article 135 of the Enterprise Law 2020 also stipulates additional conditions for a joint stock company to pay dividends on common shares, including:

• The Company has fulfilled its tax obligations and other financial obligations as prescribed by law;
• Has set aside company funds and offset previous losses in accordance with the provisions of law and the Charter;
• Immediately after paying all dividends, the company still ensures full payment of debts and other financial obligations due.

Dividends may be paid in cash, in company shares or in other assets as specified in the Charter. If paid in cash, it must be made in Vietnamese Dong and in accordance with the payment methods prescribed by law. In case of paying dividends in shares, the company does not have to carry out the procedures for offering shares as prescribed but must register to increase the charter capital corresponding to the total par value of the shares used to pay dividends within 10 days from the date of completion of dividend payment.

The annual dividend rate for each type of share will be decided by the General Meeting of Shareholders (“GMS”). Article 135 of the Enterprise Law 2020 stipulates that the dividend payment period is within 06 months from the date of closing of the annual GMS. The Board of Directors (“BOD”) shall prepare a list of shareholders entitled to receive dividends, determine the dividend rate for each share, the payment period and form at least 30 days before each dividend payment. The notice of dividend payment shall be sent by a method to ensure that it is sent to shareholders at the address registered in the shareholder register at least 15 days before the dividend payment.

Provisions on interim dividends to common shareholders

Advance dividend is the payment by joint stock companies of a portion of the dividend that shareholders may be entitled to before the end of the fiscal year based on the accumulated profits recorded in the year. The Enterprise Law 2020 does not have specific regulations on advance dividend payment, however, this is quite common in practice and is carried out by both non-public joint stock companies, public companies and listed companies.

Accessing the website of the Vietnam Securities Depository and Clearing Corporation (vsd.vn), we see quite a few announcements about the 2024 dividend advance of companies. For example, Vietnam Apatite Phosphorus Joint Stock Company (stock code: PAT) announced that November 20, 11 is the last registration date for the 2024 cash dividend advance, implementation rate: 2024%/share (70 share receives 01 VND), payment date is December 7.000, 20. Or like Moc Chau Dairy Cattle Breeding Joint Stock Company (stock code MCM) announced that November 12, 2024 is the last registration date for the first interim dividend payment of fiscal year 15 in cash, implementation rate: 11%/share (2024 share receives 1 VND), payment date is December 2024, 10.

The prerequisite for making interim dividend payments to common shareholders is that the company must have after-tax profits from its business operations. After ensuring this condition, the company can deduct a portion of its after-tax profits to make interim dividend payments to shareholders at a rate decided by the General Meeting of Shareholders (based on the voting results at an extraordinary meeting of the General Meeting of Shareholders or by obtaining written opinions from shareholders). The General Meeting of Shareholders may authorize the Board of Directors to perform specific related tasks. The company must pay attention to ensuring that all procedures are fully implemented when making interim dividend payments, such as: making a list of shareholders entitled to the right, determining the payment level, and notifying in advance the time of interim dividend payment.    

Under normal circumstances, interim dividends help shareholders receive money sooner, giving them immediate cash to deal with personal financial issues or invest in other opportunities. In some M&A transactions in the form of equity purchases, the parties may agree to advance dividends (arising in the period before the completion of the M&A transaction) to the selling shareholders. In this case, the value of the transferred shares will not include the right to receive dividends for the previous period and accordingly the transaction value that the buyer must pay will also be lower. On the company’s side, interim dividends in cash need to be carefully considered because this affects the short-term cash flow and the company’s ability to invest in future development. Therefore, the decision on whether to advance dividends or not needs to be based on the stable profit level and detailed financial plan of the enterprise. 

In case the company pays dividends in the form of advance payment contrary to the provisions of Article 135 of the Enterprise Law 2020, shareholders are responsible for returning to the company the amount of money and other assets received; in case the shareholder cannot return to the company, all members of the Board of Directors must be jointly responsible for the debts and other property obligations of the company within the value of the amount of money and assets paid to shareholders that have not been returned.

Payment or advance of cash dividends to shareholders who are foreign investors

Dividends distributed by a joint stock company to ordinary shareholders who are foreign organizations and individuals directly investing in Vietnam (collectively referred to as “foreign investors”) are considered a legal source of income in Vietnam for foreign investors. Accordingly, foreign investors are allowed to transfer this source of profit from Vietnam abroad in accordance with relevant provisions of the law on foreign exchange management.

Circular 186[1] regulations on the timing of transferring profits abroad for foreign investors with direct investment activities in Vietnam include (i) annual transfer at the end of the fiscal year; and (ii) transfer at the end of the investment activities. Accordingly, the conditions for foreign investors to transfer the received dividends out of Vietnam are that the company with foreign investors participating in the investment and implementing the dividend payment (i) has fulfilled its financial obligations to the Vietnamese State; (ii) has submitted audited financial statements; and (iii) has submitted the corporate income tax finalization declaration for the fiscal year to the direct tax management agency.[2]. In the case of dividend advance, we believe that foreign investors will certainly encounter difficulties in receiving and transferring this legal profit out of Vietnam when they do not have enough documents according to the above regulations because the time of dividend advance is within the fiscal year.

In case foreign investors own dividend preference shares[3] We believe that the procedure for transferring income as preferential dividends abroad will be simpler and more convenient. Article 117 of the Enterprise Law 2020 stipulates that preferential dividends are distributed annually, including: fixed dividends and bonus dividends, in which fixed preferential dividends do not depend on the company’s business results. In this case, when transferring money abroad, foreign investors will need to prove that the preferential dividends they receive are determined in accordance with the provisions of the Charter, the shares of the preferential dividend shares and the resolution on preferential dividend distribution of the General Meeting of Shareholders or the Board of Directors of the company. Although the Enterprise Law 2020 clearly stipulates that the payment of fixed preferential dividends does not depend on the company’s business results, we know that in practice, some banks only allow foreign investors to transfer preferential dividends abroad after proving that the company has enough profits (including retained profits from previous years) to pay preferential dividends (in other words, the company cannot use other sources of equity other than profits to pay preferential dividends to shareholders).

In fact, we have reviewed the charter of a joint stock company which stipulates that the type of dividend preference shares that the shareholders own will receive in advance the preferential dividend (the first payment made upon issuance) and will be received annually. In this case, we believe that the preferential dividend payment made by the company is essentially the same as the provision of preferential dividend to the shareholders owning the preferential shares.     

[1] Circular 186/2010/TT-BTC issued by the Ministry of Finance on November 18, 11 provides guidance on the transfer of profits abroad by foreign organizations and individuals with profits from direct investment in Vietnam in accordance with the provisions of the Investment Law (“Circular 2010”).

[2] Article 4 Circular 186.

[3] Clause 1, Article 117 of the Enterprise Law 2020, “Preferred shares are shares that pay dividends at a higher rate than common shares or at a stable annual rate..

This article was written by Lawyer Phung Anh Tuan (Managing Attorney) and Quach Mai Phuong (Associate)

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