It can be said that starting a business today is not difficult and the cost of starting a business is not too much. This ease makes business owners less focused on their business. The result is that when set up a company but not do business. This greatly affects the economy as well as the operation and management of the economy by state agencies. If anyone is in this situation, please refer to the following article of Viet My to avoid possible damage to your business.

1. In what cases set up a company but not do business?

There are many reasons why individuals and organizations, when making investments, establish a company but do not operate. This is an issue that many people are concerned about because when establishing a company, they also have to spend a certain amount of capital, not too much but not too little, not to mention having to spend a lot of effort, time investing, designing, and planning. The reasons that can lead to the above situation can be listed as follows:

• The company was established for a purpose other than business purposes.
• Not qualified to conduct business activities. For example, inadequate knowledge of business administration, finance, etc. Not enough capital to conduct business. Insufficient customer base, no specific long-term strategy…
• Not strong enough to survive in the market. Difficulties due to objective circumstances: epidemics, natural disasters, fires… This is one of the reasons why companies stop operating for a period of time, even permanently.

2. Set up a company but not do business?

According to the provisions of the Enterprise Law 2020, the company manager has the right to: “Automatically conduct business and choose the form of business organization. Mainly choose the industry, profession, geographical area and type of business. Proactively adjust the scale, industry and business content.”

Of course, companies have the right to autonomy in their business activities. In other words, the law allows companies to conduct business or not to conduct registered business activities.

3. Regulations on non-business activities after establishing a company

Different establishment requirements apply to each industry in which the company wishes to operate. However, many companies that have met the conditions and been granted a business registration certificate but do not operate may have their business registration certificate revoked, in which case they will be subject to tax penalties. Enterprises should pay attention to this issue to avoid being fined.

3.1 What should a company do if it is established but does not conduct business?

According to the provisions of the Enterprise Law 2020, a company has the right to decide whether or not to conduct business activities. However, if the company does not conduct business activities, corresponding rights and obligations will arise.

First tax registration

First tax registration is the obligation of the taxpayer to report to the tax authority immediately after establishing the company, regardless of the results of operations or the content of the company.

Under current law, companies must pay taxes directly to the competent tax authority within 10 days from the date of filing, unless they are engaged in the fields of insurance, accounting, auditing, law, notary, etc. Taxpayers must file a one-time tax return at the intermediary portal along with the business registration procedure on the date of receiving the business registration certificate.

If an enterprise does not register for the first time according to the provisions of law, it will be considered as late declaration and will be subject to corresponding penalties and warnings (from day 1 to day 10 or less and with mitigating circumstances), a fine of VND 1,000,000 to VND 2,000,000 (from day 1 to 30 days, except in cases of warning), a fine of VND 3,000,000 to VND 6,000,000 (from 31 to 90 days), a fine of VND 6,000,000 to VND 10,000,000 (from 91 days or more).

Business license fee

Business license fee is the fee that must be paid at the end of the month the enterprise begins business operations or within 30 days from the date of issuance of the business registration certificate or the date of issuance of the business registration certificate. Having invested and registered for tax but not yet participating in production and business activities. No later than January 30 of each year for companies with production and trading activities.

For corporations, the registration tax rate and business license tax are determined according to the start-up capital and investment capital.

Therefore, the obligation to pay business license fees is determined by the capital specified in the charter of establishment, not by the results of production activities. Therefore, even if the company is not operating, the company is still obliged to pay copyright tax according to the provisions of law.

In addition, the establishment and operation of the company have legal obligations attached to it for a period of time, after which it is no longer suitable for business activities. Report to the competent authority on the temporary suspension of business. Financial obligations (if any) related to property rent, electricity bills, etc.

Even if the company is not operating, the company must still comply with the quarterly tax filing obligation. Administrative penalties may be applied if the company fails to pay taxes or files late, and if this violation is repeated many times or if the situation becomes more serious, the application of tax laws will be suspended.

Therefore, whether to start a business or not depends on the will of the startup company itself. However, to avoid unnecessary legal sanctions, the rights and obligations arising from the establishment of a company must take into account the current legal regulations.

3.2 What notification is required when establishing a company but not conducting business?

Suspension of business occurs when in one of two cases the company proactively ceases operations or temporarily suspends, suspends or terminates business operations at the request of the business registration authority or a competent state agency. Specifically, the responsibility for notification of temporary suspension of business operations is:

Companies must notify the business registration authority in writing at least three working days before the end of the notification period and before the date of temporary suspension or resumption of business operations.

The company registration authority or a competent state agency shall request the company to temporarily suspend, suspend or terminate operations if:

• Suspend or terminate conditional operations, conditional market access operations for foreign investors if it is determined that the enterprise does not fully meet the relevant conditions as prescribed by law.
• Temporarily suspend business at the request of competent authorities in accordance with the provisions of tax administration law, environmental protection law and other relevant provisions of law.
• Suspend or stop business in one or more industries or many industries according to the decision of the Court.

During the suspension period, the enterprise must fully pay outstanding taxes, social security, health insurance and unemployment insurance. Unless otherwise agreed between the company, creditors, customers and employees, continue to pay debts and perform contracts signed with customers and employees.

4. Risks of establishing a company but not doing business

Comply with the provisions of the Enterprise Law 2020 on the revocation of the certificate of business registration. Specifically, the certificate of business registration will be revoked in the following cases:

• The content declared in the company’s registration dossier is false;
• The enterprise is established by people who are prohibited from establishing an enterprise under Clause 2, Article 17 of the Enterprise Law 2020
• The enterprise ceases operations within one year without notifying the business registration authority and the tax authority;
• The company does not submit a report as prescribed in Point 216 of the Enterprise Law 2020 to the Company Registration Authority within 06 months from the deadline for submitting the report or having a written request;
• Other cases by court order, at the request of a competent authority as prescribed by law.

In summary, if a business stops operating without notifying the business registration authority and tax authority for 1 year or more, its business registration certificate may be revoked.

This may lead to the dissolution of the business due to the revocation of the business registration certificate.

In addition, the company may also be subject to administrative sanctions according to the provisions of Decree 122/2021/ND-CP on administrative sanctions in the field of planning and investment.

Specifically, a business may be fined from VND 10 to 15 million if it does not notify or notify the business registration authority of the time and duration of temporary suspension of business or continues to operate;

At the same time, companies are also subject to the remedial measure of notifying the time and duration of temporary suspension or continued business to the company registration authority in case of failure to notify.

5. Procedures for temporary suspension of business when the company is not operating

In case a company, branch, representative office, or business location temporarily suspends operations or resumes operations before the notice period, the company must send a notice to the Business Registration Office where the company is headquartered or the branch, representative office, or business location at least 03 working days before the date of temporary suspension or resumption of operations before the notice period. In case a company, branch, representative office, or business location wishes to continue to suspend operations after the notice period expires, it must notify the Business Registration Office at least 3 working days before the date of continued suspension.

Notice of temporary suspension of business/continuation of business before the prescribed time of the company/subsidiary/representative office/business location according to Appendix II-19 (issued with Circular No. 01/2021/TT-BKHDT guiding business registration)

The suspension period for each notice shall not exceed one year.

In case the company ceases operations, it must be accompanied by a decision, decision and a copy of the minutes of the general meeting of members on the cooperation of a joint stock company with two or more members, the company and the Board of Directors of the joint stock company; the decision, decision of the owner of the joint stock company partially suspending business operations.

After receiving the business registration dossier, the registration authority shall issue a receipt, check the correctness of the dossier and issue a certificate of registration of the company, branch, representative, business location, temporary suspension of operations, confirmation that the company, branch, representative office or business location has registered to continue operating before the prescribed deadline within 03 working days from the date of receipt.

In case the company announces temporary suspension of operations, the registration authority shall update the legal status of the company in the national business registration information and the status of all branches, representatives and offices of the company located at the location where operations are suspended.

(The company can submit an application for continued operation before the prescribed deadline, and at the same time register for continued business operations before the prescribed deadline for the company’s subsidiaries, representatives, and representative offices. The registration authority updates the legal status of the company at the same time as the status of branches, representative offices, and business locations in the national database of the commercial register).

Above is an analysis of the risks of set up a company but not do business and how to solve them to avoid risks. In case you need support to notify the temporary suspension of business activities or have any questions about business law, please contact VIET MY LAW AND ACCOUNTING for the fastest and most effective support.