Lawyer Dang Van Vuong – Deputy Head of Phong & Partners Law Firm provides the legal advice:

According to the provisions in Clause 1, Article 206 of the Enterprise Law 2020 and the guidance in Article 66 of Decree 01/2021/ND-CP dated January 4, 2024, by the Government on enterprise registration, in the case of a temporary business suspension, the enterprise must notify the Business Registration Office where the enterprise is located at least 03 working days before the temporary suspension date. Although business suspension is the enterprise's right, to control the situation of prolonged inactivity, the law stipulates that the maximum suspension period is 01 year. If necessary, the business can extend one more time, but the total temporary suspension period must not exceed 02 years.

Thus, under the law, when temporarily suspending operations, Company X. is required to notify the Da Nang Business Registration Office no later than 03 days from the temporary suspension date. However, Mr. Cuong’s enterprise has been inactive for over a year and a half without notifying the competent authorities, which constitutes a violation of the legal provisions.

1. Some legal risks when an enterprise temporarily suspends operations for an extended period without notification

If the Business Registration Authority inspects and discovers that Company X. has temporarily suspended operations for a extended period without notifying the relevant authorities, Company X. could face administrative penalties, or its Enterprise Registration Certificate could be revoked. Additionally, the company may be required to carry out dissolution procedures, depending on the severity of the violation.

Firstly, administrative penalties

Point c, Clause 1, Article 50 of Decree 122/2021/ND-CP stipulates the administrative penalties for failing to notify about the temporary suspension of business as follows:

“Article 50. Violations of other notification obligations

1. A fine ranging from 10,000,000 VND to 15,000,000 VND shall be imposed for one of the following acts:

c) Failing to notify or notifying late to the Business Registration Authority about the time and duration of the temporary suspension of business or the resumption of business”.

Accordingly, Company X. could face an administrative fine ranging from 10,000,000 VND to 15,000,000 VND for failing to notify about the temporary suspension’s timing and duration.

Secondly, revocation of the Enterprise Registration Certificate

Point c, Clause 1, Article 212 of the Enterprise Law 2020 stipulates the revocation of the Enterprise Registration Certificate as follows:

“Article 212. Revocation of the Enterprise Registration Certificate

1. An enterprise shall have its Enterprise Registration Certificate revoked in the following cases:

c) The enterprise has suspended operations for 01 year without notifying the Business Registration Authority and the Tax Authority”.

In addition, Clause 3, Article 75 of Decree  01/2021/ND-CP stipulates the procedure for revoking the  Enterprise Registration Certificate as follows: “In cases where an enterprise suspends operations for 01 year without notifying the Business Registration Authority and the Tax Authority, the Business Registration Office shall issue a written notice detailing the violation and require the enterprise’s legal representative to explain at the office. If the representative fails to attend within 10 working days after the notice deadline, or if the explanation is not accepted, the Business Registration Office shall issue a decision to revoke the Enterprise Registration Certificate.”

Based on these provisions, if an enterprise suspends operations for over 01 year without notifying the Business Registration Authority and the Tax Authority, the legal representative is required to attend an explanation session at the Business Registration Office. If the explanation is not accepted, or if the representative does not attend within 10 working days after the notice deadline, the Business Registration Office shall issue a decision to revoke the Enterprise Registration Certificate.

According to the information provided by Mr. Cuong, Company X. has been inactive for over 01 year and a half without notifying the Business Registration Authority and the Tax Authority, nor has it registered for temporary suspension of business. Therefore, Company X. face the risk of having its Enterprise Registration Certificate revoked by the Business Registration Office in accordance with applicable law.

Thirdly, compulsory dissolution procedure

Point d, Clause 1, Article 207 of the Enterprise Law 2020 stipulates the cases under which an enterprise is subject to dissolution:

"Article 207. Cases and conditions for enterprise dissolution

1. An enterprise shall be dissolved in the following cases:

d) The Enterprise Registration Certificate is revoked, except as otherwise specified in the Law on Tax Administration.

2. An enterprise may only be dissolved after all debts and other financial obligations have been settled, and provided it is not involved in any dispute resolution in court or arbitration. The relevant managers and the enterprise as stipulated in Point d, Clause 1 of this Article are jointly responsible for the enterprise's debts."

Additionally, Clause 8, Article 75 of Decree 01/2021/ND-CP stipulates: "Upon receiving the decision to revoke the Enterprise Registration Certificate, the enterprise is obliged to carry out the dissolution procedures as stipulated in Article 209 of the Enterprise Law, except in cases where the Enterprise Registration Certificate is revoked to enforce coercive measures requested by the Tax Authority."

Thus, after the Enterprise Registration Certificate is revoked, the enterprise is required to carry out the dissolution procedure in accordance with the procedure stipulated in Article 209 of the Enterprise Law. Should  Company X. have its Enterprise Registration Certificate revoked, it shall be required to proceed with the dissolution procedure as prescribed by law after settling all debts and property obligations.

On the other hand, Company X. may be liable for tax obligations arising during the period of temporary suspension of operations due to its failure to notify the authorities of such suspension.

According to Point a, Clause 2, Article 4 of Decree 126/2020/ND-CP, during the period when a taxpayer temporarily suspends operations or business, the taxpayer is not required to submit tax returns, except where the taxpayer temporarily suspends operations or business for less than a full month, quarter, year, or fiscal year, in which case the taxpayer remains obligated to submit monthly or quarterly tax returns and annual tax finalization reports. If the enterprise fails to notify the Tax Authority of the suspension as legally required, in principle, the enterprise shall continue to be deemed operational and must comply with the tax declaration obligations prescribed by law.

According to Article 143 of the Law on Tax Administration 2019, one of the tax evasion behaviors is failing to submit tax returns; submitting tax returns more than 90 days after the deadline for filing tax returns, or the deadline for the extension of filing tax returns. Therefore, if the enterprise fails to submit tax returns or submits them after 90 days from the due date, this behavior may be considered tax evasion and is subject to legal penalties.

In addition, Point c, Clause 2, Article 1 of Decree 22/2020/ND-CP amending and supplementing some articles of Decree 139/2016/ND-CP stipulates: "A fee payer who is currently operating and has submitted a written request to the Tax Authority regarding temporarily suspending production or business operations within the calendar year is not required to pay the business license fee during the period of business suspension under the following conditions: the written request for temporary suspension must be submitted to the Tax Authority before the deadline for paying the business license fee (January 30 of each year) and the business license fee for the year of suspension has not yet been paid. If the temporary suspension of production or business operations does not meet the above conditions, the business license fee for the entire year must be paid." Thus, if Company X. fails to meet the above conditions, such as failing to submit the suspension request on time or having already paid the business license fee before notifying the temporary suspension, it remains obligated to pay the business license fee for the entire fiscal year. Clause 2, Article 59 of the Law on Tax Administration 2019 provides the calculation of late payment fees and the period for calculating late tax payment penalties in general and business license fees in particular as follows:

The late payment amount (penalty for late payment) = Late payment of the business license fee x 0.03% x Number of late days

The period for calculating the late payment fee is continuous, starting from the day after the due date until the day before the payment of the overdue tax, tax refund, additional tax, tax reassessment, or tax penalty that has been paid into the state budget.

In addition to the basic legal consequences mentioned above, the long-term suspension of an enterprise may result in other consequences depending on each enterprise’s specific circumstances.

2. Proposed solutions

Below are several suggested solutions to minimize the legal risks for Mr. Cuong:

Verifying the current legal status of the business: Check the information on the National Business Registration Portal (https://dangkykinhdoanh.gov.vn) and the Tax Portal (https://www.gdt.gov.vn/wps/portal) to determine if the Tax Authority or the Business Registration Office has issued a warning to the business. If so, Mr. Cuong should contact the Business Registration Authority and the Tax Authority for guidance on resolving the warnings before resuming business operations.

Temporarily suspend operations (if necessary): If the business is not ready to operate, Mr. Cuong should complete the necessary procedures to notify the Business Registration Office and the Tax Authority about the temporary suspension of operations to avoid legal obligations during the period of inactivity.

Dissolving the business (if necessary): If Mr. Cuong does not intend to continue the business, he should consider the dissolution procedure to prevent future risks.

Thus, to minimize legal risks, Mr. Cuong needs to promptly assess and choose an appropriate course of action based on the situation of the enterprise. Understanding and adhering to the law not only helps avoid penalties but also facilitates future business operations if desired. Whether deciding to temporarily suspend or dissolve, proactively carrying out the necessary procedures shall help the business minimize unnecessary consequences.